Navios Maritime Holdings Inc. (NYSE:NM) Q1 2020 Earnings Conference Call June 4, 2020 8:30 AM ET
Angeliki Frangou – Chairman and Chief Executive Officer
Georgios Achniotis – Chief Financial Officer
Ioannis Karyotis – Senior Vice President of Strategic Planning
Ted Petrone – Vice Chairman
Conference Call Participants
Thank you for joining us for Navios Maritime Holdings’ First Quarter 2020 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. Georgios Achniotis; Vice Chairman, Mr. Ted Petrone; and Senior Vice President of Strategic Planning, Mr. Ioannis Karyotis.
As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Holdings’ website at www.navios.com. You’ll see the webcast link in the middle of the page and a copy of the presentation referencing today’s earnings conference call will also be found there.
Now I will review the Safe Harbor statement. This conference call could contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 about Navios Holdings. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings management and subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements.
Such risks are not fully discussed in Navios Holdings filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risk. Navios Holdings does not assume any obligation to update the information contained in this conference call. The agenda for today’s conference call is as follows. We’ll begin this morning’s conference call with formal remarks from the management team. And after, we’ll open the call to take questions.
Now I’ll turn the call over to have Navios Holdings’ Chairman and CEO, Mr. Angeliki Frangou. Angeliki?
Thank you, Doris, and good morning to all of you joining us on today’s call. While the humanitarian crisis caused by the pandemic has been heartbreaking, we have also been strengthened by the courage and compassion of the first responders, particularly the many dedicated health care workers. I am proud of the members of the Navios family as they have shown admirable resilience during unprecedented time of uncertainty, and we have taken the necessary measures to ensure safety of our people while keeping our fleet functioning.
Moving to our financial results. Navios Holdings reported revenue of $91.1 million, adjusted EBITDA of $28.7 million and a time charter equivalent of $7,082. Because of the pandemic, we have experienced weak charter rates in the first quarter and so far in the second quarter. For example, year-to-date, 2020, the Capesize 5TC rate averaged around $5,000 per day versus the 2019 average of $18,000 per day. We anticipate growth in the second half of the year as global economic activity returns.
Please turn to Slide 4. As you can see, the prospects for our South American business are good. Navios South American Logistics surpassed $100 million in EBITDA for 2019 as the port business continued to grow. It maintains a strong credit profile and strong cash flows, which allow us to pursue other creative opportunities. Navios Acquisition, a tanker company, has benefited through robust market fundamentals and has a pipeline of about $450 million in long-term contracted revenue.
Turning to Navios Partners. It has about $498 million of contracted revenue and low leverage of 37.4% net debt-to-book capitalization. Navios Containers, our container entity, also has conservative leverage with a 52.3% net debt-to-book capitalization.
Slide 5 details the pandemic impact on global trade. The IMF projects a 3% decrease in global GDP growth for 2020, mostly driven by a 6.1% decline in advanced economies. As a result of the disruption to economic activity, dry bulk trade is expected to contract by 4.3% in 2020. We believe that we have felt much of this impact year-to-date as countries observed extended lockdowns. Looking forward, economies are projected to recover in the second half of 2020. In 2021, global GDP is forecasted to increase by 5.8%, and dry bulk trade is projected to increase by 4.7%.
Slide 6 speaks to the increasing dry bulk demand expected in the second half of 2020 and the shrinking Capesize fleet. The demand in the second half of 2020 is expected to outpace the demand in the first half by 142 million metric tons or 8.9%. Of the three main dry bulk cargoes, iron ore has the largest forecasted increase of about 100 million metric tons or 14.1%.
Additionally, the pandemic economic inactivity led to a little fleet growth because of non-deliveries and scrapping. Vale announced a phase out of the remaining 25 VLOCs that are mostly idle. The effective reduction for the Capesize fleet for 2020 year-to-date is about 1%. And overall, the dry bulk fleet is expected to grow at 0.7%.
Slide 7 highlights our recent developments. We expect to liquidate our investment vehicle Navios Europe II during the second quarter of 2020 and receive $31.5 million, made up of $7.9 million cash and steel value of two unencumbered Panamax vessels. The allocation has been approved by the Navios Holdings Special Committee.
We entered into a new secured loan of up to $50 million from NSM. The loan has an interest of 5% and matures in Q4 of 2024. Navios will have the option to defer principal payments during the first year that the loan is outstanding, with an interest rate of 7% on the deferred amount. As an update to our S&P activities, we took delivery of two 2020-build Panamax vessels under bareboat charter and completed the sale of Navios Star, a 2002-built Panamax vessel for $6.7 million.
Slide 8 highlights our liquidity position. As of March 31, 2020, our net debt-to-book capitalization was 90.6%, and we have cash of $55.2 million. We have no significant committed shipping growth CapEx.
I would like now to turn the call over to Mr. George Achniotis, Navios Holdings CFO. George?
