Navios Maritime Partners LP (NMM) 2011 Q1 法說會逐字稿

Thank you for joining us for this morning's call. With us today from Navios Maritime Partners are Chairman and CEO Mr. Angeliki Frangou, SVP of Business Development Mr. George Achniotis, and Chief Financial Officer Mr. Efstratios Desypris.

The conference call is also being webcast. To access the webcast, please go to the Investors section of the Navios Partners' website at www.Navios-MLP.com, and you'll see the webcasting link.

I'd like to now read the Safe Harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical fact. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. Thank you.

At this time, I'd like to review the agenda for today's call. First, Ms. Frangou will offer opening remarks. Next Mr. Desypris will provide a review of Navios Partners' first-quarter 2011 financial results. Then George Achniotis will give us an operational update and an overview of market fundamentals. Mr. Frangou will then offer concluding remarks and we will open the call to take your questions.

I'd now like turn the call over to Angeliki Frangou, Chairman and CEO of Navios Maritime Partners.

Thank you. Good morning to all of you joining us on today's call. I am pleased with the results for the quarter during which time we increased our net income by 32% and EBITDA by 52%. Our strategy has been to build an enduring company with sustainable cash flows.

About two weeks ago, we successfully raised approximately $90 million in an overnight offering. The net proceeds will allow us to acquire additional vessels. Through these acquisitions, our objective is to continue to increase our distribution while also reducing our leverage. We are mindful that (inaudible) can be cyclical, and we work to eliminate the impact of cyclicality on our distributions.

We continue to focus on ensuring that Navios Partners is accepted into the MAP universe. While we have accomplished much, the (inaudible) Navios Partners today is about 8.5%. This represents about a 45% premium to the Alerian MLP index. We will continue to work towards this acceptance.

Emerging markets continue to be a global growth engine. The drybulk industry is a beneficiary of the continued urbanization of China and India and elsewhere.

While demand out there is healthy, there are risks on the supply side. We continue to monitor closely factors relating to new vessel deliveries.

Now please turn to Slide 2. Navios Holdings continues to be a sponsor of the Company and today owns approximately 27% of Navios Partners. During 2010, we grew our asset base by adding five new vessels while reducing our leverage ratios. In addition, we [have been] able to reduce our cost of accessing the capital once we establish ourselves as attractive to investors and continue to drive this cost down.

Please now turn to Slide 3. In terms of free development, as you know, in January of 2011, Korea Line Corporation filed for receivership in South Korea. We had the Navios Melodia (inaudible) to Korea Line. In March of 2011, the charter contract was reaffirmed for the entire duration up to original expiration and will be performed by Korea Line on its original terms.

However, during an interim period of 18 months, the charter will be suspended and the help charter will pay us the higher directly. We will benefit from these arrangements by $3,322 net per day excess payment by the sub-charter to cover the outstanding higher payment by KLC. Overall, the KLC bankruptcy has had minimal financial impact on the Company.

In addition, in March of 2011, the Navios Apollon suffered an engine breakdown. The extent of damage and (inaudible) is still under consideration. The costs of repairs aren't covered by the insurance.

At this point, I would like to turn the call to Mr. Efstratios Desypris, Navios Partners' CFO, who will take us through the results of the quarter.

Thank you. Good morning all. I will briefly review our unaudited financial results for the first quarter ended March 31, 2011. The financial information was included in the press release and is summarized in the slide presentation on the Company's website.

In the first quarter of 2011, the significant increase in our operating metrics continued, reflecting the growth of our fleet through accretive vessel acquisitions.

Also on Slide 5, (inaudible) revenue for the three months of operations ended March 31, 2011 increased by $13.4 million to $42.8 million. The increase in revenue by 45.6% was mainly due to the acquisition of five vessels in 2010 that were fully operational in the first quarter of 2011.

EBITDA increased by $11.1 million, or 52.1%, to $32.4 million for the first quarter of 2011, as compared to $21.3 million for the same period of 2010.

