Navios Maritime Acquisition's (NNA) CEO Angeliki Frangou on Q2 2014 Results - Earnings Call Transcript

| About: Navios Maritime (NNA)

Navios Maritime Acquisition Corporation (NYSE:NNA)

Q2 2014 Results Earnings Conference Call

August 19, 2014, 08:30 AM ET


Angeliki Frangou - Chairman and CEO

Ted Petrone - President

Leonidas Korres - CFO


Michael Webber - Wells Fargo

Jon Chappell - Evercore

Herman Hildan - RS Platou Markets

Ben Nolan - Stifel, Nicolaus & Co., Inc.

Prashant Rao - Citi


Thank you for joining us for this morning’s Second Quarter 2014 Earnings Conference Call. With us today from Navios Maritime Acquisition are Chairman and CEO, Angeliki Frangou; President, Mr. Ted Petrone and Chief Financial Officer, Leonidas Korres.

As a reminder today's conference call is also being webcast. To listen to the webcast, please visit the Investor Relations page of Navios Acquisition’s website at

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 under the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Acquisition. Forward-looking statements are statements that are not historical fact. Such forward-looking statements are based upon the current beliefs and expectations of Navios Acquisition’s 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 Acquisition’s filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Acquisition does not assume any obligation to update the information contained in this conference call.

Now we'll begin this morning's call with formal remarks from the team and after we'll open the call to take your questions.

I’d now like to turn the call over to Navios Acquisition’s Chairman and CEO, Ms. Angeliki Frangou. Angeliki?

Angeliki Frangou

Thank you, Laura, and good morning to all of you joining us on today’s call. I’m pleased with the results. We grew revenue by 32% adjusted EBITDA by 19%. As a result, we declared a quarterly dividend of $0.05 per share. Since the formation of NNA we have consistently paid a dividend and today's stockholders are receiving a yield of almost 6%.

Turning to Slide 3, Navios Acquisition has a modern fleet of 44 owned vessels of which 38 are in the water. We expect to have 42 vessels in the water at the end of this year. this is a young fleet with an average age of 4.8 years.

We identified a market opportunity in Tankers when the market was in distress a number of years ago. Since then, we have grown our company to be one of the largest publicly listen tanker company. We have built our fleet by being patient, relying on an extensive network of industry relationships and taking advantage of the distress deals and opportune moments in the market.

For example, after starting the market for a number of years and doing a great deal of work, we acquired 15 vessels in 2015, including four VLCCs, nine MRs and two chemical tankers. Thus far, in 2014, we have acquired two additional VLCCs. All these vessels were full prompt delivery.

As a result, today NNA effectively has two operating platforms, and product chemical tanker fleet of 33 vessels and a VLCC fleet of 11 vessels. Looking just on the VLCC, we are currently the first largest publicly listed VLCC owner among the U.S. and European peers.

Once we deploy our capital, we have been mindful to protect the value of the acquired vessels by reducing operating expenses and securing [BP] (ph) charters.

As to the OpEx, we have cost there about 17% less than the industry average and have been fixed through 2016. As for charters not only we have quality measures on our charters, but we mitigate charter age risk by insisting contracts to include profit sharing provisions. Our modern is at period employment for any vessels we acquired but we do so with profit sharing that allow us to participate in the upside.

We feel this approach is appropriate given where we are in the cycle. We are proud of our responsible growth strategy. As we have been able to grow the fleet, while protecting our balance sheet and stakeholders. Our available earnings days reflect a disciplined growth. Available days by grow by 62% through 2015 and 79% of our contracted fleet has profit sharing.

In fact for every $1,000 of profit sharing, we receive on our vessel is also a $9.9 million in incremental free cash flow. Moreover, our operating expenses are fixed through mid 2016 and that is about 17% below industry average as I mentioned a minute ago.

We feel that in achieving this result, we have taken advantage of the market opportunity without introducing unnecessary risks.

Slide 4 highlights the key developments during the quarter. Our EBITDA growth reflects a disciplined 2014 run rate EBITDA based on the first half of 2014 is approximately $142 million. About $12 million of the incremental annualized EBITDA will come from the four vessels all delivering in 2014.

