Navios Maritime Holdings Inc.

Navios Maritime Holdings Inc.

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Marine Shipping

Navios Maritime Holdings Inc. (NM-PG) Q4 2017 Earnings Call Transcript

Published at 2018-02-21 14:09:04
Executives
Angeliki Frangou - Chairman and CEO Tom Beney - SVP, Commercial Affairs George Achniotis - CFO Ioannis Karyotis - SVP, Strategic Planning
Analysts
Noah Parquette - JP Morgan
Operator
Thank you for joining us for Navios Maritime Holdings' Fourth Quarter and Full-Year 2017 Earnings Conference Call. With us today from the company are Chairman and CEO, Mrs. Angeliki Frangou; Chief Financial Officer, Mr. George Achniotis; and 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 Investors section of Navios Maritime Holdings Web site at www.navios.com. You'll see the webcast 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 uncertainties which could cause 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 call is as follows: We'll begin with formal remarks from the management team. And after, open the call to take questions. Now, I turn the call over to Navios Holdings' Chairman and CEO, Mrs. Angeliki Frangou. Angeliki?
Angeliki Frangou
Thank you, Laura, and good morning to all of you joining us on today's call. I am pleased with the results for the fourth quarter and full-year of 2017. For the fourth quarter, we reported revenue and adjusted EBITDA of $128.5 million, and $46.7 million respectively. For the full-year, we reported revenue and adjusted EBITDA of $463 million and $126.8 million respectively. Rates for dry bulk vessels have improved materially, and we are beginning to see the effect of a healthier charter market on our business results, particularly in the fourth quarter. Slide three provides our company highlights. Navios Holdings directly controls 72 modern dry bulk vessels, and manages about 200 vessels. We maintain industry-leading operating cost, which are estimated by third parties to be about 40% below the average of the listed peers. And we manage a credit and market risk through a combination of fixed and floating rate contracts. Of the 22,684 available days in 2018, 73% of available days have market exposure, while 65.2% are contracted out either on a fixed or a floating rate basis. Slide four and five illustrate our universe of diverse companies. Navios is a global brand with significant scale and management talent, and industry relationships. Navios Holdings' value derives from our dry bulk fleet it holds directly and the equity interest in subsidiaries that own tankers, dry bulk vessels, container ships, and ports. Over time, Navios Holdings value should reflect the intrinsic value of these companies. Slide six outlines how we balance opportunity with stability. We had $134.2 million in cash at December 31, 2017, and have no significant committed growth CapEx. In 2017, we solidified our balance sheet by refinancing our unsecured with secured bonds that mature in 2022. We also extended the maturity of $13.5 million loan by two-and-a-half years. We are renewing our fleet by chartering in vessels, many with purchase options. During the past nine months, we added on a net basis seven vessels. As a result, we increased our fleet capacity and improved the average age of our fleet by 11%. We are adding vessels at the right time of the cycle while being respectful of our capital structure, and doing so on a CapEx-light basis. We have been busy in our South American operations. In 2017, we completed the construction of the iron ore port terminal and recognized about $10 million of EBITDA from the terminal in Q4 of 2017. As you may recall, Vale has guaranteed four million tons of iron ore considering for 20 years. We expect to generate about $38 million in EBITDA in 2018, and $1.2 billion in estimated EBITDA over 20 years. The contact also has built-in tariff escalators which further provide margin protection and growth. On the Grain side of the business we have secured about $28 million in minimum grain terminal revenue for 2018. This represents about 70% of our grain terminal capacity. For some context, in 2017, our grain terminal generated total revenue of about $37 million. Please turn to slide seven, which provide an overview of our fleet renewal program. We have expanded our chartering feet at an attractive time as the values for dry bulk vessels are recovering. Since June 2017, we acquired nine and sold two vessels, thereby adding a net of seven vessels. We acquired a 2000-built Capesize vessel for $10 million, and we expect to add $5.4 million into annual EBITDA. We bareboat chartering three Kamsarmax vessels with purchase option. In addition, we're chartering five Kamsarmax vessels, three for three years and two for five years. We also sold two Supramax for $11.8 million, which had an average age of 16.5 years. Slide eight provides a further breakdown our feet renewal and expansion of our charter-in vessels. As I mentioned earlier, eight Kamsarmax vessels were added to our fleet, three of which have built-in purchase options. In light of the current volatility and constrained capital market conditions, these purchase option provide us with real value. We have no significant requirements which allow for capital flexibility and expansion capabilities at an opportune time. As a result of this activity we improved the average age of our charter-in fleet by 22%. Also, our charter-in fleet base have increased allowing for additional revenue generation. Finally, 