Thank you, Angeliki. Please turn to Slide 9 for the review of the financial highlights of the first quarter of 2020. Adjusted EBITDA for the quarter was $28.7 million compared to adjusted EBITDA of $56.5 million in Q1 of 2019. EBITDA net income for Q1 of 2020 were adjusted to exclude a loss of $11.2 million relating to the sale of two vessels and $18.3 million impairment relating to Navios Europe II, both directly and through our affiliates.
EBITDA and net income for Q1 2019 were adjusted to exclude a $5.5 million book loss relating to the sale of a vessel and $12 million of EBITDA from Navios Containers. The decrease in adjusted EBITDA is mainly attributable to the reduced TCE rate achieved in the period compared to Q1 2019 due to the pandemic. The available days of the fleet were also reduced by approximately 13% due to the sale of our older vessels. Adjusted net loss for the period was $23.8 million compared to an adjusted net income of $466,000 in 2019. The reduction is mainly due the reduction in adjusted EBITDA, and it was partly mitigated by about $3 million reduction in depreciation and amortization, mainly due to the sale of our older vessels.
Please turn now to Slide 10, where the balance sheet highlights are presented. As of March 31, 2020, we had $55.2 million in cash compared to $78.7 million at December 31, 2019. Long-term debt, including current portion, increased by $54.5 million in the quarter, mainly due to the sale and leaseback of two Capesize vessels that are delivered into our own fleet in Q1.
Over the next few slides, I will briefly review our affiliates. Please turn to Slide 11. Navios Holdings owns 18.5% of Navios Partners. Navios Partners owns a fleet of 48 vessels, 38 dry bulk and 10 container ships. NMM also owns about 34% of Navios Containers. Based on the company’s current distribution, we expect to receive about $2.5 million annual dividends. Since 2008, we received about $200 million in dividends from NMM.
Turning to Slide 12. Navios Holdings owns about 31% of Navios Acquisition. NNA has a fleet of 46 tankers, including 13 VLCCs. The company is enjoying the recovery in the tanker market and has recorded significantly improved revenue compared to Q1 of 2019. Based on the company’s current distribution, we expect to receive about $5.8 million annual dividend. Since 2011, we received about $96 million in dividends from NNA.
Moving to Slide 13. Navios Holdings owns about 4% of Navios Containers. NMCI has a fleet of 29 container ships. The company was established in early 2017 to leverage the weakness in the container ship sector and scaled up its fleet quickly and efficiently. Since December of 2019, Navios Containers units have been trading on the NASDAQ Global Select Market.
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.
Thank you, George. Slide 14 provides an overview of the Navios Logistics business. Navios Logistics operates three port terminals, which are complemented by our barge fleet for river transportation and product tanker fleet for costal cabotage trade. From 2010 to 2019, Navios Logistics EBITDA has grown at a 14% CAGR. Our EBITDA for the last 12 months was $102 million, two-thirds of which was generated from the port segment.
Please turn to Page 15. We focus on growing our port business, leveraging our installed capacity and developing new infrastructure. In May, we signed a contract with Vetorial Mineracao for the trial transshipment of iron ore in our port terminal in Uruguay with an undertaking from Cargill, the buyer of the cargo, to pay us fees directly under the terms of this contract. Our intention is to enter into a long-term agreement for the transshipment of iron ore, originating from the mines of Vetorial in Corumba, Brazil. Our iron ore port terminal has ample capacity to handle volume above and beyond the ones agreed under the Vale port contract, and we believe it offers the most cost-effective logistics solution for the transhipment of all mineral exports from the Corumba region.
We are currently developing a new multipurpose river port facility in Mato Grosso do Sul in Brazil. Moreover, we are also exploring additional growth opportunities, including the development of new port infrastructure, for example, for refined petroleum products in our available land inside the Nueva Palmira Free Zone in Uruguay. With regards to the COVID-19 pandemic, our port, barge and cabotage fleets as well as our offices remain operational, following the updated health and safety protocols.
Please turn to Page 16. In the first quarter of 2020, EBITDA decreased by 8% to $22.2 million from $24.2 million in the same period last year. Q1 2020 Port segment EBITDA decreased by 7% to $13.7 million, the decrease was attributed to lower throughput in our grain terminal in Uruguay, partially mitigated by additional storage fees in our iron ore terminal. Q1 is a seasonally low quarter for grains. But I would like to point out that we are seeing increased throughput so far in the second quarter compared to Q2 of last year.
In the Barge segment, Q1 2020 EBITDA reached $4.6 million from $6 million in the same period last year. The decrease was mainly attributed to higher time charter and voyage expenses related to difficult navigation conditions due to lower water levels in the river.
In our cabotage business, Q1 2020 EBITDA increased by 15% to $4 million from $3.5 million last year, mainly due to more operating days. For Q1 2020, net income was $7 million compared to $5.3 million in the same period last year. The increase is mainly attributable to higher interest income, lower amortization expenses and an income tax benefit compared to expense last year.
Please turn to Slide 17. Navios Logistics has a strong balance sheet. Cash at the end of Q1 2020 was $33.6 million. Net debt-to-book capitalization was 59% compared to 56% at the end of 2019.
