Navios Maritime Holdings Inc. (NM-PG) Q2 2020 Earnings Call Transcript
Published at 2020-08-20 13:28:07
Thank you for joining us for Navios Maritime Holdings Second Quarter 2020 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. George Achniotis; Vice Chairman, Mr. Ted Petrone; 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’ll see the webcast link in the middle of the page and a copy of the presentation referencing today’s earnings conference call will also be found there. Now I will review the safe harbor statement. This conference call can 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 risks. Navios Holdings does not assume any obligation to update the information contained in today’s 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, and after, we will open the call to take questions. Now I turn the call over to Navios Holdings’ Chairman and CEO, Ms. Angeliki Frangou. Angeliki?
Thank you, Doris, and good morning all of you joining us on today’s call. While the pandemic has greatly affected businesses, countries and people all over the world, the Navios value perseveres with a great pride in adopting to the ever-changing environment while providing essential services to the global community. During the second quarter of 2020, Navios Holdings reported revenue of $97.1 million, adjusted EBITDA of $27.2 million and a time charter equivalent of $7,827 net per day. Year-to-date 2020, the Capesize 5TC daily rate is averaging around $10,600 per day versus the 2019 daily average of $18,000 per day. Rates have been recovering over the past couple of months as countries emerge from quarantine with the current Capesize rate around $20,000 per day. Please turn to Slide 4. As you can see, Navios Logistics surpassed $100 million in EBITDA for 2019. In July 2020, Navios Logistics successfully refinanced its senior notes due in 2022 and Term Loan B due in 2021, with a new $500 million senior secured notes issuance. Navios Acquisition and Tanker Company has benefited through robust market fundamentals earning about $73 million in adjusted EBITDA for the second quarter of 2020, and has a pipeline of about $480 million in long-term contracted revenues. Navios Partners has about $500 million in contracted revenue in low levels with a 38.7% in net debt to book capitalization. Navios Containers, a container entity, also has conservative levels with a 53.7% net debt to book capitalization. Slide 5 details the pandemic’s impact on global trade. The IMF projects at 4.9% decrease in global GDP growth for 2020, mostly driven by an 8% decline in advanced economies. As a result of the disruption to world economic activity, dry bulk trade is expected to contract by 3.9% in 2020. We believe that we have already felt much of the impact in year-to-date. Looking forward, economies are projected to recover in the second half of 2020. In 2021, global GDP is forecasted to increase by 5.4%, and China GDP is forecasted to increase by 8.2% thereby, projecting dry bulk trade to grow by 4 5%. Slide 6 highlights our recent developments. We successfully liquidated an investment vehicle, Navios Europe II, in June 2022 and received $7.9 million in cash plus two Panamax dry bulk vessels. As a financing update, we entered into a new $50 million secure loan from NSM with interest of 5% and maturity in Q4 of 2024. The loan is currently fully drawn. As an update to our recent fleet activities, we sold two 2005-built Panamax vessels for $14.1 million. The vessel sales are expected to be completed within the third quarter of 2020. As I mentioned earlier, in July 2020, Navios Logistics refinanced its senior notes due in 2022 and Term Loan B due in 2021, with a new $500 million senior secured notes issuance. The new note will be callable in two years and mature in 2025. Today, the notes trade at the price in excess of 106% with a [indiscernible] about 9%. As you may have noticed, Navios Logistics filed a 6-K announcing that it filed with Brazil B3 Exchange for an initial public offering, subject to market and other conditions. Navios Logistics is in a quiet period with respect to that offering. Slide 5 highlights our liquidity position. As of June 30, 2020, our net debt to book capitalization was 92.2%, and we had cash of $55.1 million. We have no significant committed shipping growth CapEx. I would like to turn the call over to Mr. George Achniotis, Navios Holdings’ CFO. George?