70% of our charter-in fleet has purchase options. Slide nine shows the cash flow potential of our fleet in a market recovery. Our time charter rate for Q4 of 2017 was $12,305 per day. This would generate $279.1 million of cash flow on an annualized basis. For 2018, our fleet has a total of 22,684 available days, of which 16,567 days have market exposure. Our current rate of $14,982 per day, our fleet would generate an additional $60.7 million of cash flow. Moreover, if rates were to recover to a 20 year average of $21,826 per day, our fleet will generate an additional $155.3 million of cash flow. Slide 10 sets forth Navios cost structure. Our expected daily revenue for 2018 is $14,025. We fixed 27% of our available days at an average daily charter out rate of $10,481. Daily revenue may increase by $3,287 based on our expected impact of current market rate on open and index days and an additional $257 based on the current NNA dividend. Our breakeven cost for 2018 is expected to be $11,995 per day. Our cost include our operating expense scheduled by docking expense, charter-in expense for our charter-in fleet, G&A cash expenses, as well as interest expense and capital repayments. Slide 11 highlights our strong liquidity position. Net debt-to-book capitalization was 70.4% and we had cash of $154.2 million at December 13, 2017. We have no committed shipment growth CapEx or any material debt maturity until 2022. I would now like to turn the call over to Mr. Tom Beney, Navios Holdings' Senior Vice President of Commercial Affairs. Tom?
Tom Beney
Thank you, Angeliki. Slide 12 presents our diversified dry bulk fleet, consisting of 72 dry bulk vessels totaling 7.3 million deadweight, 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 65 vessels on the water. The average age of the fleet is 7.7 years, 14% younger than the industry average. Navios Group's total fleet of 206 vessels includes 55 tankers, 40 container vessels and 111 dry bulkers, and is a highly diversified public shipping group. Slide 13 shows about $14 million of estimated operating cost savings for Navios Holdings in 2016. To measure our efficiencies, we compared our operating costs to the published results of our peers. We computed our peers operating cost by reviewing their 2016 20-Fs and related disclosures. As you can see on slide 12, our analysis showed that NMs operating costs were estimated at approximately 40% lower than the average of the listed peers; these efficiencies translate into savings of about $40 million in 2016. We believe that these savings demonstrate the substantial competitive benefit we can generate and the value it delivers to all our stakeholders. Turning to slide 15, with all the major economies around the world growing the IMF has increase its forecast for World GDP by 0.2% in 2018 to 3.9% and continue that pace for 2019. Accordingly, they increased the advanced economies forecasted GDP growth by a 0.3% to 2.3% and the emerging markets growth by 0.3% to 4.9% in 2018. On the back of synchronized global economic growth, dry bulk trade grew by an impressive 4% in 2017 and is initially expected to rise by 2.7% in 2018. At current BDI levels, the dry bulk market steel has substantial upside; it would have to more than double to reach the 20-year average. Going to Slide 16, data from the IMF shows further evidence of the global economic expansion as all major economies are growing simultaneously. This phenomenon rarely occurs and was last experienced during the period 2004 to 2007 and previous to that in the late 80s. Important for seaborne trade, the percentage of countries showing export growth has risen to 85%. The highest on record and a positive sign for dry bulk trade growth going forward. Slide 17 shows demand for iron ore. In 2017, steel production in China rose by 5% and the rest of the world by 5.2%. High Chinese domestic demand just translated into a full year high in steel prices, subsequently Chinese steel mills continuing to enjoy high margins. Substitution of Chinese expensive low quality iron ore with higher quality and lower price inputs particularly from Australia and Brazil continues. Iron ore imports into China for 2017 rose 5% or 50 million tons and a forecast to rise further in 2018. Higher Chinese domestic steel demand has been stimulated by large infrastructure projects and a recovery in the housing market. The One Belt, One Road project is the cornerstone of the Chinese economic plans for the next five years and supports steel and power demand inside and outside China. Of note, our Brazilian iron ore exports which are forecasted to grow by about 20 million tons in 2018. Vale's flagship mine S11D reaches its 90 million ton annual capacity and the Samarco minery starts production, which will further help ton miles. Please turn to slide 18. Power consumption in China grew alongside steel production as the Chinese economy grew by 6.9% in 2017. To the end of November 2017, total electricity consumption in China continues to rise by over 6% with thermal power generation rising by over 5%. In 2017 Chinese seaborne coal imports were up by about 10%. The Chinese government continues to rationalize domestic coal production closing down small inefficient mines and encouraging consolidation of large mining groups. It is expected that the restructuring of the Chinese coal industry will continue to keep domestic coal prices high and encourage inputs as inefficient polluting mines are closed. With the ban on North Korea coal imports in