Navios Maritime Holdings Inc. (NM-PG) Q4 2016 Earnings Call Transcript
Published at 2017-02-22 14:07:19
Angeliki Frangou - Chairman and Chief Executive Officer George Achniotis - Chief Financial Officer Tom Beney - SVP, Commercial Affairs Ioannis Karyotis - SVP, Strategic Planning
Noah Parquette - JPMorgan
Thank you for joining us for Navios Maritime Holdings Fourth Quarter and Full-Year 2016 Earnings Conference Call. With us today from the company are Chairman and CEO, Mrs. Angeliki Frangou; Chief Financial Officer, Mr. George Achniotis; SVP of Commercial Affairs, Mr. Tom Beney; and SVP of Strategic Planning, Mr. Ioannis Karyotis. As a reminder, this conference call is being webcast. To access the webcast please go to the investor section of Navios Maritime Holdings website at www.navios.com. You’ll see the webcasting link in the middle of the page, and a copy of the presentation referenced in today’s earnings conference call will also be found there. Now, I’ll review 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 certainties, which could cause the actual results to differ from the forward-looking statements. Such risks are more fully discussed in Navios Holdings filings with the Securities and Exchange Commission. The information set forth herein, should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in this conference call. The agenda for today’s conference call is as follows. First we'll begin with formal remarks from the management team, and after we’ll open the call to take questions. Now, I'll turn the call over to Navios Holdings Chairman and CEO, Mrs. Angeliki Frangou. Angeliki?
Thank you, Laura and good morning to all of you joining us on today's call. Please turn to Slide 3 where we provide a company highlight. Navios Holdings controls 66 modern diverse vessels. Our size and purchasing power creates efficiencies and cost savings. Our operating leverage, our scale, technical competencies and world class employees creates OpEx that is about 37% below the industry average. These savings are especially significant at the bottom of the cycle. Slide 4 and 5 illustrates our corporate structure and diversification. Navios Holdings value derives from 5 areas, the dry bulk fleet of Navios Holdings and four principle operating entities. Each company has a strong balance sheet and good cash flows. While the value of these entities may not be currently appreciated we believe that the intrinsic value of these companies will be recognized over time. Slide 6 details our recent developments. We are pleased to announce that we have a modern strategy regarding our port in South America. The London arbitration tribunal has ruled in favor of Navios Logistics that the Vale 20-year port services contract remained in full force and effect. This means that Vale will honor its commitments for transshipping 4 million tons of iron ore annually generating $35 million in annual EBITDA. Over the course of the contract we anticipate earning $1 billion in aggregated EBITDA from Vale through this minimum guaranteed quantity. In addition, the port will have 6 million tons of capacity available for sale after fulfilling the Vale minimum guarantee. Of this amount Vale has an option for 2 million tons and 4 million tons are available to third parties. In total, we estimate that this 6 million tons can generate an additional $50 million in annual EBITDA. You can do the math for the potential of this additional capacity over 20 years. I also want to remind you about the nature and value of this asset. [indiscernible] built this original port over 50 years ago to make marginal CapEx was required since then to maintain it. Navios logistics was also issued a favorable ruling by the New York arbitration tribunal on the barge COA dispute with Vale. Vale has been now ordered to pay Navios Logistics $21.5 million for unpaid invoices, late payments and legal fees. Navios Holdings has agreed to sell certain loans its previous funded to Navios Europe to Navios Partners for $27 million. The loans are an aggregate balance of $21.4 million Navios Holdings received over $4 million in cash and about $13.1 million NMM common units. As per the duration for the sale this increases non pro forma ownership in NMM for about 31%. Slide 7 shows Navios Holdings is positioned to capture market recovery. During 2016 the market stress and noise was enormous, yet we acted to capture whatever approach during the - was within our grasp. The steps we took led to an $80 million improvement in our net asset value and a $28 million expected reduction in our 2017 cash breakeven. Navios Holdings also purchased $61.1 million of its outstanding preferred shares Series G and