We will also earn incremental EBITDA from the four VLCCs contracted on floating rate and we may experience further upside as the remainder of the fleet hits the water and what we hope to be an improving market.

We also improved the collateral package on our outstanding senior by $5.5 million by releasing two MR2 product tankers from the collateral package and adding one of the VLCC. That company also secured $85.8 million in bank finance for five vessels in payable financing term, which include a nine-year amortization profile and 3.10% margin.

Slide 5 details chartering strategy designed to provide the company downside protection from market volatility through our peer charter coverage. About 97% and 52% of our fleet is contracted out for 2014 and 2015. Profit sharing is standard to our chartering strategy and market improvement is captured through our profit sharing provision of 79% of our contracted fleet.

As current charter age shows signs of improvement and potential improvement at over 10-year average rate after our chartering strategy also allow us better re-chartering opportunities.

Slide 6 outlines our VLCC chartering strategy. When we charter out vessels, we buy on the risk of ownership with a current market reward, while keeping in mind on our position in the shipping cycle. We also always seek to manage credit risk, which we have done so by chartering out all 11 VLCCs to quality credit counterparties.

Seven of these vessels are on fixed rate contracts which allow us duration of five years and an average net charter out rate of $37,934 per day. We also have profit sharing on six of these seven VLCCs and the remaining four VLCCs are on a floating rate. Our strategy to gain market exposure is to employ our vessels through contract base floating rate.

The structure of the floating rate charters provide protection from an immediate market downside and can capture market upside through profit sharing by linking our contracts to their [advisory] (ph) which captures a premium to the index through fuel savings and other adjustments.

Slide 7 shows our material growth. Our available days grew by 41% at the end of 2014 compared to 2015 and as you can see, our available days and fleet should continue to grow in double-digit in 2014 and 2015, so that we can anticipate environment to also post a material increase in EBITDA during those years.

Slide 8 represents our CapEx requirements and delivery schedule for our fleet as of today. CapEx is fully funded. For the six vessels to be delivered, we expect to take a total of $31.7 million. Of this amount $12.8 million is due in 2014, while we take delivery of the four vessels and $18.9 million in due in 2015 where we will take delivery of the remaining two vessels.

Slide 9 demonstrates our strong liquidity position. We have total pro forma liquidity of $131.6 million at the end of the quarter including $70 million in cash. We have more sufficient cash on our hand to fully fund the remaining balance of our new building commitment. Also because of our bond refinancing late last year, we have no significant debt maturities until the fourth quarter of 2021.

We expect our leverage ratio to reduce naturally as we enjoy the cash flow benefit of our vessels in the water. Indeed our net debt capitalization of 68.4% at the end of the year is significant reduction from previous years.

Slide 10 shows the cash flow from our low breakeven 96.7% of our fleet is contracted for 2014. We expect to have an average contract daily charter out rate of $18,857 per day. For 2015, 52.3% of our fleet is contracted out and we expect to earn an average contracted daily charter out rate of $21,853.

Our average fully loaded cost is $16,409 per day in 2014, which reduces to $16,249 per day in 2015. For 2014, 6% of our revenue not only full covers all our cost, but about $6.1 million in first class revenue. Moreover, on our spot exposure and base contracted and floating rate, we will earn about $1.5 million in additional revenue per $1,000 of day rate.

As you know, our daily operating cost includes dry docking G&A expenses, interest expense and capital repayments.

At this point, I would like to turn the call over to Mr. Ted Petrone. Ted?

Ted Petrone

Thank you, Angeliki. Please turn to Slide 12, year-to-date we have taken delivery of six tankers, five VLCCs and one MR2. With these recent acquisitions, our fleet on the water has grown to 38 vessels.

Navios Acquisition continues a Navios policy of locking in secured cash flow with creditworthy counterparties. Since the beginning of 2014, we have chartered our five VLCCs for a total of 4.5 years of coverage through product tankers for 2.8 years and two chemical tankers for a total of two years coverage.

The renewal of our VLCC fleet which began last year decreased the average age of our VLCC fleet by about 31% and brings it more in line with the industry average of about 8.2 years.

