Navios Maritime Holdings CEO Discusses Q4 2010 Results - Earnings Call Transcript

Feb.23.11 | About: Navios Maritime (NM)

Navios Maritime Holdings, Inc. (NYSE:NM)

Q4 2010 Earnings Call

February 23, 2011 08:30 AM ET

Executives

Angeliki Frangou – Chairman and CEO

Ted Petrone – President

George Achniotis – CFO

Analysts

Jonathan Chappell – JP Morgan

Natasha Boyden – Cantor Fitzgerald

John Parker – Jefferies

Operator

Thank you for joining us for this morning’s Navios Maritime Holdings Fourth Quarter and Full Year 2010 Earnings Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; President, Mr. Ted Petrone; and Chief Financial Officer, Mr. George Achniotis. As a reminder this conference call is also being webcast. To access the webcast, please go to the investor section of the Navios Holdings website www.navios.com.

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

Such risks are more fully discussed in Navios Holdings filings with the Securities and Exchange Commission. The information set forth in this conference call should be understood in light of such risk. Navios Holdings does not assume any obligations to updates the information contained in the conference call.

Thank you. I’d like to now outline the agenda for today’s call. First, Ms. Frangou will offer a big remark. Next, Mr. Petrone will provide an operational update and industry overview, following Mr. Petrone’s remarks Mr. Achniotis will review Navios Holdings financial results. Finally, Ms. Frangou will offer concluding remarks before then opening the call to take your questions.

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

Angeliki Frangou

Thank you, Lora, and good morning to all of you, joining us on today’s call. We are pleased to report our results for 2010. We increased EBITDA by almost 64% to $339 million and net income by 127% to $154 million. At the same time, we have reduced our net debt to capitalization by almost 8% to 49% on a pro forma basis, excluding Navios Acquisition. For the quarter, we have reduced our net debt ratio at the time of significant growth. Based on these strong results, we declared a $.06 dividend for the fourth quarter of 2010, payable on April 12, 2011 to the shareholders of record on March 22.

I’m pleased that Navios remains one of the few dry bulk companies paying their dividend. The shipping Industries has been starting as of late, today our industry is being rated down by the options of fully available capital and shipping companies assumed capital will always be available today as strained balance sheet.

Fortunately the shipping industry is going through this transition, while there is a healthy demand for mineral and grain commodities and crude oil globally. We can see current demand in the commodities prices and future demand from the urbanization of emerging markets.

In January Korea Line Corporation filed receivership this is the re-urbanization under bankruptcy law in South Korea. Navios has five vessels turned around to Korea Line, while the situation is dynamic Korea Line has offered to restructure the contract in charter age for our vessels.

We are in conversation regarding applicable terms. At the same time, we have provided a 30 day notice to Korea Line demanding of the charters be reaffirmed or terminated. As you can imagine, this is a fleet environment, however, we can confirm to-date that all these charters archived by a AA European Entity Insurance. We’re acting in cautious with the insurer to protect their interest and additionally be comfortable that we understand and we’re definitely mono the extend of our exposure.

Let’s now turn the slide two, which reflects our current status. Navios Holdings has developed a stable core fleet of 57 vessel, of which 44 are active in the water. The fleet is reasonable insulated from the market volatile, as we have ended in the long-term charter with creditworthy counterparties and obtained a AA+ insurance for this contract.

The net result is dependable long-term cash flow. For example, in 2011, Navios contracted about 83% of its fleet base generally in more than $307 million in gross revenue.

Navios Holdings environment consist of its core operating business and investments in key operating subsidiaries. As you can see from a good – the value of Navios Holdings in-depth into public subsidiaries is almost $4 per share, the – now as a value of Navios Logistics is also growing. We have been developing a unique logistics opportunity in South America, and today Navios Logistics is a key provider of integrated logistics in the Hidrovia region.

Let’s now go to slide three. As we review the key developments for 2010, given their uncertain state of the capital markets, we focus on strengthening our balance sheet. We recently refinanced as a secured bonds during 2014, as George will discuss in a greater detail as an example of this refinancing, as far as material maturity will be in 2017, six years from today. And then we will only have to repay our finance at total of about $105 million of which normal due in 2011, we also delivered by repaying $371 million on bank debt.