Series H paying 28% of the par value. We also eliminated 36% of the outstanding preferred and our annual dividend obligation by $5.3 million. We also eliminated $4.0 million of accrued dividends. As to liability management we purchased almost 60 million with face value or 17% of our assets we have bought for $30.5 million in cash, thereby saving the company about $4.8 million in annual interest. Moreover, we have also reduced our cash requirements from commercial band debt by almost $10 million through reduced annual amortization for 2017. Additionally, we are reducing the average cost of our chartered-in fleet during the year we are going to charter seven additional vessels for two years reducing our average chartered-in cost by $2870 per day. Cost management has been our focus and still provides us industry leading operating efficiency. Our OpEx is 37% below industry average and our G&A is one of the lowest among our publicly listed peers. We decrease our G&A expense by 45% in 2016 and about $20 million or 64% over the past two years. Slide 8 illustrates our initiatives to reduce 2017 daily cash flow breakeven. We expect to reduce our daily cash breakeven by $1185 for 2017. This will greatly assist NM in transitioning through the continued soft dry bulk market. Slide 9 shows Navios new cost structure. You will note our expected daily revenue is $10,704 per day. This is divided as follows. We fixed 19.5% of our earning days at an average rate of $8,168 per day. To this you must add the profit impact of the current market rate on our open/index days. This increases the revenue by an additional $1,908 per day to $10,076. Finally you will need to include $620 daily effect of the NNA dividend which brings us back to $10,704 per day. So the breakeven costs for 2017 is expected to be $10,984 per day. I remind you as I do every quarter that our breakeven analysis includes all operating expenses, scheduled drydocking expenses, charter-in expense for our chartered-in fleet, G&A cash expense, interest expense and capital repayments. Finally, I would note that while slide 9 shows how we effectively breakeven this uses the seasonally low Q1 charter rate for the configuration. As you can see from slide 10, we can capture significant upside with market recovery. Our fleet open days plus days contracted with indexing charters and profit sharing could provide incremental revenue of almost $19 million for every $1000 increase in market rates. The magnitude can be seen if we use a 20-year average rate which is about the same with a 10-year average rate. We would generate about $200 million in additional revenue if market rate increases to 20-year average. On the revenue side, we have outperformed the spot market in 2016 through a number of creating approaches. Slide 11 shows our fleet achieved almost $37 million of additional charter revenue compared to the average spot market. Our charter revenues was $1,678 per day higher from the average spot market. Slide 12 highlights our strong liquidity position. Net debt to book capitalization was 59%, and we have cash of $141.4 million and $182.9 million in total pro forma liquidity. We have no committed shipping growth CapEx or any material debt maturities until 2019. I would now like to turn the call over to Mr. Tom Beney, Navios Holdings, Senior Vice President of Commercial Affairs. Tom? Thank you, Angeliki. Slide 13 presents our diversified dry bulk fleet consisting of 66 dry bulk vessels totaling 6.7 million DWT split between Capesize, Panamax and Supramax Handy. We continue to be one of the largest U.S. listed dry bulk operators in the world, established over 60 years ago. We have 66 vessels on the water with an average age of 7.8 years. This is 10% younger than the industry average. Navios Group's total fleet of 163 vessels includes 47 tankers, 19 container vessels, and 97 dry bulkers. Turning to slide 15, world GDP forecast for 2017 and 2018 are 3.4% and 3.6% respectively suggesting accelerated dry bulk demand. Emerging market growth predominantly in the Asian region is the major driver with GDP growth at 4.5% in 2017 and 4.8% in 2018. Growth in advanced economies such as Europe, Japan and the USA also seems to be accelerating. Low oil prices in the largest oil consuming economies such as China, India, Japan, Europe and the USA continue to stimulate GDP growth. The total dry bulk order book 2017 onwards is now at only 9.5% of the total freight a 15-year low. Record scrapping for a combined two-year period in 2015 and 2016 alongside record non-deliveries of the order book has kept net fleet growth minimal. It seems we have experienced the bottom of the dry bulk market in Q1 of 2016 and for