Please turn to Slide 13. Navios Acquisition diversified fleet consists of 44 vessels totaling 5 million deadweight. The fleet consists of four chemical tankers, 21 MR2 product tankers, 8 LR1 product tankers and 11 VLCCs.

All the fleet statistics exclude the vessels in the age agreement. Navios Acquisition currently has vessels on the water with an average age of 4.8 years.

Since January 1, 2013, our product tanker fleet on the water has grown by 150% to 27 and the total fleet on the water grew 124% to 38 vessels. 15 product tankers have delivered since the beginning of 2013. Of the six, MR2 is expected to be delivered during the remainder of 2014 and 2015 and they've already charted out two vessels for two years each.

Our available fleet days will grow from 13,638 in 2014 to 15,604 in 2015, representing 41% growth in available revenue days in 2014, and a 14% growth in 2015.

Turning to Slide 14. We've fixed about 97% of our capacity for 2014 and what is expected to be improved conditions, we have fixed just over 52% in 2015 and 21.7% of revenue days for 2016. 79% of our contracted fleet has profit sharing. The average daily charter out rate for our fleet is $18,857 a day for 2014. The rate for 2015 and 2016 are $21,853 and $30,989 respectively.

Please turn to Slide 15. Our chartering strategy revolves around capturing market opportunity while also developing dependable cash flow from a diverse group of first class charters. As a result, the average duration of all our product charters is about one year. We earned $1.8 million of profit sharing in the first half of 2014 from our product tanker fleet.

Please turn to Slide 16. Our VLCC fleet consists of 11 vessels, 7 of which are chartered out for an average duration of five years at $37,934 of day net while six contracts provide profit sharing.

We also contracted out four VLCCs to quality counterparties based on floating rates to capture the market upside. This charting strategy intend to allow us to capture increased profit from strong charter markets while developing relatively stable cash flows for longer term time charters.

Please turn to Slide 17. Slide 17 recaps our strong relationship with key participants in our industry. We continue to build a portfolio of quality charter counterparties, which provide vessel employment with a strong diversified customer base. One of the attributes we seek in our counterparties is a strong credit quality.

Turning to Slide 18, Navios Acquisition enjoys vessel operating expenses significantly below the industry average. Currently, Navios Acquisition’s daily OpEx is about 17% below the industry average.

We achieved these operational savings through a management agreement with Navios Holdings. The operating cost under this management agreement has been extended until May 2006 in the current level except for a 5% decrease in VLCC rates. Please note that the operating cost shown here include all dry docking cost.

Turning to Slide 20, according to the IEA, refinery capacity is expected to increase by 7.7 million barrels per day for the period 2014 through 2019. About 80% of that capacity will be added in Asia and the Middle East with the IEA projecting China and other non-OECD Asia to increase refinery capacity by 2.4 million barrels and 1.3 million barrels per day respectively.

New low capacity in Asia is forcing rationalization of old high cost capacity in the OECD. Refinery closures in Europe and the Caribbean as well as closures due in Australia and Japan can be probably attributed to the age and inefficiencies of these facilities.

Additionally U.S. refinery capacity will increasingly serve export markets. Because of the structural shift, the growth in ton miles of refined products is expected to continue to outpace the general demand for refined products in the long run.

Turning to Slide 21, U.S. crude production has increased by about 67% since the end of 2008, reaching 3.8 million barrels per day in May. Since U.S. crude exports are prohibited by law, the U.S. has increased its total product exports by over 300% to about 3.7 million barrels per day since 2004.

U.S. exports have exceeded imports consistently since 2011. U.S. Gulf refineries, which benefit from inexpensive domestic crude and natural gas supplies, are finding a natural export market to neighboring Mexico and Latin America, as well as Africa.

U.S. product imports have declined over the past couple of years, but continue to come from further away adding to product ton tanker miles. The fundamentals of product tanker trading patterns continue to adjust in relation to these changes.

Turning to Slide 22, oil refineries vary greatly in the quantity, variety and specification of products that they produce. As depicted in this Slide, regional surpluses and deficits combined with relative low-cost transportation, drive arbitrage trades and increase product ton miles.

