Navios Maritime Holdings Inc.Q2 2009 Earnings Call Transcript

Aug.20.09 | About: Navios Maritime (NM)

Navios Maritime Holdings Inc. (NYSE:NM)

Q2 2009 Earnings Call

August 20, 2009; 8:30 am ET

Executives

Angeliki Frangou - Chairman & Chief Executive Officer

Ted Petrone - President

Mr. Michael McClure - Senior Vice President of Corporate Affairs

Analysts

John Chappell - JP Morgan

Natasha Boyden - Cantor Fitzgerald

Urs Dur - Lazard Capital Market

Daniel Burke - Clarkson Johnson Rice

Chris Wetherbee - Merrill Lynch

Justine Fisher - Goldman Sachs

Operator

Thank you for joining us for this morning’s call. With us today from Navios Maritime Holdings are Ms. Angeliki Frangou, Chairman and CEO; Mr. Ted Petrone, President and standing in from Mr. George Achniotis, the company’s CFO, will be Mr. Michael McClure, Senior Vice President of Corporate Affairs. As a reminder, this conference call is also being webcast. To access the webcast, please refer to the press release for the website directing you to the registration page.

Before I review the structure of this morning’s call, I’d like to read the Safe Harbor statement. This conference could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios’s management and are subject to the risks and uncertainties which could cause actual results to differ from forward-looking statements.

Such risks are more fully discussed in Navios’s filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios does not assume any obligation to update the information contained in this conference call. Thank you.

At this time I’d like to outline the agenda for today’s call. First Ms. Frangou will offer opening remarks. Next Mr. Petrone will provide an operational update and an overview of market fundamentals. Following Mr. Petrone’s remarks, Mr. McClure will review Navios’s second quarter and first half 2009 financial results. Finally, Ms. Frangou will offer concluding remarks. At the completion of their remarks, the company will open the call to take your questions.

At this time, I’d like to turn the call over to Ms. Angeliki Frangou, Chairman and CEO of Navios. Angeliki.

Angeliki Frangou

Thank you, Laura and good morning to all of you. During the second quarter, Navios Holdings benefited from our strategy of raising our fleet for long term periods with high quality counterparties. We once again posted solid results and earned $53.4 million of EBITDA, which is about 16% greater than the $46.2 million of EBITDA we earned on the same period of 2008. We also announced a dividend in respect to the second quarter of 2009 of $0.06 per share payable on October 2, 2009 to shareholders of record, on September 18, 2009.

Let’s now start the presentation and turn to slide seven which outlines how we have achieved growth during the recent credit crisis. As a general observation during a crisis, access to credit is itself evidence of credit quality. In fact, during the recent credit crisis, most companies were unable to obtain any new source of financing, and instead devoted significant effort to obtaining waivers from additional lenders.

In contrast, Navios originated almost $700 million of new debt, covering Navios’s entire new buildings and new vessel acquisitions. We believe this new launch, more than the favorable terms of the financings, demonstrates the value lenders and investors place on Navios’s business and management.

In the past three months we have also increased our fleet by almost 21%, by purchasing six new building Capesize vessels. These vessels are subject to favorable long term time charters, with credit of both parties that will generate annual EBITDA of about $60 million. These acquisitions were supported by more than $350 million of debt financing with a 10 year term, and longer amortization profile.

We are also using mandatory convertible preferred stock in funding our growth. To-date we have agreed to issue about $213 million of such stock, all with identical terms. The preferred stock mandatory converts into common at a price of not less than $10 on the fifth and 10 anniversary of the issuance. This technique has been very favorable to and protective of our existing shareholders.

I think it’s fair to say that most shipping companies were caught unprepared for this severe and sudden downturn in our industry. Many shipping companies discovered that the spot business model of short term revenue and long term liability was not sustainable. Shareholders paid the consequence of this spot rating business model, as management had to resort to extreme dilution in order to raise whatever cash was available in the equity market to keep the company afloat.

In some cases, this dilution exceeded 600%, with dilution of about 100% normal. Navios in contrast is issuing shares by converting the common stock at the conversion price and presenting up to 170% premium to the market price of our common stock. In total, dilution from this program amounts to 14% and is scheduled to appear in 10 years.

Dilution from share sales, of course may not be offensive if the related portion are used to benefit the shareholders in a measurable way, such as by increasing the earnings per share. However, in virtually every case we are aware, that sales was shown to fund general working capital or to repay debt to financial institutions.

Virtually none of this equity issuance were associated with identifiable vessel associations having ascertainable earnings. However Navios is issuing share to fuel growth to acquire six new Capesize vessels generating $60 million EBITDA annually, and to fund the acquisition of the other vessels that are under construction. Thus all the issuance that yield benefit of creating cash flow and protecting our existing shareholders from dilutions through the mechanism of the preferred stock that mandatorily converts into common, at a multiple of our current market price.

Let’s now turn to slide nine. Yesterday, we also announced the acquisition of two new Capesize vessels with a combined nominal price of $141.5 million. This transaction resulted from our continued efforts to capitalize on the opportunity caused by the credit crisis. The effective acquisition price of approximately $58 million per vessel, considering the usual mandatorily convertible preferred stock, is significantly below the current charter-free value of about $70 million per vessel.

As the vessels are secured by a 10 year charter with credit worthy counterparties, we anticipate recovering more than 100% of the nominal acquisition price and 150% of the effective acquisition price, further estimating $170 million of value to EBITDA, and during that term on this charter. Please note that this charter is also profit sharing. Our EBITDA estimates do not include any estimate of such profit sharing, so we may enjoy a further upside.

We also believe that we will be able to secure insurance on these charters through our insurance program. In sum, we believe that we have acquired these vessels well below their intrinsic value. In terms of funding, we paid for $141.5 million aggregated nominal acquisition price as follows:

$47.9 million is in the form of mandatory and convertible preferred stock. The terms of the shares are identical to the terms of the shares issued in the deal amounts at the end of June. Specifically, the preferred stock will mandatorily convert into common, at the conversion price of $10 per share. 50% of the shares convert on the fifth anniversary of the issuance and 70% at the 10th anniversary.

Using the mandatory convertible preferred stock, it continues to be a competitive advantage as we are able to issue equity, significantly above the current market price of our common stock, while engaging in transactions that are accretive to our existing shareholders.

