Navios Maritime Acquisition Corporation
Q2 2013 Earnings Call Transcript
Published:
- Operator:
- Thanks for joining us this morning's Second Quarter 2013 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 www.navios-acquisition.com. Before I review the structure of this morning's call, I'd like to read the Safe Harbor statement. This conference call could contain forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995 by Navios Acquisition. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectation of Navios Acquisition’s management and are subject to risks and uncertainties which could cause actual results to differ from 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. Thank you. I'd now like to outline the agenda for today’s call. First, Ms. Frangou will offer opening remarks. Next, Mr. Petrone will provide an operational update and an industry overview. After Mr. Petrone, Mr. Korres will review Navios Acquisition financial results. Finally, Ms. Frangou will offer concluding remarks, before opening 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 who join us on today’s call. I’m pleased with our results. With patience and discipline, we grew our revenue by almost 31% and EBITDA by 29% over the second quarter of 2012. As a result of the strong performance, we declared a quarterly dividend of $0.05 per share resulting to a yield of 5.3%. Today, we have a fleet of 41 vessels of which 29 are in the waters and 12 are to be delivered. By the end of 2013, we anticipate having 34 vessels in the water, which is 79% increase more than the number of vessels we’ve had in the water as of the end of 2012. As a result of these activities, today Navios has one of the largest product tanker fleet in the water among U.S. listed peers. [Seizing the defined] [ph] as market opportunity years ago, we have created scale and critical mass in technical and commercial operations while securing vessels with period charter from all the counterparties. These charters ensure that we have a reliable cash flow and provide material upside through the profit sharing participation that we have in most of our contracts. We are continuing to grow our fleet responsibly by leveraging our brand name and patiently accessing opportunities. Turning now to slide 4; so far in 2013, we have acquired 12 vessels for $342 million of which nine product tankers for $240 million, two chemical tankers for $67 million and one VLCC for $35.5 million. Our growth is responsible as we’re able to attract all the counterparties for period charter. Consequently, Navios Acquisition has a current EBITDA run rate of approximately $115 million. We anticipate our forward EBITDA to be significantly larger as we expect to an approximately $34 million annualized EBITDA from chartered vessel, 10 of which we delivered in 2013 and three in 2014. We will also earn incremental EBITDA from six product tankers delivering from 2013 through 2015 that are currently remained unchartered. Our profit sharing program continues to capture market upside [inaudible] Navios almost $3 million for the first half of 2013. Currently our chartered contracts include profit sharing on 84% of our entire contracted fleet and 88% of our contracted product tanker fleet. Furthermore, Navios continues to maintain good access to the capital market having raised $220 million in equity and good access in the bank market with an $88.8 million that we raised through bank debt year-to-date for 2013. Slide 5 reiterates Navios’ commitment to a disciplined growth strategy. We are opportunistic about expanding our company and only transact when we are ceratin we can unlock value, whether the transaction comes from bank, shipyards, or other ship owners. Navios actually executes only if it determines that the transaction will be accretive. In the first half of 2013 as the global investment climate improved, we also devoted time and effort in rebuilding our shareholder base. Our efforts bore fruit and share trading volume increased by almost 400% from 2012 and our share price increased by 55% since January of this year. Slide 6 outlines the current status of the HSH transaction that we also outlined in our first quarter earnings release. Navios Europe was formed to acquire the HSH vessel. We will own 47.5% of this entity and the remainder owned by Navios Holdings, 47.5% and Navios Partner, 5%. In August 2015, Navios Europe arranged for the technical and commercial management for five out of the 10 vessels in this transaction. To-date