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) Q4 2018 Earnings Call Transcript

Published at 2019-02-20 17:00:00
Operator
Thank you for joining us for Navios Maritime Holdings Fourth Quarter and Full Year 2018 Earnings Conference Call. With us today from the company are Chairman and CEO, Mrs. Angeliki Frangou; Chief Financial Officer, Mr. George Achniotis; Senior Vice President Of Commercial Affairs, Mr. Tom Beney; and Senior Vice President 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 website at www.navios.com. You will 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 we will review the Safe Harbor statement. This conference call could contain forward-looking statements within the meanings 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 risk. Navios Holdings does not assume any obligation to update information contained in this conference call. The agenda for today's conference call is as follows. We will begin this morning's conference call with formal remarks from the management team and after we will open the call to take questions. Now, I'll turn the call over to Navios Holdings Chairman and CEO, Mrs. Angeliki Frangou. Angeliki?
Angeliki Frangou
Thank you, Doris, and good morning to all of you, joining us on today's call. I'm pleased with the results of Q4 and the entire 2018. For the fourth quarter of 2018, we posted revenue of $127.4 million and adjusted EBITDA of $45.5 million. For the full year of 2018, we reported revenue of $517.7 million and adjusted EBITDA of $179.6 million and we felt the positive effects of a healthy charter markets on our business results. Rates for the dry bulk vessels improved materially, with the time charter rate for our fleet for the full year of 2018 being about 30% higher compared with the full year of 2017. This has more than doubled our adjusted EBITDA for core shipping operations in 2018 compared to 2017. Of course, the first quarter of 2019 has been adversely affected by the Vale tragedy, as well as unexpected weakness due to the tariff concerns. If you turn to slide 3, we highlight how we have simplified our structure. The acquisition of Navios Midstream by Navios Acquisition was completed on December 14, 2018. Our timing was good, as VLCC rates have recovered since. We also completed the direct listing of Navios Maritime Containers on NASDAQ and commenced the next phase in the growth of Navios Containers by controlling 30 containerships. On slide 4, we focus on the diversification underlying our investment program. As you can see, Navios Partners is a firmer credit. It was recently upgraded to B2 by Moody's. This followed the upgrade of S&P earlier in 2018. Navios Containers have strong credit ratios in a segment that continues to have promise. For NNA, we expect that the business and credit ratios will improve materially due to the combination with NAP in a healthier charter rate environment. In addition the opportunity set in South America for Navios Logistics remains excellent and we are continuing to build a robust business there. Slide 5 highlights our recent developments. As of February 15, 2019 569,735 of the Series G ADS and 1,002,510 of the Series H ADS were validly tendered. As a result we extended expiration of our ongoing exchange offer for the Series G and Series H ADS through Friday March 1, 2019. While dropping the minimum participation requirement under the tender Navios Holdings is offering to exchange $7.25 in cash or -- and/or $8.28 in principal amount of the notes for each Series G ADS and $7.16 in cash and/or $8.19 in principal amount of the notes Series H ADS. On the S&P front, we focus on renewing our fleet with minimum capital outlay. We currently have 30 vessels chartered-in 24 of which have purchase options. The excess value of vessels over the option price is about $30 million creating tremendous value for us. Slide 6 shows the power of our 47.5% investment in Navios Europe I and Navios Europe II. In total, these investments are worth about $50.8 million as of December 31, 2018. The valuable investments reflect the compounding effect of annual preferred returns of 12.7% and 18% respectively. These entities may be liquidated in Q4 of 2019 and Q3, 2021 respectively in the other option. Slide 7 shows