We also acted optimistically in bank as a greatest dilution to our shareholders. We purchased about a 131 million of Mandatorily Convertible Preferred shares for a 62.5% discount. We paid about 49 million for the 31.1 million underlying shares. The affected share price of $8.75 is a 31% discount and less than the current market price on our shares.

We also purchased convertible notes that had issued for $33.5 million at 13% discount benefiting by about $4 million a dilution for tracery dilution of over almost 2.5%. We have also taken important steps to dollar we consolidate in Navios Acquisition from Navios Holdings by our fleet. We have agreed to convert about 7.7 million shares of Navios Acquisition common stock into preferred stock and economic interest will be identical to what it is today, but voting interest will be reduced to 45%.

We will be able to convert the preferred shares back to common two years from the date of the preferred issuance to the extent the conversion does not result in that following more than 45% of the vote of Navios Acquisition. We expect this change to be effective before the end of the first quarter of 2011.

On the bottom of slide three, we outlined the favorable restructuring of two charters. Under the restructuring, we will be receiving a $13 million lump sum payment. This will result in $1.5 million of present value there that could compare to the charter payment that otherwise would be received over the term of the regional charter.

As you can see on slide four, we have a strong liquidity at the end of 2010. We have reduced our net debt to capitalization by almost 8% to 49% on a pro forma basis. We have a heavy cash balance of almost $166 million and liquidity of almost $200 million as of the end of 2010. On a group basis, we had total liquidity of almost $320 million, which liquidity is more than sufficient considering that Navios has fully completed its newbuilding programs. We anticipate that we will generate also a very significant cash flow during 2011 given Navios low-operating breakeven.

Slide five, set forth Navios substantial fixed revenue in low operating cost. As you can see 83% of Navios revenue is fixed for 2011 at about $28,200 per day per vessel. In addition, approximately 58% is fixed for 2012 at about $30,000 per day per vessel. This compares very favorable with our low-operating breakeven of $18,107 per day per vessel; the net result is that we will be enjoying substantial free cash flow generation during 2011.

Please note that our operating breakeven rate includes operating expenses drydocking, chartering expenses for chartering fleet, G&A including credit default issuance, interest expense and capital repayments.

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

Ted Petrone

Thank you, Angeliki and good morning all. Please turn to slide six. We recently completed our newbuilding program, as we have taken delivery of five Capesize newbuildings during the past five months. The vessels are chartered out and 2011 will be the first year that all newbuilding vessels will provide earnings.

During the fourth quarter Navios chartered out six vessels for a total of nine years’ time charter coverage to creditworthy counterparties taking advantage of strength in the market for period coverage.

Please turn to slide seven. Our long-term core fleet consists of 57 vessels totaling 6 million deadweight. We have 44 vessels in the water with an average age of 4.6 years, which is considerably younger than the industry average age of approximately 14 years. The Navios Group controls 95 vessels composed of 73 drybulk vessels of 7.7 million deadweight and 22 tankers of 2.9 million deadweight.

Please turn to slide eight. Navios average 2011 charter-out rate for its core fleet is $28,224 a day. The average annual charter-out rate increases to 2013, the percentage of Navios fleet that is charter-out is 83.3% for 2011 and 58.4% for 2012. The contracted revenue of over $740 million at the end of 2013 and maintain credit default insurance on charter-out contracts from EU-backed AA+ entity.

Please turn to slide nine. To our enhanced technical management and economies of scale, we continue to enjoy vessel operating expenses significant below the industry average in all asset classes. Navios current daily OpEx is $4,276 a day, about 33% below the industry average. The charter rate demonstrates that Navios’ established reputation allows us to charter in vessels and earn favorable spreads from high quality counterparties for long periods without any capital outlay.

Please turn to slide 10. We currently own 28.7% of Navios Partners including our 2% GP interest. Navios Maritime Partners operates a fleet of 16 vessels equaling 1.7 million deadweight with an average age of 5.8 years. Please turn to slide 11. Well 28.7% interest in Navios Partners has in market value of about $268 million as of February 21.

Navios Partners provide significant cash flow to Navios Holdings, we anticipate based on current run rate receiving about $24.5 million in distributions during 2011. Please turn to slide 12. We own 53.7% interest in Navios Maritime Acquisition Corporation. As discussed earlier in this call, we’re converting some common shares into preferred shares. After this event, Navios Maritime Holdings will own a 45% voting interest and a 53.7% economic interest in Navios Maritime Acquisition and the financial results will no longer be deconsolidated.