As an example, requirements for gasoline in Europe and Latin America can be met by shipping the oversupply westward from Asia and the Middle East or eastward from the U.S.

Similarly, requirements for gasoline in Asia can be met by shipping the excess supply eastward from Europe and the Middle East. Increasing worldwide product imbalances point to increased ton mile development. This global multi-directional trade pattern enables product tankers to triangulate thereby minimizing balance time and maximizing revenue.

Please turn to Slide 23. In the product sector, demand for transportation expressed in terms of ton miles increased by about 77% in the period 2004 to 2013 equivalent to a CAGR projections indicate similar growth in 2014.

The increase in tanker demand was greater than the increase in overall trade due to the growth of long haul product tanker trades. The map at the bottom of the slide depicts existing product tanker routes as well as prospective routes based on the anticipated eastward shift in global refinery capacity.

Please turn to Slide 24. Product tanker non-deliveries in 2013 equaled 35%. Through Q2 of 2014, tanker non-deliveries again equaled 35%, as 2.7 million deadweight delivered at about projected 4.2 delivers.

About 6% of the product tanker fleet is 20 years of age or older. The order book totals 27.5 million deadweight or about 21% of the fleet, a level usually considered adequate for regular replacement of existing fleet with little or no demand growth.

Higher scrap prices should encourage further scrapping of older or single haul units. Demolition prices appear to depend on overall steel prices and not the supply of vessels.

Turning to Slide 26. The IMF projected growth for 2014 and 2015 at 3.4% and developing markets growth of 4.6% in 2014 and 5.2% in 2015. The IEA projects global oil demand growth to rise by 1 million barrels per day to 92.7 million barrels in 2014 and 1.3 million barrels per day to 94 million barrels in 2015. This growth remains well below historic averages. It is expected that all of the projected growth will come from non-OECD countries.

Please turn to Slide 27. China is the world’s second largest consumer of oil, importing more than half of its requirements. China’s imports have more than doubled since January 2009. However, on a per capita basis, European usage is three point times out of China and U.S. usage is seven point times out of China.

In July, China imported 5.6 million barrels per day of crude. Current projections show China’s crude oil imports will likely surpass the U.S. next year growing at about 14 million barrels per day up to 2035 as the country continues its urbanization, industrialization and modernization of its economy.

As noted at the bottom line of Slide 27 in terms of ton miles, the movement of crude from West Africa and South America to China uses as many VLCCs as the movement from the Arabian Gulf even though the Arabian Gulf shipped 1.9 times more oil to China.

The growth in VLCC ton miles will continue as China imports more crude from Venezuela, Brazil and West Africa as it diversifies its sources of oil more than offsetting any decline in U.S. imports.

In addition, Indian companies have recently secured crude oil from Brazil to replace existing Iranian supplies, increasing VLCC ton mile demand. The IEA expects Brazil to increase net crude oil exports for about 3.5 million barrels by 2035 from being a net importer this year. With demand for oil increasing only marginally on an annual basis, distance has been a key driver to tanker demand.

Please to turn Slide 28. 2013 VLCC new building deliveries represented 46% of projected deliveries. Through the first half of 2014, non-deliveries equaled 37% as 4.1 million deadweight delivered out of a projected 6.6 million deadweight.

Net fleet growth continues to slow dramatically due to the continued elevated scrapping and non-delivery levels. The high prices of steel combined with high fuel prices led to continued high scrapping year-to-date non-vessels of more than 2.6% deadweight have been scrapped.

Please turn to Slide 29. Since 1991 increases in the world GDP growth year-on-year have generally led to rises in one year VLCC TC rates. According to the IMF, world GDP growth is expected to be higher in 2014 than it was in 2013, which if past pattern continue, should lead to improved VLCC rates going forward.

World crude oil and refined product consumption has generally grown for 30 years with declines in ‘08 and ‘09 due to global financial crisis. Starting in 2010 world crude oil and refined product consumption returned to this pattern of growth.

The main drivers are increased demand for the Asian economies, particularly China as well as the increase of refinery capacity in the broader Asia and Middle East regions. Going forward, we see this trend continuing.