the balance of the year the market enjoyed a steady recovery. Even with the seasonal downturn we experienced in Q1 2017 the dip is not as severe as previous years and in general the market is much more optimistic. Consequently charters are taking more vessels on time charter. For example, yesterday charters have taken 21 capes for one year or more. There were only 40 capes taken on similar TCs for all of 2016. So we have already reached over 50% of last year's total. Please turn to slide 16. Between 2014 and 2015 dry bulk freight remained flat with 2016 showing an increase of about 1.2%. Dry bulk trade growth is said to accelerate in 2017 and is forecasted to grow by 2.1%. Since the all time BDI low of 219 February 2016 the dry bulk market has increased with the BDI reaching as high as 1257 on November 18, 2016. The Chinese government has been conscientious in stimulating their economy and GDP growth. Chinese economic policy has been instrumental in supporting dry bulk trades. Increased loan initiations for housing and infrastructure supported the Chinese construction industry increasing steel demand. In January 2017 loan initiations from Chinese banks reached a new high further supporting fixed asset investments going forward. The Chinese authorities also reduced domestic coal output in 2016 increasing coal imports as electricity consumption increased. Improved share of protein in Chinese diet supported the ever increasing imports of grains seen over the last few months and years. These key factors have helped turn the market trend to positive growth which was at 5% year-on-year in the second half of 2016. Slide 17 shows demand for iron ore as shown in the upper right hand table. Overall worldwide seaborne iron ore grew by 4% in 2016. Seaborne iron ore is forecasted to further expand by close to 4% or 53 million tons next year led by a 5% increase in Chinese imports. China accounts for about 70% of the world's seaborne iron ore imports. With the new Vale super mine S11D project coming on line in 2017, high grade Brazilian exports should gain market share further helping ton miles as shown in the upper right hand table. Chinese steel production rebounded in March 2016 has remained above last year's level since then. 2016 was the first time in history China imported in excess of 1 billion metric tons of iron ore. Steel prices have risen and we are about to enter the peak construction season. Chinese steel exports increased in the beginning of 2016, but have decreased since August as more steel space hiring to supply the improved domestic market. This has helped the rest of the world steel production recovery in the last few months so there is less Chinese steel exports into the international markets. Chinese iron ore mines struggled to compete with high-quality ore coming from Australia and Brazil encouraging increased imports. In 2016 iron ore imports have increased by about 7% and domestic production of iron ore has reduced by approximately 6%. We expect this substitution trend to continue. Please turn to slide 18. 2016 saw the Chinese coal markets start to restructure. Domestic coal production reduced by about 9% or approximately 300 million metric tons, while imports of coal surged 21% or about 40 million metric tons. The Chinese government continues to rationalize domestic coal production, closing down small inefficient mines and encouraging consolidation of large mining groups. Coal derived electricity production in China grew by 7.3% during 2016 as economic activity picked up and hydro reduced by 5.6%. It is expected that the restructuring of the Chinese coal industry will continue to encourage imports as inefficient polluting mines are closed. January 2017 coal imports are up year-on-year by approximately 10 million metric tons or about 63%. With the recently instituted Chinese ban on coal imports from North Korea and the prospect that China will once again for certain coal mines to curtail working days starting in March. Chinese coal import prospects seem poised to continue last year's levels or increase from that. Combined Indian and Chinese imports are now expected to increase by about 7% annualized a major improvement from forecast to the start of 2016. Slide 19 shows another aspect of the dry bulk market that is coming into focus as China's economy continues to improve. As the capita incomes increase the country will consume more protein. Chinese per capita meat consumption still lags the OECD by a considerable margin. Chinese imports of soybeans and soybean meal and important feedstock for animals are forecast by the USDA to increase dramatically in the next 10 years. Chinese soybean imports increased by 11% CAGR