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Navios Maritime Holdings Inc. (NYSE:NM)

Q3 2013 Results Earnings Call

November 25, 2013, 08:30 AM ET

Executives

Angeliki Frangou – Chairman and Chief Executive Officer

Ted Petrone – President

George Achniotis – Chief Financial Officer

Ioannis Karyotis – Senior Vice President-Strategic Planning

Analysts

Seth Lowry – Citigroup

Omar Nokta – Global Hunter Securities

Ben Nolan – Stifel Nicolaus

Operator

Thank you for joining us this morning for Navios Maritime Holdings Third Quarter 2013 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; President, Mr. Ted Petrone; Chief Financial Officer, Mr. George Achniotis; and SVP of Strategic Planning, Mr. Ioannis Karyotis.

As a reminder, this conference call is also being webcast. To access the webcast please go to the Investor section of Navios Holdings' website at www.navios.com.

Before I review the structure of this morning's call, I'd like to read 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 and 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 Holding's filings with the Securities and Exchange Commission. The information set forth in this conference call should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in this call. Thank you.

We'll begin with formal remarks from the team and then after we'll open the call to take your questions. Now I would like to turn the call over to Navios Holdings' Chairman and CEO, Mr. Angeliki Frangou. Angeliki?

Angeliki Frangou

Thank you, Laura. Good morning to all of you joining us on today's call. We are pleased to report our results for the third quarter of 2013. We had a solid quarter and reported $40.57 million of EBITDA. We continue our operating discipline. Through a number of initiatives, we materially reduced our daily operating expenses to $3,631 and daily cash breakeven to $8,590 per day per vessel for 2014. As we focus on execution, we've returned capital to our shareholders through dividend payments and declared a $0.06 dividend for the third quarter of 2013, representing a yield of 3.1%.

Slide two shows our current corporate structure of Navios -- the value of Navios Holdings mainly derived from four areas; the dry bulk fleet within Navios Holdings and three fleet span operating subsidy [and that is] from the time of the dock. Under the closed agreement, (inaudible) Navios Holdings common shares traded at $7.67 per share.

In contrast, Navios Holdings ownership stake led to partly [release in subsidiary whose] volumes are $5.12 per share. This implies a value of less than $265 million [fully advanced] core business of 58 vessels plus a [concern] in Navios Logistics. We believe, the value of Navios shareholders' index and Navios Logistics is low is not as we will discuss shortly among other things, Navios Logistics business is at a 20-year contract for providing storage and transshipment services to Vale. We expect this contract to generate not less than $35 million of annual EBITDA.

Slide three shows Navios Group's access to the capital markets. This access has fuelled our ability to take [our product] and different asset values. So far in 2013, we raised over $2.3 billion and acquired 44 vessels. Overall we increased our group fleet by 45%.

This access to capital did not develop overnight; rather, this access [to that local hub] worked during this fiscal year. When the cycle turned against us, we focused on improving operations and bringing down cost. We are to safeguard the stakeholder's guidance of our [difficult second month and investment gains of their stock] plus we were good stewards of their capital. We have also worked to develop [access to those] markets. We actually reduced our cost of capital in addition to a long term market, the U.S. bond market in June after the term loan in the market.

To our knowledge, this was the first time that an international shipping company [access] this market. [We think] the company's disciplined business model and [stability to] provide are industry decision, it is not a matter of which, but a matter of when we intend. We monitor this link on a daily basis and we are always preparing for the next supply. As we navigate, we try to position the company and the group so that we have [nothing to regret]. We want to be able to take advantage of these changes to be sure we need to be positioned properly.

In the past, when the rate and [charter] period markets were robust, we entered into long-term charters-out. We generated stable cash flow and allowed us the latitude to plan and position the company for the medium and long term. It also allowed us to develop our access to the debt capital markets since it became particularly important in the past few years when European [government] lender of the shipping sector begun deleveraging their borrowings and withdrawing from the sector. More recently this ability allowed us to take advantage of many of our peers over being distracted by showing out their balance sheet in [resulting markets with amendment].

Consequently they have been unable to take advantage of opportunities in the shipping process. In retrospect, the [quantum] fleet currently accomplished a growth we have expanded our group fleet by almost 100 vessels since 2008. As we all remember all the way, we did a [timing of the US and the eurozone, this table also provides] the base for the growth of this company. With this campaign on the horizon, we have greatly increased our capacity to explore opportunities.