China and weather-related problems in Australia and Indonesia. Seaborne coal had to be sourced from further fill aiding 10 miles. During the peak winter season, stocks of thermal coal and pipelines in both India and China reached uncomfortably low levels prompting both governments to allow additional coal imports to maintain power supply. Turning to Slide 19, agricultural production worldwide continues to increase. After a strong 6.9% growth from 2017 forecast for 2018 offer further increase. Worldwide grain trade has grown by 5.4% CAGR since 2008, mainly driven by Asian demand. After four years of record harvest, wheat, corn and soybean prices remain low encouraging trade. Demand increases are focused on Asian economies and especially China where incomes are rising and docks are chaining. Chinese imports of soybeans in 2017 were up 15%. Most of the increases in grain production are based in the Americas or European regions increasing ton miles for longer trips to Asia. Moving to Slide 20; in 2017 about 38 million deadweight of new-buildings delivered versus an expected delivery of 58 million per deadweight tons, maintaining a 34% non-delivery rate. As of January 1, 2018 the order book stood at 34 million deadweight. Using a 25% non-delivery rate for the year, it is estimated that about 26 million tons will deliver. With a low order book and continued high scrap prices forecast for fleet growth in 2018 of 1.7%, the lowest since 1999. Uncertainty over new Tier 3 designs incorporating a new SOx and NOx requirements as well as new Ballast Water treatment systems makes ordering new buildings risky and encourages scrapping of older vessels. Most shipyards are unable to offer new ships before mid 2020. Therefore, the order book looks very likely to stay low. Turning to Slide 21; 2017 ended with another low net fleet growth of 3%, about half of the long run average fleet growth of 5.8% and below the dry bulk trading growth of 4%. Total scrapping 2017 was 14.8 million tons, lower than 2016, the reflecting of cost of additional regulations and higher scrap prices. The current dry bulk order book before non-deliveries is about 10% of the total fleet. And we note that vessels over 20 years of age equal about 7.5%, given forecasted trade growth there is a balance between new expected deliveries and potential scrap candidates. The fundamentals for 2018 and beyond remain positive. In fact full costs for 2018 show that expected demand growth of 2.7% will be more than the level of supply growth of 1.7%. The demand about supply, the market should continue to support increased charter rates going forward. I would now like to turn the call over to our CFO, George Achniotis for the Q4 financial results. George.
George Achniotis
Please turn to Slide 22 for review of the fourth quarter and full-year financial highlight. As dry bulk improved, so do our results. Adjusted EBITDA for Q4 2017 was 46.7 million compared to adjusted EBITDA of 29.1 million in '16, an increase of 60%. EBITDA and net income for the fourth quarter of '17 were adjusted to exclude 32.9 million impairment loss on one of our vessel, 3.4 million impairment loss on intangible assets and 2.7 million bond extinguishment loss related of the refinancing of 2019 unsecured bond. 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 and 228 million impairment losses on our investment in Navios Partners and Navios Acquisition. The increase in adjusted EBITDA is mainly attributable to the improvement in the shipping market. The TC rate we achieved in the quarter was almost 50% higher than in Q4 2016 and improved results from Navios South American Logistics due to the commencement of the Vale contract that is in Uruguay. The increase was partly mitigated by about 80% decrease in equity pickup from affiliated companies basically from Navios Acquisition as the tanker sectors have a different point in its cycle. In fact, if we strip out from adjusted EBITDA the result of Navios South American Logistics. Turning to equity pick-up from affiliated companies; EBITDA from the shipping activities has increased by almost three times compared to Q4 of '16. Adjusted net loss also improved by 54% from 27.6 million in Q4 '16 to 12.6 million in '17. In addition to the one-off items that affected the Q4 EBITDA and net income, the full-year results were also adjusted to exclude 14.2 million loss from the sale of two vessels earlier in the year and 4.7 million representing Navios Holdings portion of impairment losses of Navios Acquisition. Adjusted EBITDA for the full year of '17 was 126.8 million compared to 129.10 million in '16. The results were affected by about 75% reduction in the equity pick-up from affiliates. The decrease was mainly mitigated by an 80% increase in the results of shipping operations. Adjusted net loss for '17 was 107.9 million compared to 106.1 million in '16. This slight reduction is due to the reduction in EBITDA. Please turn now to Slide 23. We continue to maintain a healthy cash volume. On December 31, 2017, we had 134 million in cash compared to 141 million on December 31, 2016. With the completion of the construction of the port of Uruguay, deposits for vessel acquisitions got decreased to 37 million compared to 137 million at December 31, 2016. Senior notes reflect the refinancing of the 2019 notes as compared in Q4. I would like to point out that we have no significant maturities until 2022. Over the next slides, I will briefly review our affiliates. Please turn to Slide 24. Navios