Since $75 million are also the long term debt financing, we preliminarily have agreed to originate the $75 million of debt, with a 10 year term and a 14 year amortization profile. The interest margin will be about 175 basis, and the material terms and conditions will be in line with Navios’s existing loan agreement. Also, we will use about $18.6 million of cash from our balance sheet.

Slide 10 illustrates the favorable impact of the use of the preferred stock that is in the acquisition cost of the purchase of the two Capesize vessels. As you can see from the left hand column, if you use common shares, there would be a significant dilution to our existing shareholders. We will have to issue about 10.5 million common shares, which is about 10% of our float.

In contrast, the preferred stock avoids the significant dilution, as mandatorily converts are not less than $10, and as much as $14 per share of common stock. As you can see from the next column, as the preferred shares mandatorily convert is at $10, I believe that the acquisition price is no more than $58 million per vessel. However, there is some upside to this as the preferred stock may automatically convert at $14 per share, in which case as it is shown on the right column, the acquisition price maybe absolutely at $55 million per vessel.

We pay very close attention to our liquidity. Slide 11 shows that our current liquidity is favorable, with total liquidity available of about $248 million, of which $237 million was cash on hand as of June 30, 2009. The June 30 liquidity is somewhat understated as it excludes the July 2009 net inflow of approximately $23 million, resulting from the cash adjustment for the delivery of our 2(k) [ph].

Finally, our net debt to total capitalization was 45% as of June 30. This liquidity should be measured in context of the ongoing credit crunch in our fully funded business plan. Our operation breakeven rates are well below our average charter-out rates for the next two years and should generate significant additional cash balances.

Slide 12 sets forth for our operating breakeven rate. As you can see, our estimated breakeven rate of $16,960 for 2009, compares well with our contracted rate of $25,700 and $30,500 for 2009 and 2010 respectively. Our operating breakeven rate includes operating expense, drydock, charter-in expenses for our charter-in fleet, SG&A including greater default insurance, interest expense and capital repayments. It is really an all in breakeven rate.

With that, I would like to turn the call now to Mr. Ted Petrone, Navios President. Ted will take you through Navios operations and Navios industry perspective. Ted.

Ted Petrone

Thank you, Angeliki and good morning all. Please turn to slide 14. Navios recently acquired six new building Capesize vessels, of which four will be delivered in 2010 and two in 2011. All six vessels will be employed under long term charters at favorable rates that will result in a $60 million increase in annual EBITDA. Net results of our proactive approach to the credit crisis has been an increase in fleet deadweight of over 1 million deadweight tons or approximately 21%.

The Navios Holdings Corp. fleet currently consists of 59 vessels, equaling 6.3 million deadweight. Navios has 38 vessels in the water, with a useful average age of 4.8 years. The fleet is generally evenly comprised of Capes, Panamaxes, Ultra-Handymaxes and a few Handys. With the 59 vessels Navios holds, the purchase options are on 11 of these vessels.

Please turn to slide 15; Navios Holdings continues to lock in secure cash flow with credit worthy counterparties. During Q2 Navios chartered out two Handymaxes. Year-to-date Navios has chartered out seven Handymaxes and one Panamax for approximately 15 years of full cover. The recent six Capesize deals have increased fleet coverage by about 7% in 2010 and approximately 30% in both 2011 and 2012.

Our long term bias is evident from the percentage of revenue days that our core fleet has fixed; 99% for 2009, 81.4% for 2010, 63.2% for 2011, and 57.7% for 2012. Navios will enjoy contracted revenue of over $1 billion through the end of 2012. The annual figures are; $251.6 million for 2009, $307.1 million for 2010, $317.4 million for 2011, $305.7 million for 2012. We ensure our charter-out contracts and thus our revenue from the EU-backed AA class entity.

Please turn to slide 16. Navios continues to enjoy vessel operating expenses significantly below the industry average. Currently Navios’s daily OpEx is $4,664, 12% below the industry average. Navios has established reputation and strong operating history allows us favorable spreads, between its long term charter-in contracts and medium to long term charter-out contracts. The positive average daily spread of $15,705 for 2009 will increase to $20,668 in 2010.

Please turn to slide 18. We own approximately 47% of Navios Partners. Based on the current run rate, we anticipate receiving almost $18 million in distributions from Navios Partners in 2009. This funds approximately 75% of Navios’s current dividend policy to its shareholders.

Please turn to slide 19. In Q2, Navios Partners completed a $36.1 million primary offering of common units. The net proceeds of the offering were used to fund the acquisition of the Navios Sagittarius for $34.6 million. Navios Holdings also relieved Navios Partners from the obligation to purchase the Capesize TBN I for $130 million.

Navios Partners received a 12 month option to purchase the vessel for $125 million, and Navios Holdings received $1 million of subordinating units in Navios Partners and released from the Omnibus Agreement, restrictions for two years in connections with acquiring vessels from third parties. In the meantime the Navios Bonavis, formal TBN I, is charted out for five years and we expect it to generate about $15.3 million in EBITDA annually.

Please turn to slide 21. Navios Logistics is becoming one of the premier logistics providers in South America. Navios Logistics has two divisions: The first is the transshipment port located in Nueva Palmira, Uruguay. Second division is the barge at upriver terminal, which provides a strong presence in the in-line waterway of the Hidrovia region. In addition to operating an upriver port in Paraguay, we are also operating in the Argentina cabotage business, with the operation of four product oil tankers.

Please turn to slide 22. The Paraguay River is part of the Hidrovia waterway, which connects four nations to the river plate in Argentina and subsequently to oceangoing ships. The region is rich in agricultural and mineral exports that are becoming dependent on the river system to reach international markets.

Drought conditions have greatly impacted the Paraguay River and consequently river barge operations. Drought conditions in the Hidrovia water region had negatively impacted river barge operations. Barge is capable of moving 1,500 tons of cargo at a 12 foot draft and being limited to 9 of 10 feet, meaning that each trip is carrying 20% to 25% less cargo.

Under most fuel aids, cost recovery mechanisms do not exist for low water conditions. Voyage duration time are also being extended due to various low water barge traffic restrictions. Since mid May, river conditions have improved slightly, and the forecast is for the further improvement in river navigations, accompanied by the decrease in round-trip voyage duration.