between 2008 and 2016. Worldwide imports of soybean saw 7% CAGR over the same period. Grain is an inefficient cargo. Loading delays due to complicated logistics and weather issues make take off days of voyage increase absorbing ship capacity. The main export countries for grain tend to Atlantic based and the main import regions are Pacific based. This also contributes to longer haul routes. Moving to slide 20, 2016 ended with 47.2 MDWT delivered versus an expected delivery of 92.7 MDWT giving a 49% non-delivery rate. This is the highest non-delivery rate in the last few years. As of January 1, 2017 order book stood at 58.1 MDWT. Non-deliveries for January are 50% with only 8.8 MDWT delivery versus 17.8 MDWT expected. Using a more conservative 40% non-delivery rate for 2017 it is estimated about 35 MDWT will actually deliver. Using the five-year average scrap level of 26.7 MDWT in 2017 fleet growth will continue to be low. With little incentive toward the new buildings over the last couple of years, the order book going forward is at a 15-year low of 9.5% improving dry bulk fundamentals. Turning to slide 21, the 2016 order book stood at 92.7 MDWT on January 1, 2016. 27.2 MDWT actually delivered. Scrapping in 2016 amounted to 29.9 MDWT the third largest total ever. The combination of more deliveries and high scrapping led to a low 2.2% net fleet growth in 2016. So far scrapping year-to-date in 2017 is 2.8 MDWT. With additional capital investments needed for preferred special surveys will be on for older vessels and the recently ratified Ballast Water Management Convention scrapping continue. The pool of scrapping candidates as illustrated on the right hand chart continues to be sufficient to maintain a healthy scrap rate in 2017 and onwards. Based on the latest available data, net fleet growth for both capes and panamaxes in vessel numbers has been minimal since beginning of 2015. With dry bulk demand continuing to accelerate, the market fundamentals are set to improve. I would now like to turn the call over to our CFO, George Achniotis for the Q4 financial results. George?
Thank you, Tom. Please turn to slide 22 for a review of the fourth quarter and full year financial highlight. Adjusted EBITDA for Q4 2016 was $29.1 million compared to adjusted EBITDA of $33.6 million in 2015. During the quarter we engaged in a number of financial de novo [ph] initiatives that positively affected our EBITDA and net income. EBITDA and net income for the fourth quarter of 2016 was adjusted to exclude $13.2 million gain from the buyback of the bond and commercial loan. EBITDA and net income for the fourth quarter of 2015 was adjusted to exclude certain items relating to the early delivery of two vessels and insurance claim by Navios Partners is described on slide 22. The decrease in adjusted EBITDA is mainly attributable to 11% decrease in the available days of the fleet due to the early delivery of a number of chartered-in vessels and a reduction in the EBITDA of Navios South America Logistics. The decrease was partly mitigated by 4% increase in the time charter equivalent rate and a $6.1 million reduction in G&A is mainly due to reduced compensation. Earnings per share for the quarter were also adjusted to exclude $46.6 million gain from the exchange of the preferred equity. During the quarter we recorded an adjusted net loss of $7.6 million or $0.28 per share similar to the adjusted net loss of $27.8 million in 2015. EBITDA net income for the full year of 2016 and 2015 were affected by share one off items described on slide 22. Adjusted EBITDA for the full year of 2016 increased by 8% to $144 million compared to $133.4 million in 2015. The increase was mainly due to a 30% reduction in time charter, voyage and logistics business expenses and a 26% reduction in G&A. This was mitigated by an 8% reduction in the available days of the fleet. Adjusted net loss for 2016 reduced by 19% to $83.9 million from $104.3 million in 2015. The improvement was mainly due to the increase in EBITDA and a 5% reduction in depreciation and amortization. Please turn now to slide 23. We continued to maintain a healthy cash balance. At December 31, 2016 we had a $141 million in cash compared to $177 million at December 31, 2015. Deposit for asset acquisitions have increased to $137 million compared to $74 million at December 31, 2015 as a constructional report in year progresses. During the year we repurchased a total of $58.9 million or 17% of the par [indiscernible] of the 2019 senior notes. In so doing we save $4.8 million annually in interest payments or $11.2 million until maturity. We used $30.5 million of cash for these transactions. The aggregate balance