Navios Maritime Partners LP (NMM) 2013 Q3 法說會逐字稿

Thank you for joining us for this morning's third-quarter earnings conference call for Navios Maritime Partners. With us today from the Company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. Efstratios Desypris; and EVP of Business Development, Mr. George Achniotis. The conference call is also being webcast. To access the webcast, please go to the investors section of the Navios Maritime Partners website at www.navios-mlp.com. You will see the webcasting link.

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

At this time, I would like to turn the call over to Angeliki Frangou, Chairman and CEO of Navios Maritime Partners. Angeliki?

Thank you, Laura. Good morning to all of you joining us on today's call. I'm pleased with the results for this quarter. In addition to strengthening our balance sheet to our recent capital market activities, I am happy to announce that we achieved and EBITDA of $35.6 million and a net income of $13.1 million.

We recently announced a quarterly distribution of $0.4425. This represents an annual distribution of $1.77 and a current yield of about 11.7%. We believe that in time investors will find Navios Partners yield extremely attractive as it represents more than two times the yield of the (inaudible) MLP Index of about 5.7%.

Moreover, as (inaudible) shipping continues to recover and the three-year charter rate continues to improve, we are positioned to increase distributions in the medium term. Navios is also committed to securing at a minimum the distribution through 2014.

As we said last quarter, our view is that the dry bulk environment has brightened significantly. On the demand side, Europe is recovering. (inaudible) utilization in China has boosted its consumption of seaborne commodities. On the supply side, a shrinking order book is beginning to positively influence the market. Supply of vessel is expected to be reduced in the fourth quarter of 2013 and a more drastic reduction in 2014 and 2015 is in hand.

Scrapping continues to be a major factor in our supply demand gap and projected scrapping for 2013 will be probably the second highest historically. Navios Partners through its disciplined approach and efficient management was able to capture the market upside this past quarter and is positioned to further take advantage of market recovery.

In addition, as we will discuss in a moment, we entered the container segment by securing quality assets and chartering them out for 10 years to an investment grade credit counterparty. This transaction allows us to develop strong cash flow while entering a sector that provides the additional promise of recovery in the longer-term. This may provide capital appreciation and other opportunities from similar type of deals.

As you can see from slide one, Navios Holdings owns about 22% of the equity of Navios Partners and has helped Navios Partners to become a key player in the dry bulk industry. Today, Navios Partners has a market capitalization of about $1.1 billion and enterprise value of about $1.4 billion. Consistent performance has enabled Navios Partners to access capital markets and provide the ability to grow its fleet and cash flow. In fact, since Navios Partners went public in November of 2007, we have increased our fleet more than four times. Today, we control 30 vessels representing over 3 million deadweight tons. The average charter duration of our fleet is about 3.8 years.

Slide two sets forth some of our Company's recent developments. We have agreed to acquire five 6800 TEU container vessels for $275 million. These vessels were built in 2006 in South Korea and will be delivered to our fleet in the fourth quarter of 2013. The vessels have a 10-year charter to an investment grade counterparty paying $30,150 net per day per vessel. By acquiring these vessels, Navios entered the container industry at an attractive point.

Navios acquired the vessels toward the low-end of the cycle and secured these vessels with charters providing Navios with $386.5 million in aggregate EBITDA. We are funding this acquisition with the process of our recent equity raising and Term Loan B financing.

You will recall that in September, Navios raised $82 million from the equity markets and earlier in October, Navios added $189.5 million tranche to its Term Loan B. We entered the Term Loan B market because we thought it provided access to reasonable capital. Today, we have a total of $439.5 million in appreciable amount of Term Loan B outstanding with a maturity date in five years. Interest is due at LIBOR plus 425 basis points and amortization is only 1% annually. The cash servicing requirements for a Term Loan B are less annually when compared to an identical amount in the form of an additional commercial bank loan.

We are one of the few internationals shipping companies that have access to this market.

Slide three outlines the financial impact of this container acquisition. The vessels are expected to add $39.5 million to our annual EBITDA and $386.5 million on an aggregate basis.

It also provided $27.5 million in distributable cash flow. The new charters extend an average charter duration for the entire fleet by 58% to 3.8 years and reduces the Company's cash flow breakeven by $3822 per day. Furthermore, our available base increased by 20% to 10,950 and contracted coverage expense to 60.5% for 2014.

