Navios Maritime Holdings Inc.

Navios Maritime Holdings Inc.

$5
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New York Stock Exchange
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Marine Shipping

Navios Maritime Holdings Inc. (NM-PG) Q2 2013 Earnings Call Transcript

Published at 2013-08-22 14:39:05
Executives
Angeliki N. Frangou – Chairman and Chief Executive Officer Ted C. Petrone – President George Achniotis – Chief Financial Officer Ioannis Karyotis – Senior Vice President-Strategic Planning
Analysts
Urs Dur – Clarkson Capital Markets
Operator
Thank you for joining us this morning for Navios Maritime Holdings’ Second Quarter 2012 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; President, Mr. Ted Petrone; Chief Financial, Mr. George Achniotis; and SVP of Strategic Planning, Mr. Ioannis Karyotis. As a reminder, this conference call is also being webcast. To access the webcast, please go to the Investors Section of Navios Holdings website at www.navios.com. Before I review the structure of this morning’s call, 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 Holdings. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings management and are subject to risks and uncertainties which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in Navios Holdings filings with the Securities and Exchange Commission. The information set forth in this conference call should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in the call. Thank you. We’ll begin with formal remarks from the team and then after we’ll open the call to take your questions. Now, I’d like to turn the call over to Navios Holdings’ Chairman and CEO, Ms. Angeliki Frangou. Angeliki? Angeliki N. Frangou: Thank you, Laura, and good morning to all of you joining us on today’s call. We are pleased to report our results for the second quarter of 2013. We had a solid quarter and reported $78.8 million of EBITDA. We continue to maintain our operating discipline and have moderate leverage of 44% and cash of about $277 million. As we focus on execution, we continue returning capital to our shareholders through dividend payments and declare a $0.06 dividend for the second quarter to record holders of September 18, representing a yield of almost 4%. Slide two shows our current corporate structure. The value of Navios Holdings primarily derives from four areas – the drybulk fleet within Navios Holdings and three principal operating subsidiaries. In our view, the hold is still valued at less from the sum of the parts. As of the close of business on Wednesday, August 21, Navios Holdings common shares traded at $6.30 per share. In contrast, Navios Holdings ownership stakes in the two publicly listed subsidiaries were valued at $4.27 per share. This implies a valuation of less than $210 million for Navios Holdings core business of 58 drybulk vessels and controlling interest in Navios Logistics. We believe as the value of Navios Holdings' interest in Navios Logistics alone is much larger. Navios Logistics continue to leverage the growth prospects of the Hidrovia Region reported $17.6 million of EBITDA for the quarter. Also, Navios Logistics announced that it will be deploying three new convoys for getting iron ore for an existing client. Slide three highlights our strong competitive positioning. We have a conservative balance sheet with net debt to capitalization of 44% and liquidity of $277 million. Our liquidity should be viewed in the context of our cash requirement the Company has no un-funded CapEx and no material debt maturity for the next full year. As a result our liquidity is dedicated to expansion opportunities in operating needs of the Company. As you can see from the table in Slide 3 our contracted cash flow coupled with a dividends from our subsidiaries, ensures a significant operating cash flow. We also have 2,447 days record days open in 2013. We are in the process of fixing. We have provided the current one-year charter rate for the various vessel classes as well as a 20-year average of the one-year time charter rate. These rates provide the (inaudible) open days generate. As you can see given the low cash breakeven requirements of $5365 per day, and the rising rate environment. We anticipate that not only would the cash requirement recover, but that will generate a sizable surplus. I also want to note that the profit sharing market exposure mechanism that we are building into the charter contracts would provide us with a $2.2 million an incremental free cash flow for every $1,000 in profit sharing achieved. Slide four, reviews our chartering strategies. Navios adaptable chartering strategies has been formed in context over its conservative business philosophy. While subject to the volatility of the industry, we dampened the impact by maintaining low operating costs and net flexible chartering policy. As an essential element, we