Navios Maritime Holdings Inc.

Navios Maritime Holdings Inc.

$2.27
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New York Stock Exchange
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Marine Shipping

Navios Maritime Holdings Inc. (NM) Q4 2019 Earnings Call Transcript

Published at 2020-02-19 17:00:00
Operator
Thank you for joining us for Navios Maritime Holdings Fourth Quarter and Full-Year 2019 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Georgios Achniotis; Vice Chairman, Ted Petrone, and SVP of Strategic Planning, Ioannis Karyotis.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 can also be found there.Now, I'd like to 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.We will begin the morning's call 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, Angeliki Frangou. Angeliki?
Angeliki Frangou
Thank you, Laura. And good morning to all of you joining us on today's call. I'm pleased with the results for the fourth quarter and full-year of 2019. For the fourth quarter 2019, we reported revenue of $118.9 million and adjusted EBITDA of $74.7 million and adjusted net income of $19.4 million.For the full year of 2019, we reported revenue of $482.4 million, adjusted EBITDA of $303.8 million and adjusted net income of $53.9 million.Charter rates in the dry bulk market are depressed due to the seasonality and uncertainty related to the coronavirus. We anticipate continued weakness in the first half of 2020, with slow acceleration in the second half of the year as China returns more fully to the global market.Slide three highlights the Navios Group will control almost 200 vessels through four publicly listed companies and two investment vehicles.On slide four, we focus on our diversified group. Turning first to South America, the prospects remain excellent. The company surpassed $100 million in EBITDA for 2019 as our core businesses continued to grow. We also pursue other opportunities, including a potential investment in an upriver port facility in Brazil.Navios Partners should enjoy strong cash flow with about $520 million of contracted revenue and low levels of 36.5% net debt to book capitalization.Navios Containers, our container-focused entity, also has conservative leverage and is fully fixed for the first quarter of 2020, a period of weakness.Navios Acquisition, our tanker company, has been operating in a robust charter rate environment. While the coronavirus has caused current weakness, we believe the long term prospects remain robust.Slide five highlights our recent developments. As an update to our balance sheet, since the year and 2018, NM reduced short-term liabilities by about $95 million and long-term liabilities by $82 million.We have also been actively renewing our fleet. During the fourth quarter, we acquired four vessels, which include two cape-sized vessels that we acquired through the exercise of favorable purchase option and two Kamsarmax vessels under bareboat leases that have been delivered to our fleet. The average age of the four acquisitions was 2.2 years. We also sold three of our older vessels with an average age of 17.3 years for $23.6 million in gross sales proceeds, which include expected insurance proceeds.Last quarter, I mentioned our intention to monetize Navios Europe I. And in December 2019, we successfully liquidated the structure. We used the $13.4 million in cash received to repay debt. As an additional liquidity lever, we have $44.3 million in receivable due from Navios Europe II. Navios has an option to terminate the structure in Q3 2021.Slide six highlights how during a difficult period, we refreshed and transformed our fleet. As you can see from the bottom of this slide, only once during the five-year period did the BDI equal or exceeded the 20-year average.Yet, we refreshed our fleet and maintained an average fleet age of about nine years. In addition, we transformed the fleet by increasing the average size of our vessels. Overall, will have the same deadweight tons capacity, while we have five fewer vessels. We achieved this result by shrinking our Handymax segment by almost 70% and increasing our Panamax and Capesize segment.I think this slide demonstrates that even during difficult market periods, we seek to manage that which we can control and position ourselves for an eventual market recovery.Slide seven, as you can see, we expect the market to recover during the second half of 2020. As I noted earlier, the charter market has been severely impacted by seasonality and, to a much greater extent, the coronavirus. But the significant charter rate recovery is expected in the second half of 2020.As you can see from the chart on the bottom right of the slide, in the past three years, the BDI index has been consistently high in the second half versus Q1 of the same year.As you see from the chart on the bottom of the right, FFA for the second half of 2020 reflects a disproportionate upside versus prior years. Today, the market FFA rate for the second half of 2020 are 3 times the BDI index spot rates and we are well positioned to reap the benefits of this expected rate recovery through our 14,994 open and index-link days.Slide 8 highlights our liquidity position. Note that book capitalization was 86.2% and we had cash of $78.7 million as of December 31, 2019. We have no significant committed shipping growth CapEx. We also have no material debt maturities until January 2022, subject to the October 2021 springing maturity of our 11.25% bonds.I would like now to turn the call over to Mr. Georgios Achniotis, Navios Holdings CFO. George?