Navios Holdings expanded its fleet -- Navios Partners grew its fleet by more than 200%. Navios have positioned during the crises and has acquired 44 vessels. Finally, Navios Logistics has grown its operating capacity substantially. All of these affiliates have exploited the same operating discipline and growth strategies and is this strong and increasing the added portion of the value of Navios Holdings.

Now [going to the] Navios group activities and the competitive position of growth within that subsidy. Navios Holdings [climbed up] recently with unusual $615 million of 708 senior secured notes with a coupon by 150 basis points and expanded the government's royalty by more than growth 2022. Navios Holdings also acquired 20 branches while maintaining a low cash breakeven of $8,590 for 2014. This bond has materially reduced at cash breakeven cost with 12,000 of 2014 but the capital market is improving.

The Time Charter [even] in the third quarter was about 15% higher than -- in the one achieved in the second quarter of 2013. Consequently, we are positioned to generate additional cash flow as the market further improves. Navios South American Logistics recently entered into a two transformation of their most recent one Navios Logistics entered into a 20-year contract with Vale for the storage and transshipment of mineral commodities. This will generate a minimum of $35 million annual EBITDA and an estimated $1 billion of EBITDA over the life of the contract.

Vale may contractually increase its minimum guaranteed volumes by 50% which will increase annual EBITDA to $50 million. We also entered into a chartered-out contract for six years at $15,500 per day (inaudible)(inaudible) approximately 50% more capacity including as a [growth] can be transported with the same [operated] composed of smaller budgets that may reduce [on their way]. We anticipate that the charter will bring an estimated $13.2 million annual EBITDA. We use deposits of the $19 million of senior unsecured notes of CapEx for the new projects.

Turning to Slide six, Navios partners have brought five container vessels with 10-year charter-out contracts for $275 million it really requires an addition contract vessel for $108 million. This essentially revised Navios [job and] business have to the container market. Navios partners raised $593 million in the public market year-to-date. Navios acquisition acquired 11 product tanker this year for $307 million and also four VLCCs for $198 million as low (inaudible) giving the company additional exposure this fiscal slow from [breaking] VLCC. The company has raised $930 million in the public markets year-to-date.

Slide seven highlights our liquidity position. We have a conservative balance sheet with a net debt to capitalization of approximately 48% and liquidity of $220 million and we did issue [this] in the context of our cash requirements. The company has now material CapEx of debt maturities for the next six years as a result it's dedicated to expansion opportunities and operating needs of the company.

Slide eight is for the Navios low cost structure. For 2013, we have reached 29.2% of our vessels at the Navios contracted average daily charter-out rate of 15,376. This is way above our fully loaded cost of $13,155 per day per vessel. Our cost we had a decrease as we had patiently expanded fleet with attractive acquisition at historically lower valuations.

I remind every quarter, that our breakeven analysis includes all operating expenses, dry docking expense, charter-in expense, our charter-in fleet, G&A expenses including credit default insurance expenses, interest expense and capital repayments.

Slide nine outlines the company's chartering strategy. Our estimated 2014 breakeven cost for these vessels including all costs is $8,590 per day per vessel. Based on this of our sales mix, our current market rate is $14,439 with market recovery to business back to historical average which has approximately $20,000 per day of the 20 years average rate at $30,000 per day at 10-year average rate consequently given at $8,590 daily cash rate, even rate, this company will enjoy mix in cash flow should the market return to historical norms. I also want to make a point that the subsidies mature in the cycle allow it and we anticipate the [opportunity] to receive dividend distribution from them. We have now a plant mix, the current distribution level on the table.

I would like now to turn the call over to Mr. Ted Petrone, Navios' President, who will take you through Navios operations and the industry perspective. Ted?

Ted Petrone

Thank you, Angeliki. Please turn to Slide 10. We are one of the largest dry bulk operators in the world. Our long term fleet consists of 58 vessels totaling 5.8 million deadweight. We have 51 vessels in the water with an average age of 6.6 years. This is younger than the industry average at 9.4 years.

