Jul 27, 2021
Operator
Thank you for joining us for Navios Maritime Partners’ Second Quarter 2021 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms.
Angeliki Frangou; Chief Financial Officer, Mr. Efstratios Desypris; and Executive President of Business Development, Mr.
George Achniotis. 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.navios-mlp.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 can also be found there.
I will now review the Safe Harbor statement. This conference call could 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 more fully discussed in Navios 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.
Frangou will offer opening remarks; next, Mr. Desypris will give an overview of Navios Partners’ financial results; then Mr.
Achniotis will provide an operational update and an industry overview; and lastly, we’ll open the call to take questions. Now I’ll turn the call over to Navios Partners’ Chairman and CEO, Ms.
Angeliki Frangou. Angeliki?
Angeliki Frangou
Thank you, Laura. And good morning to all of you joining us on today’s call.
I am pleased with the results for the second quarter of 2021. During the second quarter, Navios Partners recorded revenue of $152 million.
Net income of $99.9 million. As you can see on the Slide 4, approximately 56% of our fleet are dry bulk vessels and 44% of our fleet are containerships.
Please turn to Slide 5. Navios Partners is a top-10 U.S.
publicly listed dry cargo fleet with 98 vessels, of which 55 are dry bulk vessels and 43 are containerships. Our diversified fleet should insulate us from industry cyclicality.
You can already see the flexibility created by the different segments as we address open available days and financing. We have about $1.1 billion in contracted revenue.
Contracted revenue for the second half of 2021 is expected to exceed the total estimated fleet expenses for the same period by $47.8 million. This enables us to have about 36% of our available days either open or index linked.
We have a strong balance sheet with low leverage. Partially as a result of all these factors, our units have performed well in 2021 year-to-date.
Slide 6 reviews a recent development. During Q2, NMM gained $90.4 million in EBITDA, $99.9 in net income, and $4.32 earnings per unit.
We will continue to renew and expand our fleet. We agreed to acquire in 11 vessels with an average day of 4.8 years for about $552 million and agreed to sell two vessels with an average age of 15.7 years for $41.4 million.
As a result of fleet renewal and expansion program year-to-date, we added a net of 44 vessels to our fleet and containership fleet increased by 330%, while average age reduced by 25%. Our drybulk fleet capacity increased by 37%, while its average age reduced by 18%.
We raised about $615 million in new financing year-to-date, including $405 million to financing the acquisition. $124.3 million to refinance 2021 maturities and $86 million to refinance other loans.
We have a strong cash flow potential for the second half of 2021. We have 15,743 available days with about 36% of our available days are still open or index-linked.
Slide 7 highlights a diversification advantage. Because we are operating both a drybulk and containership segments, you should be able to mitigate normal industry cyclicality.
Leverage fundamentals across both sectors use our cost of capital. This has created optionality, for example, our chartering strategy optimize different sector fundamental.
With our containerships, we have fixed on medium to long-term charters over 99% of our available days for the second half of 2021 and 78% fixed for 2022. However, at average in the drybulk sector, commence strengthening in the first half of 2021.
We have maximized market exposure in the drybulk vessels over 63% of our available days in the second half of 2020 and about 94% were available days in 2022 are open or index linked. Through these diversified strategies, we have secured more than $1.1 billion in total contracted revenue.
Slide 8 describes our fleet renewal and expansion year-to-date. In 2021, year-to-date, our fleet increased by 81% in terms of number of vessels, 44 net vessel additions, we acquired 38 vessels on the water and an additional 13 newbuilding vessels to be delivered into our fleet.
We also agreed to sell seven vessels with an average age of 30.7 years for $108 million in process. Through these activities, we increased our containership fleet by 330% and our drybulk fleet capacity by 37%.
Moreover, we have successfully reduced the average rate of our fleet in both segments, 25% reduction in containership and an 18% reduction in drybulk. Slide 9 details our operating free cash flow for the second half of 2021, about 64% of our available days at an average rate of $22,919 per day.
Our contracted revenue exceeds total estimated fleet expenses by $47.8 million, the remaining 36.1% of our available days are either open or index linked which provided market exposure. Slide 10 shows our liquidity position.
As of June 30, 2021, we have total cash of $232.9 million and total borrowings $795.5 million. Our net debt to book capitalization is 27.3% and our debt maturities are staggered with no significant debt maturities until 2023.
At this point, I would like to turn the call over to Mr. Efstratios Desypris, Navios Partners’ CFO, who will take you through the financing results for the second quarter of 2021.
Efstratios?
Efstratios Desypris
Thank you, Angeliki. Good morning, everyone.
I will briefly review Navios’ financial results for the second quarter and first half ended June 30, 2021. The financial information is included in the press release and summarizing the slide presentation available on the company’s website.
Before I discuss the results, I would like to remind you that the merger in large containers was completed at March 31. Consequently, the results from the first half of 2021 include the results of Navios Containers currently for the second quarter.