two vessels have been delivered and three tanker vessels are expected to be delivered through September 2013. Navios Europe is expected to take ownership of all 10 vessels by November 1, 2013 at which point ownership and management of the remaining vessels will be transferred. This deal is an example of the excellent working relationship that HSH and Navios have developed and our mutual goal is to complete this deal and work together toward similar transactions. Slide 7 summarizes acquisition and delivery of the Nave Celeste a 10-year old VLCC that we have recently added to our fleet. We acquired the Nave Celeste for $35.5 million in an opportunistic acquisition that renew our fleet with a significantly younger vessel, for a relatively modest cost. Our acquisition price represented a historical lower valuation for a 10-year old VLCC and then Nave Celeste will replace the Shinyo Navigator, a 17-year old VLCC in its existing charter contract, then Nave Celeste will also serve as collateral for the secured bonds due in 2017 providing an additional $13 million of value to the collateral package to the material benefit of our secured bondholders. By possessing this vessel, Navios will save on drydocking expense and avert 30 days of off hire on the Shinyo Navigator that would be required for this drydocking. Last for a relatively modest price, Navios has renewed [its owners] [ph] by substituting a vessel with seven years more of useful life. Slide 8 demonstrates how our newbuilding deliveries are increasing EBITDA while building cash flow. During 2012, our available days grew by 43% and our fleet by 36%. During 2013, available days will grow by 67% and our fleet will grow by 79%. As you can see this result in an increasing EBITDA. EBITDA has grown by 33% in 2012 over 2011 and when looked on the first half basis, EBITDA has risen by 23%. This will continue to grow as we take delivery of our new vessels. I would like to note the 10 product tankers delivering this year will contribute $25.1 million to the annual base EBITDA. I want to emphasis that this growth has begun responsibly. We identified the market opportunity years ago and since then we have embarked on creating scale, critical mass in technical and commercial operations while securing vessel would be the charter with quality counterparties. Slide 9 presents our CapEx requirement and delivery schedule of our newbuilding fleets as of to-date. As you can see we do not have any unfunded CapEx. We think that however good the future may look at any moment through this, it requires as we have funding available for all of us as you can see for the 12 vessels to be delivered, we need to make a total of about $84 million of equity. Of this amount $24.1 million is due in 2013 as we take delivery of five vessels and $53.6 million is due in 2014 as we take delivery of another five vessels. Slide 10 demonstrates our liquidity. We have a total liquidity of $160 million at the end of the quarter including a $120 million in cash. Our balance sheet mix should be considered in the context of our capital requirement. We have enough cash on hand to fully fund the remaining balance of our newbuilding program. Also we have no debt maturities until 2016, we expect our leverage ratios to reduce naturally as we enjoy the cash flow benefits of our newbuilding program keeping the worth. Indeed our net debt to capitalization of 62.1% as of the end of the second quarter is a significant reduction over the past few quarters. Slide 11 shows our cash flow cushion from our low breakeven. We have increased contracted revenue in 2014 over 2013 while decreasing our all-in cost over the same period. With 93.6% of fleet contracted for 2013 we will earn an average contractual daily out rate of $20,869. Our contractual revenue rose to $21,457 per day in 2014. And as our all-in cost or all-in cost for – our fully loaded cost is $17,202 per day in 2013, and this will reduce by about $1,000 to $16,266 per day in 2014. As you know, our daily operating cost includes drydocking, general and administrative expenses, interest expense and capital repayment. Our focused approach to keeping our breakeven level low will give us a surplus of $22.5 million for 2013. Our open days for the same period are set at 616 days for the remainder of 2013. If we assume a rate of $15,000 per day for the rest of the year we will earn an additional $9.2 million in revenue. And at this point I would like to turn the call over to Mr. Ted Petrone. Ted?