the cash flow potential of our fleet. The time charter rate of $13,033 per day for the fourth quarter of 2018 was about 6% higher than the fourth quarter of 2017. For 2019 our fleet has 20,186 available days of which 14,798 days or about 73% of our days have market exposure. At current rates of $11,573 per day our fleet will generate $18.4 million of free cash flow. If rates were to increase to 10 years average, we will generate about $60.1 million of free cash flow. Our fleet is expected to generate an additional $15 million for every $1000 increase in charter rates. Slide 8 sets forth Navios cost structure. Our expected daily revenue for the full year of 2019 is $12,882. We fixed 26.7% of our available days at an average daily rate of $12,456. Daily revenue may increase to -- by $426 based on the current NNA and NMM dividend. Our breakeven cost for 2019 is expected to be $11,322 per day. Our cost includes all operating expenses, scheduled dry docking expense, charter-in expense for a charter-in fleet, G&A cash expenses, as well as interest expense and capital repayment, net of management and administrative costs to affiliate. Slide 9 highlights our strong liquidity position. Net debt-to-book capitalization was 71.2%. We had cash of $150.8 million at December 31, 2018. We have no significant committed shipping 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? Ton Beney Thank you, Angeliki. Slide 10 presents our diversified dry bulk fleet, consisting of 65 dry bulk vessels, totaling 6.6 million deadweight, 19 Capes, 30 Panamax, 14 Supermax, and 2 Handysize. We continue to be one of the largest U.S.-assisted dry bulk operators, established over 60 years ago. We have 60 vessels on the water. The average age of our fleet is eight years, 19% younger than the industry average. Navios Group's total fleet of 208 vessels includes 56 tankers, 47 container vessels and 105 dry bulkers and in a highly diversified public shipping group. Please turn to slide 12. The IMF forecast world GDP growth at 3.5% for 2019. Emerging and developing Asian markets, which drive dry bulk demand are expected to grow at GDP 6.3% in 2019. The uncertainty of the U.S.-China trade negotiations, Chinese coal import restrictions in November and December, zero soybean shipped out of the U.S.A. to China for November and December and the tragic Vale dam burst have exaggerated seasonal low trends in so far in Q1 2019. Dry bulk demand growth for 2018 came in at 2.3%. Clarksons recently adjusted their forecasted numbers for dry bulk demand following the Vale dam burst. However, demand is still expected to grow by 2.2% in 2019 and ton miles should grow by 2.5%. Turning to slide 13. Worldwide steel production increased by about 5% in 2018 year-on-year. Chinese steel production rose by an impressive 10%. Chinese steel production continues to increase largely because of domestic demand, which has been stimulated by large infrastructure projects. The Belt and Road Initiative continues to be a cornerstone of Chinese economic plans for the next five years and supports steel and power demand domestically and for exports. Substitution of Chinese expensive low-quality oil with high-quality and lower-priced imports continues. For 2018, domestic production was down by 40%, while imports were estimated just slightly down. Chinese steel mills have also reduced their iron ore stockpiles and they have been using more scrap in the steelmaking process. After the recent tragic dam burst at the Vale mine in the southern area of Brazil, forecasters are reviewing the potential impact on iron ore shipments as the story continues to unfold. Initially Vale announced the closure of 10 dams, which will cause temporary closure of nine mines, accounting for about 40 million tons of iron ore production per year. Additionally, judges ordered the suspension of production at the Brucutu mine, which produces 30 million tons of iron ore per year, bringing total effective production to 70 million tons. Vale has additional production capacity at its other iron ore mines and particularly at its flagship mine S11D, which could potentially produce an additional 45 million tons over 2018 production levels. The Anglo-American iron ore mine in Brazil Minas-Rio, which has