Navios Maritime Holdings Inc. (NYSE:NM)
Q4 2013 Earnings Conference Call
February 19, 2014 8:30 AM ET
Angeliki Frangou – CEO
Ted Petrone – President, Navios Corporation
George Achniotis – CFO
Ioannis Karyotis – SVP, Strategic Planning
Urs Dur – Clarksons Capital
Thanks for joining us for this morning’s Navios Maritime Holdings Fourth Quarter and Year Ended 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.
We’ll begin with formal remarks from the team and then after we’ll open the call to take your questions. I’d like to turn the call over to Navios Holdings’ Chairman and CEO, Mr. Angeliki Frangou. Angeliki?
Thank you, Laura. Good morning to all of you joining us on today’s call. We are pleased to report our results for the fourth quarter of 2013. We had a solid quarter and reported $42 million of Adjusted EBITDA. For a number of initiatives, we materially reduced our daily cash breakeven to estimated $7,308 per vessel for 2014. Controlling costs was an institutional imperative in 2013, in order to take advantage of any change in the cycle. This low breakeven allowed us to position Navios optimally as it provides a margin of safety in a recovering market and provide reasonable cash flow in any event.
As we continue to focus on execution, we are returning capital to our shareholders through dividend payments and declared a $0.06 dividend for the fourth quarter of 2013 representing a yield of 2.4%.
Slide three showcases our current corporate structure – the value of Navios Holdings mainly derived from four areas; the dry bulk fleet within Navios Holdings and three principally operating subsidiary. In our view, that whole is divided at least under some of the part. Our non-public entity Navios GP recently signed a 20-year contract with Vale to provide storing and transshipment services basically expected to generate at a minimum $35 million of final EBITDA.
Slide four shows Navios Group’s basic access to the capital markets. We think the market downturn will develop time to improving on things we could control outside the rate environment. One of these things was our reputation for reliability with our conventional partners and our investors. I think that our discipline was well received and consequently allowed us to not only to maintain access to capital but also to develop access to new forms of capital. We used this access well. In 2013 and 2014, year-to-date, we raised $2.5 billion in the capital markets, whether it was from the equities or debt markets. We even developed access to some Lower B [ph] markets, especially in the international shipping company and the throughput barges preferred market. We used this money for creating jobs and are looking value for our investors. The Navios Group acquired 49 vessels, a technical loss. Overall we increased the group fleet by 50%.
Slide five showcases 2013 as a year of significant growth for Navios Holdings. You can see this, most directly in our share price which improved by 235%, as well as our liquidity was improved by 155%. We also increased our fleet chart rather dramatically. Navios Holdings also accessed the high yield market arranging $750 million in comparison to preferred raising $50 million. Using a disciplined approach to locate and acquire vessels, we were able to handle $44 million of value appreciation for the vessels acquired in 2013. We take pride in our disciplined process that allows us to make investment decisions during difficult moment in the shipping cycle.
Slide six expands on Navios Holdings activities in 2013. As I mentioned, earlier we used 2013 preparing for better days, we strengthened the balance sheet by financing a secured debt in November. We lowered our coupon by 150 basis points and expected it in one maturity by full year until January 2022. More recently, we issued $50 million of 8.75% perpetual preferred stock. This transaction allowed Navios Holdings to minimize its long-term financial cost by taking advantage of the currently low interest rate environment. While Navios has no obligation to ever redeem the preferred stock, it may easy [ph] after January 2018.
In 2013, we took advantage of the cyclical low to dramatically expand our fleet to direct a position, as well as chartering vessels. We acquired 22 vessels in 2013 and year-to-date 2014. We also chartered in five additional Japanese built Kamsarmax vessels. These vessels will be delivered to our fleet during Q2 2015 through Q4 2016. The vessels are chartered for a period between seven and ten years from delivery. The average charter rate for the Kamsarmax vessel is $13,480 per day per vessel. All of these vessels have purchase options. The company has cash breakeven of $7,308 for 2014. This low breakeven provides a margin of safety in a recovering market and allows to position the company in an optimum way to take advantage of this upturn.
Slide seven, we have a conservative balance sheet with net debt to capitalization of 51.3% and liquidity of about $238 million. Our liquidity should be viewed in the context of our cash requirements. The company has now funded CapEx and now material debt maturities for five years. As a result our liquidity is dedicated to expansion opportunities and our operating needs.