seek to first protect against the downside risk only after we ensure that we have done what we can to mitigate downside risk, do we focus on maximizing the market opportunity of the government. We have implemented a chartering strategy by using period charters appropriate for the time at the peak of the market in 2006 through 2008; we enter in long term fixed contracts. More recently, we have been negotiating period charters that provide a flow above our cash flow breakeven, and then make up in these for market explosive so that we can enjoy the upside of the market. Structural net flow in the charter rate context ensure that we never charter our vessel below our breakeven rate and this charter EBITDA end cash flow positive. Having market exposure allow us to take advantage over the market recovery through our profit sharing programs. Currently, 11% of our fleet and 33% of our charter’s fleet since June includes some sort of mechanism that allow us exposure to the market. I would note that even the industry related context average of both our cash flow breakeven rate as measured during the past few years. Turning to Slide 5; we provide an update on the acquisition of the 10 vessels from a private Japanese owner. So far we have acquired a full charter free vessel outright at typical low. This vessel have already depreciated by about $4 million. We are financing these four vessels with a $40 million in debt and cash in our balance sheet. The loan has an adjusted amortization profile of 18.4 years in the margin of 325 basis points. The cash flow breakeven for this vessel is $7,445 per day per vessel. Navios Asia, which is a joint venture entity with a private Japanese owner, we’ll receive directly delivery of two of the six vessels in the third quarter of 2013. Navios Asia intend to partially finance these vessels with bank debt in terms of our consistent with our existing credit facility. Slide 6 offers an update of our strategic relationship with HSH Nordbank. We along with our affiliate from an entity named Navios Europe. It will be the acquisition entity under the letter of intent we signed with HSH in the April of 2013. Navios Holdings will have 47.5% of Navios Europe. Navios Europe recently arranged for the technical and commercial management of five out of the 10 vessels in the transaction. Today, we have taken over the responsibility of four container vessels and we anticipate taking over responsibility for three tanker vessels through September 2013. Navios Europe is expected to take ownership of all 10 vessels by November 1, 2013, at which point management of the remaining vessels will also be transferred. This deal is an example of the excellent working relationship that HSH and Navios have developed and our neutral goal is to completely deal and work together for achieving our transactions. Slide seven, shows our liquidity position. Our net debt to capitalization is 44% in the end of the second quarter. In addition, we have a liquidity of $277 million. As I mentioned earlier, we have no material debt maturities for full year, and our CapEx is on slide 8, this quarter Navios cash flow breakeven. As a reminder, we’ll start our credit default insurance last year and moved about $175 million from future cash flows on to our balance sheet without any discounting for the time value of money. The credit default insurance restructuring also restructured and strategic decision by Navios Holdings. We prefer to have cash on our balance sheet over insurance where anytime (inaudible) unlikely to occur. We have a cash flow breakeven of $12,806 per day in 2013. We have adopted the contracted revenue to reflect that portion of the $175 million prepayment that compared to 2013. As you can see, this 32 million allocation rate our contracted revenue to $14,790 per day, we do not saw the impact of the mitigating benefits as we feel. But under current conditions we quantify the benefit of a $6 million annually. As we no longer have to turn this process from the 8 charter vessels to the insurance company. Navios Holdings had fixed 84.6% of available days for 2013 and is readily positioned to capture market recovery. Our cash flow break-even we will say that decrease as we successfully expand our fleet with attractive acquisition in historically low valuations. I remind you that as I do it every quarter that our break-even analysis includes our operating expenses, drydocking expenses, charter-in expenses, chartering expenses for our charter-in fleet G&A expenses, including credit default insurance expense, as well as interest expense and capital repayment. And at this point I’d like to turn the call over to Mr. Ted Petrone Navios President who will take us through Navios operations, and an industry perspective, Ted. Ted C. Petrone: Thank you, Angeliki and good morning all. Please turn to Slide nine, our long-term core fleet