Please turn to slide 11. Slide 11 offers an update of our strategic relationship with HSH Nordbank. We along with our affiliates who manage here to hold 10 vessels. Navios Holdings will own 47.5% of Navios Europe. Navios Europe recently arranged for the technical and commercial management of seven out of the ten vessels in the transaction. Navios Europe is expected to take ownership of all 10 vessels within November at which point management of the remaining vessels will also be transferred. The deal is an example of the excellent working relationship that HSH and Navios have developed and our mutual goal is to complete this deal and work together towards similar transactions.

Navios Asia our joint venture with a private Japanese owner took delivery of the first of six vessels in October. The second vessel will be delivered by January next year. Navios Asia intends to partially finance these six vessels with about 65% bank debt with terms that are consistent with our existing credit facility. At noted at the bottom of the slide, we have comprised four charter Panamax at cyclical lows. Please turn to slide 12.

Our vessels operating expenses are 35% below the industry average in all asset classes. The $1,990 daily savings per vessel as compared to the industry average and operating expenses aggregates to over $26 million in annual savings dropping directly to our bottom line. Please turn to Slide 13.

Commencing in Q3 a large increase between [IR] exports facilitate earnings up sharply to over $42,000 a day, the high highest levels since November 2010, but have corrected to around 18,000 recently. Panamax rates more than doubled from 7,200 at the end of the August to 15.6 and have also corrected to around 10.8. Supramax rate increased from $9,800 to $14,400 a day and remain at these levels, benefiting from the northern hemisphere grain export season and increasing coal shipments.

Now I want to point that despite of this rally, levels remain at well below historic averages. Without the 2013, there is a slowing trend in fleet growth along with significant additional iron ore export capacities in both Brazil and Australia should support rates, especially in the Capesize sector. Both the Panamax and Supramax sectors should benefit over the medium to long-term by Chinese coal and grain imports. A further slowdown in deliveries combined with a gradual recovery in the world economy should bode well for improving fundamentals in 2014 and beyond.

Please turn to Slide 14. While our GDP continues to be driven by developing economy has contributed to higher percentage of total world growth in the developed economies, representing over half of the global consumption of most commodities. The IMF projected world growth for 2014 at 3.6%, developing economies are projected to grow at 5.1%, Chinese economic growth is projected at 7.3% in 2014 an early significant GDP shift in Europe of a negative 0.8 at the beginning of the year to a positive 1.1% projected for 2014. This is an almost 2% movement in a year in a year in an economy of the size of the U.S.

Turning to Slide 15, the primary engines of trade will continue to be China and India and our bulk trade has expanded at an average of 5.5% per year in the last 12 years since China joined WTO. Consensus for full year 2013 of global trade to grow at approximately 5% and turnover growth of about 7%. Net fleet growth is expected to be about 5% leading to a favorable supply demand dynamics for the first time in four years.

Moving to Slide 16, iron ore from the major mining companies outside of China continues to be the lowest cost highest quality source of this commodity with iron ore price forecasted to decline to the $100 range, Chinese domestic production which is represented by the red boxes in the lower right graph will become uneconomic. The currently planned expansions of global iron ore mines will add significantly to see both commodity movements in 2014 with further significant growth in the following years. While the majority of these expansions are in Australia, over 35% will come from the Atlantic Basin adding ton miles.

Moving to Slide 17. The continued development in urbanization of China will contribute significantly to steel consumption for the remainder of the year and beyond. Infrastructure, housing construction and consumer spending growth underpin future development. Now that Chinese fixed asset investments have continued to grow at over 20% year-on-year through the end of October.

Steel Productions in China through October was up about 10% more than the same period last year. Chinese iron ore imports were also up about 10% in the first nine months of 2012. Imported stock piles have been drawn down steadily from 98 million tons and currently sit at about 80 million tons at the end of last week. Domestic iron ore production increased 7% year-on-year but quality remains to be -- seems to be deteriorating as expected iron ore content hovers in the 15% to 20% range could be in the 63% range [content iron ore]. Going forward, the substitution of low quality domestic iron ore within [corridor] is expected to grow and will increase the tons carried and ton miles.