Slide eight sets forth Navios low cost structure. For 2014, we have fixed 51.4% of our vessels at an average contracted daily charter-out rate of $13,408 per day per vessel. This is well above our fully loaded cost of $12,916 per day per vessel. For 2015, we have fixed 8.8% of our vessels at an average contracted daily charter-out rate of $18,230. We feel comfortable with our current 2015 position as it includes – as it provided a flexibility to charter-out vessels at higher rate that will be available during market recovery. I remind you as I do in every quarter, that our breakeven analysis includes operating expenses – all operating expenses, dry docking expense, charter-in expense for our charter-in fleet, G&A expenses including credit default insurance expenses, as well as interest expense and capital repayments.
Slide nine focuses on the company’s charter-in strategy. We found that our charter-in strategy is a balance of credit, market and cycle risk. As a downward or a base rate that provides visibility of revenue and protection on downside risk with profit index mechanics to capture market upside, we have 8,778 days contracted for 2014 or 51% of all available days. Of this 2,142 days were contracted at index linked rates or/and 6,636 days were contracted at fixed rate. Nine of our vessels have been recently fixed for period charters designed to capture market upside while mitigating credit risk. These charters are designed to maximize profitability in a rising rate environment. It is important to note that for every $1,000 movement on the index equals $2.7 million in free cash flow or $0.03 per common share. The cash flow arrived at any capacity should raise to the historical means.
Slide ten goes into several details surrounding the company chartering strategy in capturing market upside which protecting the market downside. Our estimate for 2014 breakeven cost for our fleet including all costs is $7,308 per day per vessel for the open day. Whether the market shrinks upwards in large or sharp, or small movements are extremely low daily cost per given rate will allow us to enjoy significant cash flow, regardless of market returning to historical norms. Based on the current market rate of $17,714 per day, and using 8,316 open days for our fleet, we can lend $70 million in cash flow. However, my get-back [ph] experience, some mean regression and afraid if this goes back to the historical average which has approximately $20,100 per day for the 20-year rate, and at $29,000 per day for the 10-year average rate. So we can earn $107 million or $181 million in cash flow respectively.
Instead of risks, a reaction on the approach now we have disciplined with the loan cycle, and we use the opportunity to strengthen and grow the company creating an operating process as efficient as possible. And besides any strategy or combination of acquiring at attractive values and using innovative methods to keep our cost of capital lower. We are well positioned as the market begins in the next stage of recovery.
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?
Thank you, Angeliki. Please turn to slide 11. We acquired 10 vessels in 2013 and two vessels in 2014. We also chartered in five new buildings on long-term charters with purchase options for delivery in 2015 and 2016. Our long-term core fleet consists of 64 vessels totaling 6.3 million deadweight, we are one of the largest dry bulk operators in the world. We have 51 vessels in the water with an average age of 7 years. This is 25% younger than the industry average of 9.3 years.
Please turn to slide 12. Including the new acquisitions we have fixed our 51% of our capacity for 2014. The remaining open days are available for [indiscernible] and in improving environment. We have fixed 8.8% in 2015. The average daily charter-out rate for our fleet is $13,408 for 2014. The rate for 2015 its $18,230. As noted in the bottom left of our slide, our vessels operating expense are 39% below the industry average in all asset classes. This reflects among other things, the significant economies we have achieved with scale. The $2,200 daily savings per vessel as compared to the industry average in operating expenses aggregates to about $25 million in annual savings, dropping directly to our bottom line.
Please turn to slide 13. The BDI exceeded 2000 during December as yearly highs for Handy’s, Supramax and Panamax co-started with renewed strength for cape rates. Preliminary 2013 trade day indicate that total seaborne bulk trade rose by over 6%, led by sizeable growth in iron ore, coal and grain. And via in terms, trade growth of approximately 250 million tons was 58% larger than the average yield increased experienced during the 2003-2008 period.
The first two weeks of 2014 have brought about disruptions in cargo availability and a number of commodities and regions. These disruptions arise from a combination of whether related factors in Brazil and Western Australia and cove metal [ph] decrease in Columbia and Indonesia. While – so these disruptions are the temporary basis except for Indonesia’s export restrictions which may continue to effect minor bulk trade. Cap rates experienced the sharpest fall from the combination of the above disruptions and normal seasonality. At the current average Q1 cap rate is more than twice that of Q1 2013.