Thank you. I would now like to turn the call over to Leonidas Korres for the Q2 financial results. Leo?

Leonidas Korres

Thank you, Ted. I will discuss the financial results for the second quarter and the first half of 2014.

As shown on Slide 31, our operating metrics for the second quarter of 2014 have improved compared to the same period in 2015, mainly due to the increase in the number of available days of our fleet from 2,095 to 3,288 days.

In order to make the comparison with the prior period more meaningful, we have adjusted EBITDA and net income for the 0.9 million loss related to the sale of the VLCC Splendor that took place in May 2014 and $1.5 million stock-based compensation expenses.

Revenue for Q2 2014 increased by 32.3% to $62.2 million from $47.1 million in Q2 2015. We enjoyed a 99.8% fleet utilization and a time charter equivalent of $18,508 per day.

Operating and voyage related expenses were $25.2 million and G&A expenses were $3.7 million. We continue to demonstrate significant EBITDA growth in this quarter. Adjusted EBITDA for Q2 2014 increased by 19.1% to $35 million from $29.4 million in the same period of 2013.

Other expenses include depreciation and amortization of $17 million and interest expense and finance cost of $18.1 million resulting to an adjusted net loss of $0.4 million or $0.00 per share.

Turning to the financial results for the six month period ended June 30, 2014, EBITDA and net income have been adjusted for the following items. $11.6 million impairment loss and loss related to the sale of the VLCC Shinyo Splendor, $2.2 million loss related to a claim from a defaulted charter, and $2.9 million stock-based compensation expenses.

Revenue for the first half, increased by 35.1% to $123.2 million from $91.2 million last year, reflecting a time charter equivalent of $19,009 per day and 99.7% fleet utilization.

Operating and voyage related expenses were $48.3 million and VMA expenses were $7.3 million. Adjusted EBITDA for the first half of 2014 increased by 23.6% to $70.8 million from $57.3 million in 2015. Depreciation and amortization was $33.6 million and net interest expense and finance cost were $35.3 million.

Adjusted net income for the first half improved by $0.3 million to $1.1 million from a net income of $0.8 million in 2013. Since we commenced operation in 2010, we have grown our operating metric significantly reflecting the growth of our fleet. With a 41% increase in the available days of our in 2014 and additional 14% in 2015, we expect our metrics to continue increasing substantially.

Slide 32 provides selected balance sheet data of June 30, 2014. Cash and cash equivalents including restricted cash were $69.6 million. This amount doesn’t include $22 million of debt financing drawn post to for the VLCC Nave Neutrino delivered in June 2014.

Vessels, net of depreciation increased $1,579.8 billion reflecting the increased number of vessels in our fleet. Vessel deposits of $80.3 million represent deposits in capitalized cost for vessels to be delivered over the next 18 months.

Total assets amounted to $1.8 billion. Total debt as of June 30, 2014, was $1,252.2 billion resulting to a net debt-to-book capitalization ratio of 68.4%. As vessels delivered to our fleet and we’ll start repaying the respected debt facilities, their ratio is expected to decrease. As of June 30, 2014, Navios Acquisition was in compliance with all of the covenants of its credit facilities and ship mortgage notes.

Turning to Slide 33, our financial strength has enabled us to announce a dividend of $0.05 per share for the second quarter, equivalent to $0.20 per share on an annualized basis. Based on last night’s closing price, our dividend provides an annual yield of about 6%. The dividend will be paid on October 2, 2014, to shareholders on record as of September 17, 2014.

Please turn to Slide 34. Navios Acquisition has a prudent financial strategy. Approximately half of our debt is non-amortizing, which provides significant cash flow flexibility.

Our senior notes mature and we have no debt maturities in our bank debt until 2016. Overall, our financial structure provide lenders additional comfort relating to the stability of our balance sheet.

Our liquidity position is strong, our CapEx is fully funded, and we have significant cash flow visibility since 96.7% of our available days are contracted in 2014 and 52.3% in 2016. Moreover, our company is very well positioned to capture the upside of the tanker market since 79% of our contracted fleet has profit sharing.

And now, I will pass the call back to Angeliki. Angeliki?