Please turn to Slide 18. Over the past two years, there has been a significant change in co-pay. China has been an exporter of coal in 2009, only four years to being the world's importer today. As the charts indicate, both India and China's seaborne coal is also growing at least 20% CAGR since 2009. With the increase in steel production and with a number of planned new coal fired power generators, coal imports in both countries are forecasted to grow over the next several years. Just those two countries account for over 35% of all fuel coal worldwide.

Please turn to Slide 19. Scrapping rates for all the vessels less fuel efficient vessels has continued at high rate this year. From November 22, about 20.3 million deadweight has been scrapped. If this trend continues, scrapping should reach about 23 million metric tons deadweight in 2013 becoming one of the highest yearly total in deadweight tons.

The current rate environment should encourage scrapping of older vessels. About 10% of the fleet is over 20 years old, providing about 70 million deadweight of scrapping potentials. Please note that the current 2013 scrapping totals already include 23 ships that were 20 years old or younger including five that were less than 15 years of age and one that was 10 years old.

As the launching prices appear to depend on world's steel prices and not its supplier vessels, they are expected to remain high and we believe we'll continue to see the scrapping of older less efficient vessels. Of note is that the average age of the fleet starts declining in August at 9.3 years and stood at 9.4 years as of the end of October. This is an indication that new building deliveries have slowed as we predicted early in the year.

Moving to Slide 20. Net fleet additions in 2013 are expected to be significantly lower than last year. Non deliveries in October amounted to 40% which demands the high scrapping needs and net fleet growth should be about 5%, which should be lower than the expected increase in demand during 2013. The order book declined dramatically through 2014 and beyond and is expected to remain that way as bank continue restrictions on loans.

Please turn to Slide 21. Slide 21 provides a retrospective of rate environment and continue the impact of supply and demand equilibrium on a late recovery for 2013. As you all note that any rig recovery to be meaningful and lasting, fleet growth rates need to fall below trade growth rates. As mentioned earlier, demand to dry bulk cargo is expected to increase for the full year 2013 by over 5% or rate similar if not higher than the expected net fleet growth for the year.

However, the rate of change adjusted for demand for dry bulk vessels will increase in 2014 and beyond as new building deliveries continue to decelerate and scrapping remains at record levels. In summary now for the first time in four years, there is an expectation that cargo growth could exceed net supply growth. We know that these conditions were not eminent over the past few years.

This concludes my presentation. I would not like to turn the call over to George Achniotis, our CFO to go over our financial highlights and review our subsidiaries. George?

George Achniotis

Thank you, Ted and good morning all. Please turn to Slide 22 for a review of the third quarter and the nine month financial highlights. Before I begin review over the financials, I would like to remind you that the comparison between 2012 and 2013, reflect the effect of the restructuring of our credit default insurance.

Of the $175 million cash we received in Q4 of 2012, from the restructuring, approximately $52 million was allocated to 2013. This represents about $3,350 rental per day. Because of this and more meaningful comparison of our Q3 results would be a sequential one with Q2 2013.

Revenue in the quarter decreased to approximately $124 million from $164 million in 2012. The revenue from drydock operations reduced to approximately $73 million from $99 million in the same period in 2012. The decrease is caused mostly by a reduction in the daily TCE in the quarter from a $18,785 in Q3 2012 to $12,085 in Q3 2013. This does not take into account the reduction of $3,350 per day due to the additional payment from the restructuring of the insurance.

One way to view the Q3 2013 TCE rate would be throughout this back resulting in a rate of approximately $15,500 per day. The increase in TCE was mitigated almost by a 10% in the available base of the fleet.

Revenue from the logistics business also decreased by about $15 million in the quarter mainly as a result of a decrease in the sale of product at the port in Paraguay. But note that is a low margin, no risk opportunity activity for this business. EBITDA for the quarter reduced to approximately $41 million compared to $61 million in the same period last year. The reduction was mainly due to the reduction in revenue and was mitigated by a $15 million decrease in Navios Logistics expenses mainly due to the reduction of reduced volumes of products sold, $2 million reduction in direct vessel expenses, a $1.4 million decrease in G&A expenses, a $3.2 million increase in equity from affiliated companies and a $1 million decrease in other expenses.