A slowing trend of fleet growth along with significant additional iron ore export capacity, in both Brazil and Australia should support earnings, especially in the CapEsize sector. Both the Panamax and the Supramax sectors should receive support over the medium to long-term by Chinese coal and grain imports with early support coming from what is expected to be a large South America grain harvest. A further slowdown in vessels deliveries combined with a gradual recovery in the world economy should build well for improving fundamentals in 2014 and beyond.
Please turn to slide 14. While our GDP continues to be driven by developing economies which now contribute a higher percentage of total world growth in the developed economies, representing over half of the global consumption of most commodities. The IMF recently increased projected world growth for 2014 to 3.7%, developing economies are projected to grow at 5.1%, Chinese economic growth is projected at 7.5%. And other significant GDP movement is the shift of Europe from a negative 0.7% in 2013 to a positive 1% projected for 2014. This is about a 2% movement within a short period of time in an economy of the size of the U.S.
Turning to slide 15, the primary engines of trade growth continue to be China and India. Bulk trade has expanded by an average of 5.5% per year in the 12 years since China joined the WTO. Consensus forecast for full year 2013 offer global dry bulk trade to grow at approximately 6% 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 mines outside of China continues to be lowest cost highest quality source of this commodity. With iron ore prices forecasted to decline to the $100 range, Chinese domestic production 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 Basins adding to ton miles.
Moving to slide 17, the continued development and urbanization of China will contribute significantly to steel consumption for the remainder of 2014 and beyond. Infrastructure, housing construction and consumer spending growth underpin future development. Now that Chinese fixed asset investments continue to grow at over 20% through 2013, crude steel production in China for 2013 was up 9%. Chinese iron ore imports for 2013 were up 10%. January imports were a record 86.8 million tons, representing a 32% year-on-year increase. Imported stock piles after having risen seasonably stayed at 98 million tons at the end of last week.
Domestic iron ore production increased by 8% year-on-year but quality seems to be deteriorating as effective FE content hovers in the 15% to 20% range compared to – with 63% FE content of imported iron ore. Going forward, the substitution of low quality domestic ore within imported ore is expected to grow and will increase the tons carried and ton miles.
Please turn to slide 18, over the past few years there has been a significant change in coal freight. China turned from being a net exporter of coal in 2009, only four years ago to being the world’s largest importer today. As the charts indicate, both India and China’s seaborne coal imports have grown at least 21% 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 these two countries account for over 35% of all seaborne coal movements worldwide.
Turning to slide 19, China’s grain imports are expected to double from 2012 to 2022 as the country’s per capita income rises leading to an improved diet and increased consumption of poultry and meat. As noted in the bottom of slide 19, it takes about eight tons of grain to produce one ton of beef. Grain shipments, while small relative to iron ore and coal, account for a large amount of vessel demand as measured in vessel days as grain is an inefficient cargo to load and discharge.
Moving to slide 20. 2013 new building deliveries totaled about 62 million deadweight tons, this number represents a lowest annual total for 2009, and it’s down by almost 40% for 2012’s record. 2013 non-deliveries increased by 30% to 38% bringing net fleet growth down to under 6%. Very early indications for 2014 showing non-delivery rate of 57% which is higher than the 54% recorded in January of 2013. Net fleet additions this year are expected to be lower than last year and that fleet growth is expected to be lower than demand growth resulting in an improved rate environment. The orderbook declined dramatically this year and beyond.
Turning to slide 21, low freight rate for the most of 2013 expensive to new lines high shipped scrap prices lead to a continued high scrapping levels as 22 million deadweight tons were scrapped. Scrapping rates for older, less fuel efficient vessels have continued at the start of this year. Through February 17, about 1.6 million deadweight was scrapped. The current rate environment should encourage scrapping of older vessels. About 11% of the fleet is over 20 year’s old, providing about 80 million deadweight tons of scrapping potentials. As demolition prices appear to depend on overall steel prices, and not on the supply of vessels, they are expected to remain high. We believe we will continue to see the scrapping of older, less efficient vessels. As noted, that the average age of the fleet starts declining in August at 9.3 years, this is indication that new building deliveries have slowed as we predicted earlier in the year.