- Ted C. Petrone:
- Thank you, Angeliki. Please turn to slide 13. Year-to-date we have taken delivery of 10 tankers; two LR1s, six MR2s, one chemical tanker and 1 VLCC. We have chartered out six MR2s for a total of 12 years coverage. Similarly, we have extended the charters of three LR1s for one and a half years and two chemical tankers for two years coverage. All the vessels are contracted to high quality counterparties at rates above our fleet cash breakeven with upside potential through profit sharing agreements. Included in the above are two MR2s, which after the default of the original charter were rechartered to another counterparty for one year plus a charter’s option for second year at an increased rate. Please turn to slide 14. Since January our fleet has grown to 41 vessels. It’s a $342.3 million acquisition of 12 vessels, nine MR2s, two chemical tankers and one VLCC, all at favorable prices. Three MR2s and the chemical tankers are on charter. Two MR2 newbuildings will deliver in 2014 and two in 2015. The VLCC will replace the 1996 VLCC under an existing contract for the remaining duration of about 3.3 years, as $42,705 a day net. Since January our product tanker fleet in the water has grown about 75% to 21 vessels and the total fleet grew to 53% to 29 vessels. The full cost of the entire fleet for 2013 is covered by existing long term charters. Please turn to slide 15. Navios Acquisition’s diversified fleet consists of 41 vessels, totaling 4.2 million deadweight. The fleet consists of four chemical tankers, 21 MR2 product tankers, eight LR1 product tankers and eight VLCC crude tankers. All the fleet statistics exclude the vessels in the HSH joint venture. Navios Acquisition currently has 29 vessels in the water with an average age of 4.7 years. Turning to slide 16, Navios Acquisition continues the Navios group policy of locking in secure cash flow with credit worthy counterparties. Included in new acquisitions we have fixed 93.6% of our capacity for 2013. And while it’s expected to be an improved condition next year, we have only fixed 62.8% in 2014 and about 40% of the revenue days for 2015. The average daily charter out rate for our fleet is $20,869 for 2013. The rate for 2014 and 2015 were $21,457 and $24,316 respectively. Please turn to Slide 17. Slide 17 depicts our period chartering strategy combined with a profit sharing program is working to our advantage. We have secured base rates that provide protection for downward volatility. In addition to profit sharing mechanism allows us to capture market upside. In fact through Q2 2013 we earned $2.9 million in profit sharing or $0.04 per share. This surpasses the profit sharing received for the full year 2012. As 84% of our contracted fleet has profit sharing any strength in the market will directly impact our earnings and accrue to the benefit of our shareholders. Please turn to Slide 18, our chartering strategy revolves around cash free market opportunities, we’re also developing dependable cash flow, from a diverse group of first-class charters. As a result the average duration of all of our charters is 2.4 years and our VLCC charters have an average duration of 5.9 years. Approximately 80% of our contracted days were product tankers and cooperate profit sharing arrangements to provide us with potential significant upside. Please turn to Slide 19. Slide 19 recaps a strong relationship with key participants in our industry. We continued to build a portfolio of quality charter counterparties which provide vessel deployment with a strong diversified customer base. One of the attributes we seek in our counterparties is strong credit quality. Turning to Slide 20, Navios Acquisition enjoys vessel operating expenses significantly below the industry average, covering that with acquisitions daily OpEx is about 60% below the industry average. We achieve these operational savings through a management agreement with Navios Holdings. The operating expenses under this management agreement extended until May 2014 at current levels. Please note that the operating cost shown here include all drydocking costs. Turning to Slide 22. According to the IEA refinery capacity is expected to increase by 9.5 million barrels per day for the period 2013 to 2018. 