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Edited Transcript of NM earnings conference call or presentation 19-Feb-20 1:30pm GMT

Q4 2019 Navios Maritime Holdings Inc Earnings Call

MONACO Feb 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Navios Maritime Holdings Inc earnings conference call or presentation Wednesday, February 19, 2020 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 Holdings Inc. - Vice Chairman of Navios Corporation

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Presentation

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Operator [1]

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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, 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'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'd like to review the safe harbor statement. This conference call could contain forward-looking statements in 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 this morning's conference call with formal remarks from the management team, and after, open the call for 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, 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 of 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 growth acceleration in the second half of the year as China returns more fully to the global market.

Slide 3, highlights the Navios Group. We control almost 200 vessels through 4 publicly listed companies and 2 investment vehicles.

On Slide 4, 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 port businesses continue to grow. We also pursued 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, low -- and low leverage 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, a tanker company, has been operating in a robust charter rate environment. While the coronavirus has caused current weakness, we believe that long-term prospects remain robust.

Slide 5 highlights our recent developments. As an update to our balance sheet since the year-end 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 4 vessels, which include 2 Capesize vessels that we acquired through the exercise of favorable purchase option and 2 Kamsarmax vessels under bareboat leases that have been delivered to our fleet. The average age of the 4 acquisitions was 2.2 years.

We also sold 3 of our older vessels with an average age of 17.3 years for $23.6 million in gross sales process, which include expected insurance proceeds. Last quarter, I mentioned our intention to monetize Navios Europe I. And in December 2019, we successfully liquidated this structure. We used the $13.4 million in cash receipt to repay debt. As an additional liquidity lever, we have $44.3 million in receivables due from Navios Europe II. Navios has an option to terminate this structure in Q3 2021.

Slide 6 highlights how during a difficult period, we renewed and transformed our fleet. As you can see from the bottom of this slide, only once during the 5-year period did the BDI equaled or exceeded the 20-year average. Yet, we refreshed our fleet and maintained an average age -- fleet age of about 9 years. In addition, we transformed the fleet by increasing the average size of our vessels.

Overall, we have the same deadweight tons capacity while we have 5 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 7. 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 3 years, the BDI index has been consistently higher in the second half versus Q1 of the same year. As you see from the chart on the bottom of the right, the FFA for the second half of 2020 reflects a disproportionate upside versus prior years.

Today, the Baltic FFA rate for the second half of 2020 is 3x 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-linked days.

Slide 8 highlight our liquidity position. Net debt-to-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 '21 -- 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?

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

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Thank you, Angeliki. Please turn to Slide 9 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 '18 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 the $130.6 million impairment losses relating to dry bulk vessels. EBITDA and net income for the fourth quarter of '18 were adjusted to exclude $184.6 million impairment losses relating to dry bulk vessels, $55.5 million impairment on our investment in Navios Partners and $58.3 million gain 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 '18. 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 '18. 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 affected 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 years 2019 and '18, respectively; about $62 million net loss from the deconsolidation of Navios Containers; and about $24 million impairment of our investment in Navios Acquisition and 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 '18. The increase in adjusted EBITDA was mainly attributable to a 15% increase in the EBITDA of Navios American Logistics, about $40 million increase in the equity pickup from affiliates and $41 million increase in gain from the repurchase of our bonds.

Adjusted net income for '19 was $54 million compared to an adjusted net loss of $71.6 million in '18. 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 to $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 the beginning of the year, we 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 18.5% of Navios Partners. Navios Partners owns a fleet of 48 vessels, 38 dry bulk and 10 containerships. NMM also owns about 34% of Navios Containers.

Following the unwinding of Navios Europe I, NMM increased its fleet by taking over the 5 containerships that belonged 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 received about $200 million in dividends.

Turning to Slide 12. Navios Holdings owns about 31% of Navios Acquisition. NNA 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 2.3x to about $132 million compared to $57 million in '18. NNA took over 5 product tankers after the unwinding of Navios Europe I. We received about $6 million in dividends from NNA during 2019. And since 2011, we 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 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' shares have been trading on the NASDAQ Global Select Market.