Net income for the first quarter of 2011 increased by $4 million, or 31.7%, to $16.6 million, as compared to $12.6 million for the same period in 2010. The increase in net income is mostly attributable to the increase in the number of vessels and available days, and was adversely affected by a $6.3 million increase in depreciation and amortization expense, of which $3.9 million relates to the amortization of favorable leases attached to the acquired vessels. This favorable lease component is amortized over the remaining duration of the charter [out] contract as opposed to the longer remaining useful life of a vessel.

Operating surplus for the quarter ended March 31, 2011 was $26.5 million, which is 56.8% higher than the corresponding quarter in 2010. Operating surplus is a non-GAAP financial measure used to assist in evaluating a partnership's ability to make quarterly cash distributions.

During the first quarter of 2011, Navios Partners operated 16 vessels, an increase of three vessels as compared to the same quarter last year. Our fleet has consistently performed well. Vessel utilization for the first quarter of 2011 was 97%.

Turning to Slide 6, I will briefly discuss some key balance sheet data for March 31, 2011. Cash and cash equivalents, including restricted cash, was $52.4 million at the end of the quarter. Total assets amounted to $830 million. Long-term debt, including current portion, decreased by $7.3 million and reflecting the debt repayment made during the quarter. The effective average interest rate for the first quarter of 2011 was 2.4%. With a growth in our fleet, net debt to (technical difficulty) value on its other adjusted basis remained at 53.4% at the end of the quarter. As of March 31, 2011, Navios Partners was in compliance with the financial covenants of its credit facility.

As shown in Slide 7, Navios Partners' quarterly cash distribution amounts to $0.43 per unit. The distribution run rate on an annual basis is $1.72 per common unit and provides an effective annual yield of approximately 8.4% based on yesterday's closing price. The record date for the first quarter of 2011 distribution is May 5 and the payment date is May 11, 2011. Total distributions amount to $23.9 million, of which $19.9 million will be to the common units. We are pleased with the distribution coverage. Common unit coverage is 1.33 times and total unit coverage is 1.11 times. For US tax purpose, Navios Partners reported cumulative annual distributions to unitholders on Form 1099.

On Slide 8, the favorable quarterly pattern of EBITDA operating surplus and net income is shown for the quarters from Q1 2008 through Q1 of 2011. It should be noted that Q1 2011 net income and operating surplus have been affected by the [add] schedule (inaudible) Navios Apollon discussed by Angeliki earlier. The consecutive higher results primarily reflect the significant profitable growth by the Company from increases in the number of operating vessels through accretive drop-downs from our sponsor. Navios Partners has paid quarterly dividend distributions since its inception in November 2007 uninterrupted by market conditions. Furthermore, we've increased our dividend distributions in seven out of the 15 (inaudible) operations. Our current annual distribution of $1.72 per common unit provides for an approximately 8.4% effective yield based on yesterday's closing price.

Slide 9 demonstrates our strong relationship with key participants in our industry. We have quarterly (inaudible) with an average remaining period of 4.3 years. This chart is spread among a diverse group of counterparties. In addition, we have ensured (inaudible) our contracts for credit default with a AA-plus insurance.

As shown in Slide 10, our fleet consists of 16 vessels, 5 Capesizes, 10 Panamaxes one Ultra Handymax vessel. Our fleet is young relative to the global drybulk fleet with an average age of 5.2 years as compared to the industry average of approximately 14.2 years. We have currently contracted 100% of our available days on a [charter-out] basis for 2011 and 95.2% for 2012. By design, the expiration dates are staggered and the charter durations extent of the second half of 2012 at the earliest and September 2022 the latest. It is our objective to continue to grow Navios Partners' fleet on an accretive basis and increase cash available for distributions.

I now pass the call to George Achniotis, our Executive Vice President of Business Development, to discuss the industry section. George?

Good morning to all. Please turn to Slide 11.

The drivers for world GDP growth continue to evolve as emerging economies lead world expansion. As you can see on the left, emerging economies exceeded pre-crisis levels by 15.5%. IMF (inaudible) forecast shows the emerging economies will continue to grow at 6.5% in both 2011 and 2012. Global growth is projected at 4.4% this year and 4.5% next. This is also supported by the chart on the right, which shows that growth in China and other developing economies contributes a higher percentage to total world growth than the developed economies. The IMF expects these macro trends to continue for the foreseeable future.