being closed for most of 2018 is also expecting to be export about 16 million tons in 2019 versus no exports in 2018. January iron ore exports from Brazil were up year-on-year by 2.8 million tons or 9%. Please turn to slide 14. Seaborne coal imports into the Asian region increased by 5% CAGR between 2011 and 2018. In 2018, the seaborne imports in the region were up 46 million tons. India and China account for 29 million metric tons of that increase. Other Southeast Asian countries, which completed new coal power plants and new steel mills account for the balance of the growth. China consumes about 50% of the world coal produced. The Chinese government continues to rationalize domestic coal production, closing down small inefficient hazardous mines and encouraging consolidation of larger mining groups. It is expected that the restructuring of the Chinese coal industry will continue to keep domestic coal process high and encourage imports as the inefficient polluting mines are close. Chinese seaborne coal imports were up by about 4% in 2018. Indian coal imports are estimated to increase by about 11% in 2018, and look likely to continue as power plants continue to demand more coal. In November and December of 2018, the Chinese government put restrictions on coal imports, reducing shipments during that period. Indications are that January imports rose considerably and are estimated at 33.5 million tons, up 20% year-on-year, and up over 20 million tons month-for-month versus the December 2018 imports of about 10 million tons. U.S. coal exports continue to rise driven by Indian and Asian demand increasing ton miles. Turning to slide 15. Worldwide grain trade has grown by 5.3% CAGR since 2008, mainly driven by Asian demand. Demand increases are focused on Asian economies, and especially, China where incomes are rising and diets are changing. Most of the increases in grain production are based in the Americas or European regions increasing ton miles for longer trips to Asia. A drought in Australia has limited Australian wheat exports increasing ton miles as additional wheat gets sourced from further field. Chinese tariffs on U.S. soybeans have reduced U.S. exports in the 2018/2019 crop year. However, during -- recently during U.S.-China negotiations, sales of U.S. soybeans have increased. Projections are for the worldwide grain trade to grow by about 4% or about 20 million tons in 2019. Moving to slide 16. In spite of a significantly better market in 2018, the non-delivery rate remained at about 20% of the expected deliveries. 2018 net fleet growth was 2.9%. 2019 forecast of net fleet growth about the same as 2018. Based on the current order book and shipyard availability, low net fleet growth is expected to continue over the next few. Turning to slide 17. The current order book before non-deliveries is about 11% of the total fleet, which is one of the lowest on record. In addition, vessels over 20 years of age are about 8%. Forecasted deliveries compared favorably to the over-aged fleet. The expected disruption caused by the IMO2020 fuel regulation changes should provide support to the dry bulk market through 2019 and beyond. Tonnage supply will tighten as about 400 vessels from Panamax to VLOCs are currently expected to go through to drydock for extended periods to retrofit exhaust gas scrubbers. In addition, the expected increase in fuel cost in 2020 provides an incentive to bring shipments forward into second half 2019 and steam vessels to reduce fuel consumption in 2020. The added costs for complying with IMO regulations from Ballast Water Treatment Systems and fuel regulations are expected to result in higher scrapping going forward. We are currently experiencing the seasonal Q1 softness in the market, which is exacerbated by the uncertainty in trade talks, the uncertainty on how the recent events in Vale mine in Brazil may affect the market. At the same time, the Chinese government is announcing tremendous stimulus measures to support economic growth. With demand positive and supply restricted and disrupted due to preparations for IMO2020, rates should correct upwards from the seasonal Q1 low. I would now like to turn the call over to our CFO, George Achniotis for the Q4 financial results. George?