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 4.3 million barrels per day and 1.3 million barrels per day respectively. New low-cost capacity in Asia is forcing nationalization of old high-cost capacity in the OECD. Recent refinery closings in Europe and the Caribbean as well as closures due in Australia and Japan can be partly attributed to the aging and inefficiencies of these facilities, because of this structural shift, the growth in ton miles of refined oil products is expected to out pace the general demand for refined oil products in the long run. Turning to Slide 23, U.S. crude production has increased by over 45% since the end of 2008, reaching over 7 million barrels per day by the end of 2012. Since U.S. crude oil exports are prohibited by law the U.S. has increased its total product export by 190% to over 2.1 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 in 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 for further away adding to product tanker ton miles. The fundamentals of product tanker trading patterns continue to adjust in relation to these changes. Please turn to Slide 24. Oil refineries vary greatly in the quantity, variety and specifications of products that they produce. As depicted in slide 24, 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 could be met by shipping the oversupply westward from Asia and the Middle East or eastward to 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 it by minimizing balance time and maximizing revenue. Please turn to slide 25; in the products sector, demand for transportation expressed in terms of ton miles increased by about 75% in the period 2004-2012 equivalent to a CAGR of 7%. Projections indicate similar growth in 2013. The increase in tanker demand was greater than the increase in overall trade due to the growth in long haul product tanker trades. The map at the bottom of slide 25 depicts existing product tanker routes as well as perspective routes basis an anticipated eastward shift in global refining capacity. Please turn to slide 26; in the first half of 2013, product tanker non-deliveries equalled 64%. The fleet experienced limited growth as 1.3 million deadweight were delivered but 0.6 million deadweight was scrapped. About 3% of the product tanker fleet is not double haul and 4% of the fleet is 20 years of age or older. The order book totaled 14.2 million deadweight of 24% in the fleet, a level usually considered adequate for regular replacement of an existing fleet with little of note demand growth. High scrap prices should encourage further scrapping of older and single haul units, demolition prices appear to depend on overall steel prices and not to supply vessels. Please turn to slide 28, the IMF projected global GDP growth for 2013 and 2014 at 3.1% and 3.8% led by emerging and developing markets growth of 5% in 2013 and 5.4% in 2014. The IEA projects global oil demand growths to rise by 0.9 million barrels per day to 90.8 million barrels per day in 2013 and by a further 1.2 million barrels per day to 92 million barrels per day in 2014; this growth remains well below historic averages, which is expected that all of the projected growth will come from non-OECD countries. Turning to slide 29, 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. On a per-capita basis, China’s consumption is less than one-third of European uses and about one-eight of U.S. usage. In July, China imported crude at 6.2 million barrels per day. Current projection show China’s oil consumption will maintain its growth as it continues the urbanization, industrialization, and motorization of its economy. Please turn to slide 30; tanker demand is driven by demand for oil and distance of transport. As noted in the chart in the lower left, in terms of ton miles, the movement of crude from West Africa and South America to China uses about as many VLCCs as the movement from the Arabian Gulf even though the Arabian Gulf shipped 1.8 more times oil to China. The trend is expected to grow as China imports more crude from South America and West Africa as it diversifies its sources of oil. With demand for oil increasing only marginally on an annual basis, distance has been a key driver to tank rate demand. As you can see in the upper part of the slide, an increase of 53 VLCCs will be needed by 2016 according to Clarkson's projections. The shift is expecting VLCC trading patterns to Asia and Far East away from the Atlantic basin can also be seen in these projections. Please to Slide 31, through the first half of 2013, newbuilding deliveries represented 42% of projections with 6.6 million deadweight tons delivered on a preliminary basis versus 11.4 million expected. Of the 191.5 million deadweight at the end of the first half of 2013, net fleet growth slowed to 4.8 million deadweight of 2.6% due to continued high scraping and non-delivery levels. The high prices of steel combined with high fuel prices led to continued high scrapping year-to-date as about 1.2 million deadweight were scrapped; through June, four VLCCs were reported scrapped. World crude oil and refined product consumption has generally grown for 30 years with declines in 2008 and 2009 due to global financial crisis. Starting in 2010 world crude oil and refined product consumptions returned to this pattern of growth. The main drivers are the increasing demand from the Asian economies particularly China as well as increased refinery capacity in the broader Asia and Middle East regions. Going forward we see this trend continuing. Thank you I would like now to turn the call over to Leonidas Korres for the Q2 financial results. Leo?
