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Navios Maritime Holdings Inc. (NYSE:NM)

Q4 2009 Earnings Call Transcript

February 23, 2010 8:30 am ET

Executives

Angeliki Frangou – Chairman and CEO

Ted Petrone – President, Navios Corporation

George Achniotis – CFO

Analysts

Natasha Boyden – Cantor Fitzgerald

Urs Dur – Lazard Capital Markets

Chris Wetherbee – FBR Financial Markets

John Parker – Jefferies

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 and Mr. Ted Petrone, President and Mr. George Achniotis, Chief Financial Officer.

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 would 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. Forward-looking statements are statements that are not historical fact. Such forward-looking statements are based upon the current beliefs and expectations of Navios' management and are subject to risks and uncertainties which could cause actual results to differ from forward-looking statements. Such risks are more fully discussed in Navios' 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 would like to outline the agenda for today's call. First, Ms. Frangou will offer opening remarks. Next, Mr. Petrone will provide operational update and an overview of market fundamentals. Following Mr. Petrone's remarks, Mr. Achniotis will review Navios' fourth quarter and full year 2009 financial results. Finally, Ms. Frangou will offer concluding remarks. After the completion of Ms. Frangou's remarks, the company will open a call to take your questions.

At this time, I would 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 joining us on today's call. What a difference a year makes. Going into 2009, we were facing challenges virtually without precedent. Economic activity was grinding to a halt. If you remember that in January of 2009, the BDI was only 773. Today's economic environment is much more optimistic, although dark clouds remain on the horizon.

The crisis required quick reaction. We focused on rightsizing both our business and balance sheet. We also positioned the sales to take advantage of the acquisition and other opportunities that we thought might be presented by this distressed market. Our hard work was rewarded.

This morning, we announced an EBITDA of $55.3 million for the Q4 of 2009 and $206.8 million for the full year. With these strong results, we declared a $0.06 dividend for the fourth quarter of 2009 payable on April 8, 2010 to shareholders of record on March 16, 2010. I am pleased that Navios is one of the few drybulk companies that pay a dividend. We are able to do so because of the stability of our business model.

Let's now start our formal presentation. As you can see in slide five, Navios Holdings has developed a stable business that is reasonably insulated from the market volatility. It has done this by entering into long-term charters with creditworthy counterparties and obtaining AA plus insurance on these contracts. The net result is a dependable long-term cash flow. For example, in 2010, Navios contracted about 90% of our core fleet base generating more than $300 million in gross revenue. In addition, Navios risk management provides unparalleled market intelligence.

Navios Partners and Navios Holdings owns 73% interest in Navios Partners. In 2009, despite the economic crisis, Navios Partners grew its fleet and increased distribution to the unitholders. Navios Partners provides significant volumes to Navios Holdings through this distribution.

Navios Holdings received more than $80 million in distribution in 2009 and anticipates receiving almost $90 million in 2010. In addition, we have significant value in and our equity ownership of Navios Partners, as our units in Navios Partners were worth about $193 million as of yesterday's close.

Navios Logistics – about two years ago, we decided to focus on the emerging market in South America, leveraging our existing grain storage and transshipment facility Uruguay. In 2008, we formed Navios South American Logistics and today have 65.5% ownership stake in this growing company.

Navios Logistics is a key provider of integrated logistics in the Hidrovia region. Our core operations today include storage and port terminal facilities for grain and liquid products, barge river transport and cabotage business.

We have significantly expanded our barge business. And today, we are one of the few regional providers offering both wet and dry services. Our existing operations are scalable as well as we are looking to expand into related other areas such as storage and transshipment of mineral commodities. In sum, Navios Logistics reflects the opportunity of emerging market growth in commodities and a significant growth opportunity for Navios.

Navios acquisition, we also had a 19% interest in Navios acquisition, which is positioned to take advantage of the distressed opportunities in the maritime industry. We are reviewing a number of opportunities in this area.

As I mentioned a moment ago, we entered 2009 facing challenges virtually without precedent. The crisis required that we focus on our balance sheet and on our balance sheet which we did by raising long-term debt from the capital markets, commercial bank debt and equity. The results of the effort are summarized in slide seven.

We wait about $1 billion of debt in 2009. In November, we closed on $400 million of mortgage notes. We used the proceeds of these notes to retire amortizing bank debt. As a result, we will have substantial free cash flow which we can put to our creative use over the term of the note.

We also raised bank debt of around $545 million to secure a new building program. This long-term debt financing rate at the height of the crisis demonstrates our creditworthiness as we are able to achieve favorable borrowing terms in an unusually difficult environment.

Equity, we committed to issue $221.1 million in mandatory convertible preferred stock, of which $87 million was issued in 2009. The $134.1 million balance will be issued in 2010 and '11.

In December of 2009, $5 million distributable amount of mandatory convertible preferred shares was converted into common, so that the ultimate value that we paid in shares for the Navios selected was only $2.1 million.

Navios was able to leverage its brand name and business model by issuing mandatory convertible preferred. The conversion price on the mandatory convertible preferred sales was much higher than the prevailing market price of the common stock both at the time we agreed to issue such shares and today.

As a result, dilution is limited to a maximum of 14% and is scheduled to occur over 10 years. The mandatory convertible preferred protected the shareholders from undue dilution by using normalized share price – prices.