George Achniotis
Thank you, Tom. Please turn to slide 18 for a review of the fourth quarter and full year financial results. I would like to highlight certain events that have affected our results in Q4 2018, starting with the consolidation of Navios Containers. On November 30th, NMCI was converted into an MLP and NM became the owner of the General Partner. Since the GP controls NMCI, the companies will consolidate it into NM. This has resulted in a bulking gain of $58.3 million. For both Q4 and the full year, NMCI considers about $12 million of revenue, $4 million of EBITDA and no net income. During the quarter, we also took $184.6 million impairment on the book value of a number of drybulk vessels and $55.5 million impairment on our investment in NMM. Adjusting for the above, EBITDA for the quarter was about $41 million, compared to $44 million in Q4, 2017. The decrease in adjusted EBITDA is mainly attributable to the equity pickup from affiliates and more specifically the results of NNA, which is at an early stage of the recovery of the tanker sector. EBITDA from shipping operations in Q4 2018 actually increased by about 30%, compared to Q4 2017 and EBITDA from Navios South American Logistics also improved by 15%. Adjusted net loss was $19 million, compared to $15.3 million in Q4, 2017. In addition to the items that affected the Q4 EBITDA net loss, the full year results were also adjusted to exclude $16.1 million losses from the sale of drybulk vessels early in the year. Adjusted EBITDA for the full year of 2018 increased by 42% to about $176 million, compared to $124 million in 2017. The increase is mainly due to the improved results of the shipping operations, reflected by about 30% increase in the TCE rate achieve during the year compared to 2017. EBITDA from Navios South American Logistics also increased by 30%. At the same time, there was a $34 million reduction in the equity pickup from affiliates. Adjusted net loss for 2018 reduced by 36% to $70.9 million, compared to $111 million in 2017. Please turn now to slide 19 and the balance sheet highlights. I want to point out that the consolidation of NMCI is reflected on the balance sheet. We continue to maintain a healthy cash balance. On December 31, 2018 we had about $151 million in cash, including $19 million from NMCI compared to $134 million at December 31, 2017. Please note that we have no significant committed growth CapEx and no significant maturities until 2022. Over the next slides, we will briefly review our affiliates. Please turn to slide 20. Navios Holdings owns 20% of Navios Partners, including a 2% GP interest. Navios Partners owns a fleet of 38 vessels, 33 dry bulk and five containers. NMM also owns about 34% of Navios containers. NMM is generating significant cash flow and is currently in the process of deleveraging and refinancing its debt. At the same time, it is returning capital to shareholders through a dividend and also a $50 million buyback program. We expect to receive about $3 million in cash dividends from NMM during 2019. And since 2008, we received about $200 million in dividends. Turning to slide 21. Navios Holdings owns about 36% of Navios Acquisition. Following the completion of the acquisition of NAP in December, Navios Acquisition has a fleet of 43 tankers including 15 VLCCs. The company is positioned to take advantage of the current market recovery in the tanker market. Like NMM, it also has -- it also returns capital to its shareholders through a dividend and a share buyback. So far the company has bought back over 5% of its shares. We expect to receive about $6 million in cash dividends from NNA during 2019. And since 2011, we received about $88 million in dividends. Moving to slide 22. Navios Holdings owns about 4% of Navios Containers, including the GP interest. NMCI has grown its fleet to 30 containerships in just under two years. The company was established in early 2017 to leverage the weakness in the containership sector and scale up its fleet quickly and efficiently. In December of 2018, Navios Containers moved the trading of its shares for almost Oslo's OTC to NASDAQ's global select market, marking the next stage in its growth. The intention for the company is to consolidate all 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 23 provides an overview of the Navios Logistics business. Navios Logistics operates three port terminals. These are complemented by our barge fleet for river transportation and product tanker fleet for cost and cabotage trades. Please turn to Page 24. In the fourth quarter of 2018, EBITDA increased 9% to $16.4 million from $15 million in the same period last year. Q4 2018 port segment EBITDA increased 12% to $13.9 million as all three terminals performed better compared to the same period last year. During the fourth quarter, we had approximately $9.2 million net revenue loss attributable to the fire. We expect to recover this amount from insurance and the amount is reflected as other income in the consolidated financial statements. This explains the decreasing port segment revenue to $17.6 million from $24.2 million in Q4 2017, which would otherwise have increased. In the barge segment, Q4 2018 EBITDA decreased to $0.8 million from $2.4 million in the same period last year, mainly due to reduced cargo. Cabotage segment Q4 2018 EBITDA increased to $1.7 million compared to $0.2 million in the same period last year, mainly due to more operating days and lower operating costs. For Q4 2018, net loss was $2.8 million compared to $0.2 million in the same period last year. The increase is attributable to higher interest expense and income tax expense compared to income tax benefit in Q4 2017. Turning to the financial results for the full year 2018. EBITDA increased 30% to $81.1 million and net income increased 121% to $6.9 million from $3.1 million in the same period last year. In 2018, the grand terminal was adversely affected by the drought in Uruguay and Argentina. According to USDA, Uruguayan soybean crop was 59% lower and the Argentinian crop was 31% lower compared to the previous year. The USDA estimates that both the Uruguayan and Argentinian soybean crops will recover in 2019 increasing by 49% and 46% respectively compared to 2018. We would like to highlight more recent trends in the market. During the first 45 days of Q1 2019 throughput in our grain terminal has doubled compared to the same period last year. Q1 is a seasonally low period for the grain business, nevertheless signs so far point to recovery. The year has started positively in the barge business as well. Cargo loaded to be transported so far under COAs or spot contract is more than doubled the cargo loaded in the same period last year in both liquid and dry cargo. Please turn to slide 25. Navios Logistics has a strong balance sheet. Cash at the end of 2018 was $76.5 million compared to $79.9 million at the end of 2017. Net debt-to-book capitalization was 56% unchanged compared to year-end 2017. Now, I would like to turn the call back to Angeliki.