of our senior notes is now $1.297 million from $1.351 million at the year end 2015 reflecting the repurchase of the 2019 notes. During Q4 we also repurchased a total of $61.1 million par value or preferred equity at $0.28. In doing so we save $5.9 million in annual dividends and $4 million in accrued dividends. This transaction is reflected in the reduction in shareholders' equity. Over the next slides we will briefly review our subsidiaries. Please turn to slide 24. Pro forma for the sale of Navios Holdings participation in the launch of Navios Europe this cash reviewed by Angeliki, Navios Holdings owns about 31% of Navios Partners including a 2% GP interest. Navios Partners owns a fleet of 31 drybulk and container vessels. NMM today is a unique platform in the dry sector with contacted revenue covering all of its costs for 2017 and commercial and technical management course to fixed to December 2017 average 14% below industry averages. NMM can generate significant free cash flow as detailed in NMM's earnings presentation last week, even in the low charted environment of today we should be able to generate about $80 million for 2017 assuming steady operating costs and current market rates for the open days. Turn to slide 25, Navios Holdings owns over 46% interest in Navios Acquisition. NMM has 36 modern high quality vessels with an average age [ph] of six years diversified between crude, product, and chemical tankers. All vessels are on the water generating cash flow. The fleet is 75% fixed for 2017. NMM’s charter in policy of seeking long term charters were up to provide about market earnings in a year in which peer employment was unavailable and the spot rates were contracted. For the full year of 2016 NMM's average charter rate for its combined fleet was about 11% higher than the market average. These results speak to the strength of NMM’s business model, particularly when covered with effective cost management. Navios Acquisition is a sponsor of Navios Midstream Partners an MLP with six VLCCs providing a platform in the wet sector for dividend seeking investors, and bringing flexibility and liquidity to NNA. In 2016 NNA received over $21 million in dividends from AAP [ph]. Navios Acquisition also provided about $15 million in dividends to NM during 2016. Now I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics results. Ioannis?
Thank you, George. Slide 26 provides an overview of the Navios Logistics business. I begin my remarks on slide 27 which focuses on our recent developments. Angeliki already reviewed the result of the Vale arbitration. The new terminal is almost completed. As of Q4, 2016 we're having get approximately $138 million of expenses and we have remaining contractual obligations of about $8 million. In total we have paid in or get approximately $146 million out of a total budgetary CapEx of approximately $150 million. In Q4, 2016 we entered into a new credit facility for $25 million for general corporate purposes. The loan was fully drawn in December 2016. We have agreed to practice a newbuilding or either tanker for $13.1 million. We anticipate that the vessel will be delivered in January 2018 and will be employed under a five-year time charter contract. This charter should generate approximately $17.2 million of aggregate EBITDA during the charter period. Slide 28 reviews our results, Q4, 2016 revenue was $43 million and EBITDA was $7.1 million. Q4, 2016 port segment revenue was 2% higher compared to the same period last year as an increase in sales of products mitigated a decrease in port terminal revenues. However as a sales of products has lowered margins, EBITDA was $2.7 million compared to $4.5 million in Q4, 2015. The decrease is attributable to lower throughput in the dry terminal which was affected by weak or via soybean production due to heavy rains earlier this year and have used for our treatment of Paraguay and [indiscernible]. In the Barge segment Q4, EBITDA was $4.1 million compared to $10.5 million last year. The decrease is mainly attributable to lower voyage and time charter revenues due to the expiration of certain iron ore transportation contracts as well as increase operating and other costs. As the expiration of these contracts was during the low season for grains we were unable to find immediate employment in that sector. Cabotage business Q4 EBITDA was $0.4 million compared to $0.9 million in the same period last year, mainly due to less available days. Net loss in Q4, 2016 was $5.7 million compared to $1.4 million net income in the same period last year mainly due to the decrease in EBITDA and lower tax income that were partially compensated by lower depreciation and