Liquidity, we also created liquidity of approximately $130 million through the drop down of vessels into Navios Partners. These transactions allowed us to monetize certain tangible and intangible assets in all cash transactions while keeping a residual interest in the vessels through our ownership interest in the Navios Partners and incentive distribution rise in the cash flow.

Let's now turn to slide eight. During 2009, we took delivery of eight Capesize vessels. These vessels have an average charter-out of approximately 6.5 years and will generate an annual EBITDA of more than $106 million. We also took the liberty of two Ultra-Handymaxes with an average charter term of two years which will generate an annual EBITDA of approximately $7.4 million.

Let's now turn to slide nine. During the second half of 2010, we expect to take delivery of seven Capesize vessels. The effective acquisition price considering the mandatory convertible preferred was $423.1 million or $60.4 million per vessel and the total acquisition price is completely funded. These vessels have been charted to creditworthy partners for an average term of more than 10 years and will generate annual EBITDA of $68 million or $630 million during the term of the charters. Of course, we have issuers that sign the contracts with an AA plus rated EU governmental agency.

As you can see on slide 11, raising debt and equity have created significant liquidity. Our net debt to total capitalization was about 52.6% as of December 31, 2009. We have a reasonably large cash balance of about $281 million in available liquidity including bank lines of approximately $382 million.

Liquidity of course should be measured in context of our business plan. Navios is fully funded and has no unfunded CapEx for either 2010 or '11. Equally important, Navios has less than $65 million of debt maturing in 2010 and less than $130 million maturing in 2011. That – my view is that Navios is positioned to take advantage of opportunities that may develop.

We anticipate that we will generate significant cash flow during 2010, given Navios' low operating breakeven. In slide 12, fixed cost for Navios have substantial fixed revenue and low operating costs. As you can see, almost 90% of not Navios' core fleet days are fixed for 2010 at about $28,300 per day.

In addition, approximately 66% of our core fleet days are fixed for 2011 for about $33,000 per day. And our total operating cost and now lean cost provides for a low operating breakeven of $19,900. The net result – this is that we are enjoying substantial cash flow during 2010.

With that, I'd like 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 14. Navios Maritime Holdings Corp. fleet consists of 60 vessels with 6.6 million dead weight. Navios has 43 vessels in the water with an average age of 4.4 years which is considerably younger than the industry average of 16 years. Of the 27 long-term chartered vessels, Navios holds purchase options on 12 of these vessels.

Please turn to slide 15. In the fourth quarter, Navios continued its policy of locking in secured long-term cash flow by chartering out four vessels, one Handymax, two Panamaxes and one Cape for a total of approximately five years forward cover to first-class counterparties. Navios' average charter out rate for the core fleet is $28,313 for 2010. The rate continues to increase. It is $32,913 for 2011, $34,118 for 2012 and $35,006 for 2013.

The percentage of Navios owned and long-term fleet that is chartered out equals 89.4% for 2010 and 65.9% for 2011. We will enjoy contracted revenue of over $1.1 billion through the end of 2013. We also have insured our revenue from the EU backed AA plus entity.

Please turn to slide 16. This slide sets forth recent Navios developments. We recently agreed to acquire the Navios specter 2002-built Ultra-Handymax. This vessel is currently in our chartered in fleet and was renewed for a five-year charter commencing December 17, 2010. This vessel did not have a purchase option. By negotiating a $30 million purchase price, we anticipate saving more than $5 million over the life of this contract.

We also agreed to a new long-term charter in Capesize vessel of about 180,000 dead weight for delivery in 2013. The vessel will be chartered in for ten years plus three one-year options at a rate below the current market rate and will have a purchase option.

Please turn to slide 17. Through our in-house technical management, we continue to enjoy vessel operating expenses significantly below the industry average. Currently, Navios' daily OpEx is $4639, 17% below the industry average. Navios' established reputation allows us to charter out vessels to high-quality counterparties for long periods of time at favorable spreads. The positive average daily spread of $18,234 for 2010 will increase to $21,376 in 2011.

Please turn to slide 19. As you'll note, we currently own approximately 33% of Navios Partners, including our 2% GP interest. Partners has an operating fleet of 12 vessels with an average age of seven years. The combined fleet has a carrying capacity of almost 1 million dead weight. Two Panamax vessels have chartered in, providing partners with current earnings without capital outlay and partners holds [ph] purchase options on these vessels.

Please turn to slide 20. On a 33% interest in Navios Partners is a market value in excess of $190 million. However, this figure is under-represented in our balance sheet, as the shares only have a book value of $58.4 million.

Navios Partners also provides significant cash flow to Navios Holdings. Through the end of 2009, we have received $30 million in total distributions from Navios Partners. We anticipate, based on the current run rate, receiving about $18.8 million in distributions for 2010. I note that this will fund more than 75% of Navios Holdings' dividends to our shareholders.

Please turn to slide 22. This provides an overview of Navios South American Logistics, which is one of the premier logistics providers in the region. Navios Logistics has two divisions composed of the trans-shipment facility and a wet and dry barge transport business and upriver terminal. In total, we have a strong presence in the inland waterway of the Hidrovia region.

Please turn to slide 23. We formed Navios South American Logistics in January of '08 through the combination of our existing port operations in Uruguay with an upriver barge and liquid port terminal. Since then, we have significantly expanded our operations. Our barge fleet currently consists of 233 vessels, barges and push boats. We are also operating in the Cabotage business with the operation of four double-hull product tankers.