Thank you, Angeliki. Please turn to Slide 8 for a review of the Navios Holdings financial highlights for the second quarter and first six months of 2020. Adjusted EBITDA for the quarter was $27.2 million compared to $52.8 million in Q2 of 2019. EBITDA and net loss for the quarter were adjusted to exclude $9 million impairment loss on two vessels and $1.3 million impairment loss incurred in NMM. EBITDA and net loss for Q2 of 2019 were adjusted to exclude $18.3 million impairment losses from the sale of four vessels, $13.5 million impairment of our investment in Navios Acquisition and $9.8 million EBITDA contribution from Navios Containers, and $3.1 million net loss from discontinued operations of Navios Containers. The decrease in adjusted EBITDA reflects the effect of the pandemic on the dry bulk market during Q2. The TCE rate we achieved in the quarter was 25% lower than last year’s second quarter. During the quarter, we recorded an adjusted net loss of $25 million compared to an adjusted net loss of $1.6 million in 2019. The reduction is mainly due to the decrease in EBITDA. Moving to the first half financial highlights. Adjusted EBITDA for the first half of 2020 was $55.9 million compared to $109.3 million in the first half of 2019. In addition to the items that affected the Q2 EBITDA, the first half results were adjusted to exclude $11.2 million book loss relating to the sale of two vessels in Q1 and $18.3 million impairment relating to Navios Europe II, both directly and through our affiliates. Similar to the quarterly results, the decrease in adjusted EBITDA is mainly due to the effect of the pandemic on the charter market. Adjusted net loss for the first half of 2020 was $48.8 million compared to a net loss of $1.1 million in 2019. Moving to Slide 9 and our balance sheet highlights. As of June 30, 2020, the cash balance was about $55 million compared to about $75 million at the end of December 2019. Senior and ship mortgage notes are about $18 million lower than at year-end, mainly reflecting the notes bought back in Q1. Over the next few slides, we will briefly review our subsidiaries. Please turn to Slide 10. Navios Holdings owns 89.5% of Navios Partners. Navios Partners controls a fleet of 53 vessels, 43 dry bulk and 10 container ships. NMM also owns about 34% of Navios Containers. Based on the company’s current distribution, we expect to receive about $400,000 annual dividends. Since 2008, we received about $200 million in dividends from Navios Partners. Turning to Slide 11. Navios Holdings owns about 31% of Navios Acquisition. NNA has a fleet of 47 tankers, including 14 VLCCs and following the dissolution of Navios Europe II, 7 container ships that are held for sale. The company’s enjoying the recovery in the tanker market and has recorded significantly improved revenue compared to Q1 of 2019. Based on the company’s current distribution, we expect to receive about $5.8 million annual dividends. Since 2011, we received about $97 million in dividends from NNA. Moving to Slide 12. Navios Holdings owns about 4% of Navios Containers. NMCI has a fleet of 29 containerships. 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 units have been trading on the NASDAQ Global Select market. And 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 13 provides an overview of Navios Logistics. Navios Logistics operates three port terminals, which are complemented by our barge fleet for river transportation and product tanker fleet for coastal cabotage trade. Our EBITDA for the last 12 months was $101.5 million, about 70% of which was generated from the port segment. Last quarter, we announced the trial contract with Vetorial and Cargill for the transshipment of iron ore through our port terminal in Nueva Palmira. We are pleased to announce that we have now signed a one-year contract with an option for Vetorial to extend for a single six-month period for 1.5 million tons per year. We continue to focus on growing our port business, leveraging our installed capacity and developing new infrastructure. We also recently filed with the Brazilian Securities Commission for a potential public offering on the B3 Stock Exchange, subject to market conditions and other factors. Please turn to Page 14. In the second quarter of 2020, EBITDA decreased by 2% to $27 million from $27.5 million in the same period last year. Q2 2020 port segment EBITDA increased by 8% to $18.9 million. The increase was attributed to higher throughput in our grain terminal in Uruguay. In the bulk segment, Q2 2020 EBITDA decreased to $3 million from $5.6 million in the same period last year, mainly because of lower revenue from liquid cargoes and time charters. In our cabotage business, Q2 2020 EBITDA increased by 14% to $5.1 million from $4.4 million last year, mainly due to more operating days. For Q2 2020, net income was $12 million compared to $9.7 million in the same period last year. The increase was mainly attributable to higher interest income recorded from the Navios Holdings’ loan agreement. Turning to the financial results for the six-month period ending June 30, 2020. Revenue decreased 1%. EBITDA decreased 5% to $49.2 million, and net income increased 27% to $19 million from $15 million in the same period last year. Please turn to Slide 15. Navios Logistics has a strong balance sheet with no significant maturities until 2025. In July, we issued $500 million 10.75% senior secured notes to refinance the $375 million senior notes due in 2022 and the $97.5 million outstanding balance of the Term Loan B due in 2021. The new notes are due in 2025 with an option to redeem at par, plus three quarters from the coupon beginning in 2022. The balance sheet data as of June 30, 2020 does not reflect this refinancing as the transaction closed in July. I would now like to turn the call over to Ted Petrone.
