Navios Maritime Holdings Inc. (NM) Q1 2018 Earnings Call Transcript
Published at 2018-05-15 14:31:05
Angeliki Frangou - Chairman and CEO Tom Beney - SVP, Commercial Affairs George Achniotis - CFO Ioannis Karyotis - SVP, Strategic Planning
Justine Fisher - Goldman Sachs
[Call Starts Abruptly] By 40% over the last 3 years. Slide 7 provides some further insight into the $38 million of estimated operating cost savings. To adjust our efficiencies we compare operating cost to the public results of our peers. We will compete with our peers' operating cost by referring their 20F and related disclosures. As can you see from the slide, our management believe that NM's operating cost were estimated of approximately 42% lower than the average of our listed peers. We believe that the savings demonstrate the substantial operating benefit we can generate and the value delivered to all our stakeholders. And we believe that completing our benefits based on actual operating results is in the most persuasive way to demonstrate actual savings. Slide 8 which provides an overview to our fleet renewal program. We have expanded our chartering fleet at an attractive time. We acquired 10 and sold 3 vessels, thereby adding a net of 7 vessels to our fleet. In particular, we acquire a Capesize vessel in 2000 for $10 million, the vessel increase a collateral value of our secured launch by $4.25 million. We therefore charter and chartering 9 in terms of market some of them with price reductions. We also bought 3 Supramax vessels for $19.5 million which has an average age of about 17 years. This purchase option provide real value. We have no significant capital requirements, which allow for capital flexibility and expansion capabilities at an opportune time. As a result of the fleet renewal and expansion activities activity we improved the average age of our fleet by 13% and increased our fleet by 11%. Also, our charter-in fleet base have increased allowance for additional revenue generation. Finally, 70% of our charter-in fleet has purchase options. Slide 9 shows the cash flow potential of our fleet in a market recovery. Our time charter rate for Q1 of 2018 was $10,983 per day. For the remaining 9 months of 2018, our fleet has 17,115 available days, of which 10,870 days have market exposure. Our current rate of $15,152 per day, our fleet would generate $43.6 million of free cash flow. If rate was increased for 20-year average, we will have about a $116.5 million of free cash flow in front our fleet and generating additional $11 million of free cash flow for every $1000 increase in charter-in. Slide 10 sets forth Navios cost structure. Our expected daily revenue for the remaining nine months of 2018 is $14,368 per day. We fixed 26.5% of our available days at an average daily rate of $11,953 per day. Daily revenue may increase by $2038 per day based on an expected impact of current market rate an open and in fixed days and an additional $377 based on the current NNA and NMM dividend. Our breakeven cost for 2018 is expected to be $11,819 per day. Our cost include all operating expenses, scheduled dry dock 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 72.1% and we had cash of $121.9 million as of March 31, 2018. We have not significant committed shipping growth CapEx or any material debt maturity until 2022. I would like now to turn the call over to Tom Beney, Navios Holdings' Senior Vice President of Commercial Affairs.
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, 16% younger than the industry average. Navios Group's total fleet of 206 vessels includes 54 tankers, 42 container vessels and 112 dry bulkers, and is a highly diversified public shipping group. Please turn to Slide 14. The IMF forecast, world GDP growth at a 3.9% to 2018 and 2019. Emerging markets are expected to grow at a healthy 4.9%. On the back of synchronized global economic growth, dry bulk trade grew by 4% in 2017 and is forecasted to rise by 2.6% in 2018, above the expected 2.1% net fleet growth. Moving to slide 15. Data from the IMF shows further evidence of the global economic expansion as all major economies are growing simultaneously. This 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 excellent growth is 85%, which is the highest on record. I would like to point out the dry bulk market steel have substantial upside as it remains about 40% below the 20 year average. Turning to slide 16, worldwide steel production experienced a 5% increase in 2017 on the back of firming steel prices and Chinese steel production rose by 6%. Up to ended March 2018, Chinese steel production is up a further 5%. Chinese steel exports reduced related for increased domestic demand, which is been stimulated by large infrastructure projects and recovery in the housing market. The One Belt, One Road projects is a cornerstone of the economic plans for the next 5 years and supports steel and power demand inside and outside China. Chinese domestic production of iron ore in 2018 is down 36% year-on-year in Q1. Substitution of Chinese expensive low quality iron ore with higher quality and lower price imports continues. Iron ore imports into china for 2017 rose 5% or 50 million tonnes as forecast arise up further in 2018. While recently we reiterated that they expect to meet their 2018 production target of about 390 million tonnes, which will result in increased export volume for the balance of the year, since Q1 was negatively effective due to seasonal weather issues. We should support [indiscernible] as 1 tonne of Brazilian iron ore equates to almost 3 tonnes of Australia law in [indiscernible]. Please turn to slide 17. 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 encourage imports, as inefficient polluting mines are closed. During the peak winter seasons, stocks of thermal coals of power plants in both China and India reached uncomfortably low levels prompting both governments to allow additional coal imports to maintain power supply. In 2017, Chinese Seaborne coal imports were up by about 10% and through March of this year they were up by 28% to-date. Turning to slide 18, agricultural production worldwide continues to increase, after a strong 7.1% growth in 2017 forecast for 2018 offer further increase. Worldwide grain trade has grown by 5.5% CACG since 2008, mainly driven by Asian demand. Demand increases are focused on Asian economics and especially China, where incomes are rising and [docks] are changing. Chinese imports of soybeans in 2017 were up 15%. Most of the increases in grain production are based in the Americas or in European regions increasing tonne miles for longer trips to Asia. Moving to slide 19, in 2017, 34% of total expecting new buildings never delivered. In spite of a significantly better market this year the long delivery rate increased to 41% year-to-date. Forecast offer a 2.1% net fleet growth in 2018, the lowest since 2000. Based on the current order book and shipyard availability, low net fleet growth is expected to continue over the next few years. In addition, as a result of incoming changes in iron ore regulations scrapping of older vessels it is expected to continue. Turning to slide 20, 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 trade growth of 4%. Total scrapping in 2017, was 15 million tonnes. 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 balance between new expected deliveries and potential scrap candidates. The fundamentals for 2018 and beyond remain positive. In fact forecast for 2018 showed the demand of 2.6% will be more than the level of supply growth of 2.1%. The demand of our supply in the market should continue to recover and support increased charter rates going forward. I would now like to turn the call over to our CFO, George Achniotis for the Q1 financial results.