Angeliki Frangou

Thank you, Leo. This completes our formal presentation and we'll open the call to questions.

Question-and-Answer Session


(Operator instructions) Your first question comes from the line of Michael Webber of Wells Fargo.

Michael Webber - Wells Fargo

Thank you. Good morning, guys. How are you?

Angeliki Frangou

Good morning.

Michael Webber - Wells Fargo

Hey. Just a couple of questions and more of kind of strategic question around cash structure and distributions, but just to start off, I know you’ve talked about with your VLCC placed on the recent deals kind of keeping a bit of a staggered chartering approach putting one out on term and keeping one float and another with profit share.

As you start to see some of those assets come back and they start to redeliver into 2015, is there any reason to think that, that approach would be different as we head into 2015, would you look to get a bit longer if you can get more profit share. How’re you approaching that? Is there any difference to the guidance we got kind of earlier in the year?

Angeliki Frangou

I think as rates are firm and you’ve seen on the [VA] (ph), it moves from one time charter in the low 20s to now being high 20s and we've been seeing -- on the three-year moving to the low 30s. This is -- market is driving up and it seems that it’s going to be a strong second half for the VA market, that this will be a strategy that as we can see better rates will fix the vessels at longer periods with profit sharing.

Michael Webber - Wells Fargo

Sure. And you mentioned that the period rates have picked up a little bit. Obviously it’s a pretty cyclical space. How do you think about like what signs you’re looking for in terms of when you start to actually walk some of those NOI that’s going to be market availability, but when you see rates moving closer to 30, obviously that’s not anywhere near peak, but what kind of legacy thing is moving and period rates really and what you’re looking for in terms of when you would start to lock some of that up longer term?

Angeliki Frangou

I think I cannot better -- mid 30s and higher 30s for longer periods. I think this is a good level because the long-term earnings of VL is around 40, so if you see that with good profit sharing element, you have an area where you have protected your downside while doing a good profit sharing can keep part of the upside.

Michael Webber - Wells Fargo

Right and it depends on your cost bases too. I think you guys are pretty well. The options you guys have on the product tankers and the chemical tankers I believe most of those are to navigate, but can you refresh memory in terms of when they would need to let you know whether they’re going to start to extend those options or exercise those options, just generally are we talking two to three months ahead of time or what sort of lead time you think will have on that?

Angeliki Frangou

I think the majorities end of this year, they will have to take longer. I don’t know if you are sure, it will repeat on the two chemical targets. Now I have their full upside because we took the profit sharing out. I think we have seen that total tankers have been -- chemical tankers have been performing quite well and this way, we’ll keep all the upsides -- of course we don’t have the protection of downside, but we show that really their age -- their directions are performing very, very well. So we changed from a fixed rate with a profit sharing to 100% -- keeping 100% of the earnings.

Michael Webber - Wells Fargo

Got you. And then one more for me and I'll turn it over. When you think about -- you mentioned period rates have moved higher and that makes sense when they kind of unlock, step up, I guess lagging with asset, your assets have generally started to move higher across most of the phases you are in and you’ve done a pretty good job of going out and finding value, but in general those asset values are increasing.

When you think about your dividend policy and the idea of preserving cash to acquire assets, does that moving an asset values make you reevaluate your dividend policy and did you get any thoughts to maybe moving that at this point towards the flow that might give you a stronger currency or do you still see organic cash flow as -- using organic cash flow for acquisition even as these prices as being the best use of that cash.

Angeliki Frangou

I think that Navios Acquisition is a growth company. So I'll never suspect -- I don’t think that the policy of the company is to be a high dividend strategy, but we’ll definitely try to find ways to reward us stakeholders either with acquisition or with alternative strategy.

Michael Webber - Wells Fargo

Okay. That's helpful and I’ll leave it open, but thank you very much for the time.

Angeliki Frangou

Thank you.


Your next question comes from the line of Jon Chappell of Evercore.

Jon Chappell - Evercore

Thank you. Good afternoon.

Angeliki Frangou

Hello. Good morning.