Moving to slide 22, slide 22 provides a retrospective of the rate environment and considers the impact of supply demand equilibrium on rate recovery for 2014. As we all know, for annual rate recovery to be meaningful and lasting, fleet growth rates must fall below trade growth rates. As mentioned earlier, demand for dry bulk cargo is expected to increase for the full year 2014 by over 6%, rate similar if not higher than the expected net fleet growth for the year. However, the rate have changed, adjusted demand for dry bulk vessels will increase in 2014 and beyond as new building deliveries continue to decelerate and scrapping remains at higher levels. In summary, note that for the first time in five years there was a consensus expectation that cargo demand growth should exceed net fleet supply growth.
This concludes my presentation. I would like to turn the call over to George Achniotis, our CFO to go over our financial highlights and review our subsidiaries. George?
Thank you, Ted and good morning all. Please turn to slide 23 for a review of the fourth quarter and full year financial highlights.
Revenue in the quarter increased to approximately $131 million from $128 million in 2012. The revenue from dry bulk operations increased by 14%, to $80 million from $70 million in the same period in 2012. The increase is mostly due to a 20% increase in the available days from the fleet and a 4% increase in the daily planed chartered equal day rate [ph] that shit in the quarter from $12,805 per day in Q4 2012 to $13,291 in 2013.
Revenue from the logistics business decreased to $51 million in the quarter, mainly as a result of a decrease in the sale of products at the port in Paraguay. I note that is a low margin, low risk opportunistic trading business. EBITDA for the quarter in both 2012 and 2013 was affected by several non-recurring items. Q4 2012 was affected by the restructuring of our trade default insurance where we recorded a gain of $161 million. Q4 2013 was affected by $37 million write-off of deferred finance cost due to the refinancing of the secured bond, and approximately $15 million net equity [ph] pick-up from Navios’ position caused by some non-recurring items or affected NM’s quarterly results.
Excluding these adjustments, EBITDA for the quarter was $42 million, compared to $54 million in the same period last year. The reduction was mainly due to a $19 million decrease in equity from affiliated companies. $6 million decrease in other income. And $1.4 million increase in direct vessel expenses due to the increase in the size of the fleet. The decrease was mainly mitigated by $12 million in time charter, voyage and logistics business expenses; and a $3 million increase in the revenues. I would like to point out that the trend that has changed since Q2 of this year and it has been growing quarter-on-quarter. There was a 3% increase between Q3 and Q4, and a 8% increase between Q2 and Q4. This is also reflected in the TCE rates achieved in each quarter.
Net income for the period was also affected by the same non-recurring items that affected EBITDA, and $4 million of accelerated amortization of intangibles in 2012. Adjusted net loss for the period increased from $1 million in Q4 2012 to $18 million in 2013. This variance is mainly attributable to the reduction in EBITDA, an increase of $2.4 million in interest expense due to the insurance of the new bond and a $1.9 million in share based compensation.
Turning to the full year financial highlights, net income and EBITDA were adjusted by the same items affecting the Q4 results, and the sale of modules [ph] modules partners in 2012. That reduced $160 million from $258 million in 2012. The main reason for the decrease was the reduction in the TCE reduction in the period. I would like to remind you that for most of 2012, prior to the trade default insurance restructuring, we were reporting as income the daily rate of insurance proceeds. Thus the TCE rate achieved in 2012 was $18,167 per day, compared to $12,029 in 2013.
Furthermore, there was a decrease or $14 million in net earnings from affiliated companies. The decrease was mainly mitigated by $25 million reduction in time charter, voyage and logistics business expenses, $7 million reduction in G&A expenses, and $6 million in direct vessel expenses.
EBITDA of Navios Logistics increased by over 18% to $57 million from $48 million in 2012. Adjusted net income for the year reduced from $19 million in 2012 to a negative $57 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 $6 million decrease in depreciation and amortization, and a $5 million increase in income tax benefit from Navios Logistics.
Please turn now to slide 24, we continue to maintain a strong balance sheet with no leverage and a healthy cash balance. At December 31, 2013, we had $190 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 2012 to $19 million at the end of December 2013. The long-term portion of our bank debt also decreased to $199 million compared to $291 million at the end of 2012, following the early debt repayments from the proceeds of the new 2020 [ph] senior notes issued in November of 2013. Senior notes increased by $259 million after the refinancing of our 2017 bond. And we have done through 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 51%, this is a low ratio for the shipping company operating in a capital intensive industry. I would also like to remind you that the full market value of our investments in our affiliated companies is not reflected on our balance sheet. If these investments were valued at their current market values, our leverage ratios would be even lower.