Moving to the earning highlights in Slide 11, the revenue for the second quarter of 2021 increased by 227% to $152 million, compared to $46.5 million for the second quarter of 2020. The increase were mainly due to the following reasons.
A 90% increase in available days of the quarter following the merger with Navios Containers and the expansion of our fleet, and also an 81% increase in the Time Charter Equivalent achieved in the quarter, compared to the same period last year. Adjusted EBITDA for the second quarter of 2021 increased to $90.4 million, compared to $14.3 million in the second quarter of 2020 primarily due to the increase in revenues discussed above.
These increases were mitigated by $19.8 million increase in vessel operating expenses and a $3.3 million increase in G&A due to our increased fleet. And a $6.2 million increase in net other expenses.
Net income for the quarter amounted to $99.9 million. Fleet utilization for the second quarter of 2021 was almost 100%.
Moving to the six-month operations. As mentioned earlier, the discussion below excludes the results of Navios Containers for Q1 of 2021 as the merger was completed in March 31.
For the first quarter 2021, Navios Containers recorded $43.8 million of revenue and $22.8 million of EBITDA. Time charter revenue for the six months increased by $124.1 million to $217.1 million compared to $93 million in the first half of 2020.
The increase was mainly due to the 66.8% increase in the time charter rate equivalent achieved in the first half of 2021 as well as 41.4% increase in our available days. EBITDA and net income for the first half of 2021 include $80.8 million of gain from the revaluation of our investment in Navios Containers as a result of the merger.
I would like to point out here that in 2019, we have written down our investment by $42.6 million. Also included in EBITDA and net income in the first half of 2021 is $44.1 million gain from the completion of the merger and the purchase price allocation to the asset and liabilities of Navios containers.
Excluding these items, adjusted EBITDA for the first half 2021 amounted to $124.1 million compared $33.4 million in the same period of last year. Adjusted net income for the first half of 2021 amounted to $111.7 million.
Turning to Slide 12, I will briefly discuss on key balance sheet data as of June 30, 2021. Cash and cash equivalents were $252.9 million.
Long-term borrowings, including the current portion, net of deferred fees amounted to $795.5 million. Net debt to book capitalization reduced to 27.3% at the end of the quarter.
Slide 13 shows the details of our fleet. Our fleet is in the top 10 U.S.
publicly listed dry cargo fleet as measured by number of vessels. We have a large modern diverse fleet of 98 vessels with a total capacity of 9.3 million deadweight tons.
Our fleet consists of 55 dry bulk vessels and 43 containerships. In Slide 14, you can see our ESG initiatives.
Maritime Shipping is the most environmentally friendly means of transportation as it is the most carbon efficient mode of transport. We aspire to have zero emissions by 2050.
In this process, we have been pioneering and are adopting certain environmental regulations up to two years in advance, aiming to be one of the first fleet to achieve full compliance. Navios is a socially conscious group whose core values include diversity, inclusion and safety.
We have very strong corporate governance and clear code of ethics. Our Board is composed by majority independent directors and independent committees that oversee our management operations.
I will now pass the call to George Achniotis, Executive Vice President of Business Development to discuss the industry section.
George Achniotis
Thank you, Efstratios. Please turn to Slide 16.
The Baltic Exchange Dry Index reached 3,418 on June 29, the highest level since 2010 as earnings from sub Capesize Vessel reached multiyear highs. A 2,793 the Q3 index average was more than doubled any Q2 quarterly average in the past decade.
Raise in all asset classes have risen sharply reflecting surging trades driven by strong demand for both major and minor bulk commodities. Supply and demand fundamentals going forward remain extremely positive, a strong demand for natural resources combined with COVID-related logistical disruptions which adds to fleet inefficiencies and the slowing pace of newbuilding deliveries, all support strong level of support and future freight rates.
The IMF projects global 2021 GDP growth at 6%, the highest in 50 years, led by an 8.6% expansion in China, India and developing Asia. Accordingly, 2021 drybulk trade is projected to increase by 4% and further increase by 1.7% in 2022.
Turning to Slide 17. Demand is forecast to outpace net fleet growth in both 2021 and 2022.
The graph on the left shows the drybulk demand for the three major cargoes of iron ore, coal and grain for the second half of 2021 is forecasted to increase by 7% compared to the first half. The graph on the right highlights the previously mentioned slowing fleet growth.
Net fleet growth is forecast to be 3.3% this year and only 1.2% for 2022. Turning to Slide 18.
Post pandemic stimulus measures in the advanced economies and increasing industrial production and economic growth in China have fueled demand for iron ore. Global iron ore demand is expected to increase by 3.6% this year.
Additional availability of iron ore shipments to China in the second half of 2021 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 18%. In Asia, excluding China, is expected to import 12% more iron ore in 2021 than in 2020.
Please turn to Slide 19. Asian coal imports, which account for over 80% of the world seaborne coal trade, are expected to increase by 3.7% in 2021.