- Leonidas Korres:
- Thank you, Ted. Now we will discuss the financial results for the second quarter and the first half of 2013. As shown in slide 33, we continue to demonstrate strong growth and excellent operational performance. All our operating metrics for the second quarter of 2013 have significantly improved compared to the same period in 2012 mainly due to the 59% increase in the number of available days of our fleet from 1316 to 2095 days. Time charter revenue for Q2 2013 increased by 30.9% to 47.1 million from 75.9 million in Q2 of 2012. We achieved a 100% fleet utilization. Our strategy to charter our vessels on time charter contracts with profit sharing is paying off. As a result, we achieved the time charter equivalent of $22,855 per day which includes 0.9 million from profit sharing, and in additional to our stable base revenue stream. Operating and voyage related expenses were $17.2 million and G&A expenses were $1.1 million or $536 per day per vessel. We continue to grow EBITDA significantly. EBITDA for the second quarter of 2013 increased 29.2% to $29.4 million from an EBITDA of $22.7 million in the same period of 2012. Other expenses include depreciation and amortization of $16.1 million, and interest expense and finance cost of $14 million. Following the termination of contracts for two MR2 product tankers due to charters before. Amortization of the intangible assets was accelerated by $4 million; $1.6 million was recognized in this quarter, while $2.4 million will affect the third quarter results. This amount doesn’t take into consideration any receivable in relation to the amounts claimed against the default charters. Excluding the $1.6 million non-cash item, net income improved by $2 million to a net profit of $0.1 million from a net loss of $1.9 million in the second quarter of 2012. Turning to the financial results for the six months period ended June 30, 2013. Time charter revenue increased by 27.3% to $91.2 million, from $71.7 million last year, reflecting a time charter equivalent of $22,887 per day and 99.9% fleet utilization. Operating and voyage related expenses were $52.8 million and G&A expenses were $2.2 million. EBITDA for the first half of 2013 increased by 23.5% to $57.3 million from $46.4 million in 2012. Depreciation and amortization was $29.5 million, and net interest expense and finance cost was $27.4 million. Excluding the $1.6 million accelerated amortization of intangible assets, net income for the first half improved by $3.5 million to a net income of $0.8 million from a net loss of $2.7 million in 2012. As you can see the graphs at the bottom of the slide, since we commenced operation in 2010, we have grown our operating metrics significantly, reflecting the growth of our fleet. With a 67% increase of the available days of our fleet in 2013, and then additional 51% in 2014 we expect our metrics to continue increasing substantially. Slide 34 provides selected balanced data of June 30, 2013. Cash and cash equivalents including restricted cash was $120.6 million. Vessels, net of depreciation increased $1,149.5 million compared to $940.7 million as of December 31, 2012, reflecting the delivery of six vessels in our fleet until June 30, 2013. Vessel deposits of $163 million represent deposits and capitalized cost for vessels to be delivered over the next two years. Total assets amounted to $1,515.8 million. Total debt as of June 30, 2013 was $1,016.1 million following the $220.5 million of equity raised in the first half of the year. Net debt to book capitalization ratio declined by 19% since December 31, 2012 to 62.1%, as vessels delivered to our fleet and we started repaying the respected debt facilities, the ratio is expected to further decrease. During the quarter, we issued 3 million of convertible redeemable preferred shares as part of the purchase price of LR1 product tanker Nave Atropos that was delivered on April 24, 2013. As of June 30, 2013, Navios Acquisition was in compliance with all of the covenants of its credit facilities and ship mortgage notes. Turning to slide 35, our financial strength has enabled us to announce a dividend of $0.05 per share, equivalent to $0.20 per share on an annualized basis. Based on last night’s closing price, our dividends provide an annualized yield of about 5.3%. The dividend will be paid on October 3, 2013 to shareholders on record as of September 18, 2013. Please turn to slide 36. Navios Acquisition has a prudent financial strategy. Our capital structure is based on long-term debt. Approximately half of our debt is non-amortizing, which provides significant cash flow flexibility. In addition, our bonds do not have loan to value covenants, which have been adversely affecting many of our peers. On the bank debt we have no maturities until 2016. Overall, our strategy has provided lenders an additional level of 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 93.6% of our available days are contracted in 2013 and 62.8% in 2014. Moreover, our long-term charters on the crude side have an average remaining duration of almost six years, while our Company is very well positioned to capture the upside of the product market, thanks to the increasing product and chemical tanker fleet and the profit sharing on 22 out of the 25 chartered out vessels. And now I will pass the call back to Angeliki. Angeliki?