Please turn to slide 24. The slide reviews our ownership in Navios Acquisition Corporation. We closed the offer in July of 2008, and have approximately $240 million on-hand of net proceeds. We have until June 2010 to complete an acquisition and find that the current environment is presenting favorable target opportunities.

Please turn to slide 26. Volatility was the norm in the dry dock market during Q2. By the end of the quarter, rates have moved dramatically upward. The Baltic Exchange Dry Index or BDI, virtually tripled during the quarter driven mainly by Capes, and reached a nine month high of $4,291 on June 3, before closing out the quarter at $3,757. In the first half of Q3, Capesize rates have shown continued volatility, while rates of Panamaxes and Handymaxes have been generally more stable.

The rate rebound this year can be explained by China’s appetite for iron ore and coal, combined with the increased congestion in scrapping. Chronic port congestion in China, Australia and Brazil continues to tie up some 123 vessels or 15% of the Cape fleet, while scrapping over the last 12 months approaches the 1986 record level of 12.3 million deadweight tons.

On the supply side, new building deliveries continue to fall short of expectations. The outlook for the freight rates realized in China’s iron ore imports improved OECD steel production, worldwide port congestion and new building deliveries. Should year-to-date trends continue, current freight rates should be supported.

Please turn to slide 27. For the first time in two quarters, the IMS had upwardly revised forecasts for global growth. We now predict global growth of 2.5% in 2010 up from 1.9%. This is led by strong growth in China and India. NYMEX estimates that Chinese GDP will grow by 7.5% this year and 8.5% in 2009.

In contrast, OECD economies are projected to experience a weak recovery in 2010. The $586 billion Chinese stimulus package contributed to achieving second quarter growth of 7.9%. Considering the first quarter growth of 6.1%, growth for the second half of the year must average 9% to achieve the Chinese governments stated goal, 8% growth for 2009.

China’s rebounded economic growth results from heavy infrastructure spending and a significant leasing of credits. As an example of infrastructure spending, rail investments are up 155% in the first half of 2009. According to the People’s Bank of China, for the same period, bank loans aggregated USD 1.1 trillion. This is a 53% increase from the $720 billion in bank loans for all of 2008. New loans issuance in July of only $52 billion, suggests tighter monetary policy by the Chinese government. However, the summer is traditionally a slow period for loans.

Please turn to slide 28. Chinese crude steel output reached its highest level in 2009 in July, of 50.7 million metric tons, up 12.6 year-on-year. Crude steel output was 315.3 million metric tons, July year-to-date. Meanwhile iron ore imports in July, a 58.1 million metric ton broke the previous record of 57 million metric tons achieved in April, with January/July imports totaling 355 million, up 31.8% year-on-year.

For context, China imported 171 million tons in Q2. This exceeds any other country import for the whole of 2009. Chinese coal imports have also broke a record, with 9.4 million metric tons in May and 16 million metric tons in June. Total Chinese coal imports for the first half of the year were 48.2 million tons, compared to only 40.8 million metric tons for all of 2008. Coal accounts for 81% of Chinese power generation in the first half of 2009. With electricity generation up 5.5% year-on-year in both June and July, this record setting trend is expected to continue.

These volumes are more remarkable as China steel production in the first half of 2009 was only marginally higher than the same period last year. However, seaborne demand is more a function of the price differential between domestic and imported ore, than absolute steel production levels. China is substituting imported iron ore for more expensive and lower quality domestic ore, as lower freight rates and spot rates are at well below current domestic breakeven levels.

Chinese iron ore stockpiles increased by about 10 million metric tons during the quarter, commencing the quarter at 62 million tons and ending the quarter at 71.3 million metric tons. The current Chinese stockpile is approximately 72 million metric tons. The increase in stockpile has nearly kept pace with the monthly increase in steel production. Accordingly, stockpiles continue to be roughly equivalent to one month of consumption, about the same as it was in 2007 and 2008.

Part of the optimism in the drybulk market comes from steel prices. As we all know, steel is the backbone of the drybulk industry, as raw materials of steel and steel products account for about 45% of all seaborne bulk cargo. Chinese steel prices have corrected recently after two of the largest weekly increases ever recorded, and 15 weeks of consecutive price increases.

With the recent surge in auto and home appliance sales, steel prices should remain in the general upper trend as auto and machinery sales account for 25% of steel consumption. At their recent peak, Chinese prices increased to $592 a metric ton, an increase of more than $100 a metric ton since the end of Q1.

International prices have also advanced in the back of increased demand. 23 steel mills within the OECD have announced the restarting of glass furnaces, with a steelmaking capacity of 43 million metric tons annually, which could equate to an increase of iron ore demand of approximately 65 million tons. On top of this, steel mills that are operating at reduced capacity are expected to increase utilization on the back of somewhat modest revivals on steel productions by the mature economy.

In 2009 world steel production showed a 7.6 month-over-month increase, and a 21% rise from the low of December 2008. However during the first half of 2009, world steel production registered one of the biggest falls ever, down 21.4% year-over-year, despite Chinese production actually rising slightly.

Please turn to slide 29. As of last week there was a total of 123 Capes of approximately 15% of the fleet, an iron ore loading and discharging berth. The growth in Chinese port congestion apparently results from the increase of iron ore imports. There are only nine Capes waiting iron ore discharge in January of 2009. By the end of February the number had jumped to 60, and had fallen to 34 by the end of March.

The recent decline in Chinese port congestion has been partially offset by the increase in port lineups in Brazil and Australia. The increased congestion has led to substantial increases in total voyage time, which when coupled with the increased balancing, has further tightened fleet availability.

Consequent to the recent surge in freight rates there has been slower activity in the demolition market. Fewer dry bulk ships were sold for demolition in July than in any other month since September 2008. This also reflects the latency attitude among demolition market buyers, as they held off further purchases until national budgets were adopted by their respective ship-breaking country.

A number of new buyers have appeared recently in China, following the increase in scrap prices and the collapse of new building requirements for smaller yards. The downturn in shipbuilding has led shipyards to refocus from building new vessels to demolishing older ones, with Chinese based Yangzijiang Shipbuilding becoming the latest yard to target this growing sector. The shipyard announced a ship demolition joint venture, with Chongqing Iron and Steel. Also mothballed Spanish yard rig announced it would recommission to cash-in on the growing ship demolition business.