Angeliki Frangou
Thank you Ioannis. This completes our Q4 results and we'll open the call to questions.
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Noah Parquette of JPMorgan.
Noah Parquette
Hi, thanks. Good morning, good afternoon. I wanted to ask firstly about the preferred tender and how you guys think about prioritizing uses of cash flow. I mean, before it seems to be a priority. You talked a little bit about why you want to take that out first versus maybe your debt-to-capital or just some thoughts there?
Angeliki Frangou
Good morning. Noah as you know there's a lot of challenges in our balance sheet. We have targeted first preferred and we are in an ongoing public tender which we cannot comment at. On the relative amounts and relative use of cash, it makes sense. Overall, as you know we have also bought our debt and bonds from time to time.
Noah Parquette
Okay. And then I want to ask about the consolidation of NMCI. Can you just kind of go into a little more detail. Was this a choice? I mean, the economic interest is pretty low and you don't consolidate like NNA or NMM. If this has been your choices, are you going to take steps this year to deconsolidate it or just I'd like to hear the strategy there? Thanks.
George Achniotis
As you know that Navios converted into an MLP and Navios Holdings controls the GP and the GP controls NMCI. That's why we consolidate it and though we only own about 4% of the entity. But it's purely for accounting.
Noah Parquette
But you're the GP of NMM too, but you don't consolidate that. What's the difference?
George Achniotis
Well, the GP of NMM does not control NMM. You have to go into the details of the GP rights of each entity. Navios Containers we -- the GP control was for the new containers. Now what we tend to do in the trend here we will report containers in a separate segment, the same way we do with Navios South American Logistics, so you will be able to see clearly the effect in our numbers.
Noah Parquette
Okay. But then you guys are -- I guess this is kind of going to be a semi-permanent structure. I mean, you took steps like with M&A to deconsolidate it, but you're comfortable with another current consolidation, kind of agreement.
George Achniotis
Yeah.
Noah Parquette
Okay. And then just lastly on Logistics, I don't know how much you guys seen or can comment on this, but I mean with all that's happening with Vale and iron ore, has Vale approached you at all? I mean, I know they're looking at increasing production in other parts of their system. Do you see maybe any potential effects on your iron ore terminal, on the barge business, or have you seen any developments there? Thanks.
Angeliki Frangou
I think, it's too early right now to know the exact processes for Vale. I think it is in early stage of where they will try to pick up the different volumes. So, this is something that we'll be working. And the one thing that is important is that our contract and our revenues as planned and we will be waiting to see how this will proceed overall. I think this is an early stage of where Vale has to make decisions.
Noah Parquette
Okay. Great. That's all I have. Thank you.
George Achniotis
Thank you.
Operator
And thank you. And that does conclude the Q&A portion of today's call. I'll turn the floor back over to Ms. Angeliki Frangou for any additional or closing remarks.
Angeliki Frangou
Thank you. This concludes our Q4 results.
Operator
Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.