I would now like to turn the call over to Ted Petrone.
Thank you, Ioannis. Please turn to Slide 18. Slide 18 presents our diversified dry bulk fleet, consisting of 52 dry bulk vessels, totaling 5.6 million deadweight; 17 Capes, 27 Panamaxes, six Supramaxes and two Handysize. We continue to be one of the largest U.S.-listed dry bulk fleet established over 65 years ago. The average age of the fleet is 7.6 years, 26% younger than the industry average. Navios Group total fleet of 197 vessels includes 97 dry bulk vessels, 54 tankers and 46 container vessels. Navios is a highly diversified public shipping group.
Please turn to Slide 20. With the entire globe affected by the pandemic, world economies were severely constrained as governments put in confinement guidelines in place, which they are now just starting to open. In April, the IMF projected global GDP contraction of 3% for 2020, led by a 6.1% contraction in advanced economies. To support their economies, governments have put in place unprecedented emergency monetary and fiscal plans. Central banks have embarked on huge monetary stimulus programs. In light of this, the IMF projects 5.8% global GDP growth in 2021.
Q2 is expected to be the lowest point in the contraction. We should begin to see the results of the measures taken from Q3 onwards. As a result of the above, seaborne dry bulk trade is projected to contract by 4.3% in 2020 and grow by 4.7% in 2021.
Turning to Slide 21. Chinese iron ore imports were flat last year, but are expected to increase by 3.4% in 2020 to approximately 1.083 million metric tons. Despite the lockdown in China in Q1, iron ore imports increased by about 5% through April 2020 compared to the same period in 2019. Chinese steel mills have reduced their iron ore stockpiles since their all-time high by about 52.5 million tons to 109.5 million metric tons, which is the lowest since November of 2016. With additional availability of iron ore in the second half of 2020, shipments from Brazil and Australia to China are expected to increase by about 45 million tons per quarter as steel mills replenish stockpiles driving demand for Capesize vessels. The Chinese fiscal stimulus should support steel production and, in turn, dry bulk trade going forward.
Moving to Slide 22. The combination of the worldwide lockdown due to the pandemic and a significant drop in the price of oil has resulted in reduced coal trade globally. Asian coal imports, which account for over 80% of the world seaborne and trade are expected to decrease in 2020 by 6%, but increase by 5% in 2021. With regard to China, coal imports held up well in Q1 in spite of weaker industrial power usage associated with COVID-19. At the end of May, the coal burn at China’s six major coastal power plants rebounded to 674,000 tons per week, significantly higher than the February low of 370,000 ton burn per week rate. Coal stockpiles at the major transshipment port of Qinghuangdao ended last week at approximately 3.9 million tons, down year-on-year by 2.4 million tons or about 38%.
Turning to Slide 23. Worldwide grain trade has been growing at approximately 5% CAGR since 2008, mainly driven by Asian demand. An ever-increasing world population as well as increasing protein demand worldwide continues to support the global grain trade. With the pandemic disruptions causing minimal grain trade disruptions, International Grain Council projects record shipments of wheat, corn and soybeans for the 2020 crop year.
Please turn to Slide 24. The current order book is just over 8% of the fleet, which is historically low. Newbuilding contraction – contracting has collapsed and year-to-date is down by about 70% compared to 2019. In the aftermath of the pandemic outbreak, the pace of nondeliveries has increased dramatically. After near-normal deliveries in January, the average of nondeliveries from February through May was about 30%. This has resulted in year-to-date nondeliveries of 22%. Accordingly, net fleet growth is expected to remain low at about 2% for 2020. We also know that following Vale’s announcement for the phase out of its VLOC fleet, the Capesize net fleet growth is expected to be minimal at about 1%.
Turning to Slide 25. Vessels over 20 years of age are about 7.2% of the total fleet, which compares favorably with the previously mentioned record low order book. Scrapping year-to-date at 7.3 million deadweight tons or about 90% of the total for the whole of last year. Currently, due to pandemic lockdown in Southeast Asia, there was a temporary halt on scrapping. Once the current restrictions are completely lifted, scrapping is expected to restart at an increased pace.
In conclusion, positive demand fundamentals, along with reduced fleet availability due to the Vale phase out of its fleet should provide support for the dry bulk market in the second half of 2020 in its effort to navigate through this pandemic storm.
This concludes my presentation. I would now like to turn the call over to Angeliki for her final comments.
Thank you, Ted. This completes our formal presentation, and we open the call for questions.
And I’m showing no questions at this time. I’d like to turn the floor back over to Angeliki Frangou for any additional or closing remarks.
Thank you. This completes – thank you for attending our quarterly results. As you have seen from my financial performance, this was a difficult quarter. But as the world is coming out of the lockdown and we are seeing more economic activity, and we see the rate environment improving with, for example, Capesize rates have doubled from below $3,000 to over $6,000. And we are looking forward to an even better second half of the year with iron ore being the drivers of the market. Thank you.
Thank you, ladies and gentlemen. This does conclude today’s conference call. You may now disconnect.