EBITDA between Q2 and Q3 2013 increased by about 5%. This reflects our open days capturing in rising market. Net income for the period reduced from $5 million in 2012 to negative $13 million in 2013, the reduction is mainly attributable to the same factors affecting the reduction in EBITDA and was partly offset by a $2.2 million decrease in D&A and a $1.1 million increase in income tax benefit from Navios Logistics.

Turning to highlights of the nine-month period ended on September 30, EBITDA decreased to $118 million from $184 million in 2012. Similar to the quarterly results, the main reason for the decrease was the reduction in TCE reduction in the period. The decrease was mainly mitigated by our cost control efforts as we also reduced G&A expenses by $6.6 million, direct vessel expenses by $7.4 million and other expenses by $12 million. This shows our continued commitment in reducing field operating expenses well below the industry average.

The reduction in EBITDA was also mitigated by $9 million decrease in the cost of product sold in logistics and $12.8 million increase in net earnings from our affiliated companies. EBITDA of Navios Logistics increased by over 14% to $42.5 million from $37 million in 2012. Net income for the nine month period reduced from $19 million in 2012 to a negative $39 million in 2013. The decrease is mainly attributable to a decrease in EBITDA and an increase in interest expense. The decrease was probably mitigated by a $5.3 million decrease in depreciation and amortization, a $5.3 million increase in income tax benefit and a $1.6 decrease in share-based compensation expense.

Please turn now to Slide 23. We continue to maintain a strong balance sheet with no leverage and a healthy cash balance. At September 30, 2013, we had $220 million in cash compared to $283 million at December 31, 2012. The current portion of long-term debt reduced from $33 million at year end to $26 million at the end of September 2013.

The long-term bank debt increased slightly to $305 million compared to $291 million at the end of December, following the delivery of the four Panamax vessels in the quarter. Senior notes increased by $93.6 million following to the add on to the Navios Logistics bond in March of 2013. Following the recent refinancing of our 2017 bond, we don't have any significant debt maturities until 2019. The net debt to book capitalization ratio remains low at below 48%. This low ratio for the shipping company operating in a capital intensive industry.

This is particularly strong as we are in the low point in the cycle. Furthermore, I would like to remind you that the full market value of our investments in our affiliated companies is not reflected in our balance sheet. If these investments were valued at their current market values, our leverage ratios would be even lower.

Turning to Slide 24; the company continues to provide their shareholders with dividend which has been paid continuously from the first two quarter, it went public. A dividend of $0.06 per share was declared to common shareholders as of December of ‘12 to be paid on December 20th. I would also like to point out that the total annualized cash dividend inflows from our ownership in Navios Partners and Navios acquisition is approximately $44 million. This exceeds the annual dividend paid out by Navios Holdings by $19 million.

We will now review our subsidiaries. Please turn to slide 25. We currently own 21.6% of Navios Partners including a 2% GP interest. Navios Partners operates a fleet of 30 vessel equaling 3.1 million deadweight ton with an average age of 6.6 years. Since its inception in 2007, Navios Partners fleet has grown by almost four times from eight vessels to 30.

Please turn to Slide 26. Navios Partners provided significant cash flow to Navios Holdings. Since the start of operations, Navios Partners has grown distributions by over 26% and through 2013 we give about $136 million in distributions. In 2013, we expect to receive about $29.5 million in distributions from partners, which exceed the dividends that Navios Holdings is expected to pay to shareholders by almost $5 million.

In addition to the distributions, there has been 125% appreciation of our investment in Navios partners which as mentioned earlier is not reflected on our balance sheet.

Please turn now to Slide 27. We have an approximate 51% economic interest in Navios Maritime acquisition. Navios acquisitions currently consists of 44 time vessels, totaling 5.1 million deadweight tons. 34 vessels are currently in the water with an average age of 4.6 years. We anticipate that dynamics will be in program for seven product tankers and a recent acquisition of three more VLCCs conditional NNA to take advantage of several of our long-term industry dynamics.

Please turn to the next slide. NNA summarized on slide 28. The large, modern and diverse tanker fleet was more than 1.5 billion. NNA has long term contracted revenue in the diverse group of strong counterparties. This contract operates well above the company's low operating break even. This cash flow can sustain NNA in uncertain market conditions. NNA has profit sharing arrangements on about 86% of its contracted fleet. These arrangement limited downside risk of base rate and allows NNA to enjoy the upside volatility. Year-to-date Profit sharing provided $4.4 million.