interest expenses. Turning to the financial results for the 12-month period ending December 31, 2016 revenue decreased by 12% to $220.3 million, EBITDA decreased by 15% to $68.1 million and net income decreased by 54% to $10.2 million mainly due to the decrease in EBITDA and an increase in income tax expenses. Please turn to slide 29. Navios Logistics has a strong balance sheet. Costs at the end of Q4, 2016 was $68.1 million compared to $81.5 million at the end of 2015. Pro forma for the New York arbitration final award our cost balance as of December 31, 2016 would have been $89.6 million. As of the end of 2016 we have drawn $25 million on the new bank facility and approximately $25.5 million net under the unsecured export financing facility relates to the new iron ore north terminal. The undrawn amount under this facility was $0.8 million including interest and non-related costs. The net debt to book capitalization was 48% and pro forma for the New York arbitration award net debt to book of regulation have been 45%. Now I would like to turn the call back to Angeliki.
Thank you, Ioannis. We’ll now open the call to questions.
Thank you. [Operator Instructions] Our first question comes from the line of Noah Parquette of JPMorgan.
Hi thanks. I just wanted to ask about Vale arbitration with the terminal, expected to be completed in March, have you guys got any sense from them whether they are going to, what they are going to do and how you prepared and do you think would be likely that they prefer a settlement or will they go ahead with the contract?
Today, I mean good grace, today in relation with Vale is very respectful, they will operate, they will bring their cargo. Last year we had during the construction the good thing is that we had a very strong contract and we were protected let’s now also under transact from the point of [indiscernible] either was at very low point was – for three years and that always creates a point. The reality we know that what you need a very strong contract when you are in commodity business and commodity risk because there is always volatility, but we see that this going to be a 20-year contract with a group prospect there is an obligation of $4 million per year in a matter with about $6 million on million ability to up to $6 million for Vale. The overall capacity is $10 million. I have to remind you I don’t know is of the $90 today there was a different the first quarter of 2016.
Okay, then I guess regarding the additional capacity under the terminal expansion, have you had any discussions with utilizing that and does that, would that be used only for iron ore or could grain be a possibility as well?
Now, that there is a grain capacity and our grain terminal we’re looking about our iron ore of terminal has an extra capacity of $10 million and as we are completing, we’re going to be delivering in March this will be a second level of consideration.
If you remember this MMX presence, I don’t know that it was closed, it had changed ownership and again no I don’t know projects have more than we do, more experience in that area.
Okay and then for the NMM sale, or the sale of launch NMM was that your decision to prefer units in that transaction and how should we take that portion, I mean is that more of a statement on how undervalued NMM is and what led to that decision?
We had a $21.5 million asset, we slid it for $27 million. Almost 90% of the transaction or 85% of the transaction is in April 30, and a little bit of cash. We do like the after [indiscernible] on NMM also played it bigger, stronger ownership from NMMs point of view. And then look I’m, I cannot really address it from the NMMs point of view. They did an independent process with independent advisors, but one of the things I’d like to mention is that, let’s not forget they have, they were already involved with these assets and the increased their stake on that.
Okay, that’s all I have. Thanks.
Our next question comes from the line of Chris Wetherbee of Citi.
Good morning. This is Prashant on for Chris. I wanted to pick up when asking questions about the NMM sale. Just more generally on liquidity creation, liability, management, you have a couple of maturities one in 2019 that’s coming up. Just wanted to get a sense of how you’re positioned for that if there needs to be more liquidity creation on the balance sheet and how you've go about that? And then I haven’t been able to be into your company or some other avenue? And then related to that now that it looks the NMM sale and the Vale contract is place, would you consider monetizing that in any way in order to may be help with the ability management and so that’s my first question? Thanks.