Turning to slide 25; the company continues to provide their return to shareholders to its dividend which has been paid continuously from the first full quarter it went public. A dividend of $0.06 per share was declared to common shareholders as of March 20, to be paid on March 27. I would also like to point out that the expected annualized cash dividend inflows from our ownership in Navios Partners and Navios acquisition is approximately $45 million. This exceeds the annual dividend paid out by Navios Holdings by $20 million.
We now briefly review our subsidiaries. Please turn to slide 26. Following the latest equity raising of Navios Partners, we currently own just over 20% of the company, including a 2% GP interest. Navios Partners operates a fleet of 30 vessel with an average age of 6.7 years. Since its inception in 2007, Navios Partners fleet has grown by almost four times from eight vessels to 30.
Please turn to slide 27, 2013 was a transformery [ph] year for Navios Partners as the company entered into the container sector with the acquisition of five vessels with 10-year charters. It opened up a new source of financing and in the Term Loan B market, and increases its fleet size by 43%. This has resulted in significant price appreciation by almost 40%, this is the beginning of the year. The result was to solidify the cash flow generation which has enabled the company to provide comfort when at least the existing level of dividends for 2014 and 2015.
Please turn to slide 28. 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 received about $136 million in distributions. In 2013, along we received about $29.5 million in distributions from partners, which exceeds the dividends that Navios Holdings has paid to shareholders by almost $5 million. In addition to the distributions, there has been a 149% appreciation of our investment in Partners which as mentioned earlier is not reflected on our balance sheet.
Please turn now to slide 29. Following the latest equity raising of Navios acquisition, we approximately 46.4% economic interest in the company. Navios acquisitions currently consists of 43 tanker vessels. Totaling five vessels are currently in the water with an average age of 4 years. We anticipate that NNA’s will be in program for several product tankers, and a recent acquisition of three more [ph] VLCCs positions the company to take advantage of favorable long-term industry dynamics.
Turning the slide 30, 2013 and year-to-date, NNA raised almost $1 billion in the capital markets to fuel further growth. The fleet grew by almost 50% with the additional 14 vessels at historically low prices. The price appreciation of these vessels alone was 21%, or over $100 million by the year end. The equity raisings increased the liquidity of the stock by 210%, and there was a significant upside in the performance of the stock with almost 80% in the share price since the beginning of the year. Last week Navios Acquisitions priced its latest public offering of approximately 15 million shares, and raised an additional $57.6 million.
Turning to slide 31, the next slide shows how NNA’s fleet has grown since 2011 and how this will continue to grow as new building vessels deliver into the fleet over the next 18 months. Available days have more than tripled in three years from just over 4,000 in 2011 to over 13,500 in 2014, and they will grow to over 15,500 in 2015 when all vessels deliver into their fleet. As a result of this, EBITDA has grown by 67% between 2011 and 2013, we continue to grow as NNA takes delivery of new vessels this year or next.
Please turn to slide 32. Navios Acquisition provide significant cash flow to Navios Holdings. Including the 2013 dividends, Navios Acquisition has provided about $20 million in distributions since its start of operations. The value of holdings interest in Navios Acquisition has also grown by almost 30%.
And this concludes my presentation. At this point I will turn the call over to Ioannis Karyotis for his review of the Navios South American Logistics results. Ioannis?
Thank you, George. Slide 33 provides an overview of Navios Logistics, includes Navios Holdings owns 63.8% stake. Navios Logistics has three segment; port terminals, barges and cabotage. We are one of the major logistics providers in the Hidrovia Region of South America, we have significant opportunity to grow our business and maintain a focus on developing contracted revenues from our portfolio of high quality clients providing visible cash flows.
Please turn to slide 34. As we have already announced, we have secured a 20-year agreement with Vale International, a significant subsidiary of Vale S.A. for the storage and transshipment of iron ore. We will need to invest approximately $150 million to expand our core terminal infrastructure. We are currently working on the regulatory approval process in order to start construction.
In February 2014, we ordered three new building pushboats from a Chinese shipyard to be delivered in Q1 2015. Total acquisition costs for this pushboats, including estimated transportation cost is $26.1 million, or $8.7 million per pushboat. These three pushboats will be used to service the previously announced six jumbo barge convoys. Four convoys have already been time chartered-out at $14,500 per day per convoy for a six year period.