consists of 58 vessels totaling 5.8 million deadweight. We have 45 vessels in the water, with an average age of 6.4 years. Please turn to Slide 10, post the restructuring agreement with our credit default insurer Navios average daily charter-out rates with core fleet to $11,488 for 2013. And $15,968 for 2014, as depicted on the left side of Slide 10, the white portion of the bars represent previously mentioned post insurance restructuring levels. The blue portion represents an allocation of part of the $175.4 million cash settlement received in 2013 to 2014, the year in which such portion would have otherwise been earned. As you can see Navios has already received $3,302 a day for charters in 2013 and $1,770 a day for charters in 2014 providing effective rates of $14,790 for 2013, and $17,738 for 2014. 84.6% of Navios fleet is chartered out of 2013 and what is expected to be an improving market 21.5% for 2014. Please turn to Slide 11, we enjoyed vessel operating expenses about 32% below the industry average in all asset classes. Navios current daily OpEx’s $3,841, so $1,799 daily savings per vessel and operating expenses aggregates approximately $20 million in annual savings which goes directly to our bottom line. The right hand chart reflects the change in the daily charter-out rates for the ships. We have a long-term charter before and after the lump sum payments in the credit default insurer. We continue to enjoy good relations with these many industry participants, on Navios Asia joint venture is an example of our strong on-going relationships in the Far East, getting back to the formation of Navios, as a subsidiary of U.S. feel in the 1950s. This allows Navios to expand the fleet with minimal capital expense. Please now turn to Slide 12. So Baltic dry index opened Q2 at 896 ended at lower 801 on June 5. Since then increased exports of iron ore, corn, grain out of South America push the index dramatically up to a peak of 1179 on July 1. It’s highest level since January 2012. In fact, the BDI recorded highest monthly average since 2011 in July at 1123. Subsequently after a slight fall back during the August the index continues to rise and as of August 21, stands at 1156. This increase has been concentrated in cape rates which increased over (inaudible) since the beginning of June, with more gradual increases in the smaller sizes. During the second half of the year, the slowing trend in fleet growth along with significant additional iron ore export capacity in both Brazil and Australia should at least support, if not increase earnings, especially in the Capesize sector. Both the Panamax and Supramax sectors should receive support over the medium to long-term by Chinese coal and grain imports. The UN expects China to double grain imports between 2012 and 2022. A further slowdown in deliveries combined with the gradual recovery in the world economy should bode well for improving fundamentals in 2014 and 2015. Please turn to slide 13. Developing economies continue to be the engine for world GDP as developing economies contribute a higher percentage of total world growth in the developed economies. In fact, developing economies now consume over half of the global requirements from most commodities. The IMF projected global GDP growth for 2013 and 2014 at 3.1% and 3.8% led by emerging and developing markets growth of 5% in 2013 and 5.4% in 2014. Turning to slide 14, the primary engines of trade growth continue to be China, India, Brazil and other emerging countries adding strong growth. Drybulk trade has expanded by an average of 5.5% per year in the last decade, since China joined the WTO. Consensus forecast for 2013 are for global drybulk trade to grow approximately 5% and ton mile growth to be about 7%. A similar growth rate is estimated for net fleet growth leading to a balance supply-demand dynamics for the first time in four years. Please turn to slide 15. There is a continued urbanization, industrialization. China and India continue to invest heavily in infrastructure throughout Latin America, Africa and the Middle East. Both countries are securing supply lines of natural resources with these infrastructure investments to ensure continued growth. As a larger portion of world trade is occurring between emerging and developing economies, trade patterns are shifting eastward and southward. Please turn to slide 16. Currently just over 50% of the world’s population resides in urban areas. That figure is expected to grow to 67% by 2050, adding approximately 2.8 billion urban residents, with a large portion of urbanization occurring in the Asia-Pacific region. As you can see on the right hand graph, income growth supports increased metal demand. The rising global income and the shift in the global economy towards Asia should support increased ton miles in world bulk trade. Moving to slide 17; 