Turning to Slide 29, this slide shows how NNA's fleet has grown since 2011 and how this will continue to grow as newbuilding vessels delivering to fleet next year. It's level base has grown from just over 4,000 in 2011 to over 9,500 in 2013 and then will grow to over 14,000 in 2014 and a further growth in '15 when all vessels deliver into the fleet. EBITDA has grown by 33% in 2012 over '11 and will continue to grow as NNA takes delivery of new vessels. EBITDA for the first nine months of 2013 has grown by 23% compared to the same period last year.

Please turn to Slide 29. Navios acquisition provide significant cash flow to Navios Holdings. Including the expected dividends in 2013, Navios acquisition has provided about $20.5 million in distributions since its start of operations. The value of holdings interest in Navios acquisition has also grown over the past three years by more than 14%.

This concludes my presentation. At this point I will turn the call over to Ioannis Karyotis for his review on the Navios South American Logistics result. Ioannis?

Ioannis Karyotis

Thank you, George. Slide 31 provides an overview of Navios Logistics includes Navios Holdings owns 53.8% stake Navios logistics has three segment, the port terminals, the barge business and the cabotage business.

As Angeliki already mentioned we recently signed an important new contract with Vale that marks the expansion of our ports business in [Paraguay]. Slide 32 presents a highlight of Navios Logistics. We are one of the major logistic providers in the Hidrovia Region of South America with significant opportunities to grow our business, but maintain our focus on compacted revenues from our portfolio of price declines providing visible cash flows.

Please turn to Slide 33. We have a 20-year agreement with Vale for using Vale's International a significant subsidiary of Vale for the storage and transshipment of iron ore. Vale guarantees a meaningful quantity of 4 million tons per year. This contract will more than double our drybulk terminals business considering we now move about 4 million tons of grades per year. [Services], we will invest approximately $150 million to expand our core terminal infrastructure.

Upon completion of the expansion, we will have 6 million tons annual throughput capacity with potential to increase to 10 millions. We expect to generate a minimum of about $35 million EBITDA annually or about $1 billion over the 20-year contract period including annual tariff escalations.

In October, we exercised our option for 36 additional newbuilding dry barges in China increasing our total order to 72 barges roughly 46 great barge component. We are feeding the capacity all in cost of $736,500 per barge. We have already secured six-year employment of four of the convoy under time charter contracts of 2,500 per data convoy. We expect to generate $13.2 million annual EBITDA per convoy or $3.3 million per convoy.

As shown in Slide 34, the barge is almost double the size of our Mississippi barge. Together we report more efficient third box convoy that we carry approximately 44 % more cargo compared to a 16-Mississippi barge convoy. With huge barges per convoy, we expect to save time used to form, load and unload the convoy and furthering base cargo transport. Therefore for this convoy, we are able to command higher rate for most operations.

At the same time operating cost was mainly same for Q4 with same year. While the newbuilding barges will deliver about 40% of our drybulk fleet would be of regard.

Please turn to Slide 35. In the past few years revenue has been growing at 14.6% CAGR. At the same time, EBITDA has been growing at 21.7% CAGR. In the nine months of 2013, EBITDA increased by 14.2% compared to the same period last year.

Please turn Slide 36 to discuss the results of the third quarter and the nine months of 2013. Our EBITDA for the third quarter was $10.8 million, 18% lower compared to Q3 2012. Net loss for the period was $1 million compared to a net income of $0.9 million in Q3 2012. Port segment's EBITDA increased by 20% to $8.3 million due to most storage revenue in both the dry and liquid bulk.

The decrease in revenue is attributed to lower sales of product in our liquid ports where $1.3 million in Q3 2013 compared to $16.2 million in Q3 2012. This business is a complementary low margin activity. it is not had a significant impact on EBITDA. Barge business EBITDA was $1.3 million in Q3 2013 compared to $4 million in the same period last year. The decrease is attributable to revenue from liquid cargo transportation and high repair and maintenance cost during the quarter. Cargo business EBITDA was $1.3 million in Q3 2013, compared to $2.3 million in Q3 2012 mainly due to more acquired days in the quarter.