Holdings owns about 20% of Navios Partners including a 2% GP interest. Navios Partners owns a fleet of 39 vessels, 32 dry bulk and seven container. NMM owns about 34% of Navios containers, a growth vehicle dedicated to containers. NMM is a unique platform generating significant cash flow with no significant near term maturities. The company is currently in the process of renewing its dry bulk fleet with younger and larger vessels. In 2017 and year-to-date '18, NMM has other 10 vessels with an average age of 7.4 years and has sold two with an average age of 10 year. Turning to Slide 25; Navios Holdings owns about 46% of Navios Acquisition. Navios Acquisition has become a leading tanker company with 36 modern high quality vessels in an average of 7 year, diversified between crude, product, and chemical tankers. All vessels are on the water generating cash flow. The strategy of the company continues to provide cash flow that outperform the market. In fact for 2017, the charter rates achieved were 53% higher than the market average. NNA is also the sponsor of Navios Midstream Partners, and MLP and six VLCCs. NNA expects to receive about 21 million in distribution from Navios Midstream in 2017 and has received almost 50 million in distribution since 2015. Moving to Slide 26; Navios Holdings own 3.4% of Navios Containers. Navios Containers is a company that was setup in June 2017 with the intention of taking advantage of opportunities in container sector. Over the past nine months, the company that is 160 million of the Oslo [indiscernible] market and acquired 21 vessels mostly through distressed transactions. The intention for the company is to continue to grow, obtain a more liquid exchange and consolidating container vessels from the Navios Group. Now, I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics results. Ioannis?
Ioannis Karyotis
Thank you, George. Slide 27 provides an overview of the Navios Logistics business. Navios Logistics operates three port terminals; one for grain, one for iron ore, and one for liquid cargoes. Navios Logistics complements its ports business with its barge fleet for river transportation and product tanker fleet for coastal cabotage trade. Please turn to slide 28. In Q4 2017, the new iron ore terminal generated 10 million EBITDA. During the quarter, Vale moved 0.4 million tons of iron ore and manganese below the minimum guarantee quantity for the period. In Q4 2017, we accrued revenue for the difference between the minimum guarantee quantity and the actual throughput which has been invoiced and collected in Q1 2018. However, we expect volumes to increase over time. For 2018, we are estimating 38 million EBITDA from the Vale contract based on 4 million ton throughput representing the annual minimum guaranteed quantity. Moving to the grain terminal; as of today, we have secured approximately 28 million of minimum revenue for 2018 from agreements representing about 70% of the grain terminal capacity. As a point of reference, 2017 grain terminal revenue was 36.9 million. Recovery in the barge market which had suffered from overcapacity in recent years appears to be in side. On the demand side, the new Navios terminal should enhance the Corumba mines and create iron ore export volumes. The grain market continues to grow at healthy rates. Based on a study conducted by Informa Economics, Paraguay, Bolivia, and Brazil are expected to add 4.1 million tons to the annual grain exports through [indiscernible] by 2022. On the supply side, there are no expectations from new orders and certain players have declared their intention to scrap approximately 10% of the dry barge fleet. The combination of expected demand growth and reduced capacity should help the market to rebalance. Slide 29 reviews our results. Q4 2017 revenue increased 16% to 49.9 million and EBITDA increased 111% to 15 million. Q4 2017 port segment revenue was 76% higher compared to the same period last year and EBITDA increased 366% to 12.4 million. The EBITDA increase is attributable to contribution of the iron ore terminal. In the barge segment, Q4 revenue decreased 22% and EBITDA decreased 41% to 2.4 million. The decrease is mainly attributable to the expiration of certain long-term iron ore transportation contracts during the second half of 2016. Going forward, we expect the combination of growing demand and shrinking supply to have a favorable impact on the barge market. Cabotage business Q4 EBITDA was 0.2 million compared to 0.4 million in the same period last year. Net loss in Q4 17 was 0.2 million compared to net loss of 5.7 million in the same period last year, mainly due the improved performance of the port segment and higher income tax benefit partially mitigated by higher depreciation and amortization expense and higher interest expense net. Turning to the financial results for the year ending December 31, 2017, revenue decreased 4% to 212.6 million, EBITDA decreased 8% to 62.5 million, and net income amounted 3.1 million from 10.2 million in 2016. Please turn to Slide 30. Navios Logistics had a strong balance sheet. Cash at the end of 2017 was 79.9 million compared to 68.1 million at the end of 2016. The increasing debt reflects the 100 million term loan issued in Q4 2017. In 2017, we distributed 70 million dividend to our shareholders which reduces shareholder's equity. As a result, net debt to book capitalization at the end of 2017 was 56% compared to 48% at year-end 2016. Now, I would like to turn the call back to Angeliki.
