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Edited Transcript of NM earnings conference call or presentation 25-Nov-19 1:30pm GMT

Q3 2019 Navios Maritime Holdings Inc Earnings Call

MONACO Dec 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Navios Maritime Holdings Inc earnings conference call or presentation Monday, November 25, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Angeliki N. Frangou

Navios Maritime Holdings Inc. - Chairman & CEO

* Georgios Achniotis

Navios Maritime Holdings Inc. - CFO

* Ioannis Karyotis

Navios Maritime Holdings Inc. - SVP of Strategic Planning

* Ted C. Petrone

Navios Maritime Acquisition Corporation - Director

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Presentation

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Operator [1]

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Thank you for joining us for Navios Maritime Holdings Third Quarter 2019 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, George Achniotis; Vice Chairman, Ted Petrone; and SVP of Strategic Planning, 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 referenced in today's earnings conference call can also be found there.

Now I'll 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. Information set forth herein should be understood in light of such risk. Navios Holdings does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows. We'll begin the morning's call with formal remarks from the management team. And after, we'll open the call to take questions.

Now I turn the call over to Navios Holdings' Chairman and CEO, Angeliki Frangou. Angeliki?

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Angeliki N. Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [2]

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Thank you, Lauren. Good morning to all of you joining us for today's call. I'm pleased with the results for the third quarter of 2019. We reported revenue of $141.6 million, adjusted EBITDA of $98.8 million and adjusted net income of $35.6 million. Charter rates in the dry bulk sector are healthy with a Capesize 5TC rate around $19,000 per day and then -- and a time charter equivalent rate of $15,535 per day for the third quarter of 2019. All of our delivery vessels are in the water-generating revenue as we have no vessels being retrofitted with scrubbers.

Slide 3 highlights the Navios Group. We control almost 200 vessels through 4 publicly listed companies and 2 investment vehicles. We are proud of our brand and the industry-leading relationships.

On Slide 4, we focus on a diversified group. Turning first to South America, the prospects remain excellent. The company surpassed $100 million in EBITDA generation for the last 12 months ended Q3 of 2019, while recently increased its estimation on -- at mineral iron ore throughput at our Uruguay transshipment facility. We continue to see opportunity, and we are investing in an upriver port facility in Brazil, which should link with our downriver facility in Uruguay, and create a value-added proposition to existing and future clients with attractive returns to us.

Turning to Navios Partners. Its corporate rating was upgraded to B2 by Moody's. S&P has upgraded the company to B+ in 2018. Navios Partners should enjoy strong cash flow with about $512 million of contracted revenue.

Navios Containers, our container-focused entity, has conservative leverage. Navios Acquisition, our tanker company, is operating in a robust charter rate environment.

Slide 5 highlights our recent developments. We sold our management division for $20 million, plus a favorable service agreement. The sale provides several benefits. The sale removes vessel management risk from NM's ongoing operation, eliminate any environmental and other risks associated with managing tankers and container vessels. About $100 million was reclassified from NM's short-term liabilities to long-term liabilities. The management agreement provides significant cost visibility by providing fixed cost for our fleet. We estimate about $27 million in annual OpEx savings compared to market proxies.

As an update to our balance sheet, we have reduced our short-term liabilities by almost $130 million and increased our long-term liabilities by $23 million on a net basis. We have also repurchased $83.5 million in face value of our ship mortgage notes so far in 2019.

We have also been actively renewing our fleet. Our owned and bareboat chartering fleet average age decreased by 26%. Since 2017, we acquired 10 vessels with an average age of 4.2 years for $247.3 million and sold 12 vessels with an average age of 16.7 years for $90.8 million. As I mentioned earlier, we are also looking at monetizing Navios Europe 1 by liquidating the structure in December 2019. As of Q3 2019, NM had $13.1 million of receivables due from Navios Europe I.

Slide 6 highlights our new management agreement. Effective August 31, 2019, NSM began providing us with commercial and technical management services. OpEx will be fixed for 2 years at $3,700 fixed fee per vessel per day, increasing by 3% annually thereafter. Under the new administrative service agreement, allocated G&A cost will be reimbursed. No additional fee will be charged under the agreement, either for sale, for purchase transaction or for origination of loans and other financing transaction. A termination fee will be paid if the management agreement is terminated before the end of year 5.

NM's average fixed OpEx under the new management agreement is about 35% lower compared to the projected market OpEx, thereby providing us with $27.2 million of expected annual OpEx savings.