Slide four continues with the recent development of this past quarter. Navios took delivery of two vessels, Navios Joy, a newbuilding Japanese Capesize vessel in September of 2013 and Navios Harmony in 2006, a Japanese built Panamax in October of 2013. We chartered out the Navios Joy for three years at the rate of $19,000 net per day. And we have two other vessels, the Navios La Paix, a new building Japanese Supermax and the Navios Sun, a 2005 Panamax that I said to be delivered in the first quarter of 2014.

The Company has also renewed the management agreement fees until December 31, 2015. Operating costs per day including estimated docking costs for the next two years beginning January 1, 2014 will be $5700 per day for Capesizes, $4800 per day for Panamax, $4750 per day for the Ultra-Handymax, and $7500 for the containers per day.

There is another 3.6% increase of gross fees. This increase includes the estimated dry docking costs. In addition, dry docking costs will now be paid in a lump sum as they occur. This agreement fixes our cost base and allows us to maintain costs approximately 20% below the industry average.

Slide five shows our liquidity position. As of September 30, 2013, we have a total cash balance of $198 million and a total debt of $375 million. We have a low net debt to capitalization ratio of 13.7% and no significant maturities paid 2018.

Slide six shows multiple of ways that we are able to grow our fleet and distributions. Since IPO in 2007, we have grown distributions by 26.4% and our fleet capacity by almost 400%.

We have done so with (inaudible) of our sponsor through various drop downs. We have also exercised price absorption that we had in our chartering vessels. And more recently, we have been active in the sales and purchase market and we will continue to use this market to improve our fleet as opportunities arise.

At this point, I would like to turn the call over to Mr. Efstratios Desypris, Navios' Partners CFO, who will take us through the results of the third quarter of 2013. Efstratios?

Thank you, Angeliki, and good morning, all. I will briefly review our unaudited financial results for the third quarter and nine months ended September 30, 2013. The financial information is included in the press release and is summarized in the slide presentation on the Company's website.

We had strong operational and financial performance and by which we continued to solidify our balance sheet and expanded our free cash flow generation. These actions allows us to remain committed to a minimum annual distribution of $1.77 per common unit for 2013 and 2014.

As shown on slide seven, revenue for the third quarter of 2013 decreased by $9 million to $46.5 million mainly due to the decrease in the time charter equivalent rate in the quarter of $23,202 per day compared to $29,341 per day for the same quarter of 2012.

EBITDA in the third quarter of 2013 decreased by $7.4 million compared to the same quarter of last year mainly due to the decrease in the time charter rate discussed above.

Net income for the quarter was $13.1 million, $9 million lower from the same period last year. Operating surplus for the quarter ended September 30, 2013 amounted to $28.2 million. Our fleet continues its excellent operational performance. Vessel utilization for the third quarter was 99.9%.

Moving to the nine-month operations, time charter revenue decreased by $6.6 million to $146 million reflecting the decrease in the average time charter rate achieved. EBITDA increased by $1.5 million to $117.7 million mainly due to a $15.3 million payment received in advance for Navios Melodia covering hires for a interim suspension period.

Net income has been negatively affected by a $2.4 million non-cash item of deferred financing fees associated with the prepayment and refinancing of our credit facility and a $3.2 million (inaudible), a favorable lease relating to Navios Melodia. Excluding these one-off items, net income would have been $54.5 million, $1.3 million lower than the same period in 2012.

Operating surplus for the nine months ended September 30, 2013 was $99.4 million, which is 4.9% higher than the corresponding period in 2012.

Turning to slide eight, I will briefly discuss some key balance sheet data for September 30, 2013. Cash and cash equivalents was $198 million. Long-term debt including the current portion increased by $45 million which is due to the issuance of the $250 million Term Loan B in June which was partially financed with existing debt and also to finance the acquisition of four dry bulk vessels. Out of this amount, $51.2 million is in escrow and will be released upon the delivery of the remaining vessels through Q1 of 2014.