Turning to Slide 12, since China joined the WTO in 2001, trade in drybulk commodities expanded by 5.5% per year through 2010. Growth for seaborne (inaudible) commodities in 2011 is expected to exceed 6%. While the primary engine of trade growth continues to be China, India, Brazil, and the other emerging countries add strongly to that growth.

Turning to Slide 13, an important long-term driver to expanding drybulk commodity trade is urbanization and industrialization. On the left, you can see that the Chinese population is rapidly moving to urban areas at an average rate of about 20 million people per year. This is like building 2.5 New York Cities per year. China is expected to increase its urban population to over 1 billion inhabitants by 2030. Chinese crude steel production continues to expand to meet these needs. This compares with the early expansion in steel use seen in the development of Korea and Japan, as shown on the upper right-hand chart. That chart also shows that India and Brazil are just starting to increase the amount of steel used in their expanding economies.

Crude steel production in China for Q1 2011 was 174 million tons, up 10% year-on-year. Note that (inaudible) iron ore imports have increased by 14% year-on-year to 177 million tons in the quarter, and that domestic iron ore production was up 18% to 241 million tons. The IMF forecasts Chinese growth to be 9.6% and 9.5% in 2011 and '12 respectively, despite the monetary tightening by (inaudible) government.

Based on all of these estimates, the growth in Chinese iron ore imports and steel production will be constrained until (inaudible) iron ore mines and expansion projects come online beginning in 2012 in Brazil, Australia and the rest of the world. These expansions will likely increase the tons carried and the ton miles.

Turning now to Slide 14, India has taken initial steps to industrialize and urbanize. As you can see on the left-hand chart, India is expected to increase its urban population by over 200 million people in the next ten years. That means India will also build 2.5 New York Cities per year during that year. This trend has changed drybulk trading partners worldwide. As an example, Australia and India historically were the main suppliers of Chinese iron ore imports. However, a few years ago, India's internal need for iron ore increased along with its increase in steel production. Thus, less ore was sent to China, forcing China to import greater quantities of ore from outside the Pacific Rim. India iron ore exports to China declined by more than 9% in 2010, due to an increase in Indian steel production.

Indian coal imports shown on the right-hand chart have increased dramatically at a 26% compounded annual growth rate since 2006. According to the Central Electricity Authority of India, substantial demand will continue as most plant new power generators will be coal-fired. India now imports more coal per year than the UK, France and Germany combined. Indian companies are buying coal assets globally to assure future supplies to meet India's projected growth of 8.2% and 7.8% in 2011 and '12.

Turning now to Slide 15, scrapping for 2010 was 5.8 million dead weight tons or over 1% of the fleet. This year, this amount has already been exceeded as through April 18 about 5.9 million dead weight tons went to scrap. This represents an annual scrapping rate of about 21 million tons, or almost 4% of the fleet. We believe that the current combination of low market rates and high scrap prices should lead to higher vessel scrapping than historic averages. About 15% of the fleet is older than 25 years of age, and 22% of the fleet is over 20 years old, providing about 122 million tons of scrapping potential. At current rates, a typical Capesize vessel could earn its owners over $10 million.

moving to Slide 16, 2010 new building deliveries was 77.9 million dead weight tons against an expected 125.6 million dead weight tons. It's leverage of 38%. Despite high slippage in 2010, deliveries established a record year for new buildings. The estimated order book for 2011 ballooned from about 120 million tons to 137 million tons a statisticians had classified many ships that were not delivered in 2010 as 2011 deliveries. However, through Q1 2011, non-deliveries ranged about 51%. This demonstrates that non-deliveries continue to be a substantial part of the drybulk order book. Additions to the fleet this year are on pace to be similar to 2010 but net growth in dead weight tons should be lower after expected scrapping is taken into account. The order book declines in 2012 and again in 2013.

Please turn to Slide 17. The first quarter of 2011 was unfavorably affected by a number of factors -- severe flooding in Queensland, Australia, constrained coal exports, the state of the (inaudible) in India temporarily banned the iron ore exports, and Brazil experienced iron ore production declines due to heavy rainfall. Consequently, Australian and Brazilian combined exports fell by more than 50 million tons in Q1 2011 compared to Q4 2010, primarily affecting Capesize liftings. This is a greater reduction in Australia and Brazilian shipments than at the height of the financial crisis.