Now we'll turn the call over to Ioannis Karyotis for his review of the Navios North American Logistics results.

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

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Thanks you, George. Slide 14 provides an overview of the Navios Logistics business. Navios Logistics operates 3 port terminals, which are complemented by our barge fleet for river transportation and product tanker fleet for coastal cabotage trade.

Since 2010, Navios Logistics EBITDA has grown at a CAGR of 14%, reaching a record $103.9 million in 2019. Today, 2/3 of our EBITDA is generated from the port segment. We expect our port usage to grow as we develop a new multipurpose 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 exports 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 6 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 (inaudible).

The new barges together with 2 existing push boats from our fleet have been chartered out for 5 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 the new building barges. The 5-year aggregate contracted EBITDA from the barges more than covers our initial investments required.

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 recovery of the Uruguayan soybean production from last year's drought as well as additional storage capacity out of iron ore terminal. Vale moved 1.3 million tons of minerals through our terminal, a 21% increase over the 1.1 million tons for 2018. 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 for at least 4 million tons throughput.

In the barge segment, Q4 2019 EBITDA reached $0.4 million from $0.8 million in the same period last year. Q4 is a seasonally low quarter for river transportation.

Cabotage business Q4 2019 EBITDA was $1.6 million and 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 $103.9 million and net income increased 368% to $32.1 million from $6.9 million last year, as we had strong earnings growth in all 3 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.

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Ted C. Petrone, Navios Maritime Holdings Inc. - Vice Chairman of Navios Corporation [5]

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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 U.S. 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 forecast 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 9-year high in the third quarter. In the end, the annual BDI average of 1,353 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 impacts 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, our 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 ease credit and liquidity injections to stabilize the economy as they fight with the virus.

Please turn to Slide 20. Phase 1 of the new U.S.-China trade deal was signed on January 15. China agreed to buy an additional $200 billion of U.S. goods and services over the next 2 years compared to the 2017 baseline. Under this deal, China would double U.S. agricultural imports from the 2017 base by buying at least an additional $12.5 billion in 2020 and then $19.5 billion in 2021. Additional purchases of the U.S. steel, [lumber] and wood products as well as coal are listed within the manufactured goods and energy categories in this agreement.

Slide 21, please. For 2020 dry bulk demand for the 3 major cargoes 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, which -- 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 forecast, the fundamentals going forward are very positive.

Turning to Slide 22. Chinese steel production growth was up 8% in 2019. Chinese steel exports continue to be strong due to the large infrastructure projects outside China. The Belt and Road Initiative remains the cornerstone of Chinese economic plans 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 had reduced their iron ore stockpiles by about 31 million tons between June of '18 and early February of this year. With additional availability of iron ore in the second half of '19, shipments to China held steady year-on-year, and stockpiles have been increasing since July. Replenishment of the stockpiles is expected to continue throughout 2020, driving demand for Capesize vessels.

Turning to Slide 23. Demand for coal in Asia remains strong. India is expected 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. Chinese coal import 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 U.S. and China affected the flow of grains in 2019 as the Chinese turned to South America for additional imports. However, as previously mentioned, the Phase I trade deal is encouraging for U.S. grain imports and dry bulk shipping overall.

Turning to Slide 25. The net fleet growth was about 3.9% in 2019 and is expected to be about 3.7% in 2020. Our order book is 9.1% of the fleet, which is historically low. New building and 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. Throughout last week -- through the last week, scrapping totaled 3.7 million deadweight tons, up approximately 375% year-on-year. The added cost 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 the VLOCs that are expected to be removed from the fleet this year as the contracts end. Fleet efficiency is expected to reduce as 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 newbuilding deliveries into 2021.

In conclusion, positive supply and demand fundamentals, along with reduced fleet efficiency caused by IMO 2020 and the VLOC phaseout should provide significant support for 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?

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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 open the call to questions.

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Operator [7]

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(Operator Instructions) And presenters, we have no questions, so we will now turn it back 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 Q1 (sic) [Q4] 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 global growth, we see that as indicative to the FFA rates as we will have -- we're going to have rate -- Cape's spot market being even at 6x higher. Thank you.

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Operator [9]

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