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 range, significant Chinese domestic production which is represented by the red boxes in the lower right-hand graph will become uneconomic. The currently planned expansions of mines feeding seaborne iron ore could add an additional 200 million tons per year in 2013 and more than double that amount in 2014 with further 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 18; over the past three years Capesize average time charter rate respond positively to an increase in Brazilian shipments of iron ore. This increase in shipments usually happens between Q2 and Q3 each year and tends to affect rates later in Q3. We are seeing an early start to the trend this year due to delayed Brazilian shipments in the first half of 2013, the increase in Australia iron ore shipments, earlier than normal Chinese restocking and the decrease in Cape deliveries. Moving to slide 19; the continued development, urbanization of China will contribute significantly to steel consumption in 2013 and beyond. Infrastructure and housing, construction and consumer spending growth will all underpin future development. Underlying this trend is the over 21% year-on-year Chinese fixed asset investment growth through July 2013. Crude steel production in China through July was about 9% more than crude steel production for the same period in 2012. China imported 458 metric tons of iron ore, 8% more than the same period last year. More importantly, as you can see in the upper left graph, imported stockpiles have been drawing down steadily from 98 million tons in August of 2012 to about 71 million tons as of last week. And about 20 days inventory this is the lowest level since Q2 2009, which we believe sets the stage for restocking. Domestic iron ore production increased an estimated 7% year-on-year, but decreased 22% between Q4 2012 and Q1 2013. Going forward the substitution of high quality imported iron ore for low quality domestic iron ore is expected to grow and will increase the tons carry and ton mile. China is the world’s largest coal importer today. Having imported 226 million tons in 2012, China turns from being net coal exporter to a net coal importer in 2009. As the chart in the upper right indicates China’s seaborne coal imports have grown at a 20% CAGR rate, since 2009 and imports are forecast to grow over the next several years, which will add to tons carry and ton miles as over 50% of imports come from the Atlantic Basin. Turning to Slide 20, scrapping rates are older less fuel efficient vessels have continued a very higher rates this year. Through August 16 about 15.1 million deadweight has been scrapped. If this trend continues, scrapping could reach about 25 million deadweight tons in 2013. The current rate environment should keep scrapping a little highs about 11% of the fleet over 20 years old providing 74 million deadweight of scrapping potential. Of note, of the current 2013 scrapping totals already includes 15 ships that were less than 20 years old; 5 that were less than 15 years of age, and 3 that were between 10 and 14 years old. The listing prices appear to depend on the overall steel prices and not on the supply of vessels are expected to remain high, in our mind, we’ll continue to see the scrapping of older less efficient vessels. Moving on to Slide 21, 2012 non-deliveries amounted to 30% resulting in net fleet growth of 10.3%, our lowest level in the last four years. Net fleet additions in 2013 are expected to be much lower than the last year. Non deliveries through July amounted to 42% this combined with high scraping means a net fleet growth could approximately equally expected to increase in demand during 2013. The order book decline dramatically through 2014 and beyond and is expected to remain that way as bank continue restrictions on newbuilding loans. Please turn to Slide 22. Slide 22 provides a retrospective of the rate environment and consider the impact of supply/demand equilibrium on rate recovering for 2013. As we all know any rate recovery to be meaningful and lasting fleet growth rates need to fall below trade growth rates. I said earlier the global GDP is predicted to increase in 2013 and 2014 at 3.1% and 3.8% respectively, and the more subdued rates of 2011 and 2012 to-date the improvement has been moderate. However, the rate of change suggests that demand for drybulk vessels were increased in 2013, as newbuilding deliveries continue to decelerate and scrapping remains at record levels. In sum, we noted that first time in four years there is an expectation that net demand will equal or exceed supply. Consequently, rate levels could sustain their current rise during the second half of 2013, carrying into 2014. We note this as these conditions were not evident over the past few years. I’d now like to turn the call over to our CFO, George Achniotis for our Q2 financial results. George?
