Navios Maritime Partners - Earnings Call - Q4 2020

Transcript

Speaker 0

Thank you for joining us for Navios Maritime Partners Fourth Quarter and Full Year twenty twenty Earnings Conference Call. With us today from the company are Chairman and CEO, Mr. Angeliki Frangou Chief Financial Officer, Mr. Stato Sisypis and Executive Vice President of Business Development, Mr. Georgios Achnavis.

As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Partners' website at www.maviosmlp.com. You'll see the webcast link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call will also be found there. Now I will review the safe harbor statement. This conference call will contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners.

Forward looking statements are statements that are not historical facts. Such forward looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties, which could cause actual results to differ materially from the forward looking statements. Such risks are not fully discussed in Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call.

The agenda for today's call is as follows: First, Ms. Paulo will offer opening remarks next, Mr. Lisipis will give an overview of Navios Partners' financial results then Mr. Archnotis will provide an operational update and an industry overview and lastly, we'll open the call to take questions. Now I turn the call over to Navios Partners' Chairman and CEO, Mr.

Angeliki Frangou. Angeliki?

Speaker 1

Thank you, Doris, and good morning to all of you joining us on today's call. I am pleased with the results for the full year and fourth quarter of twenty twenty. For the full year of 2020, Navios Partners reported revenue of $226,800,000 and adjusted EBITDA of $99,800,000 For the fourth quarter, Navios Partners reported revenue of $69,200,000 and adjusted EBITDA of $35,500,000 Our merger with Navios Maritime Containers was approved and is expected to close on 03/31/2021. This will be a transformative transaction for Navios Partners and will carry the significant benefits of diversification. As you can see on Slide four, pro form a to the merger, NMM will have 85 vessels.

Approximately half of the fleet will be drybulk vessels and the other half will be containerships when measured by the number of vessels. The benefits of the diversification are reflected in recent market activity. The container segment becomes strengthening in the third quarter of twenty twenty, while the dry bulk market become turning in 2021. The transaction will scale through a larger diversified asset base with an increased earning capacity. The enlarged entity will benefit from a simplified capital and an organizational structure, thereby reducing costs.

The entity will have an enhanced credit profile through increased cash flow, supporting deleveraging as well as growth. Moreover, the large asset base will provide the entity a significant buffer of collateral value. The financial potency of this combination can be measured through the pro form a combined results of 2020. Had the merger been effective for 2020, the pro form a revenue would have been $354,000,000 Even this metric somewhat understate the opportunity of the underlying rate market for year to date 2021 is materially higher than it was on the average for 2020. And NMM already has more than that contracted for 2021.

Please turn to Slide five. Pro form a for the merger, our company will be one of the 10 largest publicly listed dry cargo fleet. We are a premier dry cargo shipping platform with about $900,000,000 of contracted revenue. For 2021, contracted revenue is expected to generate $12,600,000 in excess of total fleet expense. On a combined basis, about onethree of our available days are open or indexed in providing market exposure to capture market upside.

Lastly, we have a strong balance sheet with low leverage. Our combined net debt to book capitalization is 43.5%. About 90% of our debt is covered by the scrap value of our vessels alone, building us a significant buffer of collateral value. Slide six goes through recent developments. The approved merger with Navios Containers is expected to close on March 31.

Post merger, NMN will have approximately 19,700,000.0 units outstanding. For the fourth quarter, we generated $35,500,000 in adjusted EBITDA, dollars 12,800,000.0 is adjusted net income and $1.12 is adjusted earnings per unit. We continue to renew our fleet and improve our age profile. We agreed to acquire six drybulk vessels with an average age of about two years and sold four vessels with an average of about thirteen years. As to our balance sheet update, we are in advanced discussions to finalize a $715,000,000 loan to refinance an upcoming maturity in the third quarter of twenty twenty one.

The new loan will have an interest of 3% above LIBOR and amortization profile of about five years and maturity in the second quarter of twenty twenty five. We have finalized an additional $58,000,000 loan, which will be used to finance the acquisition of two vessels and refinance an existing facility. The terms of the loan include an interest rate of 3% above LIBOR, and a depreciation profile of about nine years and maturity in the first quarter of twenty twenty six. Slide seven sets forth key strengths of the combined entity. NMM has an enhanced ability to generate free cash flow.

Our 2021 contracted revenue exceeded our total fleet expenses by $12,600,000 with more than onethree of our available base open and index linked, there is an ample opportunity to provide further free cash flow. NMM has a strong balance sheet with low leverage, 43.5% in combined net debt to book capitalization. NMM has diversification and scale. With an 85 vessel fleet, we ranked in the top 10 among the publicly listed dry cargo fleet, about 66 of our available days are fixed at an average charter rate of $18,612 net per day and 34% of our fleet available days are open or indexed linked. The diversification allows us to balance our chartering strategy across different business segments, optimizing the profit potential with cash flow certainty.