Moving on to slide 24, this slide provides some summary of financial information for the Logistics business. Revenue for the three months ending December 31, 2009 increased by 28.9% to $35.1 million, as compared to the same period in 2008. Revenue for the year was also up by 28.9% to $138.9 million, up from $107.8 million in 2008. EBITDA increased 9.8% in 2009 to $29.6 million from $26.9 million in 2008.

Net income for the year ending December 31, 2009 increased 56.1% to $5.35 million. As I will discuss later, the results were adversely impacted by a historical drought, a 50-year event.

Please turn to slide 25. Slide 25 provides key balance sheet data for December 31, 2009 as compared to December 31, 2008. Cash and cash equivalents amount to $27 million as of December 31, 2009, as compared to $11.5 million on December 31, 2008. Total assets grew by 15.3% to $504.5 million by the end of 2009. Net debt to book capitalization is conservative at 22.2%.

Please turn to slide 26. Slide 26 presents Navios Logistics' EBITDA by business segment. For the year ending December 31, 2009, total EBITDA was $29.6 million. The two business segments provided roughly equal EBITDA, with the barge and Cabotage business providing $15.9 million and the port terminal operations providing $13.7 million.

Please turn to slide 27. The Paraguay River is part of the Hidrovia waterway which connects five nations to the river plate in Argentina and subsequently to ocean-going ships. The region is rich in agricultural and mineral exports. These exports are becoming increasingly dependent on the river system to reach ocean terminals.

A significant factor that affects results from quarter-to-quarter is seasonality. In general, the high season for vessels and barges is between March and September. This is a result of the South American grain harvest and the high water period of the Hidrovia waterway. Going forward, expected growth in grain and mineral production, infrastructure development and transportation may offset this seasonality.

As previously mentioned, drought conditions in the Hidrovia waterway reached region in 2009 impacted river operations and consequently barge and vessel operators. As noted from the chart on slide 27, a more normalized river seasonality is expected for 2010.

Moving on to slide 28, the bulk terminal in Nueva Palmira opened a new silo in October 2009. This brings the total silo storage capacity to 360,000 metric tons. Nueva Palmira established a record throughput of 3.0554 million tons, a 23.8% increase over 2008, assisted by record Uruguay wheat and soybean crops. Record revenues of $16.1 million and record EBITDA of $10.2 million, up 100% from 2008, were also set in 2009.

Uruguayan wheat crop for the 2009/'10 season is again projected at record levels with harvested crop already passing through the new silo. With projections for Uruguay to double grain exports over the next five years, we are constructing a drying and conditioning facility with a capacity of 240,000 tons per annum.

Please turn to slide 29. The liquid terminal in Paraguay generates a revenue from storage services and associated fuel silos. Spot fuel sales were 52,000 cubic meters in 2009 and are expected to increase by 20% to 62,500 cubic meters in 2010. With the construction of additional tank space, storage capacity will increase in 2010 to over 38,000 cubic meters. Top contract partners include Petrobras, Esso and Petrosur.

Please turn to slide 31. This slide reviews our ownership in Navios Acquisition Corporation. We have until June 30, 2010 to complete an acquisition. While the current environment is presenting favorable opportunities, we are not in a position to announce any deal currently.

Please turn to slide 33. The drybulk market exceeded expectations through 2009. By the fourth quarter, the Baltic Dry Index or BDI posted approximately a 400% gain from the near record lows at the start of the year. To put this into perspective, the average earnings for all classes of vessels were about 60% below the 2008 levels.

The market was primarily driven by strong inputs of iron ore and coal into China along with port congestion and the slippage of new building deliveries. In total, China had a record-breaking year in 2009 as combined imports of iron ore, coal and grain grew by 270 million tons or 41% as compared to 2008. The market was also supported by India which increased drybulk imports by 30 million tons or about 27% from 2008.

During the fourth quarter, the BDI attained its highest quarterly average since the third quarter of 2008. Over the quarter, it was volatile and the BDI fluctuated between 2,284 and 4,661. Although the Capesize sector experienced a marked softening in the final weeks of the year, all sizes ended the fourth quarter above the end September levels.

The number of Capesizes waiting to birth and iron ore and coal ports worldwide rose to record levels in January. The combined total of 157 vessels or approximately 16% of the Cape fleet, exceeded the previous size of 154 in recent due to 2009. Capesize congestion continues to remain high. However, it is slightly down from the peak in January.

Moving on to slide 34, seaborne drybulk trade has grown at a compounded annual growth rate of 4.1% in the last decade. Over this period of times, the major driver of growth has been the demand for iron ore and coal. At the beginning of this decade, iron ore and coal accounted for approximately 45% of seaborne drybulk trade. Today, they represent approximately 55%. This demand is primarily driven by the industrialization and urbanization of developing nations led by China. Emerging economies which now contribute over 50% of the world's GDP contribute overwhelmingly to drybulk demand and we expect this trend to continue.

Turning to slide 35, according to the latest IMF projections, world GDP in 2010 is expected to grow by 3.9% with emerging economies leading the way with growth of 6%, thus increasing prospects for improved raw material demand globally.

World drybulk trade is projected in 2010 to grow at over 7% led by stronger steam coal demand and a further rebound in world steel demand. China's GDP grew by 8.7% in 2009, assisted by an expansion of 10.7% in the fourth quarter, the fastest quarterly growth rate in two years. The IMF projects China's economy to grow by 10% in 2010 and overtake Japan as the world's second-largest economy.