George Achniotis
Thank you, Ted and good morning all. Please turn to Slide 23 for the review of the Navios Holdings earnings highlights. Before I begin the review of the financials, I would like to remind you that the comparison between 2012 and 2013 reflects the effect of the restructuring of our credit default insurance. ,: Revenue from drybulk operations reviews to approximately $62 million from $99 million in the same period in 2012. The decrease is caused mostly by a reduction in the daily TCE achieved in the quarter, from $19,921 in Q2, 2012 to $10,600 in Q2, 2013. Of course, this does not taking into account the deduction of the $3,300 per day due to the additional payment from the restructuring of the insurers. The decrease in TCE was mitigated somewhat by 5% increase in the available days of the fleet. Revenue from the logistics business also decreased by approximately $10 million in the quarter, mainly as a result of a decrease in the sale of products at port in Paraguay. Revenue for the first half of 2013 decreased to $259 million, compared to $324 million in 2012. Revenue from drybulk vessel operations decreased from $201 million to $123 million, mainly as a result of the decrease in TCE achieved. Revenue from the logistics business increased by about $13 million, which partly mitigated the decrease from the drybulk operations. EBITDA for the quarter was $39 million, compared to $61 million in the second quarter of 2012. The decrease was primarily due to the lower TCE we achieved in the quarter, compared to last year. And a $4 million decrease in net earnings from affiliates. The decrease was mitigated by approximately $12 million compensation from Korea Line shares received in the quarter, a $2 million decrease in G&A expenses, and an increase of $2 million in the EBITDA contribution from Navios Logistics. EBITDA for the first half of 2013 was $77 million, compared to $124 million in the first half 2012 similar to the quarterly results, the decrease was mainly due to a restructuring the TC rate achieved in the period. The decrease was mitigated by the $12 million compensation from Korea Line shares and $6 million decrease in G&A expenses, a $1.6 million increase in net earnings from affiliates and an $8 million increase in the EBITDA contribution of Navios Logistics. During the quarter, we recorded a net loss of $16 million compared to net income of $5 million in 2012. The reduction is mainly due to the reduction in EBITDA and $2 million higher interest expense in Navios Logistics due to the $93.6 million add on to its senior notes completed in March 2013. Net loss for the first half of 2013 was $26 million, compared to net income of $15 million in ’12. Similar to the quarterly results, the decrease was mainly due to the reduction in EBITDA, and an increase in interest expense of Navios Logistics. The reduction was partly offset by a $3 million decrease in depreciation/amortization, a $1 million decrease in share-based compensation, and a $4 million income tax benefit of Navios Logistics. Please turn now to Slide 24. We continue to maintain a strong balance sheet with low leverage and a healthy cash balance. At June 30, 2013 we had $277 million in cash, compared to $283 million at December 31 2012. The current portion of long-term debt reduced significantly from $33 million at year-end to $14 million at the end of June 2013. The long-term portion of our bank debt also reduced to $277 million compared to $291 million at the end of December. Senior notes increased by $93.6 million following the add-on to the Navios Logistics bond in March 2013. We don’t have any significant debt maturities until 2017. The net debt to total capitalization ratio remains low at 44%. It is a very low ratio for a shipping company operating in a capital intensive industry. It’s particularly strong as we’re at the low point in the cycle. Furthermore, I would like to remind you that the full market value of our investments in our affiliate companies is not reflected on our balance sheet. If these investments were valued at current market values, our leverage ratios would be even lower. Turning to Slide 25, the Company continues to provide a return to shareholders through with an interactive dividend. A dividend of $0.06 per share was declared to common shareholders as of September 18 to be paid on September 26. The total expected cash dividend inflows from the two investments in Navios Partners and Navios Acquisition exceed by over $16 million, the annual cash paid out by Navios Holdings to its shareholders. And this concludes my review of the financials. At this point, I’d turn the call back over to Ted for a review of Navios Partners and Navios Acquisition. Ted? Ted C. Petrone: We will now briefly review our subsidiaries. Please turn to Slide 26. We’re currently on 23.4% of Navios Partners including a 2% GP interest. Navios Partners operates a fleet of 25 vessels, equaling 2.7 million deadweight with an average age of 6.5 years. Since its inception in 2007, Navios Partners fleet capacity has grown by more than four times. Please turn to Slide 27. Navios Partners provide significant cash flow to Navios Holdings. Since it start of operation, Navios Partners has grown distribution by over 26% and through 2012 we received about $106 million in distributions from partners. 