Iron ore prices have continued upward and coking coal contract prices have surpassed previous record highs. Like 2008, the fall in iron ore and coal exports has everything to do with the disruption caused by extreme weather as opposed to weaker demand.

Based on historical seasonality, a recovery and expansion in seaborne bad commodity exports is expected, but the shipping market shows no evidence of this currently. The deterioration in activity remains Queensland-centered, which implies that production at the flood affected coal mines has not returned to normal.

[BHP] billing ton estimates -- that is coal production -- declined by 30% during the quarter and it expects an ongoing impact on production for the remainder of 2011. We believe the current constraints on raw materials available for export will limit potential increase in drybulk shipping due to Japan's reconstruction effort when it comes. Navios Partners continues to operate its vessels on long-term time charters to insured credit-worthy counterparties, and thus does not have any (inaudible) until the second half of 2012.

This concludes my presentation. I would now like to turn the call back to Angeliki for final comments. Angeliki?

Thank you George. We open the call to questions.

(Operator Instructions). Michael Webber, Wells Fargo.

Good morning guys. Thanks for the time. Just a couple of questions here. I guess first on the Apollon, can you give a little color on when you expect that to return? Angeliki, I know you mentioned it was covered by insurance. I just to make sure you're talking about the repairs being covered by insurance, or are you referring to the revenue as well?

No, the revenues are not covered. We are covered by insurance for all the repairs as well as [from the] G&A for all the operating expenses. This is something that is between the classifications (inaudible) and all the manufacture of (inaudible) and it will be something to be resolved within this quarter, Q2.

So you think it returns to service in Q2?

(inaudible) will be resolved within Q2.

Thank you. I guess next on with regards to the Korea Line, now that you guys have this agreement, I guess a two part question. Do you feel like on the whole this is behind you now? Then I know you have a couple (inaudible) to the parent level that are also impacted. It looks like the revised rate is about $4500 a day less. When we think about those vessels that have the potential -- as potential drop-down candidates on the 12-year charters, should we anticipate the -- your revenue insurance covering that $4500 per day for a 12-year basis or do you think that will end up getting revised down to some degree?

On Navios Partners, we are insured on all our revenues and the same -- and the Korea Line [because] of the Melodia (inaudible) from the contract, so it is actually irrelevant on the [holding].

On the holding companies, you will see the result of the holding, but we have resolved it and we are in all of them well insured, so this is done. (inaudible) really has minimal effect.

Okay, great. Thank you.

Contracts follow (inaudible) vessels wherever they go.

Right. I guess it was just in terms of your insurers working with your creditors in terms of renegotiating that down. I didn't know whether that was something we should continue to build in from a return perspective. But it seems like that's the case, so I appreciate that.

In terms of the charter you guys have rolling off, it seems like this is a ways out. But the rolling off in 2012 and 2013, when do you start thinking about re-signing those vessels to keep them within the Navios partners' fleet? Is that something you guys have factored into your long-term distribution growth plans?

One of the things we have done and [we are very carefully] Navios Partners is we care very much about the distribution, the growth and stability of distributions irrelevant to being (technical difficulty) knowing that we are in a cyclical business. So one of the things we did last year is we acquired five vessels, so we increased tremendously our asset buoy, and then we also extended the durations.

One of the things you will see is that we do not have any rechartering risk until the second half of 2012. At that time, you have about three vessels per year which (inaudible) moment, (inaudible) expiration program. So what you have -- you can have any market conditions. You can have in today's market conditions with the asset pool we have, you can reach out to them in today's market, it will have no effect on your distributions.

So what we have (inaudible) is to create a large asset pool, not cover a single time element, meaning one point in time when everything comes to be rechartered, but have a staggered delivery. We will have about three vessels a year starting from the second half of 2012 where you can see market most probably from whatever effects you may have now, we have moved to a different level. Even if they haven't, even if you're chartering at today's level, it won't affect your distributions.