Moving on to Slide 36, drybulk vessel demand is not only driven by demand for natural resources but also by the distance that these resources have to be transported. Changing trading patterns have an effect on all sides of vessels. If you use coal as an example, China, which used to export coal to its neighboring countries, has become a major importer in 2009.

In fact, Chinese imports in 2009 were up over 208% year-on-year to 125.8 million tons. This forces China's neighboring coal importers to go farther appeal for their coal requirements.

With regard to iron ore, Australia and India have been able to meet the majority of Chinese ore demand up until the last few years. Since then, these two relatively close countries have been unable to meet Chinese demand, allowing Brazil and South Africa to increase their exports to China. This has not only increased seaborne demand but also increased the ton miles traveled to transport the ore. Consequently, the 8.6% increase in iron ore traded in 2008 and 2009 required an additional 17.5% deadweight capacity to actually transport this additional demand.

Moving to Slide 37, steel production in China for December was 47.7 million tons, up 26% year-on-year. This brought the total for the world's largest steel maker to 567 million tons in 2009, up 14% from the 500 million tons produced in 2008.

World steel output reached 1.2 billion tons in 2009, down 8% from 2008. China's share of world steel production continued to grow in 2009, producing 47% of the total, up 13.5% from 2008. Japan was in second place with 87.5 million tons, down 26.3%.

China imported a record 630 million tons of iron ore in 2009 to meet high domestic steel production, driven largely by the major new infrastructure projects. The full-year import total was up 42% from the 444 million tons the country imported in 2008. The year finished strongly as mills and traders began stocking up in anticipation of the Chinese New Year holiday. A feature of Chinese iron ore market in 2009 was the replacement of domestic production with higher-quality imports.

Before spot iron ore prices began to recover around August last year it was estimated that up to 150 million tons of domestic capacity was mothballed. Chinese producers which have operating cost of between 90 and $120 per ton increased output significantly from October.

Turning to slide 38, the collapse of the freight market in the fourth quarter of 2008 resulted in a dramatic jump in scrapping levels. During the 12-month period from October 2008, through September 2009 a record 13 million tons were sold for demolition. However, this high rate of scrapping was short lived. The surprisingly strong freight market in 2009 allowed owners continue to fix business that is well above operating costs.

As a consequence, there has been a dramatic slowdown in the activity in the demolition market. Fewer dry bulk ships were sold for demolition in the fourth quarter of 2009 than in any quarter since Q3 of last year. In all there were 213 dry bulk vessels scrapped in 2009 as compared to only 68 in 2008.

Moving to slide 39, during the first half of 2008, the order book for 2009 and 2010 kept growing until the global credit crisis in the second half of the year. As 2009 progressed, new building slippage became a central theme. Indeed, by the end of 2009 only 42.5 million tons deadweight had delivered out of the expected 71.5 million deadweight a slippage of 40%.

While, some of the slippage from 2009 carried over to 2010. The dry bulk order book for 2010 now sits at approximately 1250 vessels or about 70% of the existing fleet, to deliver 1250 vessels the monthly delivery rate would have to average 104 vessels. However, the average monthly delivery rate for 2009 was only 45 vessels. January deliveries have preliminary come in at about 5.9 million deadweight or 75 vessels, out of unexpected 13.6 million deadweight tons or 158 expected vessels. Even if this high delivery rate were maintained in 2010, the slippage would equate to about 50%.

Turning to slide 40, although some yards may have increased capacity and more vessels can theoretically deliver. It seems that 2010 deliveries represent orders contracted at the height of the market making them uneconomical in today's rate environment. In addition, more restrictive financing should continue to be an ongoing issue. According to many shipping analysts – accordingly many shipping analysts are already discounting projected deliveries by approximately 50%. However, despite high slippage in 2010 the sheer size of the order book projects another record year for new building deliveries.

In conclusion, the recent health in the dry bulk rate reflect a number of matters including changing trading patterns, restrain new building deliveries, increased traffic and a return to strong industrial production in the OECD. The net result is a relatively balanced dry bulk market despite the record new building deliveries in 2009. The key factor to continue to watch in 2010 will be the supply side of the equation, as all of the expansion of cargo demand. Should current trends continue freight rates may be sustained.

This concludes our section of the presentation. I would now like to turn the call over to our CFO, George Achniotis. George?

George Achniotis

Thank you, Ted. And good morning, all. I will briefly review Navios financial results for the fourth quarter and the year ended December 31, 2009. As shown on slide 42, total revenue for the three months of operations ended December 31, 2009 was $148.7 million, as compared to 214.2 million for the comparable period of 2008. Revenue from vessel operations for the three months ended December 31, 2009 was $115.6 million, as compared to $187 million for the same period during 2008. The decrease in revenue is mainly attributable to the decrease in average time charter equivalent rate and the decrease of the available days of the short-term fleet.

The average TCE rate, excluding FFAs for the quarter was $24,120 per day, compared to $36,088 per day for the same period last year. The available days of the fleet reduced from 4910 days in the fourth quarter of 2008 to 4068 days for the same period of '09. This reduction is attributable to the significant decrease in the short-term fleet activity from 2529 days in the third quarter of '08 to 1298 days in the same period in '09, as they contact via Friedman in the short-term for huge activity has declined in 2009.

Revenue from Navios South American Logistics was $35.1 million in the fourth quarter of '09, versus 27.2 million in the fourth quarter of '08. The increase is mainly attributable to the increased fleet of Navios Logistics, which became fully operational in the fourth quarter of '08 and the increased throughput at the port at Nueva Palmira in Uruguay. Despite the significant decrease in the revenue caused by the reduction in the short-term fleet and the Silo business, EBITDA for the fourth quarter of '09 increased by 127% to $55.3 million, as compared to 24.4 million for the fourth quarter of '08.