Jon Chappell - Evercore

Angeliki, I want to ask you a bigger strategic question. If we look across the landscape of the U.S. posted tanker stocks, Navios Acquisition Corp’s the only one that has a mix of both product tankers and crude and in the current environment where there seems to be a lot more optimism around crude for the next couple of years, there is potential that the product exposure could kind of weigh down the impact of the VLCC fleet.

So the question is, have you thought about potentially splitting the two fleets? You’re certainly not shy about meeting public companies. Any longer term thoughts about separating the products from the crude fleet?

Angeliki Frangou

I think that at this point, we’ve benefited very much by the two platforms to be honest because it has been beneficial to built and the crude market was not as favorite. We were able to really acquire VLCCs at historical low and because we had great base that gave us the ability to absorb the VL short-term volatility and whatever that's happening.

These two platforms are very powerful. You have a gang fleets. You have 33 product and chemical tankers, 11 VLCCs and this has created very good balance.

So we're always reviewing ways to get the best out for our shareholders, but presently it has been very beneficial and I think the very good thing about Navios Acquisition, we are now having about VL 700 base open this year on the VL -- on an environment that is developing about a mix of these and it looks to bring nice profitability down to the bottom-line.

Jon Chappell - Evercore

Okay. And then as a follow-up to that, ted mentioned in the product tanker market overview, I think you said exactly U.S. by law bans the export of crude. It seems that that might be losing a little bit with the new condensate ruling and maybe that’s foreshadowing of more exports to come.

How does that changing landscape kind of make you think about the fleet going forward? Would you look at potential midsize crude carriers? Will there be more of a focus on LR1s or LR2s that may benefit more directly and potentially maybe wind down a little bit some of the MR2 exposure. Is that dynamic going to change globally?

Ted Petrone

I think you’re right. With all this excitement, there really hasn’t been any change in the U.S. government policy, but you’re right, instead of light fleet, we're taking this condensate and that with the fracking there’s been strong -- you can do strong exports with that going forward. I don’t think it would help the LR2s. They’re too big to go through the current canal.

I think it will flow down to the LR1s and most probably the MR2s as we continue to get -- this condensate is going to be clean. It’s going to be close to being outside. I think a lot of that is going to go out to the Far East for ton miles. So the whole issue I think is very strong for the product, probably more MR2s, LR1s that’s where our focus has been.

Jon Chappell - Evercore

Okay. Thanks Ted. Thanks Angeliki.

Angeliki Frangou

Thank you.


Your next question comes from the line of Herman Hildan of RS Platou Markets.

Herman Hildan - RS Platou Markets

Good afternoon, guys. I just want to follow-up on Michael’s questions regarding dividends. If you take the average expectation, next year you have an EPS of about [47] (ph). How do you set your dividends? I mean is it prudent to preserve cash and deleverage the company but kind of should we expect the rates to be yield in slow market by couple of cents?

Angeliki Frangou

I think as we stated earlier, we have a very strong ability -- stability. We have about 1,400 base. Even this year, available 50% of this is -- VLCC base. So you know that you have a hype of stability but I think the greater question is that we do care about returning to our shareholders and to our stakeholders, so this is a top priority. We’ll find the best way to approach this.

Let's not forget that Navios did quite a significant acquisition. Last year, year to date we were down 17 vessels. Majority last year very attractive rate and we built a real VLCC platform with scrapping and with selling and with acquisition of new VLs, so creating a nice platform.

So we’re not -- so to speak we’re not shy to make sure that we reward our investors, but first we have to find the best way to do that, that profitability triggers down to the bottom line.

Herman Hildan - RS Platou Markets

If you kind of think about the investment cycle for -- and I know you’ve been expanding aggressively in the last couple of years and hopefully expectations of crude rates and values will materialize in that scenario. Will you -- obviously then the markets might be distress then more, will you have seen this investment to make sense from core value, asset values versus chopped rates basis?

Angeliki Frangou

We will find the best relevant value to get it. I think that Navios has been very vocal that we want to -- we protect all our stakeholders and we will find the best value to return it.

Herman Hildan - RS Platou Markets

Okay. Thank you very much.

Angeliki Frangou

Thank you.


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

Ben Nolan - Stifel, Nicolaus & Co., Inc.