Navios Maritime Acquisition Corporation’s current fleet consist of 22 tanker vessels, totaling 2.9 million deadweight. Navios fleet is comprised of seven VLCC crew tankers, 15 product tankers and 2 chemical tankers. Navios Maritime Acquisition currently has 10 vessels in the water with an average age of 7.7 years. Navios Maritime Acquisition Corporation holds option on two of our new building product tankers.

Please turn to slide 13. The company summarizes on slide 13, Navios Maritime Acquisition committed to the tankers segment given favorable industry dynamics. Navios Maritime Acquisition has long-term contracted revenue well above the company’s low operating breakeven and profit sharing arrangements in most of these agreements. As a result by downside risk is limited to the base rate or we can enjoy upside volatility to profit sharing.

Please turn to slide 14. Navios operates one of the premier Logistics providers in the Hidrovia region. Navios logistics has three divisions composed of Port terminals Cabotage and a Brownwater fleet. We had been innovated in the region and have expanded our services to include mineral and grain transportation in the Argentinian Cabotage Business.

Please turn to slide 15. Navios Logistics had a strong fourth quarter increasing revenue by 28% to $44.8 million, and EBITDA by 159% to $9.7 million. Total year revenue increased by 35% to $188 million and EBITDA by 9.8% to $32.5 million due primarily to record grain shipments to the Port increased Barge business and better utilization of the fleet through conversion of COA revenue into time-charter revenue.

Navios Logistics has a strong balance sheet. In Q4, cash and cash equivalents accounted to – amounted to $39.2 million, compared to $26.9 million on December 31, 2009. Total assets grew by 11% to $547.5 million by the end of Q4 2010. Net debt to book capitalization is a conservative 20%.

Please turn to slide 16. Drybulk seaborne trade increased substantially in 2010, but by Q4 was not enough to counteract a number of factors mostly related to China mainly for the government’s monetary tightening steel industry rationalizing and power curtailments to the industry.

2011 started with normal seasonal slowdown and then Australian flooding has dramatically reduced the availability of coking coal. Flooding in Australia, which provides around 50% of global seaborne coking coal exports, disrupted the entire drybulk industry. Added to the stress being caused by weather-related disruptions to coal shipments from Columbia and Indonesia, Russian grain export ban and restrictions on Indian iron ore shipments. The short-term outlook is dominated by disruptions to cargo availability in the pace of newbuilding deliveries.

Please turn to slide 17. The drivers for world GDP growth continue to evolve as emerging economies lead world expansion. As you can see in the left the growths of rich economies remains below pre-cash levels, while the growth of emerging economies exceed those levels by more than 10%.

On the right you can see the growth in the China, as developing economies contributes a high percentage the total world growth in the rich economies. The IMF expects these macro trends will continue for the foreseeable future.

Turning to slide 18. Since China joined the WTO 2001 trade in drybulk commodities expanded by 5.5% per year for 2010. Growth in 2011 is estimated by analysts to range between 5% to 7%. While our primary engine of trade growth continue to be China, India, Brazil and the other emerging economies add strongly to that growth. Turning to slide 19, drybulk commodity trade is driven by urbanization and industrialization. On the left you can see that the Chinese population is rapidly moving to cities at an average rate of about 20 million people per year.

This is like building 2.5 New York cities per year including all the associated products for maintaining urban life, such as cars and appliances. China is expected to increase its urban population to over 1 billion by 2030. Chinese crude steel production continues to expand to meet these needs, usually at a rate of growth greater than GDP growths as shown in the upper hand chart.

China imported 622 million tons of iron ore in 2010 to keep pace with high steel demand. This is on-par with 2009, but reflects high iron ore prices, a tightening monitory policy, government slowdowns and rationalization of the steel industry and power reductions in the fall of 2010. World’s crude steel production was a 119 million metric tons in January, 5.3% higher than January 2010. China’s crude steel production for January was 52.8 million metric tons, an increase of 0.5% on January 2010.

Turning to slide 20, India has taken initial steps to industrialize and urbanize. As you can see on the left hand chart, India is expected to increase its urban population over 200 million people in the next 10 years. That means, there will be additional requirements from India for building another 2.5 New York cities per year, and all the associated demand for infrastructure and related products. This trend has changed drybulk trading patterns worldwide for all vessel sizes. Indeed among the suppliers, China with coal for instead is an importer, we’re seeing China they import greater quantities of coal from outside the Pacific Rim.