EBITDA for the fourth quarter of 2009 includes a 4 million gain on sale of the Navios Apollon to Navios Partners while the EBITDA for the fourth quarter of '08 includes a 1.5 million cancellation fee and $0.1 million gain on sale of assets. The 30.9 million increase in EBITDA is mainly attributable to a decrease in time charter, voyage and logistics business expenses by $84.9 million between the fourth quarter of '09 and the same period of '08. A decrease in losses from deliveries of 3.1 million, an increase in equity and net earnings from affiliated companies by 4.1 million, an increase in gain on sale of assets by 3.9 million and a decrease in net other expenses by 1.2 million.

The above increase was mitigated mainly by a 65.4 million decrease in revenue between the fourth quarter of '09 compared to the same period of '08, a 0.6 million increase in direct vessel expenses due to the new vessels delivered into our fleet and a 0.3 million decrease in income attributable to non-controlling interests.

EBITDA from Navios South American Logistics increased to 3.8 million in the fourth quarter of '09, compared to 3.2 million in the corresponding period of '08. The increase is mainly due to the increased performance of the port of Nueva Palmira in Uruguay.

Net income for the three months ended December 31, 2009 was 12.5 million as compared to a 5.6 million loss for the same period of '08. The 18.1 million increase in net income was mainly due to the 30.9 million increase in EBITDA previously discussed and a 1 million decrease in income tax.

The increase was mitigated primarily by a 7 million increase in D&A and 6.5 million increase in net interest expense, which includes a 2 million write-off of deferred financing costs due to the partial repayment of our outstanding indebtedness following the entrance of the secured bond.

During 2009, a total of 11.2 million shares of mandatory convertible preferred stock were issued. For accounting purposes earnings per share on a fully diluted basis for the fourth quarter and for the 12 months of 2009 includes 9 million and 4.7 million, respectively of additional weighted average shares from this issuance assumed to be converted at $10 per share.

Turning to the yearly results, revenue for the 12 months ended December 31, 2009 was $598.7 million, as compared to 1.2 billion for the same period in 2008. Revenue from vessel operations for the year ended December 31, 2009 was 459.8 million compared to 1.1 billion for the same period in 2008.

The decrease in revenue is mainly attributable to the decrease in the average TCE rate per day and the decrease of the available days of the overall fleet. The average TCE rate, excluding FFAs during 2009 was $25,821 per day, compared to $45, 566 per day for 2008.

The available days of the fleet decreased from 22,817 days during 2008 to 15,588 days in the same period of 2009. Although the available days of the long-term core fleet increased by 969 days. The overall net decrease in days is mainly attributable to the significant reduction in short-term fleet activity by $8,198 a days from 15,654 days throughout 2008 to 5,456 days during 2009.

Revenue from Navios South American Logistics increased by 29% to 138.9 million for 2009 compared to 107.8 million during the same period of 2008. This is mainly due to the increased fleet of Navios Logistics, which became fully operational in the last quarter of 2008 and increased throughput at the port in Uruguay. EBITDA for the 12 months of 2009 increased by 25% to 206.8 million, as compared to $165.5 million in the same period of 2008.

EBITDA for 2009, includes a 20.8 million gain from the sale of assets, 6.1 million in non-cash compensation from Navios Partners and $13.8 million on realized mark-to-market loss on common units of Navios Partners accounted for as available for sale securities.

EBITDA for the same period in 2008 was affected by a 27.8 million gain on sale of assets, primarily to Navios Partners. Excluding the effect of these items, adjusted EBITDA for the full year 2009 increased by 39% to 193.7 million from 139.2 million in 2008. The 41.3 million increase in EBITDA is mainly attributable to a decrease in time charter, voyage and logistic business expenses by 712.4 million between the 12 months of 2009 and the same period of 2008. And an increase in equity and net earnings from affiliated companies by 11.8 million from 17.4 million in the 12 months of 2008 to 29.2 million over 2009.

This overall favorable variance of 724.2 million was mitigated mainly by a 647.4 million decrease in revenue between the 12 months of '09, compared to the same period of 2008. A 4.3 million increase in direct vessel expenses, a 4.4 million increase in general and administrative expenses, a 7.7 million decrease in gain from derivatives, a 1.3 million increase in income attributable to non-controlling interests, a 10.8 million increase in net other expenses and a 7 million decrease in gains on the sale of assets.

The EBITDA from Navios South American Logistics was $29.6 million for the year ended December 31, 2009 compared to 27 million in the same period of '08. Net income for the year ended December 31, 2009 was 67.9 million as compared to 118.5 million for the comparable period of 2008. The 50.6 million decrease of net income was mainly due to a 16.8 million increase in depreciation and amortization, a 20.6 million increase in net interest expense, a 0.5 million increase in dry dock amortization and a 54.5 million decrease in income taxes mainly due to the write-off of deferred Belgium income taxes of 57.2 million in 2008. These were mitigated by a 41.3 million increase in EBITDA discussed above, as well as a 0.5 million decrease in share-based compensation.

Turning to the next slide number 43, I will highlight key balance sheet changes between December 31, 2009 and 2008. Navios cash and cash equivalents balance, including restricted cash on December 31, 2009 improved by 126.6 million to 281.1 million from 151.5 million at the end of December 31, 2008.