Please turn to slide 35. In the past four years revenue has been growing at an 8% CAGR. If we focus on our core activities, you will see the time charter, voyage and port terminals revenues have been growing at 11.7% CAGR. Our training activity () product was lower in 2013, affecting total revenues. During the last four years, EBITDA has been steadily growing at 20.5% CAGR.
Please turn to slide 36 to discuss the results for the fourth quarter and the 12 months ending December 31, 2013. Our EBITDA for the fourth quarter was $14.3 million, or 31% higher than Q4 2012. Net income for the period was $0.3 million compared to a net loss of $0.8 million in Q4 2012. Port segment’s EBITDA increased by 39% to $7 million due to more storage revenue in our dry port [ph] to better rate in minimum guarantees from our clients.
The decrease in revenue is attributed to lower sales of fuel products in our liquid port that were $4 million in Q4 2013 compared to $17.9 million in Q4 2012. Since this is a complementary low margin trading activity, it did not have a significant impact on EBITDA. Barge business EBITDA was $5.9 million in Q4 2013, compared to $3.4 million in the same period last year. The increase is attributed to more revenue from larger volumes of the liquid and dry cargo transported in the quarter. Cabotage business EBITDA was $1.4 million in Q4 2013, compared to $2.5 million in Q4 2012 mainly due to more acquired days in the quarter.
Interest expense in finance cost net increased to $6.4 million in Q4 2013, compared to $4.5 million in Q4 2012 due to via [ph] to the bonds in March 2013. Depreciation and amortization expense was $5.7 million in Q4 2013, compared to $6.9 million in Q4 2012. Our net result was also affected from – by $0.7 million higher tax expense compared to the same period last year. The 12 month period ending December 31, 2013, reflects our consistent EBITDA growth. And EBITDA grew 18% compared to the same period last year with positive contribution from all three segments. Net income was $9.7 million, up from $0.2 million in the 12 month period of 2012.
Please turn to slide 37. Slide 37 shows a strong balance sheet. As of December 31, 2013, cash was $86.6 million, compared to $45.5 million at the end of 2012. Net debt to book capitalization was 36% compared to 33% at the end of 2012, because of the add-on to the bond in March 2013. As of the end of 2013, remaining CapEx for the acquisition of the 72 barges and the 6 pushboats is approximately $70 million.
Now I would like to turn the call back to Angeliki.
Thank you, Ioannis. And we open the call to questions.
(Operator Instructions). Your first question comes from the line of Urs Dur of Clarksons Capital.
Urs Dur – Clarksons Capital
Good morning, you guys, because I believe you’re all in New York.
Yes, good morning.
Urs Dur – Clarksons Capital
Alright. So we’ll see you this afternoon, and congratulations on the 60th birthday. Navios South American Logistics, and I’m just looking at this first glance, so just against where they were revenue-wise last year, as supposed to this year. I believe it looks modestly similar but the EBITDA has grown. Can you describe a little bit as to how are you been able to achieve what can be viewed I suppose as a success there?
I’ll let Ioannis go through this but the reality is that, that our margin as a strong and we’re here both really generate by the substantial EBITDA with a growth year-on-year of almost 40% increase, you have and – of course our barge business has grown very nicely. I’ll say Ioannis go through the details.
So, the small decline that we see in the revenue line is only attributed to the sales of liquid products in our port in Paraguay. This is a low margin trading activity, I would have articulated in the past, it’s a complimentary activity of our main – of our core activities, this sort of activities, and this way it does not affect EBITDA. The increase in EBITDA is mainly attributed to the dry port that has grown very nicely this year, around the back of increased tariffs and better contracts, and also the improved activity of the barge business and the cabotage.
Urs Dur – Clarksons Capital
Excellent. And, can you give us any guesstimate as to when the expansion for the Vale contract will be completed and when we should sort of model that come on live?
If you remember it was – we have – we are already in the process of the regulatory approval plus organizing on the designs and everything on the portal, these are two parallel processes that we are – so we would believe that second half of 2015 will be the appropriate time. And don’t forget that we will also have an increased EBITDA due to the barges, the fixed component of the Kamsarmax coming, and very soon starting Q2 and the rest coming later. So there will be an incremental EBITDA. And other thing I want to mention is that the 20% growth that we show year-on-year is coming really from organic growth, we didn’t have any additional things added during 2013. So you see that there is a real growth in the company from its own operations. This year we will be mostly affected by the conveyor belt that came in Q4 – on October of 2013, and the convoys that are coming through the year.