Okay. Thanks. So my first question is getting away from strategy for a moment is as it relates to your existing CapEx program, how much financing is left to be procured? I know that you guys are almost finished and just have this new deal, but is it just final two vessels in 2015 that still need financing?

Angeliki Frangou


Ben Nolan - Stifel, Nicolaus & Co., Inc.

Okay. And approximately what are you assuming in terms of that level of financing on the vessel?

Angeliki Frangou

$37 million.

Ben Nolan - Stifel, Nicolaus & Co., Inc.

Okay. Perfect. All right, well that’s helpful and then on to something more strategic. So as you guys are managing your LR1s and MR2s and obviously the charterers have some discussion, but are any of those vessels actually trading in the dirty product or crude markets?

We’ve seen a bit of a dislocation especially in July where some of those dirty rates were materially better than the clean rates. I was just curious if you guys are allowing your vessels to be traded in that way and if you’re seeing any benefit as a result of that profit sharing.

Angeliki Frangou

I think the majority is in the clean. We will have one or two on the navigates but they have the obligation to built to the clean. So actually -- and also don’t forget that LR1 is performing much better than waste. So we’ve been benefiting from the relative performance in the East.

Ben Nolan - Stifel, Nicolaus & Co., Inc.

Okay. That’s helpful and as it relates to that -- just thinking about positioning -- are you guys more -- is there any geography that you guys tend to -- your vessels tend to be more focused on East versus Atlantic versus Pacific?

Angeliki Frangou

I think I’ve said this. As we always have strategy to diversify with different charters and ways of trading and index vessels -- a pool ability to assets, so I think it's not diversification of geographic. Mostly it’s different strategies, as that can provide you with the best result.

Ben Nolan - Stifel, Nicolaus & Co., Inc.

Okay. That’s very helpful and that really does it for my questions. Appreciate it, thank you.

Angeliki Frangou

Thank you.


Your next question comes from the line of Christ Weatherby of Citi.

Prashant Rao - Citi

Good morning, this is Prashant Rao in for Chris Weatherby. I had two questions. The first, I was interested in knowing what your outlook is for product shipping rates going through the rest of 2014 and into 2015?

And then secondly, I think you touched upon some of the puts and takes on this, but where do you think the best acquisition opportunities are? Are they still on the crude side with the VLCCs or do you think that’s changing now given the dynamics between product and crude?

Ted Petrone

On the chartering the fundamentals are quite strong going forward. I think you have a lot of refineries. When we’ve been talking about the last few years, the refineries in the Middle East are starting to open up facilities that have two UAEs got one that’s almost operational. You saw that and Angeliki just referred to on the LRs, the strong rates going out to the East.

The fundamentals -- even though there’s been a lot of ordering and there’s been a lot of headlined news about it, the fundamentals are such that the ton miles are still going to expand faster than the net fleet growth. So you can see that.

Even though you have -- listen, July was great for all the ships right. Crude was better, they did get in July. They’ve all come off a little bit, but that's what happens. It's a cyclical market. But I do think going forward, you haven’t really see the time charter rates come off. They’ve come off slightly.

I think there is a lot of charters out there looking to take ships for periods, but no one will be putting them out till like you see the fundamentals and the market getting better. Certainly as the Northern Hemisphere cools, I think you'll be seeing half of the fall maintenance season some much better numbers going forward.

Prashant Rao - Citi

Great. And then on the acquisition opportunities…

Angeliki Frangou

I think on the acquisition opportunities is that we see relative value and cash flow. That's how we view it and we can do either-or, it really depends on the particular vessel or the particular opportunity. So it will be vague, but it's very difficult to foresee and we really view every day we have everything existing that we process through our office.

So it's not the market that we will concentrating one or the other. We see relative values with the relative cash flows.

Prashant Rao - Citi

Okay. Got you. Thank you very much. Appreciate it. That's all for me.

Angeliki Frangou

Thank you.


Thank you. At this time, I would like to turn the call over to Ms. Angeliki Frangou for any additional or closing remarks.

Angeliki Frangou

Thank you very much. This concludes our second quarter results.


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

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