The interest expense in finance cost net increased to $6.5 million in Q3 2013, compared to $5.1 million in Q3 2012 due to drydock boarding month. Depreciation and amortization expense was $5.8 million in Q3 2013, compared to $7.2 million in Q3 2012. Our net result was also affected by $1.1 million higher tax benefit compared to the same period last year. The nine-month period ended September 30, 2013, depreciates our operational improvement, as EBITDA grew 14% compared to the same period last year. Net income was $9.4 million up from $0.9 million in the nine month period of 2012.

Please turn to Slide 37. Slide 37 shows a strong balance sheet. As of September 30, 2013, cash was $111.7 million compared to $45.5 million at the end of 2012. Net debt to book capitalization was 32% compared to 33% at the end of 2012. As of the end of Q3, remaining capital acquisition was 72 barges of the (inaudible) with approximately $53 million.

Now I'd like to turn the call back to Angeliki.

Angeliki Frangou

Thank you, Ioannis. And we open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Christian Wetherbee of Citi.

Seth Lowry - Citigroup

Good morning, this is Seth Lowry in for Chris. If I could start off with your core dry bulk operations, could you just remind us on your long term chartered in fleet and on the [climb on] vessels that you hold purchase options on? How many of those are you able to purchase in the next 18 months or so? And are those option prices fixed and can you may be give an indication of the level of your willingness to purchase those vessels?

Angeliki Frangou

We have about two vessels, three vessels that we can exercise. But we have multiple years and in fiscal '18, so it is in the money, but we don't have any reason why we should exercise this now and we can wait for another two -- in case its two years, two or three years. In '11, we have total purchase option of '11 as a sizable entry.

Seth Lowry - Citigroup

Okay, okay. Thanks. And I mean given where, given the level of current rates across I guess multiple drybulk asset classes and considering how close you are to an increase and distribution at partners, does it make sense to start chartering out some of these open vessels a bit longer term for consideration for drop down or are the rates just not at a level where you are comfortable doing that?

Angeliki Frangou

I think that if we see nice margins we will do it anyway. This is a strategy of not -- we see a nice profit and nice margins we always like to look in. Today we don't see it as the point where you'll go on the three to five year horizon. You'll keep it a little shorter which we see it as a good opportunity of creating nice cash flows for the NM.

Seth Lowry - Citigroup

Okay. And then lastly, do you see that a I guess call it, recent blip or small dip in rates over the past month or six weeks as just normal seasonality or is there something more structural that you see in the market that may be compressing things here over the near-term?

Angeliki Frangou

The very big difference in the market is that last year let’s say the high -- you had about 1,000 BDI. This year you have BDI between 1,500 now and 2,000. So, it is totally material difference between 50% and 100% high. So, seasonally you're stronger and also what you have today is you have period charters. So you have one and two years and three years deal that you can do very quickly, so optimist next year. Of course as we always stated this, you will have softest and then a recovery; the overall trend is upwards. Also I think that you'll have a little bit -- couple of weeks earlier the softness usually till before the down about two weeks later. But I wouldn't read too much into that. The fundamentals are good.

Seth Lowry - Citigroup

Okay. Alright, thank you very much. I'll turn it over.

Angeliki Frangou

Thank you.

Operator

Your next question comes from the line of Omar Nokta of Global Hunter Securities.

Omar Nokta – Global Hunter Securities

Hi, thank you, good morning or good afternoon. Just had a -- just a few questions on the logistics business. You guys have been obviously extremely busy building out that segment and just, first just wanted to get some clarity on the Vale contract. Obviously I believe the existing terminal you have in Uruguay is about four million tons annually. Would this expansion be a completely incremental six million tons taking up total potential capacity to say 10?

Angeliki Frangou

Yes, actually in the grains you have four million. We completed the conveyor belt that this will give us the ability to almost double the throughput. So on the grains you already have completed this CapEx about $22 million, which added its capacity. On additional, we have in the port we will do a separate facility, which is just for iron ore and that will provide the six million, four million minimum throughput for Vale, six million contract and ability to grow to 10.

Omar Nokta – Global Hunter Securities

Okay. Thank you. And what's the timing on that?

Angeliki Frangou

The timing is that we have regulatory approvals which will be -- we don't believe that will be complicated because it's just an extension on an existing facility that exists from the 50s and you should have around 12 to 18 months completion.