Thank you. Please turn to Slide 16. Slide 16 presents our diversified dry bulk fleet consisting of 52 dry bulk vessels totaling 5.7 million deadweight, 17 Capes, 28 Panamaxes, 5 Supermaxes and 2 Handysize. We continue to be one of the largest U.S. listed dry bulk fleet established over 65 years ago. The average age of the fleet is 7.7 years, 25% younger than the industry average. Navios’ Group total fleet of 196 vessels includes 95 dry bulk vessels, 55 tankers and 46 container vessels. Navios is a highly diversified public shipping group. Turning to Slide 18. In the last few months, we have seen extraordinary volatility in rates as the first half cargo demand slumped on the back of impact of the restrictions caused by the pandemic. However, the Chinese economy, which accounts for approximately 40% of global dry bulk trade, returned to positive growth in Q2 on the back of government stimulus, particularly aimed at infrastructure spending. The BDI reflected this unusual seasonality by reaching a year-to-date low of 393 in mid-May before turning around to reach a nine-month high of 956 in early July, on the back of a strong recovery in demand led by Brazilian iron ore exports, which helped tape rates reach close to 34,000 before correcting over the last few weeks to just below 20,000 as of yesterday. Within the entire global continuing to be affected by the pandemic, the IMF projected global GDP contraction of 4.9% for 2020 led by an 8% contraction in advanced economies. Governments have put in place unprecedented emergency monetary and fiscal plans to support their economies. In light of this, the IMF projects 5.4% global GDP growth in 2021 led by a 7.4% growth in emerging and developing Asia. As a result of the above, seaborne dry bulk trade is projected to contract by 3.9% in 2020 and grow by 4.5% in 2021. Turning to Slide 19. The graph on the left shows that for the second half of the year, dry bulk demand for the three major cargoes of iron ore, coal and grain is forecast to outpace the first half by about 6%. This increase is led by iron ore, which is expected to grow by about 8.2% or 60 million metric tons, which will come from Brazil, adding to ton miles. If you look at the graph on the right, net fleet growth is forecasted to be 3.1% this year. Second half delivery is expected to be 44% lower than the first half, resulting in only 0.8% expected net fleet growth in the second half of this year. Turning to Slide 20. Chinese iron ore imports were flat last year but expected to increase by 5.7% in 2020. Chinese steel mills have reduced their iron ore stockpiles by about 45 million metric tons between June of 2018 and July of this year. With additional availability of iron ore in the second half of 2020, shipments from Brazil to China are expected to increase by about 30 million tons per quarter as steel mills replenish stockpiles driving demand for Capesize vessels. The Chinese fiscal stimulus and infrastructure spending should support steel production and, in turn, dry bulk trade going forward. Moving to Slide 21. The combination of the pandemic and the significant drop in the price of oil and gas has resulted in reduced coal trade. Asian coal imports, which account for over 80% of the world's seaborne trade, are expected to decrease in 2020 by about 6.2% but increase by 5.3% in 2021. This reduction has added pressure on the smaller-sized vessels, which has been partially offset by increased demand for grains discussed in the following slide. Turning to Slide 22. Worldwide grain trade has been growing by approximately 5% CAGR since 2008, mainly driven by Asian demand. While Brazil drove first half grain trade with record saving shipments in April and May, the U.S. is expected to drive the second half of this year's grain trade based on record corn and huge soybean production forecast for the coming crop year. China has been and is expected to be a major buyer of soybeans and corn this year as it seeks to rebuild its swine herd and avoid food shortages. An increasing world population, as well as increasing protein demand worldwide, continues to support the global grain trade. With the pandemic disruptions causing minimal grain trade disruptions, the international grain council projects record shipments of wheat, corn and soybean for this 2020 crop year. Please turn to Slide 23. The current order book stands at only 7% of the fleet, which is the lowest on record. New building contracting has collapsed and year-to-date is down by about 66% compared to 2019. This decline can be partially attributed to owners' hesitance to order long-lived assets in light of macroeconomic uncertainty and engine technology concerns due to upcoming CO2 restrictions. With the order book being front-loaded this year and scrapping expected to accelerate in the second half due to the phase-out of the VLOC, net fleet growth is expected to remain low at about 3.1% for 2020. Turning to Slide 24. Vessels over 20 years of age are about 7% of the total fleet, which is the same percentage as the previously mentioned low order book. Scrapping, which started slowly due to a combination of pandemic lockdown and logistical crew challenges, now stand at 10 million deadweight tons year-to-date. This amount exceeds the total for the whole of 2019 by about 23% and is in excess of 1% of the fleet. In conclusion, positive demand fundamentals mainly due to easing of lockdowns around the world and the restart of economic activity, along with the reduced fleet availability caused by the Vale phase-out of its VLOC fleet should provide support to the dry bulk market and its continuing effort to navigate through this pandemic storm. This concludes my presentation. I'd now like to turn the call over to Angeliki for her final comments. Angeliki?
Thank you, Ted. This concludes our formal presentation. We'll open the call to questions.
[Operator Instructions] : :
At this time, there are no questions in queue. I would like to turn it back over to Angeliki for closing remarks.
Thank you. This completes our second quarter results. As we said, it was a difficult first half of the year with the second half being stronger with the market improving and the company's results improving. Thank you.
Thank you. This concludes today's conference call. You may now disconnect.