Thank you, Tom and good morning. Please turn to slide 21 for the review of the financial highlights of the first quarter of 2018. Adjusted EBITDA for the quarter increased by 60% to $28.1 million compared to adjusted EBITDA of $17.5 million in Q1 of '17. EBITDA net income for Q1 in both 2017 and '18 were adjusted to exclude group losses relating to the sale of 2 vessels. In Q1 of 2018, we reported a $6.7 million of book loss relating to the sale of Navios Herakles, a 2001-built Panamax vessel, the vessel was sold for $7.7 million net. In Q1 of '17, we recorded a book loss of $9.1 million relating to the sale of [Navios Union], a 2000-built Panamax vessel that was sold for $5.3 million net. The increase in EBITDA is mainly due to an over 13 times increase in the EBITDA contribution of the dry bulk fleet due to a 40% increase in the TC rate achieved in Q1 of '18 compared to Q1 of '17, which is a reflection of the improvement in the dry bulk market. The increase is also attributable to a 54% in the EBITDA contribution of Navios South American Logistics, due to the commencement of the valid contract at the Iron Port in Uruguay. The increase was mitigated by reduction equity pickup from affiliated companies, specifically Navios Acquisition as the tanker sectors have a different boiling in cycle. Adjusted net loss for the quarter was $34.1 million compared to a loss of $39.6 million in 2017. Please turn now to slide 22 where the balance sheet highlights are presented. We continue to maintain a healthy cash balance. As of March 31, 2018 the cash balance was about a $122 million, compared to a $134 million at the end of December 2017. The projects for asset acquisitions reduced to $7.5 million compared to $36.8 million at December 31, 2017, as Navios South America Logistics took delivery of 3 new pushboats during the quarter. I'd like to point out that we have no significant maturities until 2022. Over the next few slides we will briefly review our affiliates. Please turn to slide 23. Navios Holdings owns about 20% of Navios Partners, including a 2% GP interest. Navios Partners owns a fleet of 38 vessels, 33 dry bulk and 5 containers. NMM also owns about 36% 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 added 11 vessels it has sold to with an average age of 10 years, reducing the average age of fleet by 12%. We expect to receive about $3 million in dividends from NMM in 2018 and since 2008 we received about a $195 million in dividends. Turning to Slide 24; Navios Holdings owns about 48% of Navios Acquisition. NNA has a fleet of 35 modern high quality tankers, with an average age of 7.3 years diversified between crude product and chemical tankers. NAA also owns about 59% of Navios Midstream Partners, including a 2% GP interest. NMPs and MLP with 6 VLCCs and is expected to provide NNA with about $10 million in distribution in 2018. We expect to receive about $6 million dividends from Navios Acquisition during 2018. And since 2011 we received about $84 million in dividends. Moving to slide 25 Navios Holdings own 3% 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. Since its inception, the company raised a $180 million at the Oslo PC market, and acquired 25 vessels mostly through distressed transactions. 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.