Indian coal imports shown on the right hand chart have increased dramatically at a 26% compounded annual growth rate since 2006. India now imports more coal per year than the UK, France and Germany combined. Forecast of a continued growth and Indian companies are buying coal assets around the world to ensure future supplies, these developments have increased seaborne demand and also increased the tonne miles traveled.

Turning the slide 21. As shown in the right hand table the recent down turn in the market along with high scrap prices have induced recent increased scrapping. In February 11 about $2.1 million deadweight has been scrapped about the same amount that was scrapped in 2006 and 2007 in total.

Annualized, the February scrapping represents about 18 million deadweight about 3% in the fleet, at current scrap prices at typical Capesize vessels could earn its owners about $10 million, so they expect an above market trend in the current rate environment, about 16% of the fleet older than 25 years of age and 23% of the fleet is over 20 years, all providing about 125 million deadweight of scarping potential.

Moving to slide 22. 2010 newbuilding deliveries were 77.9 million deadweight, against an expected a 125.6 million deadweight, a slippage of 38%. In addition, the estimated orderbook for 2011 balloon from about a 120 million deadweight to a 137 million deadweight the statisticians deferred 2010 non-deliveries into 2011.

The January 31st, non-deliveries in 2011 equaled 46% as 10.7 million deadweight added an expected 19.8 million deadweight delivery. We believe that non-deliveries will play an important role in 2011. Orderbook declines in 2012 and again in 2013, despite high slippage in 2010, deliveries established a record year for newbuildings. 2011 orderbook seems to be similarly over-marked and non-deliveries make steel 40% of the addition to the fleet will again be substantial.

In conclusion, there are a number of short-term factors that are resolving, providing a more positive outlook for the rest of the year. For example, mainland coal industry of what is predaceous weather-related damage.

In the Supreme Court Rule, that iron ore stockpiles could be shipped and delayed Indonesian coal trade permits were issued. Together with the forthcoming South American grain season, rebound in coal and iron ore supplies are expected to increase cargo availability in the second quarter.

This concludes the industry section. I would now like to turn the call over George Achniotis for the Q4 financial highlights. George.

George Achniotis

Thank you, Ted and good morning, all. Please turn to slide 23 for the review of the fourth quarter and the year-ended December 31, 2010 financial highlights.

I would like to draw your attention to the fact that we are presenting the consolidated results on a pro forma basis to exclude the effect on Navios Acquisition. You will note that in Q1, 2011, we will no longer consolidate Navios Acquisition into Navios Holdings based on what Angeliki and Ted discussed earlier.

EBITDA for the quarter increased by 92% compared to the same period of last year, from $55.3 million to a $106.3 million. After adjusting for the $29.3 million profit from the sale of two vessels and $3.8 million gain from the buyback of the convertible notes, our adjusted EBITDA for the first quarter of 2010 was $73.2 million. This represents as a 42.7% increase over the $51.3 million adjusted EBITDA for the same period of 2009.

The increase is mainly attributable to the delivery of the new building vessels to our owned fleet. The available days attributable to the owned vessels increased from 1,945 in the fourth quarter of ‘09 to 2,350 days in the same period of 2010.

During the same period, the available days attributable to the charter-in fleet, both short and long-term decreased by approximately 700 days. Note that we have a higher operating profit margin on the owned vessels, vessels that charter in ones, which reflects our lower operating expenses, rest of the charter in cost.

Another factor are contributed to the increase in EBITDA in the quarter was the higher time-charter rate achieved in Q4 of 2010 versus ‘09. The average TCE rate for Q4, 2010 was $26,282 per day, compared to $24,120 in 2009. Furthermore, the results from Navios South American Logistics were significantly better unexpected, taking into consideration of the seasonality in the region.

EBITDA for the fourth quarter of 2010 was $9.7 million, compared to $3.8 million in 2009. This was caused by increased demand at Port in Uruguay and the conversional certain COA contracts into time-charter ones. This change minimizes the effect of the water levels and navigational problems in the river.

Net income for the period increased by 361% between the fourth quarter of 2009 and 2010. After adjusting for the items are affected EBITDA described earlier, plus a 2 billion adjustment for the write-off of deferred financing costs due to the issuance of the secured bond in November of 2009.

