Navios Maritime Holdings Inc. (NM-PG) Q1 2019 Earnings Call Transcript
Published at 2019-05-28 17:00:00
Thank you for joining us for Navios Maritime Holdings First Quarter 2019 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 on 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, I 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.
Thank you, Doris, and good morning to all of you, joining us on today's call. I am pleased with the results of the first quarter of 2019. For the first quarter, we reported revenue of $140.3 million and adjusted EBITDA of $68.5 million. Our financial results were particularly strong, given the weak rate market during the quarter. Charter rate in the drybulk sector was devastated by the tragic dam collapse in Brazil that occurred in the first quarter. The closure of certain Brazilian mines not only removed a significant amount of iron ore from the supply chain, but also did show in the longest route to China, the biggest user of iron ore. Overall, there was a disproportionate negative impact on charter rate. Since the end of the first quarter, there has been a material rate improvement in the market, and the current spot rate Capesize vessels of approximately 12,200 is up about 110% from the average spot rate for the months of February and March. Please turn to slide three where we highlight how we are simplifying our group. We completed the acquisition of Navios Midstream by Navios Acquisition in December of 2018. We also completed the Direct Listing of Navios Maritime Containers on NASDAQ and commenced the next phase in the growth of NMCI by controlling 30 containerships. On slide four, we focus on our diversified group. As you can see, Navios Partners was recently upgraded to B2 by Moody's, following an upgrade by S&P in 2018. It has low leverage with 35.7% net debt to book capitalization and strong cash flow with about $600 million of contracted revenue. NMCI, a container-focused entity, has conservative leverage. NNA, a tanker company is operating in a healthy charter rate environment. In addition, the opportunity set in South America for Navios Logistics remains excellent, and we’ll continue to be a robust business there, including adding upriver port capacity in Mato Grosso do Sul area that we’ll address later in this presentation. Slide five highlights recent developments. We continue to deleverage and purchased $35.5 million of face value of our senior mortgage note at an average price equal to 50% of par value. We also substituted collateral, under 11.25% senior secured notes by replacing one Capesize vessel to the collateral target in exchange for ownership of 1.9 million of NMM and 0.2 million of NNA shares that were currently part of the collateral securing the notes. We are extending $39.5 million maturities of one bank loan by one year and substituting the vessel Navios Serenity for the Sea Victory, which will be renamed Navios Victory. We also completed our offer to exchange Series G, and Series H preferred shares forecast and 9.75% notes with maturity in 2024. The exchange offer program results in about 2 million of ADSs tendered, and for $17.2 million in cash and notes. We have been renewing our fleet. Our owned fleet average age decreased by 20% while the fleet capacity remained about the same. During the last 17 months, we acquired eight vessels, with an average age of 4.2 years and for $176.3 million as shown, nine vessels with an average age of 14.1 years for a $133.5 million. Slide six shows the cash flow potential for our fleet. For the remaining nine months of 2019, our fleet has 14,359 available days, of which 8,201 days or about 57% of our days have market exposure. At the current combined rate of $12,945 per day, our fleet will generate $17.5 million of free cash flow. If rates were to increase to a 20-year average, we would generate about $91 million of free cash flow. Our fleet is expected to generate an additional 8 million for every 1,000 increase in charter rate. Slide seven sets forth Navios cost structure. Our expected daily revenues for the remaining nine months of 2019, $12,601. We fixed 42.9% of our available days at an average daily rate of the $11,095. Daily revenue may increase by $449, based on the current NNA and NMM dividend and further increase by $1,057 for the effect of the current NNA on the open index days. Our breakeven cost for the same period is expected to be $11,382 per day. Our cost includes all operating expenses, scheduled drydocking expense, charter-in expense for our charter-in fleet, G&A, cash expenses, as well as interest expense and capital repayment, net of management and administrative costs to affiliates. Slide eight highlights our strong liquidity position. Net debt-to-book capitalization was 72.1%. And we had cash of $129.4 million at March 31, 2019. We have no significant committed shipping growth CapEx or any material debt maturity until 2022. I would like now to turn the call over to Mr. Tom Beney, Navios Holdings’ Senior Vice President of Commercial Affairs. Tom?