Vessels port terminals and other fixed assets, net of depreciation, including deposits for vessel appreciations grew by over 68% to 1.9 billion reflecting primarily the deliveries of ten new vessels since the beginning of the year and the progress of our new building program. Due to U.S. GAAP accounting, the 33.2% investment in Navios Maritime Partners is reflected on the balance sheet at a value of $58.4 million. Whereas the current market value of the share is approximately 193 million.

Total cash distributions received from Navios Partners during the fiscal year of 2009 was 18.1 million and we expect to receive approximately 19 million during 2010. The long-term debt, including the current portion, increased by approximately – to approximately $1.6 billion at December 31, 2009, versus $888 million at December 31, 2008, mainly due to the issuance of the $400 million senior secured notes, facilities put in place for the deliveries of the new build vessels and drawdowns from existing facilities for the installments of the new building program. Despite our major new building program, net debt to full capitalization at year end is 52.6%. At the same time, the company's liquidity is approximately $382 million.

Turning to slide 44, we declared a dividend for the fourth quarter of 2009 of $0.06 per share to common shareholders as of March 16, 2010 to be paid on April 8. This is the company's 17th consecutive quarterly dividend payment, reflecting a fleet growth and employment policy that provides stable in short and long-term cash flows and growing distributions from Navios Partners.

This concludes my review of the financials. At this time, I would like to turn the call back over to Angeliki for closing remarks. Angeliki?

Angeliki Frangou

Thank you, George. With this, we complete the formal presentation and we open the call to questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question Natasha Boyden with Cantor Fitzgerald.

Natasha Boyden – Cantor Fitzgerald

Hello?

Angeliki Frangou

Good morning.

Natasha Boyden – Cantor Fitzgerald

I just had some specific line item questions on the financials that you reported today which, George, I am hoping you can just help me with. The first one is your $2.4 million gain from derivatives during the quarter. Was that a realized or an unrealized gain?

George Achniotis

This is unrealized gain. It mainly has to do with the mark-to-market of the shares we hold at the spec, the low end of the spec and some spec.

Natasha Boyden – Cantor Fitzgerald

Okay, of the spec. Okay, great. So that was unrealized. Then you had a $4 million gain from sale of assets. What exactly was that related to?

George Achniotis

That's the sale of the Navios Apollo to Navios Partners.

Natasha Boyden – Cantor Fitzgerald

That's the Apollo, okay. Fantastic. Moving on, earnings, equity and net earnings on the affiliated companies was again relatively high compared to what it was during the first half of the year. Can you tell us again what drove this increase and what we can expect going forward?

George Achniotis

If you remember, whenever we sell an asset into Navios Partners, we don't realize through the P&L 100% of the gain on asset. We only realize the percentage that it presents outside shareholders of Navios Partners. So for example, now we hold approximately 33% of Navios Partners. If we sell a vessel today and we have a profit of $10 million, we will only realize $6.7 million through our P&L immediately.

The remaining 3.3% is showing the OCI on our balance sheet. And whenever our percentage in Navios Partners changes, a portion of this gain that is on our balance sheet goes through the P&L. So in Q4, we have the new issuance of shares in Navios Partners and our percentage dropped to 33%. We realized another portion from the OCI directly to our P&L. That's why you see this increase.

Natasha Boyden – Cantor Fitzgerald

Okay, so going forward into Q1?

George Achniotis

Well, Q1 – again we have the new issuance of shares, so we will realize again part of OCI.

Natasha Boyden – Cantor Fitzgerald

Okay. Do you know roughly how much that will be?

George Achniotis

We don't know yet. We will have to finish, close the quarter and see how much we'll realize.

Natasha Boyden – Cantor Fitzgerald

Okay. All right. Great. And lastly, you talked quite a bit about South American Logistics in the presentation. I really just want to get your feeling about your plans for that business and whether or not a spin-off is still an attractive option for you.

Angeliki Frangou

Good morning, Natasha. I think we have articulated that positive Navios, South American Logistics, there is a business we believe which gives significant growth for Navios, is a business that is scalable on the three businesses we are in, meaning the port facilities, the barging and the Capesize business. And also we can expand it, further expand it in areas away from – in mineral storage.

So it is a business that we can see growth. It is totally related to emerging markets except of last year's very severe drought which was 1 in 50 years. We believe the potential in that line of business are extremely attractive and Navios is positioned to take advantage of this.

Natasha Boyden – Cantor Fitzgerald

Okay. Great. Thank you very much.

Angeliki Frangou

Thank you.

Operator

Your next question comes from Urs Dur with Lazard Capital Markets.

Urs Dur – Lazard Capital Markets

Good morning, guys.

Angeliki Frangou

Good morning.

Urs Dur – Lazard Capital Markets

I hear the sirens in the background, so I presume you are already here.

Natasha got the line items that were interesting. I was wondering if you could be willing to expand upon a little bit of the market conditions that we are seeing now, whether it be – well, frankly, what do you expect post-Chinese New Year coming into iron ore price negotiations in terms of relative demand for ships.

Ted Petrone

I think it's, as we said, it's a very finely balanced equation right now. Remember, the BDI is averaging – well, today it's around 2700, which is above last year's average. But the Chinese need to get this agreement done. In 2008, about 10% iron ore sales were on a spot basis. Last year, because they didn't come to an agreement, I think it went up to around 50% or 60%. I think the Chinese learned their lesson.