NMN is well positioned to benefit from the different sector fundamentals. We have 89.4% of our available containment base fixed to capitalize on market strength with 53.5% of our available buyback vessel base exposed to market rates for 2021. On Slide eight, we lay out world GDP growth since 1970. As you can see from the top graph on this page, the IMF expects global GDP to grow by 5.5% in 2021. This will be the highest GDP growth rate in the past fifty years.

Importantly, the percentage of this perhaps understates the impact. The nominal GDP today is exponentially higher than compared to the nominal GDP of fifty years ago. For example, global GDP in 2019 equals $88,000,000,000,000 almost 30 times the global GDP of $3,000,000,000,000 in 1970. Consequently, the sheer magnitude of today's global GDP made too much as the economic impact of a particular percentage point growth when compared to 1970. Slide nine details our operating cash flow potential for 2021.

Sixty six percent of our available days are fixed at an average rate of $18,612 net per day. The remaining 34% of our available days that are open or on index linked charters provided with more upside. Our contracted revenue alone exceeds our total fleet expenses by $12,600,000 Using the current market average time charter rate of $23,549 per day, we believe NMN is well positioned for a strong 2021. Slide 10 shows our combined liquidity as of 12/31/2020. We had total cash of $38,300,000 and total borrowings of $719,000,000 Our net debt to book capitalization is 43.5% and our debt maturities are targeted through 02/1930.

At this point, I would like to turn the call over to Mr. Travis Resitres, Navios Partners' who will take you through the results of the fourth quarter and full year of 2020.

Speaker 2

Thank you, Giulio, and good morning, all. I will briefly review our unaudited financial results the fourth quarter and year ended 12/31/2020. The financial information is included in the press release and is summarized in a slide presentation on the company's website. Before I start discussing our financial highlights, I would like to draw your attention to certain one off items that are listed in Slide 11. For simplicity, the discussion of the financial results below exclude the effect of the one off items listed in this slide.

Included in these adjustments is a $42,600,000 impairment on our investment in lavish containers, bringing its book values to approximately $25,000,000 Notwithstanding this accounting impairment, economically, our investment has significantly increased in value. Based on yesterday's closing price of Navios Containers units, our investment amounts to over $110,000,000 As Angeliki mentioned earlier, today, the Navios Containers unitholders approved a merger with Navios Partners. The merger is expected to close on 03/31/2021. The full results of operation of Navios Containers will be included in Navios Partners commencing 04/01/2021. Moving to the financial results, as shown on Slide 11.

Q4 revenue increased by $7,900,000 to $69,200,000 compared to $61,300,000 for Q4 twenty nineteen. The increase was mainly due to the 39.3% increase in available days in Q4 twenty twenty. The increase was mitigated by a 17.4% decrease in the time charter equivalent rate achieved in the fourth quarter of twenty twenty. Adjusted EBITDA for the fourth quarter of twenty twenty increased to 35,500,000.0 compared to $33,700,000 for Q4 of twenty nineteen, mainly due to the increase in revenue discussed above. Adjusted net income for the quarter amounted to $12,800,000 Fleet utilization for the fourth quarter of twenty twenty was almost 100%.

Moving to the twelve months operations. Time charter revenue for the year increased to $226,800,000 compared to $219,400,000 in 2019. The increase was mainly due to the 32.3% increase in available days in 2020. The increase was mitigated by 20.9% decrease in the time charter equivalent rate achieved in 2020. Adjusted EBITDA for 2020 amounted to approximately $100,000,000 compared to $120,000,000 in 2019.

The decrease is primarily due to a $25,500,000 increase in vessel operating expenses, mainly due to the increased fleet, a $3,000,000 increase in general and administrative expenses, mainly due to the increased fleet and a $1,400,000 decrease in equity net earnings of affiliate companies. The above increase was partially mitigated by the $7,400,000 increase in revenues discussed above, a $1,300,000 decrease in time charter and voyage expenses and a $1,100,000 increase in net other income. Adjusted net income for 2020 amounted to 12,800,000.0 Turning to Slide 12. I will briefly discuss our key balance sheet data as of 12/31/2020. Cash and cash equivalents was EUR 20,700,000.0.

Non term borrowings, including the current portion, net of deferred fees, amounted to $486,900,000 Our cost of debt has been significantly reduced as a result of the refinancing of the term loan fee as well as a decrease in LIBOR rates. This resulted in a reduction of interest expense for 2020 by approximately $15,000,000 compared to 2019. Net debt to book capitalization was 40% at the end of the year. Slide 13 shows the details of our combined fleet, giving effective emergence of Navios Containers. Our fleet is in the top 10 publicly listed dry cargo fleet globally as measured by a number of vessels.