Thank you, Angeliki. Slide nine presents our diversified dry bulk fleet, consisting of 60 drybulk vessels, totaling 6.2 million deadweight, 18 Capes, 28 Panamax, 12 Supramax, and 2 Handysize. We continue to be one of the largest U.S.-listed drybulk operators, established over 60 years ago. The average age of fleet is 7.7 years, 22% younger than the industry average. Navios Group's total fleet of 201 vessels includes 55 tankers, 47 container vessels and 99 dry bulkers and is a highly diversified public shipping group. Please turn to slide 11. The IMF forecasts world GDP growth at 3.3% in 2019 and 3.6% expense in 2020. Emerging and developing Asian markets, which drive drybulk demand are expected to grow at a healthy 6.3% in 2019 and 2020. Following an improved market during the second half of 2018, Q1 2019 was unexpectedly weak many due to the tragic dam burst at the Vale mine in Brazil and severe weather issues in Western Australia that have disrupted iron ore shipments. Turning to slide 12. Through March 2019, worldwide steel production has increased 4.2% and Chinese production through April is up 10% on the same period last year. The Belt and Road Initiative remains the cornerstone of Chinese economic plans for the next few years and supports steel and power demand domestically and abroad. After the tragic dam burst at a Vale mine in southern area of Brazil, forecasters are reviewing the potential impact on iron ore shipment as the story continues to unfold. With the partial reopening of the Brucutu mine and increased production elsewhere, particularly in the northern flagship S11D mine, Vale expects to sell between 307 million tons and 332 million tons of iron ore this year. Other Brazilian iron ore exporters such as Anglo-American are exporting more than last year and will continue to do so, given very-high iron ore prices. So far, forecasts are for a decline of about 30 million tons of Brazilian iron ore exports from 2018. Preliminary data for May says that the pace of Brazilian iron ore exports is picked up from a very slow April, which has helped recently to support cape rates. Also Australian iron ore exports, hit earlier this year by cyclones, have also begun to make up some of their lost exports with high volumes by fixing in the spot market. China continues to cope with the evolving Brazilian and Australian iron ore export problems by drawing [ph] important venture, as stock is down, and by increasing production of low quality domestic ore. Chinese coal stocks are down by 34 million tons since June of 2018. Please turn to slide 13. In 2018, seaborne imports into Asia were up 67 million tons. India and China account for 35 million metric tons of that increase. Other Southeast Asian countries which completed new coal-fired power plants, new steel mills, account for the balance of the growth. The Chinese government continues to rationalize domestic coal production, closing down small, inefficient, hazardous mines and encouraging consolidation of large mining groups. This has kept Chinese domestic coal price high and encouraged imports. Through February 2019, Indian coal imports were up 17% on steady demand and continued issues with local production. India is expected to surpass China as the largest importer of coal in Asia in 2019. Coal imports to India are expected to grow by further 5% in 2019. Turning to slide 14. Worldwide grain 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. Chinese tariffs on U.S. soybeans have reduced U.S. exports in the 2018-2019 crop year. Instead, Chinese buyers have relied on South American crops. In 2019, the harvest in South America were expected to be at record levels and we continue to see Chinese buyers favoring crops from Brazil and Argentina helping ton miles. Large harvest keep crop prices low, helping to encourage further shipments going forward. Projections are for the worldwide grain trade to grow about 1.3% or about 6 million tons in 2019. A resolution of the U.S. China trade negotiations should positively impact grain shipments going forward. Moving to slide 15. 2019 forecasts are for net fleet growth to be 2.4%, lower than 2018. Based on the current order book and discipline in new vessel contracting, low net fleet growth is expected to continue over the next few years. Turning to slide 16. The current order book before non-delivers 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 delivers compared favorably to the overaged fleet. The expected disruption caused by the IMO 2020 fuel regulations, should provide support to the drybulk market through 2019 and beyond. Tonnage supply will tighten as about 400 vessels from Panamax to VLOCs are currently expected to go to drydock for extended periods to retrofit exhaust gas scrubbers. In addition, the expected increase in fuel costs in 2020 provides an incentive to bring shipments forward into the second half of 2019, and so steam vessels to reduce fuel consumption in 2020. The added costs for complying with IMO regulations for ballast water treatment systems and fuel regulations are expected to result in scrapping of all the vessels going forward. With demand increasing and improving throughout the rest of the year and supply restricted and disrupted due to preparations for IMO 2020, rates should continue to improve. I would now like to turn the call over to our CFO, George Achniotis for the Q1 financial results. George?