2013, we expect to receive about $29.4 million in distributions. This is about 120% of Navios Holdings expected annual dividend. Including NNA dividend, Navios Holdings receives about 167% of its expected annual dividend from its ownership in these two companies on an annualized basis. Please turn to slide 28. We have an approximate 52% economic interest in Navios Maritime Acquisition. Navios Acquisition’s current fleet consists of 41 tanker vessels, totaling 4.2 million deadweight. Navios Acquisition currently has 29 vessels in the water with an average age of 4.7 years. We anticipate that NNA’s newbuilding program for product tankers positions NNA to take advantage of favorable long-term industry dynamics. Please turn to slide 29. Navios Acquisition is summarized on slide 29. It has a large, modern and diverse tanker fleet with more than $1.5 billion. Navios Acquisition has long-term contracted revenue that is well above the Company’s low operating breakeven. This cash flow can sustain Navios Acquisition for a long period in uncertain market conditions and it also has profit sharing arrangements in about 84% of this contracted fleet. These agreements limit the downside risk to the base rate and allows Navios Acquisition to enjoy the upside volatility. For example, first half 2013 profit sharing of about $3 million was greater than total profit sharing for 2012. Please turn to slide 30. This slide demonstrates how Navios Acquisition’s newbuilding deliveries are increasing EBITDA and building cash flow. Since 2011, available days have grown by 138% and the fleet has grown by 143%. EBITDA has grown by 33% in 2012 over 2011 and will continue to grow as Navios Acquisition takes delivery of new vessels. Based on the first half of 2013, Navios Acquisition’s annual EBITDA will be about $150 million, and this does not include the EBITDA from the four unchartered product tankers delivering in the balance of 2013. Please turn to slide 31. Navios Acquisition provides significant cash flow to Navios Holdings. Including the expected dividends in 2013, Navios Acquisition has provided about $20 million in distributions since its start of operations. The $9.5 million expected from Navios Acquisition this year represents about 38% of Navios Holdings’ expected annual dividend. This concludes my presentation. I’d now like to turn the call over to Ioannis Karyotis, Senior Vice President of Strategic Planning for a review of Navios Logistics financial results. Ioannis?
Ioannis Karyotis
Thank you, Ted. Slide 32 provides an overview of Navios Logistics. Navios Holdings owns 63.8% stake in Navios South American Logistics. Navios Logistics has three segments, four terminals, a barge business and a cabotage business. Slide 33 presents the highlights of Navios Logistics. We are one of the major logistics providers in the Hidrovia region of South America, where we see significant opportunities to grow our business. While pursuing growth, we maintain our focus on contracted revenues from a diverse portfolio of high quality clients that provide visible cash flows. As shown on slide 34, we have recently acquired three new dry cargo convoys for approximately $49.2 million including transportation cost. We acquired three second hand push boats in the United States and entered into an agreement for the construction of 76 Parana-type dry barges of 2,800 deadweight tons each in China. We leveraged the Navios network to globally source ship building services for new barges and [our future] competitive all-in cost of $776,500 per barge. The Parana-type barges will have order significantly larger compared to the Mississippi-type barges. As a result, each of the new 12 Parana-type conveys will have a capacity of 33,600 deadweight tons and 40% higher than the [capital] 16-barge Mississippi-type convey while operating costs will be similar. We expect delivery of the three convoys in Q4 2013 through Q1 2014. We have an agreement in principle with a high quality counterparty to employ the convoys for transporting iron ore and the take-or-pay seven-year contract. We expect to generate annual EBITDA of $9.9 million from the three convoys. .: Please turn to slide 36 to discuss the results for the second quarter of 2013. We had a strong quarter with all segment performing well. Our EBITDA for the second quarter was $17.6 million, 14% higher compared to Q2 2012 and net income was $4.4 million, 85% higher compared to Q2 2012. Port segment EBITDA increased by 10% to $7 million due to higher volume and increased rates in our dry port in Uruguay. The 25% or $7.6 million decrease in revenue of port terminals is attributable to $9.7 million lower sales of liquid products in our port in Paraguay, a low margin activity that has relatively low impact on EBITDA, but affected revenue. EBITDA in the barge business increased by 21% in Q2 2013 over Q2 2012 to $4.5 million, mainly due to the reduction in voyage and operating expenses. Cabotage business reported a 15% increase in EBITDA to $6.1 million in Q2 2013 from $5.3 million in Q2 2012 due to improved efficiency in fleet operations. Interest expense and finance cost net increased