- Angeliki Frangou:
- Thank you, Leo. This completes our formal presentation. We’ll open the call to questions.
- Operator:
- (Operator Instructions) Your first question comes from the line of Urs Dur of Clarksons Capital Markets.
- Urs Dur:
- Hey, good afternoon, and good morning, guys.
- Angeliki Frangou:
- Good morning.
- Ted C. Petrone:
- Good morning.
- Urs Dur:
- Thank you very much for the presentation. I really had more of a market question and by the way congratulations on the VLCC transaction and we’ve already discussed that with clients. But I want to get your insight on the market situation right now for MR tankers, which obviously have been very good year-on-year overall, but have really tanked recently. Can you give color on the seasonal drivers there? We expect it to turn, whether or not you expect it to turn, where you expect it to turn, what’s driving it, any refinery issues, so on and so forth, because it does impact obviously how the stocks traded. So I just want to hear a little bit more on your view of the very near-term market.
- Ted C. Petrone:
- It is interesting because if you look at the calendar in July, almost all assets were moving up, the time charter averages. So people kept checking the numbers, kept checking the calendar, couldn’t figure it out. You’ve had it run through mid-August. The MRs in the Atlantic have been much better than the Pacific because of the U.S. refinery issues. Listen, it’s second half August. So there is a seasonality here. There is some refinery issues. That seems to be ready to change in the fall. So we’re looking at better numbers going forward. And listen, the lows are going to be higher as we go forward. I mean we’ve been saying that for a while and the markets held up. Certainly it’s been unseasonably strong, which is a very good sign and there’s been a lot of period inquiry. So across the board we are very happy with what we’ve seen on the MRs.
- Angeliki Frangou:
- Just to add to Ted’s comment, just to realize on the vessels the Equinox and Pulsar that we just got delivery on positioning for the last 45 days we are earning about $16,500 net. Of course our strategy at Navios is to put them on period charter with the profit sharing but we can see that some have been better than other times.
- Urs Dur:
- All right. With the acquisition of the Nave Celeste which is again, we took as a positive as obviously as you did. Are there other opportunities in transactions in the crude market, I don’t see much on order in that space, it’s still very depressed, most people don’t even want to take a look at it, you obviously can find ships that go in and replace charters. Are there ships that you might be able to take with reasonable charters and grow in that front given that the market may very well turn in that space say 15, 16 and beyond, what’s your view on crude, ton mile demand and how NNA might be able to grow there?
- Angeliki Frangou:
- I think we have already stated that what is amazing is that the next fleet growth on the VLCC stopped with what it used to be. So we are looking at about 3% versus a 6% net fleet growth. So we see a better situation than before that is materializing this year and from next year, there is no orders as you very well pointed. So a well capitalized company like Navios will opportunistically step in and acquire at the lower market, of course we always like to have a full balanced portfolio. So we’ll try to see something with a nice charter or something that is matching together. This is not the point of concentration. We have mostly concentrated on the product tankers, but we do see opportunities there. Also I’d like to mention that taking the last two chemical tankers we’ve got the product chemical tankers, a 45,000 tonnage, this was a great acquisition. We got vessels that were ordered for $64 million at a price of $34 million. And we did a fantastic chartering of 15.5 with profit sharing, so we see a lot of opportunities coming and we will act accordingly on the market. We are not shy to step in.
- Urs Dur:
- Great. On the chemical market, do you view it – I still view it as cyclical but do you view it as cyclical, but less deeply cyclical than say other spaces due to the nature of the charters and the businesses and how does the U.S. as a feedstock producer now or an increasing feedstock producer maybe change that market in anyway, just your views there quickly.
- Ted C. Petrone:
- It looks like it’s changing in similar patterns in terms of the product; you seem to have stronger numbers coming out of the Atlantic, right, the Gulf [end of the Far East] [ph]. It’s somewhere in the [60s] [ph], it’s pretty even steady for the last few months as [it right of the] [ph] Far East in the chemical side. The chemicals have held up pretty well. Remember there is a lot of [sea way] [ph] business here. So you are right, the fluctuations in the markets are – it’s lot less, it’s a very moderating market. It’s a very small market to a certain extent.
