Navios Maritime Holdings Inc.
Q3 2020 Earnings Call Transcript

Published: 23 Nov 2020

[Operator:]

Thank you for joining us on Navios Maritime Holdings Third Quarter 2020 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou; Chief Financial Officer, Mr. George 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 Maritime 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.

[Angeliki Frangou:]

Thank you, Doris, and good morning to all of you joining us on today's call. Given the difficulties associated with the pandemic, I am pleased with the results for the third quarter of 2020. During the third quarter, Navios Holdings reported revenue of $126.2 million and adjusted EBITDA of $60.2 million and adjusted net income of $2.1 million. Although, drybulk demand in the first half of 2020 was hurt by global shutdowns, fiscal stimulus and other policy measures helped global economies rebound in Q3 and continue to rebound for Q4. We believe that this improvement is attributable to food security considerations and new purchasing patterns in the pandemic economy. Consequently, we are optimistic about the expected growth in demand throughout Q4 in 2021. Please turn to Slide 4, as you can see Navios Logistics continue to grow its port business, developing critical infrastructure for transshipping minerals and grains. The company surpassed a $100 million in EBITDA for 2019 and more recently, in July 2020 successfully refinanced in senior notes due in 2022 and Term Loan B during 2021 with a new $500 million senior secured notes issuance. In August 2020, Navios Logistics commenced a process for a potential public offering of Brazilian depository receipts backed by common shares on the B3 exchange in Brazil. Any such offering will be handed to market and other considerations. Navios Partners has about $465 million in contracted revenue and low leverage. Navios Containers, our container entity also has conservative leverage with a 53.9% net debt to book capitalization as of Q3.

[George Achniotis:]

Thank you, Angeliki. Please turn to Slide 9 for a review of the Navios Holdings financial highlights for Q3 and the nine months to September 30, 2020. Adjusted EBITDA for the quarter was $60.2 million compared to $89.9 million in Q3 of 2019. EBITDA and net loss for the third quarter were adjusted to exclude $7.7 million net loss from the sale of two vessels, $4.2 million write-off of deferred finance costs at Navios South American Logistics due to the refinancing of its bond and $300,000 impairment incurred in Navios Partners from the sale of one of its vessels. EBITDA and net loss for the third quarter of 2019 were adjusted to exclude $69.8 million due to the deconsolidation of Navios Containers, including $8.1 million of the NMCI EBITDA consolidated in the financial statements of Navios Holdings; $10.6 million impairment of intangible assets in Navios Acquisition and $1.7 million loss on the sale of the vessel. The decrease in adjusted EBITDA is mainly attributable to the lower TCE rate achieved in the quarter compared to the last year and $12.4 million gain from the repurchase of our bonds in 2019. What is not working and reflects the recovery of the market compared to the first half of the year, when the global economy was affected by the pandemic is that the adjusted EBITDA of Q3 is higher than the adjusted EBITDA over the first six months of the year. Adjusted net income for the quarter was $2.1 million compared to $35.6 million in 2019. The decrease is mainly due to the decrease in adjusted EBITDA and a $6.9 million increase in interest expense. Turning to the nine-month results. Adjusted EBITDA for the period was $116.1 million, compared to $199.2 million in 2019. In addition to the items that affected the Q3 results, EBITDA and net loss were adjusted to exclude $20.2 million impairment loss from the sale of four additional vessels and $18.3 million impairment loss of our investment in Navios Europe II, both directly and through Navios Acquisition and Navios Partners. The decrease in adjusted EBITDA was mainly attributable to the decrease in the TCE rate achieved in the period and a $22.5 million higher gain from the repurchase of our bonds in 2019. Adjusted net loss for the first nine months of 2020 was $46.7 million compared to an adjusted net income of $34.5 million in 2019. The decrease was mainly due to the decrease in EBITDA and an $8.9 million increase in interest expense.

[Ioannis Karyotis:]

Thank you, George. Slide 14 provides an overview of Navios Logistics. Navios Logistics operates three port terminals, which are complemented by our barge fleet for river transportation and product tanker fleet for coastal cabotage trade. Our adjusted EBITDA for the last 12 months was $97.3 million, about three quarters of which was generated from the port segment. In August, we commenced the process for a potential public offering on the B3 stock exchange in Brazil, subject to market conditions and other factors. Last quarter, we agreed to transport 1.5 million tons of iron ore per year for Vetorial for a one-year period and an option to extend for a six-month period. Vale recently notified us that they expect to transit 2.7 million tons of minerals through our port in 2021 compared to approximately 1.2 million tons expected for 2020. As you may know, our contract with Vale guarantees a minimum quantity of 4 million tons annually. However, Vale's notification, Vetorial contract, and other inquiries we are receiving for logistics services are signs of increasing exports of minerals through the Hidrovia River system. All of these should benefit our port terminal and the barge business overall.