Thank you, Tom, and good morning. Please turn to slide 17 for a review of the financial highlights of the first quarter of 2019. I would like to remind you that as of November 30, 2018, Navios Holdings’ consolidated Navios Containers. Adjusted EBITDA for the quarter, excluding the results of Navios Containers, increased by 100% to $56 million, compared to adjusted EBITDA of $28 million in Q1 of 2018. EBITDA and net income for Q1 in both 2019 and 2018 were adjusted to exclude book losses relating to the sale of two vessels. In Q1 2019, we recorded a book loss of $5.5 million relating to the sale of the Navios Meridian, a 2002-build Handymax vessel that was sold for $6.8 million net. In Q1 2018, we recorded a $6.7 million book loss relating to the sale of the Navios Achilles, a 2001-built Handymax vessel. The increase in EBITDA is mainly due to an $11 million increase in the equity pick-up from affiliated companies, mainly due to the significant improvement in the results of Navios acquisition, and about $16 million in gain from the repurchase of our bonds. The EBITDA contribution of Navios South American Logistics also increased by about $5 million or 29%, due to the improved results of all business lines. The improvement in EBITDA combined with reduced depreciation and amortization resulted in an adjusted net income of $237,000, compared to a loss of $34 million in 2018. Please turn now to slide 18 where the balance sheet highlights are presented. We continue to maintain a healthy cash balance. As of March 31, 2019, the cash balance was above the $129 million, compared to $151 million at the end of December 2018. The balance sheet reflects the effects of the adoption of the newly standard. Total assets include $349 million of operating lease assets and total liabilities include $363 million of operating lease liabilities. I would like to point out that we have no significant debt maturities until 2022. Over the next few slides, we'll briefly review our affiliates. Please turn to slide 19. Navios Holdings owns 20.5% of Navios Partners, including a 2% GP interest. Navios Partners owns a fleet of 37 vessels, 32 dry bulk and 5 containers. Navios Partners also owns about 34% of Navios Containers. We expect to receive about $3 million in cash dividends from Navios Partners during 2019, and since 2008 we receive about $200 million in dividends. Turning to slide 20. Navios Holdings owns about 36% of Navios Acquisition. Following the completion of the acquisition of Navios Midstream Partners in December, Navios Acquisition has a fleet of 42 tankers including 14 VLCCs. We expect to receive about $6 million in cash dividends from Navios Acquisition during 2019. And since 2011, we received about $90 million in dividends. Moving to slide 21. Navios Holdings owns about 4% of Navios Containers, including the GP interest. Navios Containers has grown its fleet to 30 containerships in just two years. The company was established in early 2017 to leverage the weakness in the containership sector and scaled up its fleet quickly and efficiently. Since December of 2018, Navios Containers shares have been trading on the NASDAQ Global Select Market, marking the next stage in its growth. This concludes my presentation. At this point, I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics results. Ioannis?
Thank you, George. Slide 22 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 coastal cabotage trades. Please turn to slide 23. Port terminals are the driver of our overall business and we are currently developing a new river port facility in Mato Grosso do Sul, in Brazil. The area offers significant potential for exports and imports via the river with the development of new, modern infrastructure. We plan to develop a multipurpose river port to service exports of agricultural commodities and imports of fertilizers and fuel. The upriver terminal should create additional volumes for our barge business and transshipment port in Uruguay. We're still in preliminary stages, but we're excited by the opportunities. Please turn to page 24. In the first quarter of 2019, EBITDA increased 44% to $24.2 million from $16.8 million in the same period last year. Q1 2019 port segment EBITDA increased 27% to $14.7 million as all three terminals performed better compared to the same period last year. Q1 is a seasonally low quarter for grains. However, the grain terminal generated higher EBITDA compared to Q1 2018, mainly due to an 82% [ph] increase in throughput. Of course 2018 was adversely affected by weather, so improvement is overstated compared to normalized conditions. In the barge segment, Q1 2019 EBITDA increased 179% to $6 million from $2.1 million in the same period last year, mainly due to more liquid and dry cargo transported, as well as lower operating expenses. Cabotage business Q1 2019 EBITDA increased to $3.5 million compared to $3.1 million in the same period last year, mainly due to more operating days. For Q1 2019, net income was $5.3 million compared to $1 million loss in the same period last year. The increase is mainly attributable to the improved operating performance of all segments. Please turn to slide 25. Navios Logistics had a strong balance sheet. Cash at the end of Q1 2019 was $70.8 million compared to $76.5 million at the end of 2018. Net debt to book capitalization was 56%, unchanged compared to year-end 2018. Now, I would like to turn the call back to Angeliki.