- Angeliki Frangou:
- And also the good thing is that Navios has entered that market with a 225,000 tonnage that we acquired at very attractive prices due to the distressed deal we had. The usual order for 25,000 tonnage was pre-crisis level went around $40 million. Navios did it in mid-20, so you realize our competitive advantage is totally different. The same thing about 45,000 tonnage. You got a highly sophisticated vessel at a very attractive rate. That of course can be used for less complicated cargos, I mean the complexity of the chemical tanker is you can use it also as a product, I mean you’re actually having a sophisticated vessel that can play in every market.
- Urs Dur:
- Right, it has a tank configuration that if product’s get hot you can move over there, correct.
- Angeliki Frangou:
- Exactly, but you have something that a regular product do not have. Also, I like to mention that our MR2s, our design is quite sophisticated. We can carry chemical products. The reason we did this high specification vessel is because that provide us better flexibility all around. It is very intertwined market, so the better vessel you have, the better specs you have, the more earning capacity you have.
- Ted C. Petrone:
- Yes, as Angeliki said the ability to arbitrage between the markets on a seasonal basis is a great advantage.
- Urs Dur:
- Right, and I don’t want to take too much more time, can you just remind me and investors say the top three to five cargo types that you would carry in your chemical tankers.
- Ted C. Petrone:
- Well, I think you just need to remember that, we’re leasing out the chemical tankers. The other two are making the decisions.
- Urs Dur:
- Right, okay, but to your knowledge, I would suppose.
- Ted C. Petrone:
- There is a number we could - I can give it offline, get to the exact – offline.
- Urs Dur:
- No, it is not that urgent, just because I think the business in a lot of regards in the larger ships while it is COA and there is a lot of different cargo types, is a bit simpler than some people might think and that it is a good way to, it is a good market to be involved. So anyway, thanks, if you could let me know Ted that would be great.
- Angeliki Frangou:
- Thank you.
- Ted C. Petrone:
- Okay.
- Urs Dur:
- Thanks guys.
- Operator:
- Our next question comes from the line of Herman Hildan of RS Platou Markets.
- Herman Hildan:
- Good afternoon. My first question relates to the HSH fleets deal, you’re supposed to close it by end of sorry November 1, so I just wondered if the prospects will further (inaudible)?
- Angeliki Frangou:
- What we, as you know we send out a press release this morning, we already have taken the technical management and commercial management two of the vessels with the remaining three coming in the next two to three weeks. And the closing, meaning all the vessels either coming to the temporary management, or directly to our ownership will be November 1. The reason we set up this process is this way we can have one date where all vessels come together and there is not multiple over a period of time. So we have to find a process that created a clarity on the day of the transaction, November 1, is the closing date with ownership of all time vessels, plus the management, technical management and commercial management comes to that.
- Herman Hildan:
- Okay, HSH enabled us along do strategic transactions probably means that there’s more potential deals, is it possible to say anything about what kind of assets you’re looking at buying after the deal is closed?
- Angeliki Frangou:
- It will be a similar, I mean there is not a transaction done, but is a potential transactions to be done. And we’ll be in similar types as you already have seen on the first one.
- Herman Hildan:
- And replicating that deal as well with that structure in place will be less time consuming, is that correct?
- Angeliki Frangou:
- Of course, there’s a price of doing the first deal.
- Herman Hildan:
- Okay. And then my second question, [safety time fleets] is actually where you get a minimum yield of 12.7% and you’ve also grown this quarter with charter out some call it (inaudible) cash on cash returns relative to this acquisition price. In terms of dividends, how should we think about that going forward since you going after the fairly attractive call it yield, should we expect the dividends to be raised at some point given the growth you have in earnings?
- Angeliki Frangou:
- To be honest, Navios is not – we always return capital to our shareholders and we always are very careful of all our shareholders. This is something that will have to be reviewed by the Board, but don’t forget we are still in a phase of growth. We are not a company that we are not careful about that, but at this point we maybe looking on some additional acquisition at attractive point.