Thank you, George. Slide 26 provides an overview of the Navios Logistics business. Navios Logistics operates three port terminals. Navios Logistics complements its port business with its barge fleet for river transportation and product tanker fleet for coastal cabotage trade. Please turn to page 27. For the overall results for the first quarter of 2018 revenue increased 19% year-on-year to $52.3 million and EBITDA increased 67% year-on-year to $16.8 million. Q1, 2018 port segment revenue increased 59%, compared to the same period last year and EBITDA increased 178% to $12.1 million. The increase is mainly attributable to the operation of the new Iron Ore terminal. In Q1 2018, the Iron Ore terminal generated approximately $10.2 million EBITDA. For 2018, we're estimating about $40 million EBITDA from the Vale contract, based on the annual minimum guaranteed quantity. The grain terminal had weaker performance compared to Q1 2017, as grain export and shipment volumes were impacted by the draught Uruguay and Argentina. The liquid terminal had improved performance compared to Q1, 2017 mainly due to higher storage revenue. In the barge segment, EBITDA in the first quarter of 2017 was positively affected by two extraordinary events: $1 million gain from the sale of self-propelled barges; and $1.1 million other income from an impression award. Excluding these two events, for comparison purposes, Q1 revenue decreased 10% and EBITDA decreased from $3.5 million to $1.6 million. The decrease compared to the same period last year is mainly attributable to lower liquid cargo transportation. Q1 is a seasonally low quarter for grain exportation. Cabotage business's Q1 EBITDA increased $3.1 million compared to $0.2 million in the same period last year. The increase is attributable to higher number of operating days due to less scheduling dry dock in higher days compared to Q1 2017. Net loss Q1, 2018 reduced 65% to $1 million from $3 million in the same period last year. The improvement is attributable to the increase in EBITDA that was partially mitigated by higher depreciation expenses, related to the iron ore terminal and higher interest expenses. The increase in interest expenses was due to the new terminal term loan B issued in Q4, 2017 and reduced capitalize interest following the completion of the construction of the iron ore terminal. Please turn to slide 28. Navios Logistics had a strong balance sheet. Cash at the end of Q1, 2018 was $82.1 million, compared to $79.9 million at the end of 2017. Net debt-to-book capitalization was 55% compared to 56% at the year-end 2017. Now, I would like to turn the call back to Angeliki.
[Technical Difficulty]. Questions.
[Operator Instructions]. Our first question comes from the line of Justine Fisher of Goldman Sachs.
Good morning, how are you?
Can I ask a broader question about the timing charter versus the acquisition? You guys are chartering in ships to grow the fleet. And I am assuming that the rates, that you are making money chartering them in a lower rate and then able to take advantage of the improving market to try to charter them at higher rates. Will Navios start to buy some more ships at some point? I mean when do you start to make that decision to buy more vessels as oppose charter them in?
In vessels, we value those vessels as almost a core filtered we will exercise the options. Just to give you an idea, if you see on the we have --first of all we have 70% of our charter-in vessels of process options. On the new wellbore charter-in vessels, our overall costs is including the OpEx and everything is that is below $9,000 is about $8,000. So you get, and you have purchase option from here for every year at the declining of a million two per year. So you are actually are able to - we think that these vessels are part of our core fleet, which we will also exercise the option when we find that is more attractive than the financing, in the essence financing almost way. But it gives you the purchase option and it brings you at a very convenient. It leveraging at very low cost taking advantage of the Japanese interest rate environment beyond that.
Okay, thanks. And then another question on the duration of the Time Charters. So I'm looking at some of the ones you've guys have signed versus Capsizes. And I mean they're reflecting the charter market you've got some charters in the mid-teens. And then it look like there are about one year duration, I'm just looking a lot of them end in March of 2019. And so is that kind of the sweet spot of the charter market now, where your clients are seeing okay, we know rates are rising we're willing to do it for one year, but you can't really lock in kind of a 2 or 3 year charter at that rate you've got that the market just not that strong. So it's kind of the one year where there is most activity? And how deep is that market for kind of mid-teen for 20,000 time charters now for you let's say?
I would say that during the last couple of 3-4 weeks we had in our headquarters in almost every major commodity house coming and asking for deal. What you see is that one here is well established at even when the rate will dropped about $8000, $9000 on the spot market on the Capesizes. You're doing things of one year at close 20, 19-20. So the 20,000 and low-20s is a well-established level for the one year rate. And to be honest it's a good charter rate, I'm not saying we're very bullish on the market, but we see the there is a good level of where you think there is one year rate. We have now start seeing also some 2-year rate or 3-year rate on the Kamsarmaxes at around high-13. So this is start developing. The strategy of Navios as we have about two thirds of our available base exposed to the market, but collectively, we will start seeking at nice margins that we seeing developing at around 20. And trying to create different maturities, meaning creating a 2 year 3 year and creating some cash flows and visibility.
Okay, great. Thanks. And then I have one more question for George if I may. And you said that you've acquired the Capsize for $10 million but it added $4.25 million to the bottom collateral pool. Why was the, why was there difference and how much collaterals added to the pool versus what you paid for the ship?
We took a vessel out which we sold, and we added vessel with the higher value. I think you will seeing more transactions like that exercising, we will be exercising options that we have in our books for younger vessels 2007 and 2008. And substituting with older vessels that we're taking now.
Okay. So that was a net addition to the collateral pool over and above what the previous vessel was, okay. I see. Thank you very much for the time.
And now I would like to turn the floor back over to Angeliki Frangou for any additional or closing remarks.
Thank you. This completes our Q1 results.
Thank you ladies and gentlemen. This does conclude today's conference call. You may now disconnect and have a wonderful day.