Adjusted net income increased by 132% from $10.5 million in 2009 to $24.4 million in 2010. The increase was achieved despite the higher interest expense following issuance of the 400 million secured bonds in the fourth quarter of ‘09 and they had depreciation charge due to the increase of the owned vessels.

Looking at the full-year results, EBITDA increased by approximately 64%. The results for the full year of 2010 included a gain of 55.4 million from the sale of five vessels, 17.7 million gain on the investment in Navios Acquisition, $4 million write-off of an unfavorable short-term charter and 3.8 million gain from the buyback of the convertible notes.

In comparison 2009, EBITDA was affected by $20.8 million gain from the sale two vessels, $6.1 million non-cash compensation from Navios Partners and $13.8 million unrealized mark-to-market losses on common units of Navios Partners accounted for this available for sales securities.

At the time of this market-to-market loss in 2009, the units were trading on $9.95, since then the units have reached $19.05 the subsequent gain is not reflected in our results. Excluding the effect of these adjustments, adjusted 2010 EBITDA increased by 37.2% to $265.7 million from a $193.7 million in ‘09. The main reason for the increase was the delivery of the newbuilding vessels to the on fleet. The increase was mitigated by a reduction in the available days of the charter-in fleet, which decreased by a 1,632 days.

Net income for 2010 and 2009 was also affected by the one-off items discussed earlier, which affected EBITDA. Net income in 2009 was also affected by a $2 million write-off of deferred financing costs, following the issuance of the secured bond in 2009. Excluding the effect of these items, adjusted net income for the year ended December 2010, increased by 42.6% to $81.1 million, compared to $56.9 million in ‘09. The increase is mainly attributable to the increase in the number of owned vessels, due to the deliveries of the new buildings. The increase was mitigated mainly by the increase in net interest expense, due to the $400 million bond issued in the fourth quarter of ‘09 and the higher depreciation due to the increase in the owned vessels.

Please turn now to slide 24, where the balance sheet highlights are presented. The cash balance as of December 31, 2010 was $146.1 million compared to $173.9 million at the end of December ‘09. The reduction reflects the delivery of most of our new building vessels, our strategy to deleverage the balance sheet, and our investment in Navios Acquisition.

The restricted cash balance decreased from $107.2 million at the end of ‘09 to $19.8 million at the end of 2010. The decrease is mainly due to the use of the balance to finance the newbuilding vessels delivered in 2010. Similarly deposit for vessel acquisitions have reduced from 344.5 million at the end of December ‘09 to 80.1 million at the end of December 2010 reflecting the delivery of most of the newbuild vessels by the end of the year.

The long-term debt including the current portion has reduced by approximately 260 million. As mentioned these reflects our strategy to leverage the company. Net debt to book capitalization has also reduced from 52.6% at the end of ‘09 to 48.8% at the end of 2010.

The strategy to strengthen our balance sheet continued into the first quarter of 2011 and part of the result can be seen on the following slide number 25. At the beginning of 2011 we issued a new 18% eight year bond during 2019. We use the process of this bond to replace and more expensive 9.5% bond during 2014 and we extended the finance increase by almost five years. As you can see on the chart, we currently don’t have any significant refinance risk until the second half of 2017.

Turning to slide 26 a company due to its prudent fleet deployment policy continues to pays dividend. EBITDA for the fourth quarter of 2010 of $0.6 per share was declared to common shareholders as for March 22 to be paid on April 12, 2011. Following the declaration of the dividend by Navios Acquisition, an addition to the dividend resist by Navios Partners the total cash dividend inflows from the two investments exceed the cash paid out by Navios Holdings for its shareholders.

And this concludes my review on the financials. At this point, I’ll turn the call back over to Angeliki Frangou for closing remarks. Angeliki.

Angeliki Frangou

Thank you, George. And we’ll open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Jon Chappell with JP Morgan.

Jonathan Chappell – JP Morgan

Thank you. Good morning.

Angeliki Frangou

Good morning.

George Achniotis

Good morning.

Jonathan Chappell – JP Morgan

Angeliki thanks for the update on the Korea Line charters at the beginning of the call. I was hoping you could provide a bit more color, I think it’s important on how the insurance works regarding the timing of payments. And what I mean by that is, if Korea Line is in receivership for an extended period of time even as you’re kind of renegotiating the contracts, how does the insurance company pay you as we think about quarterly cash payments in the cash flow statement?