This negotiation is going to get done and after the Chinese New Year, I would see some more iron ore being brought in because, on April 1, the price of iron ore is going to be more than it was on March 31. If you look at the past year, the market has definitely run up after the Chinese New Year.

Urs Dur – Lazard Capital Markets

Sure. But right now, we have near-record high congestion and rates really moving sideways. That may also be a function of Chinese New Year. But are their deliveries constantly, you know, providing a little bit of downward pressure on what people can do in the near term in the spot market? I mean, are you seeing that in your COA business, in your short-term fleet business?

Ted Petrone

Right. But again, it's also a balance. Look, there's no question about it. Slippage will be significant but the new building deliveries will be large. Against that, you have to weigh not only a 7% increase in world trade demand, but trade flow changes, the amount of miles that have to be moved. So we are looking at maybe ton mile increasing being well above 7%. The congestion continues on the Panamax side in Newcastle. It is close to record levels.

Urs Dur – Lazard Capital Markets

Yes. It's very high.

Ted Petrone

Look, the cold winter is helping out a new Q1 weather in Australia also helps out with congestion. It continues to move along on a balanced basis.

Urs Dur – Lazard Capital Markets

Yeah. It doesn't seem to make much sense that imports of iron ore have been going down in China, even though steel has been going up a bit heading into negotiations. It is interesting enough. And on the COA business, it was a bit more of a dip in days and revenues and expenses that I had expected a little tighter margin that I had planned for, which is fair enough.

I mean, can you talk about your short-term fleet business and what the future is with that, or is that going to consistently shrink going forward? Or is that going to be more opportunistic?

Ted Petrone

No. It's definitely not going to shrink. Remember, last year when no one was sure where the market was going, we had made a decision to step back a little bit because the volatility was very high obviously, especially on the physics side and the derivative side, again because the spot transportation and volume was up around 60%. With high volatility and low liquidity, it really wasn't an area we wanted to go into heavily. We will be very opportunistic going into the short-term fleet this year going forward.

Urs Dur – Lazard Capital Markets

Well, thanks. Hey, one final question. And it is pretty broad and you may not have much comment on it, Angeliki, but I know you are very experienced in the banking sector and you guys are all familiar with what's going on the ground in Greece.

Is there any impact? There's a lot of anecdotal chitchat on TV about impact of the Greek sovereign issue vis-a-vis the shipping industry. Is there any impact whatsoever that anybody should be concerned of, any items that we should take a look at in that issue?

Angeliki Frangou

In the shipping sector, it doesn't really affect. I mean, the Greek prices, the Greek binding prices, the Greek, some of the Greek crisis is not really affecting shipping. The only issue you may consider is of course that this is part of the warning, the global sense you may see that important.

The other issue that we – I mean Navios is not really exposed to that, but for some owners, that they only have Greek banking, ship lending they will have problems. But for the Navios group, we are not really exposed to that. And you can say that definitely the ship financing will be further reduced. Of course, Greece is not a major driver of the ship lending.

Urs Dur – Lazard Capital Markets

Right. It's just that it is something we hear? Perception is reality, a little bit, sometimes but that's just simply what the talking heads are saying, and I tend to agree with you. I just wanted to hear your stance on the issue.

Thank you very much for your time, guys.

Angeliki Frangou

Thank you.

Operator

The next question comes from Chris Wetherbee of FBR Capital Markets.

Chris Wetherbee – FBR Financial Markets

Hey, guys. Good morning. I wonder if I could touch a little bit more on the South American Logistics business. It looks like, given kind of the way your fleet is built over the last year or so, that 2010 is going to look like a year that's got most of the assets in place and what could be a more normalized year for the river system.

So I guess, when you think about that, can you give us a sense I guess of maybe what the potential of this business could be? You put some very helpful slides as far as some of the port business there, but just in kind of aggregate what you think maybe the revenue potential of this business could be in a more normalized river condition environment?

Angeliki Frangou

As you know, we are not allowed to give projections, but one of the things that we try to do in this presentation is to give you some sense on EBITDA by segment. You have seen that the growth in the port segment has been very significant over the last couple of years.

In the barge business, which is the majority, you have not seen really the growth, even though we had a substantial increase in the fleet, because you had the more severe drought problem in the last 50 years. So, one thing that you may have noticed is that we had increased our barge operations by about 100 barges, so we almost doubled our size, which we have not yet realized this profit potential in our bottom line.

Chris Wetherbee – FBR Financial Markets

That's right. So yes, so I guess the expectation would be, in a more normalized environment that you could obviously see more upside on the barge side. The terminal operations appear to be kind of trending in the right path but then we could see that in a better environment. Is that a fair assumption?

Angeliki Frangou

Yes.

Chris Wetherbee – FBR Financial Markets

Okay. Then when you think about kind of the margins that business put up this year, do you think those are the kinds of margins that you think you could run at, or again, given a better operating environment, the barge side of the business is likely to produce a better kind of margin on the business as it comes in?

Angeliki Frangou

Definitely. Don't forget that, as the draft is improving, this goes directly to your bottom line. So it significantly improves your margins.

Chris Wetherbee – FBR Financial Markets

Okay. As you turn the assets better, that certainly makes sense.

Angeliki Frangou

Yes. Right now, you have the cost, but you haven't received all of the benefits. So, all of the additional capacity that you can load because of better draft will go directly to your bottom line. The expenses are already in there.