to $6.7 million in Q2 2013 compared to $5.1 million in Q2 2012 due to the add-on to the bond in March. Depreciation and amortization expense was $5.8 million in Q2 2013 compared to $6.1 million in Q2 of 2012. Our net result was also positively affected by $1.3 million lower taxes compared to the same period last year due to the reorganization of certain of our local subsidiaries. Please turn to Slide 37. Slide 37 shows our strong balance sheet. At the end of the first half cash was $124.5 million, compared to $45 million at the end of 2012. Most of this increase represents the net proceeds of $90 million bond offering completed in March. Net debt to book capitalization was 10% compared to 33% at the end of 2012. Now, I would like to turn the call back to Angeliki. Angeliki N. Frangou: Thank you, Ioannis, and this concludes our formal presentation. We’ll open the call to questions
Operator
(Operator Instructions) Your first question comes from the line of Christian Wetherbee of Citi. Seth Lowry - Citigroup: Good morning. This is Seth Lowry in for Chris. If I could start off on your core drybulk business, with the increase in rates you’re seeing particularly on the Capesize front, how much of that would you attribute to seasonality, and may be repositioning versus just overall strength in the overall drybulk market? Angeliki N. Frangou: The realities at this point, I mean actually of course the demand that you’ll have a strong quarter. Reality is that we are seeing an overall driver up, I mean usually it’s a Q4 event, so you’re seeing a – we have seen in the middle of the summer which is unusual, a very strong recovery, I mean when we were reporting Navios Partners, four weeks ago, the market was totally different, I mean we’re looking on a three-year market around 15,000 for Capesize and today with the previous market for a three year reaching almost $20,000, so we’re seeing a substantial recovery that is happening, and is actually much earlier than the seasonality. Ted C. Petrone: Angeliki is right, I think – remember as we go into the second half of the year the supply/demand side is going to start tightening and go into the order’s favor. So any small movements really get magnified as we go forward so that’s I think that’s how we’re seeing an early movement here on the Cape’s which is normally followed by the other sizes moving up. Seth Lowry - Citigroup: Okay, and so what’s the – I guess the fundamental is being a bit more sticky in nature, how do you see the discount between newer tonnage and older tonnage trending over the next six months, do you expect that to touch up a little bit, in a way you just talked about like the trends and rates for the various vessel ages that you see going forward? Angeliki N. Frangou: I think the biggest issue right now is a good described vessel, so if you have a good quality vessel that can give good eco speed, you can really go amount in much better rate, and I think that is really the difference if you have let’s say, the Chinese of consuming vessel that will not perform much as well. I am not trying – I mean it depends really on a good performance vessel with a good description. Ted C. Petrone: And I do think over the years you could see that at the bottom of the market, and at the top of the market that difference really squeezes, because everybody just needs a ship. It’s at the middle part of the market that you are seeing the differential, and I fully expect that to actually narrow going forward as shifts become less available. Seth Lowry - Citigroup: So, if that is the case, does that mean that, I mean do you find the second hand purchase opportunities, especially for the slightly older tonnage that maybe in the higher marginal cost carriers, does that become more attractive going forward? Angeliki N. Frangou: Listen, I mean the acquisitions we did on the Panamax recently had been extremely great success. It’s not only that the short-term gains that we had of about $7 million, it’s actually these vessels have a breakeven of 7,400, you can charter them out today on a short period of 9,500. So you can see that it make sense. You get vessels at very well described. You can actually monetize it much better. Seth Lowry - Citigroup: Okay. And then lastly, last question switching gears a bit with the agreement to manage the 10 vessels with HSH, is that an area that you foresee as increasing your presence going forward, I mean are there other opportunities to pursue management, are you looking to grow your presence or is that just more of a one-off opportunistic transaction? Angeliki N. Frangou: No, we are not a third-party manager. I mean we have enough vessels of our own. The reality of reasons what we are trying to discuss is that we follow a process, the Navios Europe, in order to get the vessels, we have to acquire 10 vessels, so you have to do it in one moment. So the way it could be done is, first to start getting the management of the five vessels, realign that as five, so that you have one day of closing, where ownership of management transfers to Navios Europe. Seth Lowry - Citigroup: Okay. I got you. Okay. Thank you. That’s all my questions. I’ll turn it over. Angeliki N. Frangou: Thank you.
Ioannis Karyotis
Thank you.