Slide 7 goes through our receivables from Navios Europe I and Navios Europe II. As mentioned, we will be liquidating Navios Europe I in December of 2019, and we will receive the amount of the receivable on the liquidation date, net of cost. At Q3, the receivable was $13.1 million.

Slide 8 sets forth Navios' low cash flow breakeven. For Q4 of 2019, we have fixed 78.5% of our available days at fixed rate and 20.2% of our available days at floating rate, resulting in a low breakeven rate of $5,823 per day. We expect to generate about $13.5 million in revenue from our 994 open plus index days, assuming current market charter rates, which would result in about $8 million in expected operating cash flow for Q4 of 2019. Our costs include all operating expense, chartering cost, G&A expenses as well as interest expense and capital repayment.

Slide 9 highlights our strong liquidity position. Net debt-to-book capitalization was 80.1%, and we had cash of $106.5 million at September 30, 2019. We have no significant committed shipping growth CapEx. We also have no material debt maturity until January 2022, unless our 11.25% bonds have a springing maturity in October of 2021.

I would like now to turn the call over to George Achniotis, Navios Holdings CFO.

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Georgios Achniotis, Navios Maritime Holdings Inc. - CFO [3]

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Thank you, Angeliki. Please turn to Slide 10 for a review of the Navios Holdings financial highlights for Q3 and the 9 months up to September 30, 2019. I would like to point out that the results of the quarter were affected by the sale of the management company and the subsequent deconsolidation of Navios Containers as of August 30, 2019. Following the sale of NSM, the financial statements of Navios Holdings should be simplified.

EBITDA and net income for the third quarter were adjusted to exclude a $6.5 million loss from the deconsolidation of NMCI, including a $0.8 million net loss from discontinued operations, a $10.6 million write-off of intangible assets by NNA and a $1.7 million impairment relating to the sale of one of our oldest vessels.

Adjusted EBITDA for the quarter includes $9.7 million from NMCI. Excluding NMCI, adjusted EBITDA for the quarter was $89.1 million, an increase of 42% compared to the $62.8 million achieved in 2018. The increase in adjusted EBITDA is mainly attributable to a 9% increase in the time charter rate achieved during the quarter compared to last year, an 18% increase in the EBITDA of Navios South American Logistics and $7.4 million improvement in the equity pickup from affiliates mainly due to the improvement in the tanker sector, and a $12.4 million gain from the repurchase of our bonds.

Adjusted net income for the quarter was $35.7 million compared to $944,000 in 2018. The increase is mainly due to the increase in EBITDA.

Turning to the 9-month results. Adjusted EBITDA for the period includes $38 million from NMCI. Excluding NMCI, adjusted EBITDA increased by 46% to about $195 million from $134 million in 2018.

In addition to the items that affected the Q3 results, EBITDA and net income were adjusted to exclude $23.8 million impairment loss from the sale of vessels, $13.5 million impairment loss of our investment in NNA and $4.1 million loss from discontinued operations of NMCI.

The increase in adjusted EBITDA was mainly attributable to a 20% increase in the EBITDA of Navios South American Logistics, a $17.9 million increase in the equity pickup from affiliates and a $33.7 million gain from the repurchase of our bonds.

Adjusted net income for the first 9 months of 2019 was $34.5 million compared to a net loss of $51.9 million in 2018. The improvement was mainly due to the increase in EBITDA and a $6.8 million decrease in interest cost mainly due to the bond repurchases.

Moving to Slide 11 and our balance sheet highlights. The balance sheet reflects the sale of NSM and the transfer of certain liabilities and a new loan provided by NSM. As a result of the transaction, current liabilities reduced by approximately $100 million, and long-term payable to NSM of $121.5 million was added.

As of September 30, 2019, we had $106.5 million in cash compared to $150.8 million at December 31, 2018. In Q3, we used $24.3 million of cash to repurchase $37 million nominal value of the ship mortgage notes due 2022. Since the beginning of the year, we repurchased $83.5 million nominal value of the bonds for $49 million. I would like to point out that we have no significant debt maturities until 2022.

Over the next slides, I will briefly review our affiliates. Please turn to Slide 12. Following the sale of the general partner, Navios Holdings owns 18.5% of Navios Partners. Navios Partners owns a fleet of 37 vessels, 32 dry bulk and 5 containers. NMM also owns about 34% of Navios Containers.