Moving to slide 31; eight vessels of about 322,000 deadweight was sold to demolition in June, taking the year’s total to 162 vessels of approximately seven million deadweight. With this recent slowdown in demolitions in perspective, during the last 12 months 11.8 million deadweight was sold for demolition, of which 11.7 million was scrapped in the last nine months. This approaches the all time record of 12.3 million deadweight tons scrapped in all of 1986. On a percentage basis however, this reflects only about 2.8% of the current fleet compared to more than 6.2% in the mid 80s crisis.

Turning to slide 32; in 2008 we experienced slippage of 21%. This trend accelerated in the first half of 2009 as the slippage rate increased to approximately 35%. The growth in the dry bulk fleet has been somewhat offset by dilution. Of the net fleet growth of 11.3 million deadweight tons, about one third of the gain is attributable to the 3.4 million deadweight tons of converted tankers.

New building deliveries must accelerate sharply if they are to reach the forecasted 2009 order book of approximately 70 million deadweight tons. Indeed, many forecasters do not believe this will occur. Concessions forecast of new building deliveries for 2009 is approximately 47 million deadweight tons, representing a 30% reduction. Capesize deliveries over the coming months will be watched closely as one, over one-third of scheduled deliveries are from Greenfield yards; and two, about 25% of the 2010 order book has been financed.

In conclusion, support for freight depends on continued strength in Chinese GDP and additional recovery to OECD and possible production. OECD economies appear to be near their cyclical bottom, while the impact of the Chinese stimulus package continues. This has brought restrained optimism back to the market. The key factor to watch at this point will be the supply side of the equation.

I would now like to turn the call over to Mike McClure. Mike.

Mike McClure

Thank you, Ted and good morning all. I will briefly review Navios’s financial results for the second quarter and the first half of 2009. The financial information that I’m about to discuss were concluded in last night’s press release and summarized in the slide presentation on the company’s website. For your information we anticipate issuing the Q2, 6-K financial report later today.

As shown on slide 34, total revenue for the three months of operations ended June 30, 2009 was $142.2 million as compared to $328 million for the comparable period of 2008. Revenue from vessel operations for the three months ended June 30, 2009 was $107.1 million, as compared to $302.5 million for the same period during 2008.

The decrease in revenue is mainly attributable to the decrease in average time charter equivalent rate, TCE rate per day, and a decrease in the available days of the fleet. The average TCE rate for the quarter was $26,684 per day, compared to $47,313 per day for the same period last year.

Keep in mind that the Baltic Exchange Dry Index reached its all time record during the second quarter of 2008. The available days of the combined long term and short term fleet reduced from 5987 days in the second quarter of 2008, to 3721 days in the second quarter of 2009. This reduction was due to the decrease in the short term fleet activity, as the lower profit margin contract refreightment and voyage activity has declined in 2009.

Revenue from Navios’s South American logistics was $35.1 million in the second quarter of 2009 versus $25.5 million in the second quarter of 2008. The increase is mainly attributable to the increased fleet of Navios Logistics, which became fully operational in the fourth quarter of 2008.

EBITDA for the second quarter of 2009 increased by 15.6% to $53.4 million compared to $46.2 million for the second quarter of 2008. The $7.2 million increase in EBITDA is mainly attributable to a decrease in time charter, voyage and logistics business expenses by $197.6 million, from $280.5 million in the second quarter of 2008, to $82.9 million in the same period in 2009, and a gain from the sale of the Navios Sagittarius to Navios Partners of $16.6 million.

These mentioned increases of $214.2 million in EBITDA was mitigated mainly by a decrease in revenue by $185.8 million between the second quarter of 2009, compared to the same period of 2008; an increase in general and administrative expenses by $1.7 million, mainly due to the increased premiums paid for the credit default insurance; an increase in direct vessel expenses of $0.9 million; a decrease in gains from derivatives of $7.1 million; a net decrease in all other categories by $1.2 million; and an increase in other expenses by $10.3 million.

Included in other expenses is a $6.1 million non-cash compensation income, representing 1 million subordinated units received from Navios Maritime Partners, for the release of its obligation to buy TBN 1. Also included in other expenses was a $13.8 million, unrealized, mark-to-market loss on common units of Navios Partners, accounted for as available for sale investments, which were issued by the drop down of the Navios Aurora on July 1, 2008.

The value of the common units was written down to market, based on the closing price as of June 30, 2009 of $9.95 per unit. This value is not reflective of the current prevailing market value, considering last night’s closing price of $11.35.

Unfortunately the US GAAP accounting rules will prevent us from recognizing future increases in the unit price of Navios Partners through the profit and loss account. In addition, the application of the rule, has resulted in a total balance sheet value for the 46.7% investment in Navios Partners, of only $39.7 million, compared to the current market value of approximately $150 million.

The EBITDA contribution from Navios South American Logistics was $8.6 million in the second quarter of 2009, compared to the $8.2 million for the same period of 2008. Despite a 37% increase in revenue earned primarily on a per ton basis, EBITDA increased by only 5% as cost increased proportionately to the larger fleet. This was mainly due to the severe drought in the region, causing a significant reduction in the available river draft, resulting in less than full lifts per barge and longer round trips for the barge convoys.

Net income for the three months ended June 30, 2009 was $22.1 million, compared to $79.2 million in the second quarter of 2008. I wish to point out though, that net income for the second quarter of 2008 was positively affected by a $57.3 million write-off of deferred Belgian taxes, excluding the effect of this item, net income for the second quarter of 2008 would have been $21.9 million.

The corresponding increase of $0.2 million is mainly attributable to a $7.2 million increase in EBITDA, as well as a $0.9 million decrease in income taxes, and a $0.2 million decrease in share based compensation. The increase was mitigated by a $2.7 million increase in depreciation and amortization expense, primarily due to the addition of two vessels in the owned fleet, and the acquisition of six convoys in South American Logistics business, an increase in interest expense by $3 million and a $2.4 million decrease in interest income.

As mentioned earlier, time charter and voyage expenses decreased by $197.6 million in the three month period ending June 30, 2009, compared to the same period in 2008. This was primarily due to the lower charter-in and voyage expenses related to spot vessel requirements for servicing the COA business. Navios Logistics expenses increased by $7.2 million; the increase is mainly attributable to the expansion of its fleet capacity mentioned earlier.