[Ted Petrone:]

Thank you, Ioannis. Please turn to Slide 17 presents a diversified drybulk fleet, consisting of 49 drybulk vessels, totaling 5.3 million deadweight. 16 Capes, 26 Panamaxes, 5 Supramaxes and 2 Handysize. We continue to be one of the largest U.S.-listed drybulk fleets, established over 65 years ago. The average age of the fleet is eight years, 23% younger than the industry average. Navis Group's total fleet of 195 vessels include 94 drybulk vessels, 55 tankers and 46 container vessels. Navios is a highly diversified public shipping company. Please turn to Slide 19. Q3 saw a jump in the BDI, with a quarterly average settling close to double Q2 at $15.22. The quarter started with nine months high for the BDI in July, but saw a softening in August. Seasonality returned as the BDI reached the year-to-date high on October 6 at 2,097, led by Atlantic iron ore and grain exports – primarily to China, before correcting over the last several weeks down to just over 1,100, its lowest point since mid-June. However, the Chinese economy, which accounts for approximately 40% of global drybulk trade continue to grow on the back of government stimulus, particularly aimed at infrastructure spending. China, according to the IMF, will be the only major economy to grow this year at 1.9%, with further growth of 8.2% expect in 2021. The entire globe continuing to be affected by the pandemic, the IMF projected global GDP contraction at 4.4% for 2020, led by a 5.8% contraction in advanced economies. Governments have put in place unprecedented emergency monitoring fiscal plan to support their economies. In light of this, the IMF projects 5.2% global growth in 2021. The most recent 2020 forecast for drybulk trade is a contraction of 2.7% growth and growth of 3.9% in 2021. Turning to Slide 20. The graph on the left shows that for 2021 drybulk demand for the three major cargoes of iron ore coal and grain is forecast to outpace 2020. This increase is led by coal, which is expected to grow by about 4.7% or 55 million tons. If you look at the graph on the right, net fleet growth is forecasted to be 3.4% this year and only 1.3% in 2021. Net fleet growth is expected to remain low over the next few years as the order book is currently the lowest on record at 6.2% of the fleet, which is less than 6.4% of fleet that are scrapping candidates. Turning to the Slide 21. Despite this pandemic, Chinese iron ore imports are expected to increase by 7.4% in 2022, 1.125 billion tons. Chinese steel mills have reduced their iron ore stockpiles by about 30 million tons between June of 2018 and November of this year, China has set a monthly record for iron ore imports in July at about 110 million tons with the second highest imports coming in September at 106 million tons, as steel production continues to set new records. With the additional availability of iron ore and Q4 shipments from Brazil and Australia to China are expected to match Q3 levels, as steel mills replenish stockpiles, driving demand for Capesize vessels. The Chinese fiscal stimulus and infrastructure spending should support steel production and in turn drive bulk trade going forward. Moving to Slide 22, the combination of the pandemic and the significant drop in the price of oil and gas has resulted in reduced coal trade. Asian coal imports, which account for over 80% of the world's seaborne trade are expected to decrease in 2020 by about 6.5%, but increase by 4.4% in 2021. This reduction has added pressure on the smaller vessels, which has been partially offset by increased demand for grains discussed on the following slide. Turning to Slide 23. Worldwide grain trade has been growing by approximately 5% CAGR since 2008, mainly driven by Asian demand. Overall Asian grain imports are forecast to increase by 9.4% in 2020 and a further 3.3% in 2021. An ever increasing world population food security issues driven by the pandemic as well as increasing protein demand worldwide continue to support the global grain trade. With the pandemic disruptions causing minimal grain trade disruptions, the international grain council projects record shipments of wheat, corn, soybeans for the crop year. Please turn to Slide 24. The current order book stands at only 6.2% of the fleet, which is the lowest on record. New building contracting has collapsed and year-to-date is down by about 60% compared to 2019. With the order book being front-loaded this year and scrapping expected to accelerate as the phaseout of the Vale VLOC fleet, net fleet growth is expected to remain low at about 3.4% for 2020, and only 1.3% in 2021. Turning to Slide 25. Vessels over 20 years of age are about 6.4% of the total fleet, which has now a higher percentage than the previously mentioned record low order book. Scrapping, which started slowly due to the combination of the pandemic lockdown and logistical crude challenges now stands at 13.6 million tons year-to-date, this amount is 70% higher than the full year of 2019 and is about 1.5% of the fleet. In conclusion, positive demand fundamentals due to the restart of economic activity around the world, along with reduced fleet availability caused by the Vale phaseout of its VLOC fleet should provide support to the should provide support to the drybulk market in this continuing effort to navigate through the pandemic storm. This concludes my presentation. I would now like to turn the call over to Angeliki for her final comments. Angeliki?

[Angeliki Frangou:]

Thank you, Ted. This completes our formal presentation of our Q3 results. We open the call to questions.

[Operator:]

[Angeliki Frangou:]

Thank you. This completes our Q3 results. A quarter with more profitability than the first half of the year. And as we are going into 2020, we see good momentum. We have one of the lowest order book in the drybulk history. There's a strong demand for commodities and the recently announced positive developments on the vaccine should further accelerate the growth next year. Thank you. This completes our quarterly results.

[Operator:]

Thank you, ladies and gentlemen, this does conclude today's conference call. You may now disconnect.