Operator
(Operator Instructions) Your next question comes from the line of Urs Dur of Clarksons Capital Markets. Urs Dur – Clarkson Capital Markets: Good afternoon. Angeliki N. Frangou: Hello. Ted C. Petrone: Hi, Urs. Urs Dur – Clarkson Capital Markets: Hey. I think the question is about the market you just addressed there and looking at the brighter spot, I know that the drybulk markets have ticked up here, and there is some long-term positivity there. I’m not taking away from that, but the real bright spot, I see in today’s result is South American Logistics, revenues came in below my expectations, but your margins are quite strong, and that brings up the question that you get every quarter, what are the prospects of realizing or making more liquid your investment in Navios South American Logistics with a spin-off, and yes, what’s your view there? Angeliki N. Frangou: I think we have, I mean, we see that this opportunity is becoming far more mature. Of course, we have certain more projects that are materializing and that will create a better opportunity. So, we’re in no rush, but we can say that in South America we are moving on a very positive direction on almost all ports and on our (inaudible). Urs Dur – Clarkson Capital Markets: Great. So no concept of timing other than just keep growing the business in a high-growth area? Angeliki N. Frangou: Yes, and we see the conditions of the market being actually better. I mean, and that to create, at this point you have the window open. You see also the pair materializing on projects on both of your segments. Urs Dur – Clarkson Capital Markets: Okay. You mentioned on the just back to the drybulk side, and what’s the outlook of the Panamax here, it seems to continuously underperform in a lot of spaces, and now it’s with the Cape kick up here, you are looking at the Cape Panamax ratio well above two on an average basis globally. And what's your outlook there, what's your outlook, I guess for maybe coal demand and use of Panamax in such, is it a ship class that is simply going to be pushed out by Supramaxes on one end and Capes on the other? Angeliki N. Frangou: I don't believe that, I will give you my short answer Ted, can give you much, I will give you the answer, but the reality is one, whenever you have a move upwards in the market, don’t forget in the beginning of the year, we have the BDI at almost 700, they were at 1150, which is a 65% increase, but we are still 50% below the long-term average of the BDI, which is around 2000. Urs Dur – Clarkson Capital Markets: Yes. Angeliki N. Frangou: (multiple speakers) early stage of the recovery, so in every recovery we have seen in all the cycles Capesize is the ones that they will move first, followed by Panamax and Handymax, in the down of the market the best performer is Handymax. One of the things that Navios has a peak related from the first time we have been probably as we create a balance portfolio of Capesizes with Panamax and Ultra-Handymax. So we can have the ability to withstand any markets having the smaller sizes to be less volatile on the down of the cycle to support the Capes, but of course then you have the Capes, which can be a quite substantial driver that's why we see Navios has 58 vessels in the drybulk fleet and we have a portfolio approach giving us the ability to really return to our shareholders as markets recover. Ted C. Petrone: I think your question on the ratio, it’s a very good one. Over the last decade the ratio has been about 1.8, but as the markets start moving in the upper part of the cycle that ratio can get up to 3:1, as we all know, and I think that’s what we’re seeing now. That ratio will pull away, but as the market starts going into the fall and the Panamaxes and Handymax start falling up, which is a natural occurrence, that ratio will fall back probably under 2:1 going forward. I think there is a natural market for the coal that’s going to go into India and also China going forward. So, listen, we’ve heard a lot about Panamax as being -- I do think they are actually going to be the workhorses, the Panamax (inaudible) range. Urs Dur – Clarkson Capital Markets: Right. Ted C. Petrone: In terms of the pull going forward. I don’t see that ratio changing over the next five years in terms of where it was in the last 10. Urs Dur – Clarkson Capital Markets: Okay. I tend to agree with that. It’s just a topic of discussion right now when we finally see the Capes move a little bit at an unusual time of year. So we’re just trying to get a view on that point in the market. Excellent. Most of my questions have been answered. I guess maybe if George has time over the next couple of days to give me a call on some basic modeling questions later that would be great. But thank you very much guys. Angeliki N. Frangou: Thank you. Urs Dur – Clarkson Capital Markets: Thank you.
Operator
At this time, there are no further questions. I’ll now return the call to Angeliki Frangou for any closing remark. Angeliki N. Frangou: Thank you for listening to our second quarter results.
Operator
Thank you for participating in today’s conference call. You may now disconnect.