- Herman Hildan:
- Okay. Thank you very much.
- Angeliki Frangou:
- Thank you.
- Operator:
- Your final question comes from the line of Joshua Katzeff with Deutsche Bank.
- Joshua Katzeff:
- Hi. Good afternoon.
- Angeliki Frangou:
- Hello.
- Joshua Katzeff:
- I just want this – I guess maybe quickly follow-up on the JV. I was just kind of curious about the addition of Navios Partners into the JV and maybe what the drivers of that were. I guess it’s a really small position there but maybe what drove that decision?
- Angeliki Frangou:
- There’s a contain element to that. Maybe in eventual point there will be long-term charter. In allocation that’s created – it made more sense for the overall group. So everyone can participate and give the potential for all of them to have a stake in the potential upside.
- Joshua Katzeff:
- I guess maybe switching gears to your VLCC fleet, we saw the acquisition and the replacement of one of your ships, and I guess you started the Shinyo Splendor, which is over in terms of charter in 2014 and I think there was some speculation earlier, I guess maybe last week or so that that vessel might be up for sale. Can you talk about maybe fleet, how do you think about that ship and the rest of your VLCC fleet? Angeliki Frangou To be honest the vessel got this time charter with time potential, I mean the vessel is performing very well and is in our fleet. We will make a decision next year when it comes on what we are doing. One thing we have articulated is we do not mind arbitrage and create value buying vessels and VLCCs at attractive rates, at attractive purchase price and replacing on the collateral target. It is something we will do it anyway because it makes sense and you can replace vessels with the same charters at attractive points. So this a strategy, which I can tell you I can articulate. I cannot talk about rumors or what will be done on a vessel when it comes out of charter.
- Joshua Katzeff:
- Got it. And you mentioned that Navios is doing this at [slick rough] stage and you guys have been incredibly positive this year. I was just wondering if you can maybe give us more insight into where you see the most opportunity to this? Is it more in MRs, LRs, chemical tankers or potentially even with some more deals you see, where you do think the incremental dollar is going to spend in the next three to… Angeliki Frangou We have concentrated in the product tankers and that is a clear strategy. Opportunistically we went on the chemical with chemical product, which is in essence the same market, but even with more variety. In a lesser degree we will look – there is a great opportunity in VLCC, but this has to be a very careful acquisition as it is a more volatile type and you haven’t seen the clear path to recovery yet. So we are alert, I mean the one thing I can tell is that we’ll be commencing the market, you are not going to see us easily going and ordering vessels on shipyards and with future deliveries, but you will see us coming and trying to see where is the best price and what values can be there.
- Joshua Katzeff:
- So it’s more on a deal-by-deal basis rather than a sector basis, so you wouldn’t necessarily rank the products; one, chemicals, two, VLCC is three?
- Angeliki Frangou:
- No it is that we’ll make sense for investors, we are there to do it by the nature of the product tankers, you’re concentrating on the product tankers and chemical tankers with investments come in the same kind of category.
- Joshua Katzeff:
- Okay that’s fair, I appreciate the time. Thank you.
- Angeliki Frangou:
- Thank you.
- Operator:
- Thank you. I will now turn the call to Ms. Angeliki Frangou for any closing remarks.
- Angeliki Frangou:
- Thank you for attending our second quarter results.
- Operator:
- Thank you for participating in today’s conference call. You may now disconnect.
Other Navios Maritime Acquisition Corporation earnings call transcripts:
- Q3 (2020) NNA earnings call transcript
- Q2 (2020) NNA earnings call transcript
- Q1 (2020) NNA earnings call transcript
- Q4 (2019) NNA earnings call transcript
- Q3 (2019) NNA earnings call transcript
- Q2 (2019) NNA earnings call transcript
- Q1 (2019) NNA earnings call transcript
- Q4 (2018) NNA earnings call transcript
- Q3 (2018) NNA earnings call transcript
- Q2 (2018) NNA earnings call transcript