Chris Wetherbee – FBR Financial Markets

Okay. Just to kind of hit on that point, from a seasonality perspective, I think I heard you say it's the second and third quarters are the high season as far as river conditions is being appropriate for moving most of the grain on the river. Is that right?

Angeliki Frangou

Yes. Second and third are the most important quarters for the business.

Chris Wetherbee – FBR Financial Markets

Okay. I guess switching gears a little bit onto the acquisition company, I was just curious to see – I know you mentioned there's nothing really to say there. Can you just remind me what the expiration of the timeframe is that you might need to make an acquisition before that facility gets kind of dissolved I guess?

Angeliki Frangou

You have in June or you have to ask for voting. But in all essence, let's realize one thing. We are looking on distress. I mean we can do deals today that we couldn't have done yesterday. And we see a bottoming on the segment. I mean we are now starting bottoming in the other segment outside dry containers. We just needed some time to see it.

Chris Wetherbee – FBR Financial Markets

Okay. So it's fair to assume that you could pursue – you would pursue or are looking at opportunities across all of shipping, not just in tanker or drybulk, so may be container, too?

Angeliki Frangou

We are open.

Chris Wetherbee – FBR Financial Markets

Okay. Fair enough. When you think about acquisitions for Navios Holding and particularly the financing of that, you guys have obviously been creative with your financing over the course of the last year or two. What would be your preference going forward? Would it be to continue to issue the mandatory convertible preferred shares? Does that seem like the best option for you or is it just continue to be a mix of debt and the equity-like products?

Angeliki Frangou

Yes. Using economic rationale on making these decisions and to be honest, Navios is the only drybulk company that did acquisitions last year on any significant scale. I mean, except of taking delivery of eight Capes that gave us a 106 million annualized EBITDA. We also bought seven new Capes at an average price of 60 million and a combined EBITDA to our bottom line over the ten years of 600 and – almost $630 million. So, you realize they are not tired of doing acquisitions. Of course, it has to be good and accretive to our bottom line.

Chris Wetherbee – FBR Financial Markets

Yes. Certainly it makes sense. One final question, just on a line item on the expense side. G&A was up to almost 13 million in the quarter. I apologize if I missed it George, in your comments. But is there something in there or how do you think about the run rate of that number going forward?

George Achniotis

Well, the insurance we paid was slightly up in Q4 because we took delivery of the new vessels. But other than that, there was nothing unusual.

Chris Wetherbee – FBR Financial Markets

Okay. So a 12 million to $13 million number per quarter is the number that should be good going forward?

George Achniotis

Well, our number is actually about $8 million, so I don't know how you came to $13 million.

Chris Wetherbee – FBR Financial Markets

Okay. May be there is something that I am missing here on my side. I think we can catch up about it off-line. Thanks very much for the time. I appreciate it.

George Achniotis

Okay.

Operator

Thank you. Question comes from Daniel Burke [ph] with Clarke & Johnson [ph].

Angeliki Frangou

Hello?

George Achniotis

Hello?

Operator

Your next question comes from John Parker with Jefferies.

John Parker – Jefferies

Good morning. What is the tone of conversations with banks these days? I've heard from some of your competitors that the banks seem to be opening up a little bit, talking about doing more deals. Are you finding that or is there any change in tone from – over the last six months or so?

Angeliki Frangou

I don't think that it's significantly better because don't forget that the ship lending comes from Europe, measurably their money and at this point with the crisis in Europe and the effect in the – I would suspect that financing is not coming really much looser anytime soon.

John Parker – Jefferies

Okay. And then I'm just curious on your South American Logistics business. You've chosen to charter in all of the cabotage tankers. I'm wondering why you are choosing to charter in. Can you give us any color on who the owners are, who is really ultimately providing that financing for those tankers?

Angeliki Frangou

No. We apologize. You may have a misunderstanding. We own the vessels, these new buildings. They are new building vessels that are double-hull, one of the brand-new vessels that we bring into the area and then charter out to the major customers the major oil companies in the area.

John Parker – Jefferies

Okay. I apologize for that misunderstanding. So those are all owned by the South American Logistics business?

Angeliki Frangou

Yes. Exactly.

John Parker – Jefferies

Okay.

Angeliki Frangou

You'll see the real effect of all of these contracts in this year because we are all at a significant rate of 15,000 – I mean a very significant rate for three and four years out.

John Parker – Jefferies

Okay. Then finally, you've really spent a lot of time building up your Capesize fleet. Is that part of your view that that's the sector you want to be in or is that where the opportunities presented themselves in the distressed purchase side and going forward, do you have a view on which sectors you would like to focus on more or is that just up to where the opportunities are?

Angeliki Frangou

Obviously. As I articulated, there's always a strategy of being in all of the segments of the dry. I mean, we are opportunistic. That's where the highest margin vessel and the best returns with long-term employment.

So we were opportunistic about that. We are not shy of being in every size. We also acquired over 100 marks at good prices last year. So it's a matter really of the function of the market and the opportunities arising.

John Parker – Jefferies

Thank you very much for your help.

Angeliki Frangou

Thank you.

Operator

Ladies and gentlemen, we have reached the allotted time for questions. I would now like to turn the floor back to Chairman and CEO, Ms. Frangou. Please go ahead, sir.

Angeliki Frangou

Thank you very much. This was our fourth-quarter 2009 and year-end results. We thank you for attending.

Operator

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

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Source: Navios Maritime Holdings Inc. Q4 2009 Earnings Call Transcript
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