Georgios Achniotis
Thank you, Angeliki. Please turn to slide nine for a review of the Q4 and the full-year financial highlights. I would like to point out that for comparability purposes, the results of Q4 and the full-year 2019 and 2018 exclude the effect of the consolidation of Navios Containers from November 30, 2018 to August 30, 2019.EBITDA and net income for the fourth quarter of 2019 were adjusted to exclude $130.6 million impairment losses relating to dry bulk vessels. EBITDA and net income for the fourth quarter of 2018 were adjusted to exclude the $184.6 million impairment losses relating to dry bulk vessels, $55.5 million impairment on our investment in Navios Partners and $58.3 million gained from the consolidation of Navios Containers.Adjusting for the above, EBITDA for the quarter increased by 64% to about $75 million compared to $46 million in 2018. The increase in adjusted EBITDA is mainly attributable to about $22 million increase in the equity pickup from affiliates, mainly due to the improvement in the tanker sector, a 7.5% increase in the EBITDA of Navios South American Logistics, and $13.7 million gain from the repurchase of our bonds.Adjusted net income for the quarter was $19.4 million compared to an adjusted net loss of $19.7 million in 2018. The increase is mainly due to the increase in adjusted EBITDA and about $5 million decrease in depreciation and amortization.In addition to the items that affect the Q4 EBITDA and net income, the full-year results were also adjusted to exclude $26 million and $16 million losses from the sale of dry bulk vessels earlier in the year 2019 and 2018, respectively, about $62 million net loss from the deconsolidation of Navios Containers, and about $24 million impairment of our investment in Navios Acquisition and the write-off of our intangibles in Navios Acquisition.Adjusted EBITDA for the year increased by almost 70% to about $304 million from $180 million in 2018. The increase in adjusted EBITDA was mainly attributable to a 15% increase in the EBITDA of Navios South American Logistics, about $40 million increase in the equity pickup from affiliates, and $41 million increased gain from the repurchase of our bonds.Adjusted net income for 2019 was $54 million compared to an adjusted net loss of $71.6 million in 2018. The improvement was mainly due to the increase in adjusted EBITDA and an $18 million decrease in depreciation and amortization, mainly due to the sale of our older vessels.Moving to slide 10 and our balance sheet highlights, as of December 31, 2019, we had $78.7 million in cash compared $150.8 million at December 31, 2018. I would like to remind you that the 2018 balance includes $19 million of Navios Containers.In Q4, we used $19.3 million of cash to repurchase about $33 million nominal value of the ship mortgage notes due 2022 since. Since the beginning of the year, we've repurchased $116.7 million nominal value of the bonds for $68.3 million. I would like to point out that we have no significant committed growth CapEx and no significant debt maturities until 2022.Over the next slides, I will briefly review our affiliates. Please turn to slide 11. Navios Holdings owns a 10.5% of Navios Partners. Navios Partners owns a fleet of 48 vessels, 38 dry bulk and 10 container ships. NMM also owns about 34% of Navios Containers.Following the unwinding of Navios Europe I, NMM increased its fleet by taking over the five container ships that belong to Europe I. The company generated significant cash flow over the past few years, which was used to refinance its term loan B and delever its balance sheet.We expect to receive about $2.5 million in cash dividends from NMM annually. And since 2008, we've received about $200 million in dividends.Turning to slide 12, Navios Holdings owns about 31% of Navios Acquisition. NMA has a fleet of 46 tankers, including 13 VLCCs. Following the recovery in the tanker market, the company's adjusted EBITDA grew by more than 2.3 times to about $132 million compared to $57 million in 2018. NMA took over five product tankers after the unwinding of Navios Europe I.We've received about $6 million in dividends from NMA during 2019. And since 2011, we've received about $94.2 million in dividends.Moving to slide 13, Navios Holdings owns about 4% of Navios Containers. NMCI has a fleet of 29 container ships. The company was established in early 2017 to leverage the weakness in the container ship 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.Now, I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics results.