Urs Dur – Clarksons Capital
Excellent, that’s very helpful. Getting back over to the dry bulk side of the equation a little bit, for all of you I guess asset values don’t seem to be coming down but we have at the very current moment, a very weak freight rate environment, and we know that iron ore inventories have perked up significantly in China and iron ore prices have come down. Angeliki or Ted or whoever wants to tackle this, I mean, how do you expect the curve of iron ore inventories in China to look over the next six to eight months? Do you expect – you mentioned this in terms of the iron content percentage Ted, but how do you expect it to be consumed over the course of this year? And then do you expect yet again another surge in freight rates for the fourth quarter, especially given the delivery schedule of shifts seem to slow down over the course of this year. What’s your view on how that – the rate curve looks this year?
Let me say, give you the view from Navios’ side and then from the way we assess up. And then Ted will take us through the varying intensity [ph]. The reality is that Navios – I mean even if we take the seasonally low which was – the lowest was about 1,000 – near 1,000 in EBITDA. We have seen that from the low, we have seen that recovered. What we’re also seeing right now which is a reality is that one year chartered on Capesize we just saw in recent fixture of 27,000; 16,000 from markets and 13,000 from frontal [ph] markets and really moving up. That means market is coming up from the low – EBITDA is above 1,160 meaning that you already have a 10% – more than 10% rebounds from the bottom. Navios’ wide position with a breakeven of $7,300 per day to be comfortable in any market, so even in today’s current market we are generating nice cash flows of about $70 million, with the ability to really grow – if you go to the 10-year average, 20-year average and 10-year average. So from the point of where we are, this is a very comfortable position because we can withstand even the worst market. Now Ted can take you really how iron ore can play out through the year.
Thanks Angeliki. Urs, I think as you said well, there is some inventory buildup due to some loan issues but this is a normal event that happened in China. They have stocked up for the winter, they have their iron ore inventory but if you’ve seen the steel production the first 10 days in February, it’s very good. Then steel exports have been up dramatically, in China they seem to be going. They will take some time to choose through this inventory, and when the prices get down some of those inventory may stay on the stockpile as it usually does, as they import more from Australia and Brazil, and a lot of the stockpile as we know came from more seaborne iron ore, so we expect the price to come down. We expect the high end Chinese domestic production iron ore to continue to go down. Columbia will come back on in March on the coal issue, the weather will get better as it usually does, you know Australia and Brazil have the rainy season. And I think the caps will follow along with what we think is a good grain harvest coming in the south – in the southern hemisphere. So I think, you look at them – you know the forward curve as well as anyone else, all signs are pointing for – to be going to continue to increase as we go through the year. It appears to me, we may have just bottomed just recently on the media [ph].
Urs Dur – Clarksons Capital
Great, and that’s good, and appreciate it. Just obviously then, maybe it’s a rhetorical question but then if your view is that do you have strengthening rates but even after this weakness, you don’t see any weakening at all in asset values if anything you see strengthening, correct?
Listen, I mean asset values has also to do with a fear and greed, and it’s more longer term kind of a position, it’s not only the sports market, it really more by the – I mean by spirit of people. So, I will say that you may have some kind of a volatility, not particularly – I mean, I don’t see it happening right now but you may have that, this is a totally fear and greed situation, and it does happen, takes may be not – you don’t see values dropping but what you see may debrief it, having a period that nothing is happening.
You know, I think as you go forward in terms of the S&P values, thing of the orderbook. If you take out the normal 30% non-deliveries, you’re down to maybe 12% of the fleet that’s on the water. I think that’s a big factor that keeps – also keep the asset values at least even if not going higher.
The longer term trend has nothing to do with what you may have –whole like him presently doing.
Urs Dur – Clarksons Capital
I can’t agree with that and I think that’s what’s holding up a lot of the stock. I really appreciate your time, and thank you very much guys.
(Operator Instructions). Our next question comes from the line of Chris Combe of JP Morgan.