Direct vessel expenses for the operation of the owned fleet increased by $1 million to $7.9 million for the three month period ended June 30, 2009, as compared to $6.9 million for the same period in 2008. Direct vessel expenses include crew costs, provisions, deck and engine stores, lubricating oils, insurance premium and maintenance and repairs. The increase resulted primarily from the addition of two new vessels into the owned fleet in the first half of 2009.

Turning now to the six month results highlighted on the lower portion of slide 34, revenue for the six months ended June 30, 2009 was $289.4 million, compared to $654.5 million for the same period in 2008. Revenue from vessel operations for the six months ending June 30, 2009 was $224.9 million, compared to $607.5 million for the same period in 2008.

The decrease in revenue is mainly attributable to the decrease in the average time charter equivalent rate achieved and a decrease of available days in the short term fleet. The average TCE rate for the first half of 2008 was $27,544 per day, compared to $46,824 per day for the same period last year. The available days of the fleet decreased from 12,000 days in the first half of 2008 to 7601 days in the same period of 2009. Revenue from Navios South American Logistics was $54.4 million in the first half of 2009, compared to $47 million during the same period of 2008.

EBITDA for the first half of 2009 increased by about 14% to $95.8 million compared to $84.2 million in the same period of 2008. The $11.6 million increase in EBITDA is mainly attributable to a decrease in time charter, voyage and port terminal expenses by $387.8 million, between the first half of 2009, compared with the same period of 2008, an increase in gains from the sale of assets by $14.1 million, and an increase in equity in net earnings from affiliated companies by $2.2 million.

The above mentioned increase of $404.1 million was mitigated mainly by a decrease in revenue by $365.1 million between the first half of 2009, compared to the same period of 2008; an increase in general and administrative expenses by $3.6 million, mainly due to the increased premiums for the credit default insurance; an increase in direct vessel expenses by $2.5 million; a decrease in gains from derivatives by $9.7 million; and a decrease in net other expenses and other categories of $11.6 million.

The EBITDA contribution from Navios’s South American Logistics was $14.4 million in the first half of 2009, compared to $14.1 million in the same period of 2008. Net income for the six month period ended June 30, 2009 was $34.1 million, compared to $93.4 million in the same period of 2008. As mentioned earlier, net income for the first half of 2008 was positively affected by $57.3 million write down of Belgian deferred taxes.

After adjusting for the effect of this item, net income for the first half of 2008 would have been $36.1 million. The decrease of adjusted net income of $2 million is mainly attributable to the $4.5 million increase in depreciation and amortization expense, an increase in net interest expense by $10.3 million. The decrease was mitigated by the $11.6 million increase in EBITDA, an increase in income taxes of $5 million, and a net decrease of $0.2 million on all other categories.

Turning to slide 35, I will highlight key balance sheet changes between June 30, 2009 and December 31, 2008. Navios’s cash and cash equivalents balance included restricted cash on June 30, 2009, improved by $85.5 million to $237 million from $151.5 million at the end of December 31.

Vessels, port terminals and other fixed assets, net of depreciation, including deposits for vessel acquisitions, grew by 24% to $1.4 billion, reflecting primarily the deliveries of the Navios Vega in February of 2009 and the Navios Bonavis in June of 2009, and the progress of our new building program.

The long term debt, including the current portion increased to $833.6 million at June 30, 2009 versus $589.4 million at December 31, 2008, mainly due to $110 million term facility from Markson Bank [ph], the issuance of $33.5 million convertible securities for the purchase of Navios Vega, a new $60 million facility from Commerce Bank for the delivery of the Navios Bonavis, and draw-downs from existing facilities for the installment of the new building program.

The current portion of the long term debt includes $52.7 million, repayable under our $110 million term facility upon delivery of two Capesize vessels. The above amount will be financed by the draw down of a long term facility, already agreed for the above mentioned vessels.

I would like to remind you at this point that due to a US GAAP accounting, the 46.7% investment in Navios Maritime Partners is reflected on the balance sheet at a value of $39.7 million, whereas the current market value of the shares is approximately $150 million.

Turning now to slide 36, which address our continued return of capital to our shareholders. Although the industry has been forced into a defensive mode, Navios’s quick reaction allowed us to return capital consistently to our shareholders through dividend and share repurchase programs.

We have announced the Q2 2009 dividend of $0.06 per share. The record date will be September 18, and the payment date will be October 2, 2009. We believe in this beneficial and conservative dividend policy, which reflects a fleet deployment policy that provides stable, insured and long term cash flows.

This concludes my review of the second quarter financials. At this time I will turn the call back over to Angeliki. Angeliki.

Angeliki Frangou

Thank you Mike and this concludes our formal presentation. We can operator, go into questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from John Chappell with JP Morgan.

John Chappell - JP Morgan

Thank you. Good afternoon.

Angeliki Frangou

Good morning John.

John Chappell - JP Morgan

Angeliki, a couple of follow-up questions on the acquisition announced last night. First of all, who is taking the preferred stock? Is it the shipyard directly or is there a bank intermediary that is taking the preferred stock?

Angeliki Frangou

This is actually given to the shipyard, but the majority, two-thirds of that is given to the previous owner that had the two contracts.

John Chappell - JP Morgan

Okay, and then is this the same owner who had the four Capes that you announced back in June?

Angeliki Frangou

We have not publicly disclosed and it’s not, but we have been affiliated in other transactions.

John Chappell - JP Morgan

Okay. So basically what I wanted to ask is, are there other vessels either from the same owner or at the same yard that may have problems being financed where there is more opportunities for you to make similar transactions?

Angeliki Frangou

I think we have a great disguise. I think the opportunities are here, and this is something I have been articulating for a long time. Yesterday we announced the two vessels that we bought even at a lower price than before, at approximately $58 million. So the average six rigs that we bought is $60 million.

The initial ones were on foreclosure. One was from another owner, and this is not a foreclosure. So we realized somehow we bought from three different entities. That gives you the picture of the opportunity. At the most is, the next we’ll be on the same yard or the same size of what we built, and the good thing is now this is giving you $250 million, it has already been six days, and we can be ready to relax on the opportunities that have come across us.