Omar Nokta – Global Hunter Securities

Okay. And then obviously the investment capital of $150 million in pretty cheap considering the $35 million of EBITDA that's just about 4, 4.5 times EBITDA, which is extremely cheap. Are there any certain tax implications or should we just look at 4.2 times as a realistic cash flow figure?

Angeliki Frangou

There is no tax implication. As you know, we have a tax regime. So you have cash convert, this is not part of any taxation and the $35 million applies on the minimum throughput, just want to remind that.

Omar Nokta – Global Hunter Securities

Right.

Angeliki Frangou

So the $50 million is on -- in the $6 million which is a contract.

Omar Nokta – Global Hunter Securities

Got you, okay. And then I just wanted to get some clarity also on the convoys. I remember last quarter you had discussed investing in the total of three convoys via three push boats and 36 barges. And then I think at that time you had said something about entering into sort of an LOI for seven-year charters on those.

And I just wanted to compare that with what you are saying today. It looks like you bump it up to three to six and now there is four charters for six years, so are these replacing the three from before?

Angeliki Frangou

No. This is a -- the four contracts is what originally we said three, actually we completed four and we did it for seven years instead of six. So we materially improved its full convey, instead of seven years it's completed at six. And the rate on this is a new jumbo barge and you can see that the time charter rate is at least can be higher than previously -- on the previous convoys and that is going to be done with this newly ordered from China barges and fully rebuilt push boat.

Omar Nokta – Global Hunter Securities

Okay. And then just one final one. Obviously now with the EBITDA is starting to really crank up here, I think your run rate on the year is somewhere around $55 million, $60 million and then taking in account these convoys and the port expansion, you are going to be up at that $100 million level over the next couple of years, if not sooner. What do you think about timing of potentially separating the logistic segment into its own listing?

Angeliki Frangou

We have articulated our willingness on that. I think the issue today with the Board is that you want to have the patience to see materializing your numbers.

Omar Nokta – Global Hunter Securities

Okay, that's fair. Thanks very much

Angeliki Frangou

Thank you.

Operator

Your final question comes from the line of Ben Nolan of Stifel.

Ben Nolan – Stifel Nicolaus

Yeah. And thank you guys for taking my question. My -- I actually have a couple. First of all on the South American side, just wanted to catch up maybe on the Panamaxs that you guys have a contract with Petrobras. Has there been any changes in that? Is that, have you found any yards or getting close to seeing that materialize now?

Angeliki Frangou

I think in that one we have an option is an obvious option, we haven't seen completing of any CPR that was a major disruption there in the market. So at this point, it's an option and it might be if we find the correct [CPR tool] materialize.

Ben Nolan – Stifel Nicolaus

Okay. So it seems as though that Petrobras well in the yard is kind of moving a little slowly, but ultimately they're probably going to need the tonnage. Do you think that there is a chance that you might be able to compete to use international assets to fill that contract at some point if the domestically built capacity isn't ready to go yet?

Angeliki Frangou

The reality is that obviously it's a global business a global company and we are able to tap. If that happen, we will be very easily able to fulfill this obligation in the international market. You have to realize in the same way we use our contacts in China to build the barges very competitively. So this is something that we will actually leverage across regions and we have the ability on any scenario to fulfill the contract.

Ben Nolan – Stifel Nicolaus

Okay, perfect. And then switching gears for a second, with respect to Navios Europe and the HSH agreement, it looks as though it's moving forward, but has there been any further discussions about maybe expanding the scope of that relationship or I don't know maybe could you just frame where you see that developing and is it sort of moving in the direction that you thought it was going to?

Angeliki Frangou

It's moving in the direction we like, but it's more slowly. To our supplies, we know it will take long, but I mean we can’t say that this grows very slowly and we are here to -- I mean it will grow, but most probably any added bill will be next year.

Ben Nolan – Stifel Nicolaus

Okay. All right. Well, that’s helpful and that does it for my question today. I appreciate it.

Operator

At this time, there are no further questions. I will now return the call to Angeliki Frangou for any additional or closing remarks.

Angeliki Frangou

Thank you. This completes our Q3 results.

Operator

Thank you for participating in today's conference call. You may now disconnect.

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