Good morning guys. This is Nish Amani [ph] on for Chris. I just wanted to follow-up on a few questions about the dry bulk segment. And, then you guys have obviously been very acquisitive in 2013 and year-to-date 2014 in terms of adding new vessels. And I want to get a sense of you guys in terms of fleet mix where you see no additions on the increment coming along here. Do you look buy stores, CapEsize, or you guys mentioned the grain trade, so are you looking at smaller vessels increasingly. Just kind of want to get a sense of how you look at the sub-segments together?
Absolutely, we acquire all types. If you remember, we had a large gape expansion. Then we did Ultra Handymax, and now Panamax. So we had all besides this and also it has to do with what potentially will be our replacement later on. So, there is an – we like all the assets and don’t forget that today we also did – not only direct acquisitions which – you should – second hand last year, two new business this year, and we did also five long-term charter-in with purchase options, all of them. In today’s environment you can see positive spread that you want, $15,500 charter-in rates, $16,000 is the charter-out rate, so you’re in a good position. So we like all type of changes and the relief depends on the replacement of our assets.
Okay, and you mentioned the chartered-in additions, I mean, do you guys see this as a way of playing the asset cycle through – little leverage and little capital equipments [ph] or is this going to be increasingly a large part of your strategy going forward to kind of increase the amount of long-term chartered-in?
This is a strategy now we have for long time. If you remember, we might – we had about a third of our right fleet in long-term charter-in. We always like to have the purchase option which provide us a great flexibility and is like a new building with no cups and outlay. And this is something that is always thought off, and this is a period where we replenish this long charter-in fleet because we find it appropriate with values and everything, this gives us some additional weight. I think of the following, I mean the five comes over a $170 million expansion, any addition you do it was no capital outlay at all.
And turning to cash flow and dividend policy. I know you’d mentioned that that dividend and NMs pays out is relatively small compared to the proceeds you get the cash measure statement [ph] subsidiary. Can you kind of walk through some of the rationale you guys investigate internally about potentially in case any dividend or creating a higher yield instrument for investors?
I think although Vale – Navios will get to keep – Navios Holdings is a growth company, and is where would – you have much of days and everything that we organize but these other part of our capital structures that you can enjoy the yield.
Okay, it makes sense. And then finally just logistics, I know you guys have been very public in the past about potentially, eventually spinning off, then I say our business if that something – the capital markets cooperate, can you kind of give us preliminary signs or benchmarks along the way that you guys would see as being supportive of those transactions?
I think we have articulated our strategy there, and in an appropriate time we will come out with that. I think there is a major CapEx and a major project to be done. So, breaking in this EBITDA will be important.
Right. So then realistically, you would see the full integration of the Vale contract before potential capital markets activity?
We cannot – this is sounding to be seen but definitely you want to see, you have a material project.
Okay, that’s very helpful. Thank you so much for your time guys.
Your last question comes from the line of Chris Wetherbee of Citi.
Hi, this is Alecson [ph] for Chris. Just a question on fleet expansion, more specifically, do you see more opportunities across different asset class such as containerships or will drive out ships remained to focus?
I mean, in Navios Holdings through that – we know, we have done – we have a stake in – with the containers and in Navios Europe. And as Navios Group, we’ll have a view on the containers, there would be opportunities and I think this is something that may continue as we see that this is the asset class that is also more depend up right now.
Okay, thanks. And rates – we’re just talking about rates for quite a bit. And you stated that you see in your term improvement, but at what point would you find the longer term charters more favorable?
This is a good question, I always see as you will have market normalized you’ll spreads on the longer term, three, eight moths more, great cushions because people will go for the longer term and this will be a process that we will be seeing as the markets became scared free, the fear goes away and you have more of – as a greed dominating the market. So you’ll see that longer term. We saw from Q4 last year, we saw period market picking up from almost nothing, and now we see a more and more this becoming an opportunity. And as we Capesize, we saw that one chartered moving to 27,000. As there will be a pouring way, the two year market will open up, and the spread will start being created. This is kind of situation that I feel moved. Let’s say the 20-year average is for – Capesize is around 50,000, Panamax is around 18,000 and Supramax is around 16,000. So I should become more to that level, you’ll see people taking longer views on – and longer charters.
Okay, great. Yes, that’s all for me. Thank you.
At this time, there are no further questions. I will now return the call to Angeliki Frangou for any additional or closing remarks.
Thank you. This completes our Q4 result.
Thank you for participating in today’s conference call. You may now disconnect.
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