We have a large modern divest fleet of 85 vessels with a total capacity of 7,800,000 Delray tons. Our fleet consists of 49 drybulk vessels and 36 container ships. In Slide 14, you can see the latest updates of our fleet. We actively renew and expand our fleet. We agreed to acquire six drybulk vessels with an average age of approximately two years.

We agreed to acquire three Japanese newbuilding Capesize vessels, contracted under fifteen year bareboat construction. The structure provides for an effective purchase price of BRL 51,500,000.0 and an effective interest rate fixed for a fifteen year period of 4.4%. Navios has de escalating purchase options on the vessels starting in year four and for the charter duration. All vessels are expected to be delivered in the second half of twenty twenty two. We agreed to acquire two twenty twelve build cash on match vessels for approximately 59,300,000.0 Also, we agreed to acquire a newbuilding, cancel match vessel for $31,600,000 The vessel is expected to be delivered in the second half of twenty twenty two.

We also agreed to sell four vessels, having an average age of 15, for a total sale price of $42,800,000 In Slide 15, you can see our traveling strategy for 2021. We are focusing on taking advantage of the different fundamentals across the sector we operate to maximize profitability. We have currently fixed 66% of our twenty nine thousand and twenty six available days for 2021. We have capitalized on the strength of the containership market and fixed almost 90% of our available containership days for 2021 and joined healthy rates. Additionally, we are positioning our drybulk fleet for what we hope will be a strong balance of 2021, and we have market exposure on 53.5 of our days for this year.

In Slide 16, you can see our ESG initiatives. When talking about ESG, I think it's important to remind people that trans oceanic shipping is the most environmentally friendly means of transportation as it is the most carbon efficient mode of transport. However, we do not take that for granted. We aspire to have zero emissions by 02/1950. In this process, we have been pioneering and are adapting certain environmental regulations up to two years in advance.

I am also proud to be working with the social conscious group whose core values include diversity, inclusion and safety. Finally, we have very strong corporate governance with code of ethics. We have majority independent directors and independent committees that oversee our management operations. I now pass the call to Jose Acuniotis, Executive Vice President of Business Development, to discuss the industry section.

Speaker 3

Thank you, Stratos. Please turn to Slide 18. With the help of a strong second half, 2020 ended the year with the BDI averaging ten sixty six. Today, the BDI stands at 2,271, with the year to date average more than double its level at the start of 2020 and the highest it has been in eleven years. Governments having put in place emergency monitoring and fiscal plans to support their economies have kick started faster than expected the recovery in the world economy.

This has led the IMF to increase its 2021 GDP growth projection to 5.5%, the highest in fifty years and 4.2% in 2022. Penta demand and restocking is expected to push demand growth well above net fleet growth, supporting the recent dramatic rise in rates. In just the last month, sub trade time charter rates have hit ten year highs in what is normally a seasonal low period. This increase reflects certain trade driven by strong demand for both major and minor bulk commodities. 2021 drybulk trade is projected to increase by 3.7% and further increase by 2.2% in 'twenty two.

Turning to Slide '19. Demand is forecast to outpace net field growth in both 2021 and 2022. The graph on the left shows that for 2021, rare bank demand for the three major cargoes of iron ore, coal and grain is forecast to increase by over 3% compared to 2020. If you look at the graph on the right, net fleet growth is forecast to be 2.6% this year and only 0.7% for 2022. Net fleet growth is expected to remain low over the next three years as the order book is the lowest on record.

Turning to Slide 20. Despite the pandemic, China set another yearly record for iron ore imports in 2020 at about 1,150,000,000 tonnes, which is an increase of 9.4% over 2019. Chinese steel production surpassed the 1,000,000,000 tonne mark in 2020. Global iron ore demand is expected to increase by 2.7% this year, and additional availability of iron ore shipments to China are expected to increase as steel mills replenish stockpiles, driving demand for Capesize vessels. Forecasts are also for growth in iron ore imports around the world as the effects of the pandemic recede.

Europe's imports are expected to grow by 15% in 2021, and Asia, excluding China, is expected to import 9% more iron ore in 2021 than in 2020. Please turn to Slide 21. Asian coal imports, which account for over 80% of the world's seaborne trade, are expected to increase by 4.3% in 2021, following a decline of 6.8% in 2020. The 2020 decrease is mainly attributable to Indian and Chinese imports declining by 138%, respectively. Vietnam and other Southeast Asian countries increased coal imports by 13%.

Turning to Slide '22. Worldwide grain trade has been growing by over 5% CAGR since 02/2008, mainly driven by Asian demand, which increased by 15% in 2020, is expected to increase a further 2.9% in 2021. Overall, oil grain sales increased by 7.7% in 2020 and is expected to increase by about 2% in 2021. Another increase in world population, food security issues driven by the pandemic as well as increasing protein demand worldwide continue to support the global grain trade. Oil grain production this year will reach a record according to the International Grains Council and the USDA.