Based on the current facilities, the debt amortization for the remainder of 2013 amounts to $0.6 million and $4.5 million for 2014. Net debt to asset value on a (inaudible) basis at the end of the quarter decreased 20.2%. As at September 30, 2013, we were in compliance with the financial covenants of all our credit facilities.

As shown on slide nine, we declared a distribution for the third quarter of $0.4425 per common unit. Our current annual distribution of $1.77 provide for an effective yield of 11.7% based on yesterday's closing price. The record date for the distribution is November 8 and the payment date is November 13, 2013.

Total distributions for the quarter amount to $32.6 million. Our common unit covenants for the quarter is 0.9 times. However, this ratio does not take into account the quarterly run rate earnings of vessels financed by debt and equity already included in the quarter. To present a more meaningful ratio going forward, we provide a pro forma coverage ratio of 1.18 times. This pro forma calculation gives effect to the full quarter run rate operating surplus of the vessels that were financed by the June Term Loan B in the February equity offering, the issuance of the add-on to the Term Loan B and the acquisition of the container vessels.

Our consistent strong financial performance, healthy coverage ratio and accretive acquisitions enables us to secure our distributions for 2013 and 2014 and we remain committed to a minimum annualized distribution of $1.77 per common unit through the end of 2014.

I would like to remind you that for US tax purpose, a portion of our distribution is treated as a return of capital. Also we report the cumulative annual distributions to common unit holders on Form 1099.

Slide 10 demonstrates our strong relationship with key participants in our industry. The acquisition of the container vessels increased our average remaining quarterly duration by 58% to 3.8 years. More than 85% of our contract revenue is secured by charters running longer than three years. Our charters are spread among a diverse group of counterparties.

In addition, we have insured the majority of our long-term chartered-out contracts of the dry bulk vessels for credit default with either a AA rated insurance company in the EU or our sponsor, Navios Maritime Holdings.

In slide 11, you can see the list of our fleet with the contracted rates and their respective expiration dates per vessel. Our fleet consists of 30 vessels, eight Capesizes, 14 Panamaxes, three Ultra-Handymax and five 6800 TEU container vessels. We have a relatively young fleet with a combined average age of 6.6 years well below the respective industry averages.

Following the acquisition of the container vessels, currently we have fixed almost 100% of our available days for 2013 and 60.5% for 2014. We do not have charter rate exposure to the container sector as our vessels are fixed for an average period of 10 years. On the dry bulk vessels, we feel we have positioned the Company well to take advantage of the market recovery. The expiration dates are staggered and the charter durations extend to 2020 to the latest.

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

Thank you, Efstratios, and good morning, all. Please turn to slide 12.

The Baltic Dry Index quoted its highest quarterly average since Q4 2011 as (inaudible) pulled the index above 2100. The BDI opened in Q3 has 1179 hit a high of 2127 on September 25 before closing out the quarter at 2003. A large increase in Brazilian iron ore exports pushed cape daily earnings up sharply to over $42,000 per day, the highest level since November 2010 but have corrected to around $20,000 per day recently.

Panamax rates more than doubled from $7200 at the end of August to $15,600 last week and Supramax rates increased from $9800 to $13,100 benefiting from the Northern Hemisphere grain export season and increasing coal shipments.

I want to point out that despite the recent rally, levels remain at well below historical averages. During Q4, a slowing trend in fleet growth along with significant additional iron ore export capacity in both Brazil and Australia should support earnings especially in the Capesize sector.

For the Panamax and Supramax sectors, should receive support over the medium to long-term by Chinese coal and grain imports. A further slowdown in deliveries combined with a gradual recovery in the world economy should bode well for improving fundamentals in 2014 and beyond.

Please turn to slide 13. World GDP continues to be driven by developing economies which now continue with the higher percentage of total world growth than the developed economies representing over half of the global consumption of most commodities. Recently the IMF slightly lowered its forecast for world growth to 2.9% for 2013 and 3.6% in 2014.

Developing economies are projected to grow at 4.5% in 2013 and 5.1% in 2014. The Chinese economic growth was also reduced slightly to 7.6% in 2013 and 7.3% in 2014.

Another significant GDP movement is the shift of Europe from a negative 0.8% at the beginning of the year to a positive 1% at the end of 2013. This is an almost 2% movement within a year in an economy the size of the US.