Thank you, Ioannis. This completes our formal presentation. We open the call to questions.
[Operator Instructions] And your first question is from Noah Parquette of JP Morgan.
Hi. Thanks. I wanted to ask -- I guess, my first question is on the collateral substitution of the NMM units. Can you talk a little bit about the rationale for that and what kind of options that gives you going forward?
We have done that, we have used a lot of times on the collateral as per agreement, and you have seen that be done numerous times. We thought that that was a more appropriate asset, we have taken that opportunity. And we prepaid the case, [ph] so we created collateral.
Okay. And then, I want to ask on logistics. The barge number, I think EBITDA was the highest in like two years. Can you talk maybe what you saw there? I mean, is the soybean trade boosting things, is the change in iron ore, what was different in Q1 I think versus previous quarters?
I think this is a good question. And we have seen that -- and if you see overall the earnings of Logistics between Q1 last year to Q1 this year, we have seen a 44% increase from below $17 million to over $24 million. Reality -- margin has been recovering for both on grains and liquids. We have not seen yet an effect on iron ore. We'll see something that will be additional to this, as well as all our other lines of business. I think, what we have seen, primarily we have seen market stabilizing and we have seen a recovery. So, another very important thing that we think will further enhance apart from iron ore, our businesses are upstream river port in [indiscernible] grain in an area Mato Grosso do Sul has about 16 million of being, about 6 million -- over 6 million is exported. If we capture some via -- and more efficient river transportation that will enhance our barge -- in our port.
And for that new port, are you able to -- I mean, is it too early to give some idea for CapEx and potentially maybe EBITDA expansion on that? Are there any [multiple speakers] that you have against there or is it kind of like that?
The CapEx is around $30 million. I mean, we're fully loaded, fully developed stage. We are looking on the grain capacity of about $2 million that will give us around circa on a fully committed situation about $2 million. We are starting -- but this is a very early stage. We are just on the process of creating the business and we have the client [ph] which we have worked regional grain houses that we have worked for a long time. And this will be something that we will build on that basis. Also, what we will provide is, it will give us back -- also, we'll import in the area fuel and fertilizers to the farmers there. So, it’s a round trip. It is very beneficial. Of course, as I said, we are building 2 million grain capacity; it will take time to fully utilize that in full capacity with circa around $10 million EBITDA.
Then, I just had one more, this might be a modeling question for George. It looks like there is, I don’t know, maybe $22 million gain from the preferred. Was the gain from the tender included in that? I guess, how much of it was in that outline and how much was preferred dividends, and how much was the again, and will there be another gain next quarter?
The gain that we have in our P&L this quarter is from the buyback of the bonds, [ph] there's no gain from the preferred.
This is already reflected on the balance sheet, doesn’t go through the income statement.
So, when you said net loss was negative $5.3 million, but then the income attributable to common stockholders $16.4 million, what's the delta there? Usually the preferred dividend is the difference?
So, but it increased by $22 million, instead of having a preferred dividend. So, what was that increase?
That’s from the preferreds on EPS...
Okay. And then, how much was dividend and how much was a onetime gain…
I don’t remember the numbers off top of my head. I can call you up later and give you the details.
Okay, we’ll take it offline. Yes, okay. That’s all I had. Thanks.
That is all the time we have for questions at this time. I would now like to hand the call back over to Angeliki for any additional comments or closing remarks.
Thank you. This completes our first quarter earnings.
Thank you. Ladies and gentlemen, this concludes Navios Maritime Holdings Q1 2019 earnings call. You may now disconnect.