Angeliki Frangou
Thank you, Ioannis. This completes our formal presentation. We open the call to questions.
Operator
[Operator Instructions] Your first question comes from the line of Noah Parquette of JP Morgan.
Noah Parquette
Hey, thanks for taking the question. I just wanted to ask, you know, you guys are active this quarter, expanding your coverage on - or expanding your exposure to dry bulk, I mean, in general, do you see yourself as a net buyer or chartering in a tonnage, or is this more renewing the fleet?
Angeliki Frangou
Okay. We see the opportunities an attractive part of the dry bulk market. We like the entry point. And what we're trying to do is in the CapEx-light fashion. This way you get the ability to have assets of the purchase options that capture the low part of the cycle on the dry bulk. And you have the economic - I mean, you see the demand for dry bulk for the next two, three years, is quite strong, and also we used as a replacement of vessel in 2020, and sounds like this will have to be showed.
Noah Parquette
Okay. And then, on - just one other question on Logistics side, can you give kind of update on that progress in terms of funding contracts for the remainder of the iron ore terminal?
Angeliki Frangou
Very good, on the - if we take another port, and you saw that iron ore is going well; Q4 was the first quarter we made $10 million EBITDA - Vale is ramping up its production for - I mean, we are ramping up as a port for - in 2018. And it will take some time to reach their full minimum capacity, but we're working on efficiencies, and we have the minimum guarantee as protection. I think realistically you will see first and minimum guarantee, and then you will see the additional flow that will be captured down there. Vale has a 5% increase this year from these mines versus last, and you see that miners around the world has been pushing up their production.
Noah Parquette
Okay, thank you. That's all I have.
Angeliki Frangou
Now that the one thing that I like to add there is we added also the grains, we are having the visibility on the grains, which we have long contracts and bidding contracts, but it's more of - this doesn't have the take or pay of the entire facility. And we have now given visibility on that, where our revenues and run rates go. And I like to remind that we have 50% of our ramp that we need to develop. There we are actively looking for other commodities. So, we versify our commodities to oil and gas. I want to remind you that the entire area of [indiscernible] now is booming. So, their overall activity is quite significantly higher than what it used to be in the last two years.
Operator
Your next question comes from the line of Chris Wetherbee of Citi.
Unidentified Analyst
Hi, this is William on for Chris. I have a quick question about fleet, so after chartering in the big Panamax vessels and the purchasing of the initial vessels, are you guys looking to do more chartering vessels in the future, or do you think that maintaining your current fleet size is what you guys expect to do, so I was kind of wondering on the fleet growth prospectus going forward?
Angeliki Frangou
Good morning. We see it as adjusting now as venue for CapEx-light expansion. We always had established on chartering, which would - is not - it depends on where we see it as - what point in the market we think that we can step in. Don't forget that the bareboat charter is an attractive way for ownership.
Unidentified Analyst
Okay, thank you for answering that question. And just a follow-up on that, because I that you are talking a little bit about CapEx-light expansion method. So, turning to cash flow, if you guys are able to maintain, or if rates to maintain the current levels, how do you guys think about using the incremental free cash flow? And that you guys expected to generate - are you guys going to prioritize paying down debt, or you guys continue to think about potential fleet expansion?
Angeliki Frangou
Listen, we develop this CapEx-light strategy, and now we have discussed the ability to do it because of the brand name, because not - this is not a strategy that a lot of companies have. But in reality, our number one focus is to de-lever through - and bring down our leverage ratios. That is clearly the number one target. In the process, you need to always be able to adjust your portfolio. You need to able to buy vessels on what is the low part of the correct zip code on values of buildings in order to have vessels over the [indiscernible] or otherwise, we will not be able to maintain the average age, and maintain a fleet that will be functional in all market. So, priority of repaying debt is number one for the company, but definitely if we have more of this kind of bareboat builds, we will be doing this.
Unidentified Analyst
All right. Thank you very much for taking my questions.
Angeliki Frangou
Thank you.
Operator
Thank you. I'll now turn the call to Ms. Angeliki Frangou for any closing remarks.
Angeliki Frangou
Thank you. This completes our Q4 results.
Operator
Thank you for participating in today's conference call. You may now disconnect.