Turning to slide 14, the primary engines of trade growth continue to be China and India with other emerging countries adding strong growth. Dry bulk rate has expanded by an average of 5.5% per year in the last decade since China joined the WTO. Consensus forecast for full-year 2013 are for global dry bulk rates to grow at approximately 5% and ton mile growth of about 7%. Net fleet growth is also expected to grow at about 5% leading to favorable supply demand dynamics for the first time in four years.

Moving to slide 15, iron ore from the major mining companies continues to be the lowest cost, highest quality source of this commodity. With iron ore prices forecasted to decline to the $100 per ton range, significant Chinese domestic production which is represented by the red boxes in the lower right graph, will become uneconomic. The currently planned expansions of global iron ore mines will add significantly to the seaborne bulk commodity movement in 2013 and 2014 with further significant growth in the following years. While the majority of these expansions are in Australia, over 30% will come from the Atlantic Basin adding ton miles.

Moving to slide 16, the continued development and urbanization of China will contribute significantly to steel consumption in 2013 and beyond. Infrastructure, housing construction, and consumer spending growth will continue to underpin future development. Note that Chinese fixed asset investments have continued to grow at over 20% year-on-year through the end of September. Cold steel production in China through September was up about 9% more than the same period last year.

Chinese iron ore imports were also up about 9% more than the first nine months of 2012. The imported stockpiles have been drawn down steadily from 98 million tons and currently see that about 77 million tons at the end of last week, about the average stockpile during Q1 2011.

Domestic iron ore production increased 7% year-on-year but quality seems to be deteriorating as effective Fe content covers in the 15% range compared with 63% of imported ore. Going forward, the substitution of low-quality domestic iron ore with imported ore is expected to grow and will increase the tons carried in ton miles.

Please turn to slide 17. Over the past few years, there has been a significant change in coal rate. China turned from being a net importer of coal in 2009 to being the world's largest importer today. As the charts indicate, both India's and China's seaborne coal imports have grown at least 20% CAGR since 2009. With the increase in steel production and with a number of planned new coal-fired power generators, coal imports in both countries are forecasted to grow over the next several years.

Turning to slide 18. Scrapping rates for all industrial efficient vessels have continued at higher rates this year. Through October 18, about 18 million deadweight tons were scrapped. If this trend continues, scrapping could exceed 23 million deadweight tons in 2013 becoming the second highest yearly total in deadweight ton terms ever. The current rate environment should encourage scrapping of older vessels. About 10% of the fleet is over 20 years old providing about 71 million deadweight tons of scrapping potential.

Please note that the current 2013 scrapping totals already include 23 vessels that were 20 years old or younger including four that were less than 15 years of age and one that was 10 years old.

As demolition prices appear to depend on overall steel prices and not on the supply of vessels, they are expected to remain high and we believe we will continue to see the scrapping of older less fuel-efficient vessels. Of note is that the average age of the fleet stopped declining in August at 9.3 years and currently stands at 9.6 years. This is an indication that newbuilding deliveries have slowed as we predicted earlier in the year.

Moving to slide 19, net fleet additions in 2013 are expected to be significantly lower than last year. Non-deliveries through September amounted to 43%. This combined with high scrapping means that net fleet growth could approximately equal the expected increase in demand during 2013. The order book is expected to decline dramatically through 2014 and beyond and is expected to remain that way as banks continue severe restrictions on newbuilding loans.

Moving to the next slide, slide 20 provides a retrospective on the rate environment and considers the impact of supply-demand equilibrium on rate recovery for 2013. As we all know for any rate recovery to be meaningful and lasting, fleet growth rates need to fall below trade growth rates.

As mentioned earlier, demand for dry bulk cargoes is expected to increase for the full-year 2013 by about 5%, a rate similar if not higher than the expected net fleet growth for the year. However, the rate of change suggests that demand for dry bulk vessels will increase in 2014 and beyond as newbuilding deliveries continue to decelerate and scrapping remains at record levels.

In sum, we know that for the first time in four years based on expectations that cargo demand growth could exceed net supply growth. We know this as these conditions were not evident over the past few years.

And this concludes my presentation. I would now like to turn the call over to Angeliki Frangou for final comments. Angeliki?

(call ends in progress)