Angeliki Frangou

We have already received – Jon we have already received the agreement from the insurance company on interim payments, so our cash flow is interrupted at this point. Of course on the legal strategy we already have given the appropriate notices as it is prudent under, legal strategy and we’re in full cooperation on securing for our insurance claim they will have against Korea Line. But otherwise we already have received agreement and we have – this way we will have payments on interim period from our insurance. So our strategy four years ago to put this insurance, the counterparty insurance, you got something that has paid on the current environment.

Jonathan Chappell – JP Morgan

Okay. And then also on the contract restructuring that you laid out on slide three, can you just talk about the reasons behind that was a charter-in, difficult financial situation, why the upfront payment?

Angeliki Frangou

Yeah, we never be in a difficult position to give you upfront mining. This is actually beneficial for their owned vessels, which maybe relative to what they want to have reported on every fiscal year. They want us to – this is a lump sum amount that is not discounted to the present value of these cash flows. So we have seen the cash flow today. This was a similar case that we had a while ago – subsidiaries and obvious partners and we had the benefit. So...

Jonathan Chappell – JP Morgan

And why the ships have to be swapped, why the different ships have to replace the current ships on the contract?

George Achniotis

Because in essence, you have to find a way too exactly you get that lump sum. Then you remain the contracts of the current environment. This is a way that the counterparty gets for their owned fiscal agents they wanted and for not reviewed from my side, which was a very beneficial deal. So, in an environment where cash and you have a lot of counterparties being in a difficult liquidity position we will actually get advance payments.

Jonathan Chappell – JP Morgan

Okay and then finally with no major capital commitments or refinancing in the next couple of years and as you build cash you know as you are full sized fleet now, what are your primary uses of cash and I guess the two things I’d be considering are – or should we be looking for more acquisitions or would you further delever the balance sheet at this point.

Angeliki Frangou

I think we have done a good job on deleveraging the company, of course we always have are good on our balance sheet. But I think as we will wait for 2011 and how the gear will unfold will give us the possibilities to opportunistically step in.

Jonathan Chappell – JP Morgan

Okay do you think it’s prudent to keep more cash on hand just because you are not sure how the banks maybe increasing their lending in the industry.

Angeliki Frangou

You will have a little bit more possibilities on certain times. So in this kind of uncertain times, you always better off on having additional cash. One of the issues that we have seen today in counterparties have not be prudent with our cash is that any default or any situation can really blur you of doing the correct actions; literally you’re not able to have sufficient cash totally. Because you may have a cut back at claim, but, collectible after a couple of years and people maybe in the short-term be squeezed because they don’t have the cash.

Jonathan Chappell – JP Morgan

Okay, and thanks very much Angeliki.

Angeliki Frangou

Thank you.

Operator

Your next question comes from the line of Natasha Boyden with Cantor Fitzgerald.

Natasha Boyden – Cantor Fitzgerald

Thank you operator. Good morning ladies and gentleman.

Angeliki Frangou

Good morning, Natasha.

George Achniotis

Good morning, Natasha.

Natasha Boyden – Cantor Fitzgerald

Why don’t you to just take a look at the South American Logistics Business and you gave us a brief highlight about that. But really what your plans regarding the potential spin off of that business I mean what – at what point do you feel that it’ll be ready to be in a position to be follow?

Angeliki Frangou

In any way we’re ready – we see a lot of opportunities on expanding that business I mean we have seen with our major clients one of the mineral companies, as we have been able to be time chartered, covered and we see that there is demand for additional equipments and additional convoy down the river. So on the actual demand, we see very strong. We have also seen that the market – capital equity market has ambiguous being coming back in a better shape and we’re looking to do something this year because we have seen the capital markets kind of return in that market which was not the case I say in last year. This year we have come up – we show this on some Brazilian this is happening and being executed with total growth companies without any dividend support and this has happened very nicely. So I think somewhere in this year the market will be appropriate and we also see that this company will need cash to grow and (inaudible).

Natasha Boyden – Cantor Fitzgerald

Okay great thank you. And then just looking sort of the period charter activity in Panamax in the Capesize sectors what are you seeing there in terms of interest from the charters for longer period. I mean are they lock-up three plus years or are they still only looking at the one year of that?