John Chappell - JP Morgan

Have other yards come to you with the same type of opportunities as they’ve seen you do these first two?

Angeliki Frangou

You’ll have to wait for now.

John Chappell - JP Morgan

Alright, I’ll let that topic go. I noticed in your press release in the comments, there was a pretty large decrease in the short term days, which are very difficult for us to forecast. I’m not going to ask you the run rate going forward, but more importantly it’s just the trend. Given the volatility in the market, are you coming out of the short term market at a bigger pace, and then should we expect that to be a smaller figure going forward?

Angeliki Frangou

This current market environment, yes, and we have explained that from the beginning of the year. I mean this is a decision that we articulated at the end of the third quarter in 2008, and under current market conditions, I think it is much better to do this kind of deals, and we are trying to achieve them during the short term, that gives the operation and the risk.

John Chappell - JP Morgan

Then one last question and I’ll turn it over. In Ted’s comments, you mentioned that the drought conditions down in South America are getting a little bit better. I’m just wondering, at what point do we get to the normalized levels, where the barges can actually operate at 100% capacity? Are we there yet? Does it look like we might be there by the fourth quarter or is this a 2010 event?

Angeliki Frangou

I mean Ted can announce it, but we see that being a 2010 event. The only thing that we wanted to articulate on this, is this is not a financial crisis that has affected other areas. The reality is this is a drought problem, and from what we understand is, this is becoming better.

Ted Petrone

Yes, I think we can characterize the rest of the year as the recovery period for the river. We expect normalcy to start some time in the winter, our Northern Hemisphere winter, their summer.

John Chappell - JP Morgan

Right, okay. Thanks Angeliki, thanks Ted.

Angeliki Frangou

Thank you.

Ted Petrone

Thank you.

Operator

Your next question comes from Natasha Boyden with Cantor Fitzgerald.

Natasha Boyden - Cantor Fitzgerald

Thank you and good morning everyone.

Angeliki Frangou

Good morning Natasha.

Ted Petrone

Good morning Natasha.

Natasha Boyden - Cantor Fitzgerald

I just wanted to follow-up on a couple of John’s questions. You’ve obviously clearly been very interested in the Capesize sector with your acquisitions. Are there any other sectors that you would look to buy into the deals to be appropriate, or are you ready to focus on the Capes right now?

Angeliki Frangou

It is a matter of which is the better built. Capes are higher margin vessels who can do the best deals, we like even the other Panamax, and the Handymax, it depends on the situation. So it is purely a function of the deals and the margins, that’s all.

Natasha Boyden - Cantor Fitzgerald

Okay, and then in terms of the sort of deals you are seeing, are they primarily Capesize, or are you seeing other subsectors?

Angeliki Frangou

No, everywhere. The problem is, the thing is at the Capesize we have a larger size, so you realize that they are not just of the previous valuations, so the data valuations is quite substantial, and usually people run out of money.

Natasha Boyden - Cantor Fitzgerald

Right. Just John touched on South America Logistics. I know you had plans in the past to spin that off. Obviously that doesn’t look like it’s going to be happening anytime soon, but is that still your final goal?

Angeliki Frangou

We like the division. We will therefore be opportunistic. I think it’s very positive that I see that in Brazil, there’s a couple of larger closures that have been announced, and I think 2010 within our market of the river may give us a better opportunity. There is no ration or anything.

Natasha Boyden - Cantor Fitzgerald

Okay, great. Then just more of the macro question. You talked about the delays and possible cancellations of a lot of the new builds, but China in particular, and possibly Korea have come out and said that they intend to support their shipyards in terms of the building of new ships. How much of this do you think is real, and how much do you think of that as bluster behind the Chinese?

Angeliki Frangou

The matter is if it’s real or not. I mean the combined new building program is about $0.5 trillion on vessels. That enables it to be acquired as it was standing before. I can tell you that they have been committed. I mean the Korean government committed $4 billion. This is a drop in the bucket, comparing to the level of the capital, of the requirement for debt and equity.

So it is inevitable and this is telling me that the bond markets opened up, because I can tell you that the banks do not exist. So if the banks don’t exist, there is not enough debt and equity to cover this, and how many ATMs you can do, there is not enough ability to cover the capital that is existing right now.

Navios is the only company that raised debt this year and is sitting publicly as a company. We have raised $700 million. There is no real ability to raise debt or equity to cover this.

Natasha Boyden - Cantor Fitzgerald

Right. I guess what I was trying to get at more is the governments themselves have said that they will come out and pay and support those, not the individual companies.

Mike McClure

The consensus factor of 30% slippage has the Chinese factor involved in it, and this brings all aspects into it. They have talked to all the yards next to China and in China, and it looks like the slippage is going to continue to grow as we go forward.

Natasha Boyden - Cantor Fitzgerald

Okay great. Thank you very much.

Angeliki Frangou

Yes, thank you.

Operator

(Operator Instructions) Your next question comes from Urs Dur with Lazard Capital Market.

Urs Dur - Lazard Capital Market

Good afternoon everybody.

Mike McClure

Hi Urs.

Angeliki Frangou

Hello.

Urs Dur - Lazard Capital Market

On the asset values, we’ve seen them get slightly more liquid of late with some transactions. I’m specifically seeing you guys do transactions and that’s great, but if there is such a gap and there is only so many ATMs that can be done, I mean how much competition are you seeing for deals or do you have to be relatively sophisticated?

The second part of that question is, where are asset values going if there is such a gap? Is there still a step down and you’re just doing deals that make sense at the moment and then going forward or are we going up from here on asset values?

Angeliki Frangou

I think if there was competition, then the price would not be lower but higher on our gauge. This gauge was done at $58 million versus $53 million. So I can say, this is really off the market. I know that they have the possibility to share it with someone at the yard, and the bank if they had the room, they would have already done it.

So it is obvious that it is not really a price in today’s market, it is also through the counterparty. Meaning that being accepted by the shipyards and being accepted by the banks, it is a very big thing. Financing is not available even in publicly issued companies to anyone. There is a Tier 1 and a Tier 2, and this today is a very clear distinction on this, so number one is this.