Okay, I think these are very good questions. Let’s concentrate on what NM has been doing for the last two years. We’ll control our cost, we reduce our costs by $28 million and today as you can see in slide 9 what you will have, our cost and revenues even into in Q1 which is a large core – are almost match. Our ability and you know, I want to put this in place. How are we positioned the company is that you can have a serious cash generation and if you see in Page 10 you all are very concentrating on you know the market is down. We have seen that the market is down. We have market is moving, it is stabilizing, even you have the low Q1 it balanced quickly that and you can see that you can generate on our 23,000 a day. If is the market moves to the 20 year average of the $200 million our. I am not Joey, easy to meet we're taking care, draft preparing same as last floor. But apart from that you have seen that we are able to pre-sterilize value. We are able to show [indiscernible] in a lot of our assets which last year was a lot of confusion and we have, I am eager to have, ways to have then have post that that very clarified folks. We have most of what of it was having it of really taking care of that much. So we don’t forget about what we have here [indiscernible].
Okay, so it sounds like if [indiscernible] were in a position to take advantage of that then this becomes less of an issue in terms of in managing or monetizing but those options are also there, but keeping things on the table. The second question and I guess it is a healthy thing, the Vale contract when do you expect that to commence the construction completes in March, but when would the cash flow itself to come in and then were it ended about the $21.5 million accounted in pro forma liquidity, I assume that's coming soon, is there anymore amounts that are ordinarily years that should come through as well that in terms of cash?
No, there is not – there was a Navios arbitration for a [indiscernible] in New York there is not [indiscernible] were service and after the delivery of the port in Vale then there will be afterwards you start rounding up and deliver cargo.
Okay and then another question on the $1 billion to make sure I got the $35 million annual EBITDA is the minimum for and then $85 million of the maximum $1 billion are you’re using an estimated number in between or is it the right way to think about it or are you just trying to make sure [indiscernible] correct?
There are escalation tariff closes in the contract and therefore the $35 million is from the first year and we take into account tariff adjustment close of the contract $1 billion for the 20-year period.
So that’s the escalations okay, understood. And then last question and I thank you for the time. On the drybulk side in terms of recovery you have a limited amount of fixed charters right now and I understand that in order to take advantage of rates that are improving by is there a timeline or a target you have through when the majority of the fleet would be on short term or longer term contract this year or 2Q could we expect more than 50% of the fleet to be fixed if the rate recovery continues and then on the flip side if we see some seasonality getting it to able to get worse from here before getting better, how much more room do you have on the OpEx side to bring that cost down?
Listen this is what this as job, this is really the driven by the job. We were - if you have seen we have increased our charter increase last year, so we increased our days because we felt that we will be opportunistic on getting that time [indiscernible] that cost by that and we have always managed seasonality. If you've seen 2016 that was the year in recorded history we did $37 million additional revenue versus the spot market. So, the business of managing the portfolio through the seasonality then in a that very tough market we can do it well. So, this year, I mean I will take for example this year, last week you could fix where capesize on Australia around and get less than $5,000. Today as we said one of our capes are $12,500 in the same business. So I think the seasonality are anything, the exposure is part of our business. Different contracts we have managed up railway. I mean we were, we had - getting on some of our Panamax in Q2, 11.5 over $11,000 update and the port market is do what around $7 so yes they think that these are business and have to maximize that. And we are not shy as well you have seen that, I mean to grow young, it depends on where we see the profitability.
Okay, thank you. That’s very helpful color. I appreciate all the time. Thanks guys.
Ladies and gentlemen that was our follow up question. I will now turn the floor back over to Angeliki Frangou for any additional or closing remarks.
Thank you. This concludes our Q4 results.
Thank you ladies and gentlemen. This does conclude today’s conference call. You may now disconnect.