Ioannis Karyotis
Thank you, George. Slide 14 provides an overview of the Navios Logistics business. Navios Logistics operates three port terminals, which are complemented by our barge fleet for river transportation and product tanker fleet for coastal cabotage trading.Since 2010, Navios Logistics EBITDA has grown at a CAGR of 14%, reaching a record $803.9 million in 2019. Today, two-thirds of our EBITDA is generated from the port segment.We expect our port business to grow as we develop a new multi-purpose river port facility in Mato Grosso do Sul in Brazil. The proposed facility will capitalize on the significant regional potential for river transportation of grain experts and fertilizer and liquid imports. We are also looking at other growth opportunities for the company.We opportunistically expanded our barge and cabotage fleet when we secured long-term client contracts and attractive financing. We are currently building six liquid barges of approximately 30,000 deadweight capacity for a total CapEx of $15.8 million. We will have debt financing for up to 75% of the [indiscernible].The new barges, together with two existing push boats from our fleet have been chartered out for five years to a major regional counterparty and are expected to generate approximately $7.4 million of annual EBITDA, $4.7 million of which is attributed to renovating barges. The five-year aggregated contracted EBITDA from the barges more than covers our initial investment to acquire them.Please turn to page 15. In the fourth quarter of 2019, EBITDA increased 21% to $19.8 million from $16.4 million in the same period last year. Q4 2019 port segment EBITDA increased 28% to $17.7 million. The increase was attributed to higher throughput in our grain terminal in Uruguay as a result of the [indiscernible] soybean production from last year's plough, as well as additional storage [indiscernible] iron ore terminal.Barges moved 1.3 million tons of minerals through our terminal, a 21% increase over the 1.1 million tons for 2010. The rate of increase is actually higher approximately 82% when comparing the second half of 2019 to the same period in 2018.As a reminder, regardless of actual volume, we are paid annually from at least 4 million tons throughput.In the bulk segment, Q4 2019 EBITDA reached $0.4 million from $0.8 million in the same period of that year. Q4 is a seasonally low quarter for river transportation.Cabotage business Q4 2019 EBITDA was $1.6 million, relatively unchanged compared to the same period last year.For Q4 2019, net income was $2.8 million compared to $2.8 million net loss in the same period last year. The increase is mainly attributable to the improved operating performance within all our segments.Turning to the financial results for the fiscal year 2019, revenue increased 10% to $228.3 million, EBITDA increased 28% to $303.9 million and net income increased 368% to $32.1 million from $6.9 million last year as we had strong earnings growth in all three segments.Please turn to slide 16. Navios Logistics has a strong balance sheet. Cash at the end of 2019 was $45.6 million. Net debt-to-book capitalization was 56%, unchanged compared to year-end 2018.I would now like to turn the call over to Ted Petrone for the industry review.
Ted Petrone
Please turn to Slide 17. Slide 17 presents our diversified dry bulk fleet consisting of 53 dry bulk vessels totaling 5.7 million deadweight, 17 Capes, 28 Panamaxes, 6 Supermaxes and 2 Handysize.We continue to be one of the largest US dry bulk listed fleets established over 65 years ago. The average age of the fleet is 7.5 years, 26% younger than the industry average.Navios Group total fleet of 198 vessels includes 98 dry bulk vessels, 54 tankers and 46 container vessels. Navios is a highly diversified public shipping company.Please turn to slide 19. The IMF forecasts world GDP growth at 3.3% for 2020 and 3.4% for 2021. The emerging and developing Asian markets, which drive dry bulk demand, are expected to grow at a healthy 5.8% in 2020 and 5.9% in 2021.The dry bulk market experienced an extremely volatile 2019 with earnings falling to near historical lows in the first quarter, followed by a nine-year high in the third quarter. In the end, the annual BDI average of 13.53 was identical to 2018.Although scrubber retrofitting tightened tonnage supplies in the fourth quarter, slowing Brazilian iron ore exports and year-end coal import restrictions in the Far East contributed to the fourth quarter BDI average underperforming Q3 for the second year in a row.While it's too early to gauge the full impact of the coronavirus on the world dry bulk trade, initial industry reports for the full year remain relatively unaffected on the back of the response by both China and the international community to the latest outbreak.Other than the current effects of the coronavirus, Q1 of this year, rates have been affected by government-imposed trade restrictions, which occurred in December and January, heavy rains in Brazil, Cyclone Damien in Australia, mild weather in China and early and prolonged Chinese New Year holiday.Chinese central and local governments have promised to ease credit and liquidity injections to stabilize the economy in this fight with the virus.Please turn to slide 20. Phase