The company generated significant cash flow over the past few quarters, 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 received about $200 million in dividends.

Turning to Slide 13. Navios Holdings owns about 31% of Navios Acquisition. NAA has a fleet of 41 tankers, including 13 VLCCs. Following the recovery in the tanker market, the company's adjusted EBITDA was more than doubled to about $24 million in Q3 of 2019 compared to $10 million in 2018. We expect to receive about $6 million in dividends from NNA during 2019. And since 2011, we received about $92.7 million in dividends.

Moving to Slide 14. 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 2018, Navios Containers shares have been trading on the NASDAQ global select market, marking the next stage in its growth.

Now I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics results.

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Ioannis Karyotis, Navios Maritime Holdings Inc. - SVP of Strategic Planning [4]

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Thank you, George. Slide 15 provides an overview of the Navios Logistics business. Navios Logistics operates free port terminals, which are complemented by our barge fleet for river transportation and product tanker fleet for costal cabotage trade.

Navios Logistics EBITDA for the last 12 months is $100.6 million with 2/3 coming from ports. We are growing our port business as we are developing a new multipurpose river port facility in Mato Grosso do Sul in Brazil. The proposed facility would capitalize on the significant regional potential for river transportation of grain exports and fertilizer and equity imports. We have been running the contractual license and expect to commence construction at the beginning of 2020, and we're looking at other opportunities as well. We'll selectively expand our barge and cabotage fleet when we secure both long-term client contracts and financing. Recently, we agreed to build 6 liquid barges of approximately 30,000 deadweight capacity for a record $15.8 million with available credits for up to 75% of the purchase price. These barges, together with 2 push boats from our existing fleet, have been chartered out for 5 years to a major regional counterparty and are expecting to generate approximately $7.4 million annual EBITDA, of which $4.7 million is attributed to the new building barges. The 5-year aggregate EBITDA from barges more than covers the initial investment.

Please turn to Page 16. In the third quarter of 2019, EBITDA increased 27% to $32.5 million from $25.5 million in the same period last year. Q3 2019 port segment EBITDA increased 34% to $20.7 million. The increase is attributed to higher throughput in our grain terminal in Uruguay that reached 1.5 million tons compared to just 0.5 million tons in Q3 2018. This is a result of the recovery of the Uruguayan soybean production from last year's drought.

On the iron ore port side, Vale has indicated that they intend to increase by 60% the iron ore and manganese throughputs for the fourth quarter of 2019 compared to the same period last year. Vale estimates that it will transship approximately 0.5 million tons of minerals in the fourth quarter of 2019 compared to 0.3 million tons in Q4 2018. Overall, for 2019, we expect throughput will be about 1.4 million tons, a 36% increase over the 1.1 million tons for 2018. At the expected rate of the fourth quarter of 2019, Vale will be moving about 2 million tons annually, only about 50% of the 4 million minimum guarantee for which we are paid annually.

In the barge business, Q3 2019 EBITDA increased 34% to $6.7 million from $5 million in the same period last year mainly due to more cargo transported and other income from insurance claims.

Cabotage business Q3 2019 EBITDA remained stable at $5.2 million. Last year's EBITDA was positively affected by approximately $0.7 million compensation for the late delivery of a newbuilding river and as well the tanker. Excluding this effect, EBITDA has increased 16% mainly due to more operating days.

For Q3, 2019 net income was $14.3 million compared to $6.7 million in the same period last year. The increase is mainly attributable to the improved operating performance of all segments as well as lower interest expense and finance cost net.

Turning to the financial results for the 9-month period ending September 30, 2019. Revenue increased 7%, EBITDA increased 30% to $84.2 million and net income increased 203% to $29.3 million from $9.7 million in the same period last year.

Please turn to Slide 17. Navios Logistics had a strong balance sheet. Cash at the end of Q3 2019 was $75.6 million compared to $76.5 million at the end of 2018. Net debt-to-book capitalization was 53% compared to 56% at the end of 2018.

I would now like to turn the call over to Ted Petrone for the industry review.

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Ted C. Petrone, Navios Maritime Acquisition Corporation - Director [5]

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Thank you, Ioannis. Please turn to Slide 18. Slide 18 presents our diversified dry bulk fleet consisting of 56 dry bulk vessels totaling 6 million deadweight, 18 capes, 28 Panamaxes, 8 Supramaxes and 2 Handysize. We continue to be one of the largest U.S.-listed dry bulk fleet established over 60 years ago. The average age of the fleet is 7.6 years, 24% younger than the industry average. Navios' group total fleet of 195 vessels includes 95 dry bulk vessels, 54 tankers and 46 container vessels. Navios is a highly diversified public shipping company.