Angeliki Frangou

You know something they should, because this right time that you ask me, but the problem which is there almost on the same direction at the same time. So today, there is more fear than anything which is also affected by the events you know weather event and situations that existed in Q1. So in essence you don’t see a lot of period activity, you should have seen more, because today the rate makes – you know for the charter make a lot of sense and but in essence you see a very flat line, one and two years charter period get almost the same rates, is it pretty much flat and what is amazing that more or less with $1000 different you see the same rate for capsize is Panamax and Supramax. So it’s a very flat line meaning that nobody wants to take a position right now.

Natasha Boyden – Cantor Fitzgerald

Right okay and then just lastly on the – what you’re actually seeing in the S&P market right now in terms of asset values and liquidity? I mean, is there any – is it improved at all, or is it still selling more?

Angeliki Frangou

I think after Q4, you don’t see a level of contractions. Today volume sale is a sale that is obliged by the banks or other requirement. We see a lot of activity in the scrapping. It remains as scrapping in the first month and a half, but we don’t see otherwise a lot of S&P contractions.

Natasha Boyden – Cantor Fitzgerald

What you just said about your company is being force to sell by the banks. Are you actually being forced to deal by the banks to look at these assets that perhaps have been now consider distressed or are you really just sell dealing with shipyards?

Angeliki Frangou

Now the banks are coming in and you see these that are starting that, we’ll be materializing within the years, within the 2011 year.

Natasha Boyden – Cantor Fitzgerald

Okay. All right, great. Thank you very much, Angeliki.

Angeliki Frangou

Thank you.

Operator

(Operator Instructions) Your next question comes from the line John Parker with Jefferies.

John Parker – Jefferies

Yeah, first I want to join and thank all of the analysts and thanking you for this consolidating acquisition, and I will make our job a lot easier and..

Angeliki Frangou

Finally, we have a nice bond analyst to see what we did.

John Parker – Jefferies

Okay. Now the – you – I am realizing you’re not taking large positions in the FFAs, but you still show kind of minimal impact every quarter from FFA gains and losses. I am wondering is that just related to your short-term training activities or is there something else going on with those P&L effects?

Ted Petrone

No, that line includes something sort-term – some of the gains and losses on this Phase was very minimal and we also have some delivery of some we – shown in that line also.

John Parker – Jefferies

Okay and then the charter restructure you mentioned earlier, what was the date of that and how that they accounted for, will you accrue those cash flows over the length insurance or will you do a onetime P&L effect of those cash flows?

George Achniotis

We will accrue those over the life of the charters.

John Parker – Jefferies

Okay.

Angeliki Frangou

But the cash will be long-term (inaudible).

George Achniotis

Yes.

John Parker – Jefferies

Okay and then the – what was the date of that transaction?

Angeliki Frangou

The charter is getting effectively end of March which is a fiscal year.

John Parker – Jefferies

Okay and history is my guide. You are not going to sit on the cash that you are going to start to accumulate here, are there any particular types of ships that you would like to buy in this environment. I know during the last downturn you did a lot of Capesizes, is there any other class of ship that you are looking that you think is attractive right now?

Angeliki Frangou

I think at this point, we’d like to review the market to see how this develops and I think we are totally opportunistic in that, this is not a type of vessel but really a deal that make sense. We are not in a high fragmenting because I think we have to see this full unfolding of all these events and how they will be proceeding.

John Parker – Jefferies

Okay and then finally I think during the last real downturn in rates, you had lot of negotiations between ship owners and yards with cancellations and deferrals or delays of delivery. Are you – as you are completely out of the orderbook at this point but you are hearing anecdotal stories of people going to trying stretch deliveries or canceling slots at this point?

George Achniotis

I think that is a happening as we speak of I mean there is no way with the kind of a market that anyone would like to deliver on yesterday’s price. So I think this is an ongoing. We’ve heard the same things from classification societies and also we have seen that some of the shipyards even South Korean yards are traveling at this point. So this is something that, it will continue and then our opinion that will also affect the deliveries for 2011.

John Parker – Jefferies

Thank you very much. That’s all I have.

Angeliki Frangou

Thank you very much.

Operator

This completes our Q&A period. Mrs. Frangou, I return the floor to you.

Angeliki Frangou

Thank you. This completes our Q4, 2010 results. Thank you for attending.

Operator

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

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