Number two is, in case the market has gathered on it somewhat from a really low point, but the reality is that we are realizing what the second half of 2000 [ph] is coming. In 2010 I think there is plenty of opportunities from the bank, from the shipyard and that it is inevitable. I don’t know how quickly they will come, but I know that they will come.

The good thing is, on the Navios situation, we already have done quite a substantial 21% growth, and we can be also very relaxed. We are sitting on $250 million cash and we can grow. We are waiting. There is nothing to act as [Inaudible]. We can be very relaxed, and I am very sure the deals will come, because the crisis is not over. I mean there is no normality in debt and equity markets, that we are sure.

What we have seen in the Q2 numbers that they are a little bit better on the developed world, but we haven’t seen really a trend that really established as we have come out aggressively from this crisis.

Urs Dur - Lazard Capital Markets

Okay, the second question is a bit more macro and that you mentioned it in your slides, and actually more micro actually, sorry. On this transaction with these two Capes and the charter attached, will these qualify for the insurance? Maybe you mentioned that, but I did not see it.

Angeliki Frangou

Well, the reality is we have already done some preliminary work. We have not got the insurance yet, and we will go through the process immediately, now that we have already concluded the deal. The one thing I can tell you is in the fourth Capesizes that we did previously, we already now have full insurance for the core vessels.

Urs Dur - Lazard Capital Markets

So you did get it for them? Okay, so that’s good. So that was sort of a follow-on there, good. Thank you.

On the more macro side, since you are involved in the COA business and you’re seeing things globally, not just moving iron ore from one place and off to China, you noted in your comments in general about the markets, that certain OECD steel mills had been perking up and so on. What if any is the brightest spot right now that you see in the world for demand, excluding China right now if you can identify one or maybe a region?

Ted Petrone

Certainly Europe is done with cutting their stock, so they are starting to come back. It looks like some of this steel production maybe outside. Spain is going to actually come off the floor here. India is big, but India doesn’t do a lot of importing iron ore obviously. Certainly Japan also seems to have turned a corner here, and they seem to be coming back. So it’s spread around. International looks like bottoming here.

Urs Dur - Lazard Capital Markets

Okay, fair enough. That’s all I have. Thank you very much.

Angeliki Frangou

Thank you.

Operator

Your next question comes from Daniel Burke with Clarkson, Johnson Rice.

Daniel Burke – Clarkson, Johnson Rice

Good afternoon. Thanks for taking my call. I really just had two specific questions left. One, I might have missed it, but is there anyway you could quantify either the explicit or if it’s a better way to put it, the opportunity costs of the river water levels, in terms of their impact on the Q2 results? I mean where would you be in a normalized river environment in Q2 in terms of EBITDA?

Angeliki Frangou

I think this is too detailed. The reality is that if we had to normalize Navios with this division, we will have been positively impacted, and Q2 and Q3, the quarters at the South American is more impacting our results. As we think, this is a winter season for them and is the time where you have the majority of EBITDA coming, but this is something that you will have to wait.

The good thing about the Navios South America Logistics is that everything is contracted. All barges are in long term, five year deals, and the majority of our port activities are all contracted out. So I think we will be a beneficiary of all these trends when the normalcy on the draft arrives next year.

Daniel Burke – Clarkson, Johnson Rice

Okay, great. Then my second and last question was, reviewing the owned fleet details in this morning’s presentation, it looked like on a couple of contracts you traded some near term work or some near term day rate rather for a lengthening of the contracts. I assume that was an NTV neutral switch. Could you detail why you elected to do that?

Angeliki Frangou

We never do something we can’t explain to you. We never do something unless it is beneficial to us. So in some of our charters we extended for a couple of years out, and then we fixed them at a lower flow, but 70% of the upside, so we have a flow and a spot market upside. All of this movement with a 70% or 80% upside that we received will create almost a spot market upside potential in 2012/2013.

Daniel Burke – Clarkson, Johnson Rice

So let me see if I understand, do you have a profit-sharing component to those contracts in the second half of 2009 then?

Angeliki Frangou

No, no. The profit-sharing, let’s say you have a three year deal. You extend it another year. Let’s say the other was for $30,000, you extended that 15, and then you extend it for another two years and you normalized the rate for five years, and then you got 70% of the upside on the extended period. So in essence, you have a tremendous upside and on the NPV, it’s really higher. So you are creating a security for the future, while you still have 70% of the spot upside.

Daniel Burke – Clarkson, Johnson Rice

I see. I appreciate the explanation.

Angeliki Frangou

We can go into details if you like, off-line with Mike.

Operator

Your next question comes from Chris Wetherbee with Merrill Lynch.

Chris Wetherbee - Merrill Lynch

Thanks. Good afternoon guys. I guess I like to just touch on the new vessels, and I apologize if you mentioned this already. Do you need to make progress payments on the two new Capes that you recently acquired or is the payment fully due upon delivery?

Angeliki Frangou

We have pre-delivery finance.

Chris Wetherbee - Merrill Lynch

Pre-delivery is already financed, is what you are saying?

Angeliki Frangou

I mean if you have seen it, we have pre-delivery finance and post-delivery finance. Therefore between the mandatory preferred and the finance, we have probably $18 million to finance until the delivery. We keep cash flow positive.

Chris Wetherbee - Merrill Lynch

You are keeping cash flow positive, that makes sense. Okay, that is helpful. Then I guess when you think about the insurance, and I know you mentioned that you got the other four Capes under the insurance policy, and it sounds like you might be thinking about these next two, how does the incremental increase in just expense, whether it’s from a premium perspective, how does that look as we go forward as you add these couple of extra vessels on to the policy?

Angeliki Frangou

Listen, by the time we arrive and while we will have other rations coming out, I don’t know the exact amount. Maybe we will have to see what; maybe a couple of hundred dollars or something like that.

Chris Wetherbee - Merrill Lynch

Okay. So it’s a minimal amount?

Angeliki Frangou

Yes.

Chris Wetherbee - Merrill Lynch

I guess just one final macro question. We have seen the vessels waiting off the coast of China, drop I guess by about 30% over the course of the last few weeks or months. I’m assuming that as the reduction in congestion is going there, I mean is there anything specific that you are seeing there? Should we be looking at this leading indicator as imports slowing down a bit or how do you guys think about that or is that just simply better throughput at the ports?