Please turn to Slide 20. The IMF forecast world GDP growth at 3% for 2019 and 3.4% for 2020. The emerging and developing Asian markets, which drive dry bulk demand, are expected to grow at a healthy 5.9% for this year and 6% in 2020. The dry bulk market experienced a volatile 2019 with earnings falling to near historic lows in Q1, mostly due to disruptions in iron ore supply in both Brazil and Australia.

In the third quarter, the BDI reached a 9-year high of 2,518 due to strong demand across all bulk commodity sectors, along with the reduction in fleet capacity due to scrubber retrofitting. Volatility continued recently as the BDI pulled back from a September high by approximately 50% on the back of government -- governmental cargo restrictions in the Pacific, a slowdown in exports in the Atlantic as well as high vessel deliveries and minimal scrapping.

Turning to Slide 21. For 2020, dry bulk demand for the 3 major cargoes of iron ore, coal and grain is forecast to outpace 2019 by a 1.7% or approximately 55 million metric tons. This increase is led by iron ore, which is expected to grow by 2.1% or 30 million metric tons. Much of it will come from a 7% increase in Brazilian exports adding the ton miles. At the same time, the supply vessel is expected to reduce as vessels are retrofitted with scrubbers. About 3.7% of the Capesize fleet is expected to be out of service for the first half of 2020. Given current supply and demand forecast, the fundamentals going forward remain well balanced.

Slide 22. Chinese steel production growth is an impressive 7% through October. Chinese steel exports continue to be strong due to large infrastructure projects, both inside and outside China. The Belt and Road Initiative remains the cornerstone of Chinese economic plan in 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 an 11% increase in internal steel consumption through October of this year. Chinese steel mills have reduced their iron ore stockpiles by about 32 million tons between June 2018 and the middle of November this year. With additional availability of iron ore, the stockpiles are expected to be replenished further driving demand for Capesize vessels.

Please turn to Slide 23. Demand for coal in Asia remains strong. Chinese seaborne coal imports increased by 10% through October 2019. India is expected to surpass China as the world's largest importer of coal in 2019. Coal imports to India are up by 15% through August. Indian domestic coal struggles to overcome logistics issues. And therefore, coal imports are expected to remain strong.

Turning to Slide 24. Worldwide grain trade has been growing by 5.2% CAGR since 2008 mainly driven by Asian demand. North and South America continue to produce more grain than they consume, while Africa, the Middle East and Southeast Asia consume more grain than they produce. Given continued population growth, along with changing diets, the long-term trend is for this continued growth in the West East grain trade.

Moving to Slide 25. Net fleet growth is forecast to about 3.5% in 2019 and 3.3% in 2020. The current order book is about 10% of the fleet, which is one of the lowest on record. Newbuilding contracts -- contracting is down over 50% from 2018 levels. Accordingly, net fleet growth is expected to remain low going forward.

Slide 26. Vessels over 20 years of age are about 7.1% of the total fleet, which compares favorably with the previously mentioned record low order book. Through mid-November, scrapping at 6.3 million deadweight tons has already surpassed total scrapping for 2018. The added cost for complying with IMO regulations for fuel ballast water treatment systems and fewer regulations are expected to result in higher scrapping going forward.

In conclusion, positive supply and demand fundamentals, along with reduced fleet efficiency caused by IMO 2020, should provide significant support to the dry bulk market into 2020.

This concludes my presentation. I would now like to turn the call over to Angeliki for her final comments. Angeliki?

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Angeliki N. Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [6]

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Thank you, Ted. This completes our formal presentation. We'll open the call to questions.

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Operator [7]

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(Operator Instructions) And there are no questions at this time. I would like to turn the call over to Ms. Frangou.

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Angeliki N. Frangou, Navios Maritime Holdings Inc. - Chairman & CEO [8]

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Thank you. This completes our Q3 results, and we expect the rates are strong in Q4. We see the second half of the year developing much stronger than 2018. And additionally, as you can see, our financial results of Logistics are good, and they are performing well. And the investment opportunity remains strong in that area. Thank you.

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Operator [9]

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This concludes today's conference. You may now disconnect.