one of the new US-China trade deal was signed on January 15. China agreed to buy an additional $200 billion of US goods and services over the next two years compared to the 2017 baseline.Under this deal, China would double US agricultural imports from 2017 base by buying at least an additional $12.5 billion in 2020 and then $19.5 billion in 2021. Additional purchases of US steel, wool and wood products, as well as coal are listed within the manufactured goods in energy categories in this agreement.Slide 21 please. For 2020 dry bulk demand for the three major cargos of iron ore, coal and grain is forecast to outpace 2019 by 2% or about 64 million metric tons. This increase is led by iron ore, which is expected to grow by 2.6% or about 38 million metric tons, much of which will come from Brazil adding the ton miles.At the same time, the supply of vessels is expected to reduce as vessels are retrofitted with scrubbers. Slow steaming continues and some of the older VLCCs come out of service.About 6.1% of the Capesize fleet is expected to be out of service in 2020 before taking into account scrapping. Given current supply and demand forecasts, the fundamentals going forward remains positive.Turning to slide 22, Chinese steel production growth was up 8% in 2019. Chinese steel exports continue to be strong due to large infrastructure projects outside China. The Belt and Road Initiative remains a cornerstone of Chinese economic plan for the next few years, supporting steel and power demand domestically and abroad.The Chinese government continues to stimulate their economy with large infrastructure projects, resulting in a 9% increase in internal steel consumption through 2019.Chinese steel mills have reduced their iron ore stockpiles by about 31 million tons between June of 2018 and early February of this year. With additional availability of iron ore in the second half of 2019, shipments to China held study year-on-year as stockpiles have been increasing since July. Replenishment of the stockpiles is expected to continue throughout 2020, driving demand for Capesize vessels.Turn to slide 23. Demand for coal in Asia remains strong. India is expected to surpass China as the largest importer of coal in 2020. Coal imports to India were up 7% in 2019. Indian domestic coal struggles to overcome logistics issues, and thus coal imports are expected to remain strong.Chinese seaborne coal imports increased by 8% in 2019 and Chinese coal quota severely restricted December imports. This, however, has increased import estimates for the balance of 2020.Turning to slide 24. Worldwide grain trade has been growing by 4.9% CAGR since 2008, mainly driven by Asian demand.The trade war between the US and China affected the flow of grains in 2019 as the Chinese turn to South America for additional imports. However, as previously mentioned, the phase one trade deal is encouraging for US grain imports and dry bulk shipping overall.Turning to slide 25. Net fleet growth was about 3.9% in 2019 and is expected to be about 3.7% in 2020. The current order book is 9.1% of the fleet, which is historically low. New building contracting was down in 2019 by about 45% from 2018 levels. Accordingly, net fleet growth is expected to remain low going forward.Turning to slide 26. Vessels over 20 years of age are about 7.7% of the total fleet, which compares favorably with the previously mentioned record low order book.Total 2019 scrapping was 8 million deadweight tons, over 70% higher than 2018. Through last week, scrapping totaled 3.7 million deadweight tons, up approximately 375% year-on-year. The added costs of complying with IMO regulations for ballast water treatment systems and fuel regulations are expected to result in higher scrapping going forward.The fleet of VLOCs that are expected to be removed from the fleet this year as the contract ends. Fleet efficiency is expected to reduce if vessels are retrofitted with scrubbers. Assuming the remaining retrofits occur in 2020, about 0.7% of the total fleet and approximately 1.4% of the Capesize fleet is expected to be out of service. A further reduction in capacity of about 3% of the fleet could occur if current speed reductions continue through the rest of this year.Additionally, the coronavirus may reduce 2020 fleet efficiency by extending retrofit durations as well as pushing out a portion of new building deliveries into 2021.In conclusion, positive supply and demand fundamentals, along with reduced fleet efficiency caused by IMO2020 and the VLOC phaseout should provide significant support to the dry bulk market going forward.This concludes my presentation. I would now like to turn the call over to Angeliki for her final comments. Angeliki?
Angeliki Frangou
Thank you, Ted. This completes our formal presentation. We open the call to questions.
Angeliki Frangou
Thank you. This completes our Q1 results. The rates in Q1 are very low because of the seasonality and the coronavirus, but we anticipate that the second half of the year, because of supply/demand dynamics and the global growth, we see that it is indicative to the FFA rates that we will have – we can have rates for Capes spot market even as six times higher.Thank you.
Operator
This concludes today's conference call. You may now disconnect.