So the answer is we are trying in a portfolio approach to insulate this company from any spot market. Let's not forget that the average duration is approximately five years. So with this kind of a portfolio approach, I think we are very well-positioned for any market conditions. A very important thing that we have done is that, in 2010, we built a company with a very strong balance sheet to be able to weather '11 and '12. If you see our levered ratios, we delevered the Company from 43% of net debt to asset values in the end of '09 to about 33% at the end of '10. So, you have a strong balance sheet, a lot of cash, and a large portfolio with a staggered expiration program.

Great. That's all I have. Thank you guys for the time.

Thank you.

Urs Dur, Lazard Capital Markets.

Good morning everybody. My question was mainly about the Melodia. I think it was touched on already in the previous questions. But your current revenue insurance at this point in time is not being called upon because of the arrangements that you made with the sub-charter. Is that correct?

Is it really (inaudible) reaffirm contract of Korea Line. It was an asset for Korea Line, so it was reaffirmed. Also the [present] and the interim payments for the 18 month will be covered by the sub-charter, and also the sub-charter will cover the amount that Korea Line owed us from previously, so it will have zero effect in our financials.

All right. Very good. I just wanted to make sure I was clear on that. That's all I had.

Thank you.

(Operator Instructions). Ken Hoexter, Merrill Lynch.

It's Scott [Weber] in for Ken. During last quarter's call, you mentioned that you weren't seeing many attractive long-term charters. Is that still the case today, or have the charters changed their positioning at all?

I think, at this point, you have the fear of the spot market. I mean, with [DDI], where it is and with the holidays around the world, I think today you have mostly the fear of the spot market. I think due to other -- it developments. I mean, we've seen also from all of the mineral companies that you have the mine -- they will be coming back in for that (inaudible) at the end of Q2 from (inaudible). So I think that will help and also the normalization in Japan. So at today's level, no one likes to do a long-term bid obviously. So in that sense, we -- the mines coming in the production and with Japan becoming a more positive area, I think that will be (inaudible) the period market.

Okay, that's helpful. Are you -- when you think about the banks and just the level of rates, where they are today, and just assuming that there are distressed owners out there, are you seeing the banks get at all more proactive? Do you anticipate them beginning to take more action? Do you think there will be opportunities from that anytime soon?

I think this is something that we will be developing during the year at different points. I think European banks, as you know, they have stress tests they have to comply by June. So this is kind of a full review and depending on different scenarios that they will play will put additional pressure on the European banks, which in essence [adds] the supplies of credit for shipping.

Okay. Just in terms of your view on asset prices at this point, do you think they hold steady here or would you anticipate them to continue to fall a bit further?

I think the market -- it is a market of individual (inaudible). You can find good deals, bad deals. The value (inaudible) in the correct (inaudible) you may have a minor variation from here. They should now -- what depends is really what (inaudible) the financing and the whole arrangement. And in essence, banks will be more I think inclined depending also the result of the credit -- of the stress test.

Joshua Katzeff, Deutsche Bank.

Good afternoon everyone. My first question is just kind of a follow-on on the Apollon. With regard to its current time charter, is there any kind of maximum time the vessel can be off hire before I guess maybe the time charter I think (inaudible) a default.

It's a problem right now, and (inaudible) into the vessel, you cover really the operating expenses so you do not have -- you don't lose the operating expenses. Your cost will be covered on all the repairs and any subsequent that you may have from your insurance.

Okay, but the counterparty can't say the vessel has been off-hire for three months?

At this point, we cannot say anything.

Thank you. Just my one quick last question. With regard to follow-ons, how do think about the size of follow-ons? Is that determined by what you think market conditions are? Because your last follow-on was substantially larger than this past, so just a bit more color on that would be great.

It is also (inaudible). I think what we care about is to issue -- to have an issuance above our last one, and then it depends on your -- on what was under the -- shelf registration. I don't think that we (inaudible) if you get anything about the $100 million, you can do (inaudible) to assets.

Thank you for your time.

At this time, I am showing no further questions. I'll turn the conference back to Ms. Frangou for any further remarks.

Thank you very much for attending our first-quarter results. Thank you.

Ladies and gentlemen, that concludes our conference for this morning. We appreciate your time. You may now disconnect.