Ted Petrone

I think the overall worldwide projection is the number to watch, because the numbers have come down in China, but China is actually importing more coal on a regular basis. So the waiting time from Australia has gone up, and the number of ships off Australia and Brazil have gone up. So the overall number went from 140s three weeks ago, to 123 just a few days ago, it really hasn’t changed much.

But I do think what you can watch, is the price differential between the domestic ore price, which is probably somewhere between 85 and 95 delivered, and the imported blended price. I think you’ll see swings in congestion, go along with the swings above and below that tipping point. It’s hard to get the exact number out of China, but anywhere between 85 and 95 is what the domestic mines are bringing into the steel mills.

So it will go up and down I think according to the price of the ore, but as the last few days the Cape numbers have come off, that actually makes landed ore cheaper, and it sows the seeds for further congestion later on.

Chris Wetherbee - Merrill Lynch

Yes, so it keeps activity going up, that certainly makes sense. On the point of the differential in spot prices for domestic relative to imports, I guess as the imports kind of run up into that mid 90s type of number per ton, I mean is that the level where domestic becomes a lot more competitive? I mean what’s your view on that? I know you mentioned that you probably need to see a rate above that in order to get the domestic mines a little bit more competitive.

Ted Petrone

Remember, they are digging more iron ore out of the ground in China, simply because the iron ore, the SE content, the iron content of the ore is going down. The reports say that it was in the 30s, now it maybe up to 20s.

So for 1 ton of steel, you have to use 1.2 tons of iron ore out of Australia and Brazil. You’re needing 1.8 tons of Chinese iron ore out of the ground, and they are having to dig more and more as they are falling behind on the SE content. So that number actually kind of floats up and down according to the iron ore content.

Chris Wetherbee - Merrill Lynch

All right, that is fair enough. I appreciate your time. Thanks very much.

Angeliki Frangou

Thank you.

Operator

Your next question comes from Justine Fisher with Goldman Sachs.

Justine Fisher - Goldman Sachs

Good morning.

Angeliki Frangou

Good morning.

Justine Fisher - Goldman Sachs

My first question is, what do you think would have happened to the Capesize vessels that you guys have now decided to buy, if you did not step in and if you didn’t reach an agreement with the banks? What do you think would have happened to them?

Angeliki Frangou

I don’t know. I’m not into guess work.

Justine Fisher - Goldman Sachs

Do you think the yards would have found other buyers? Do you think they would have just sat at the berth? Based on your read of current market conditions, do you think there would have been other buyers?

Angeliki Frangou

The reality is that there was enough payments in, that this version would have been produced. So that is already rations that would have been produced. Now if we didn’t come in, they would have had to find either a local owner, a Korean owner, or the bank would have taken possession, I don’t know. Different scenarios that we have to speculate about, but the reality for a vessel to be delivered is how many payments have been done and how far along it has gone.

Justine Fisher - Goldman Sachs

Okay. I mean it’s interesting I guess that the banks and the shipyards are taking equity in the deals that you are doing with them. I mean I guess that is probably atypical. Is there a reason why they are taking equity? Is that so that they can not potentially mark their interest in the vessel down as much to market, or why are banks taking equity for vessels? I don’t think that’s historically what they’ve done?

Angeliki Frangou

Why the shipyards are taking equity? The shipyards, first of all in regards to the foreclosures, the bank would start to take pre-delivery finance. In the second vessel, there was banks involuntary at pre-delivery finance, and they wanted to find a different credit quality owner, it was not a foreclosure.

But in both cases it was the credit quality of the owner that needed to be changed. It was the financial capacity to be able to deliver these vessels. Don’t forget all these vessels have time charters, which means that they will have been delivered. It is not charter three vessels. Charter three vessels would not have been most probably delivered.

The bank, the shipyards, the owners, they anticipate that they’ve got equity, so also this is the most appropriate payment as they will be able, and it is also the fair share in Navios. It recaptures with the upside of the market and the liquidity and the duration of the deals to be able to capture, maybe the entire equity position that they have.

Justine Fisher - Goldman Sachs

Okay. Then along those lines, just to clarify the statement in the press release, so the press release mentions that the company expects to generate with the EBITDA from the charters over the next 10 years, 100% of the purchase price and 150% of the effective price, is that right?

Angeliki Frangou

Yes.

Justine Fisher - Goldman Sachs

So is there a total return on equity that you guys are forecasting for these vessels, and can you compare that versus the cost of capital using equity, because that’s probably one of the higher cost of capital for Navios as a company.

Angeliki Frangou

You have to do your own calculations. We only use a $10 million cut for us, and if you take on debt to equity, it was $115 million, we got $75 million financed, so you can do your equity return. So there’s a lot of calculations you can do.

Also don’t forget that they a 50/50 equity split, profit sharing, that even in today’s market there is a value on that. So you have a 10 year deal, and you have a 50/50 profit sharing. Even if you could do today in a 10 year deal, you’ll never be able to do this very profitable profit sharing.

Justine Fisher - Goldman Sachs

Then one more question just on the broader market. I know you guys obviously weren’t at Navios when it was part of US Steel a long time ago, but I was wondering if you could comment on the acquisition of vessels by coal miners and iron ore miners and whether or not you think that these will be successful or whether you think we’ll see another cycle of commodity producers buying ships and then realizing that that wasn’t a good idea and selling them again?

I mean do you guys think that we will just see a cycle of that or do you think that it’ll be a more permanent aspect of the market, that the largest miners might own more of the means of transportation?

Angeliki Frangou

Number one, I have a widescale, because I didn’t think I am so old. Number two, as always in the cycles you have seen either drained houses or producers, end users getting into the ship owning. Usually on the next cycle they’ll be back from that, so I do not believe this is a trend.

So they have already the volatility of the commodity. Usually the volatility of shipping is an additional volatility and the operational lease is something that they do not like to add in their operational results. So taking this as a guidance, I do not believe this will go very far, and the reality is that most users, they will exit from that. It has happened every time in every cycle I have seen or started in my life.

Justine Fisher - Goldman Sachs

Okay, thanks so much. I appreciate it.

Operator

Ladies and gentlemen, we have reached the allotted time for questions. I would now like to turn the call back over to Ms. Frangou for closing remarks.

Angeliki Frangou

Thank you very much for attending our quarterly results.

Operator

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

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