Please turn to Slide 23. The current order book stands at a record low of 5.7% of the fleet. Newbuilding contracted was down 56% in 2020 compared to 2019. Through mid March twenty twenty one, contracted is down by about 62% compared to the same period last year. Accordingly, 2021 net fleet growth is expected at 2.6% and only 0.7% for 'twenty two.

Turning to Slide '25. Vessels over 20 years of age are about 7.6% of the total fleet, which compares favorably with the previously mentioned record low order book. Scrapping totaled 16,000,000 tons in 2020, almost doubles the 2019 total. Year to date scrapping has totaled 3,400,000 tons, which is on pace to March 2020. Please turn to Slide 26, focusing on the container industry.

As previously mentioned, stimulus measures have caused recovery of consumption in the advanced economies at the same time that there is increasing industrial production and economic growth in China. This targeted stimulus has led to historic turnaround in global container trade. Oil rates rose dramatically from midyear twenty twenty, led by the China to The U. S. West Coast and China to Europe trade rates, as depicted on the chart on the lower right.

Container ship demand growth of 5.7% in 2021 and three point seven percent in 'twenty two is expected to exceed supply expand on demand, port congestion, restocking and increases in consumer demand for goods, all support the increasing containerized volumes. Please turn to Slide 27. The recent rapid market recovery has caused extremely high demand for available tonnage, which is in short supply across all segments. In particular, the extremely tight availability of Panamaxes, combined with port congestion, increasing trade and lack of newbuildings, has propelled period time charter rates to hit thirteen year highs of $37,000 per day for periods up to a year. SCFI box rates have climbed 222% from April 2020 to March '1, spread by the early start of the Chinese economy and from continuing demand for consumables and pandemic related supplies worldwide.

In conclusion, positive demand fundamentals, mainly due to the restart of economic activity around the world, along with reduced fleet availability, should continue to support both the drybulk and containerized shipping industries in their continuing effort to navigate through the easing pandemic storm. This concludes my presentation. I would now like to turn the call over to Angeliki for any final comments. Angeliki?

Speaker 1

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

Speaker 4

Thank you. The floor is now open for questions. We have a question from the line of Randy Giveans of Jefferies.

Speaker 5

Howdy, Angeliki and team. How are

Speaker 2

you all doing?

Speaker 1

Morning. Good morning. Very well.

Speaker 5

Excellent. All right. A couple of questions. I guess, first, for the vessel sales and purchases, it seems like you're obviously adding some dry bulk exposure while shedding some containership exposure. Is this a view on those respective markets?

Or is this purely a fleet renewal play? And then going forward, which subsector would you maybe look to grow?

Speaker 1

Actually, what we are doing is repositioning We sold some vessels that were older and smaller to more commercially attractive vessels. Basically, I mean, we see a lot of value on both segments. We see that there is a different set of fundamentals important. Purely from a point of the market.

I'll say that today, you may have some more opportunities to pick up attractive drybulk vessels because you still have some recovery. Let's not forget that the container ship sector has been the container sector has recovered from second half of last year versus drybulk is more this year that we are experiencing a much different potential.

Speaker 5

Got it. Sure. That makes sense. And then now that obviously the drybulk and containership markets are both extremely strong, your balance sheet is in great shape, the merger is a week away now, right, so congrats on that. What will it take to increase the distribution?

And how will you balance that with maybe unit repurchases as you're still trading at a pretty massive discount to NAV?

Speaker 1

The reality is we see our sales as a growth platform that we're in the right part of the cycle, meaning we see great upside potential with our fleet. But also, we would like to also use the excess in deleveraging. I think that will give us a long term view on the right. Shipping is always very, very profitable. It is a matter of leverage, and I want to remind that.

And this is something in the back of our mind. So what you should expect from us is a replacement of assets, renewal of fleet, which is part of our ongoing process and strong cash generation with a deleveraging effect.

Speaker 5

Sure. Okay. And then lastly, just quickly, can you provide any quarter to date rates for the first quarter now that we're a week away from that being concluded for the dry bulk vessels?

Speaker 2

Randy. Good morning to me also. Mean, we have put out some details also in our press release today. So you will see that we are almost 100% fixed on both sides, both in the dry bulk but also the container side. On average, we are approximately just over $15,000 chartered on the dry side and around $17,000 on the container ships.

Just to remind you for your modeling purposes also, just to remind you that Navios Containers, the full results will be included in our results from April 1 as the metric is expected to close on March 31. So you will see the effect of the results in April 1 and going forward. At

Speaker 4

this time, I'm showing no further questions. I'd like to turn the floor back over to Angeliki Frangou for any closing remarks.

Speaker 1

Thank you. This completes our Q4 results. Thank you.

Speaker 4

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