According to the International Energy Agency, global coal-fired electricity generation is expected to rise by nearly 5% this year and exceed pre-pandemic levels, before increasing a further 3% to an all-time high in 2022. Turning to Slide 20.
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. While grain production this year will reach a record according to the International Grains Council and the USDA.
Worldwide grain trade has been growing by 5% CAGR since 2008 mainly driven by Asian demand, which increased by 15.5% in 2020 is forecast to grow by a further 6.9% in 2021. Overall, total world grain trade is expected to increase by 4.4% in 2021.
Please turn to Slide 21. The current order book stands at a historically low 5.8% of the fleet.
Contracting for all 2020 and year-to-date combined has been low, about equal to all contracting in 2019. Accordingly, 2021 net fleet growth is expected at 3.3% and only 1.2% for 2020 below the projected increase in drybulk demand for both years.
Turning to Slide 22. Vessels over 20 years of age are about 8.7% of the total fleet, which compares favorably with the previously mentioned historically low order book.
Scrapping totaled 15.8 million tons in 2020. And year-to-date has totaled 4.7 million tons, which is on pace for a yearly total of 8.6 million tons.
Please turn to Slide 24, focusing on the container industry. Stimulus measures have caused recovery of consumption in the advanced economies.
This targeted stimulus has led to a historic turnaround in global container trade. As you can see on the chart on the lower right, freight rates for all main routes from China rose dramatically from mid-year 2020.
Increases in consumer demand for goods, port congestion and restocking led to containership demand growth of 6.3% in 2021 and 3.8% in 2022. The increased demand is expected to exceed supply in both years.
Please turn to Slide 25. 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 poor congestion, increase in trade and lack of newbuildings has propelled periods of time charter rates to hit historic highs of $70,000 per day for periods up to a year. The SCFI box rate index has broken through the 4,000 level for the first time ever and stands approximately four times higher than the 10-year average, spread by the earlier start of the Chinese economy and from continuing demand for consumables and pandemic-related supplies worldwide.
Turning to Slide 26. Fleet growth is manageable 4.5% this year and 2.6% for 2022.
Even in this high-demand environment, scrapping should continue as 10.5% of the fleet is currently 20 years of age or older. In conclusion, positive demand fundamentals, mainly due to the start of the 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 her final comments.
Angeliki?
Angeliki Frangou
Thank you, George. This completes our formal presentation and we open the call to questions.
Operator
[Operator Instructions] And we'll take our first question from Randy Giveans from Jefferies. Your line is now open.
Randy Giveans
Hi, team Navios. How's it going?
Angeliki Frangou
Hey, Randy. Good morning.
Randy Giveans
Good morning. All right.
So a few questions here. I guess, first, just looking at your chartering for the containerships, you recently booked five 4,500 or so TEU containerships on three-year charters.
Clearly, very impressive rates about 40,000 a day. Two questions with that.
How did you decide on the staggered or maybe step down annual rates structure for that? And then secondly, you have two containerships with charters expiring in December.
When do you expect to book new charters on those two?
Angeliki Frangou
Very good questions. I mean, literally see what we have been doing.
We are actually with all the repositioning that have done on the company, we are – basically we have created the sizable fleet of 98 vessels and almost a 100. And then we are using the different industry fundamentals that we have to create the optionality on the balance sheet of the company.
So, we have 55% drybulk, 45% containerships. So, what we are doing is we paid in cash flows, medium term cash flows on target possibilities and what we are creating with that will give optionality to the company to have support drybulk vessels which we cannot have long-term and create the upside for that.
So our goal is to create this long-term durable cash flow with a conservative balance sheet. That is the outlook.
And as the maturities, as we see vessels coming close, we will do it in the moment of strength. That is always the way.
I mean, let's all be very – what is very important is that we are mindful of our structure and we’re positioning the company for the long-term.
Randy Giveans
Sure. And I guess on those two charters expiring in four months, five months maybe, it seems like there's already a market for those.
Are those being negotiated now or are you waiting till the fall?
Angeliki Frangou
We are doing in a portfolio approach. We are always talking to everyone and that is our job.
And we will do it in a more appropriate on the line that has the biggest need. So we have done that, I think, in a very good way.
And you have seen that last year, I mean, and you can see it on the way we have structured our entire portfolio. We are able to create these cash flows because we will never – we’ve been stepping very quickly and we will do it on the strengthening of the market and we see strengthening of the market.
Randy Giveans
Okay. All right.
And then I guess, secondly, you don't mention the ATM results in the press release, but I do see that net cash provided by financing activities was up $258 million. So I guess with that, how much of both the $75 million and then the $110 million ATM programs have been used so far?
Is there any remaining? And then what is the current outstanding unit count just for our modeling purposes?
Efstratios Desypris
Hi, Randy, good morning from me also.
Randy Giveans
Hi.
Efstratios Desypris
Yes, we will have all the details on, the number of the units that have issued and the units outstanding as well as the status of the ATM program in our 6K and 8K filing that will come shortly. However, what I can share with you on this call is the fact that practically the ATM’s programs have been practically completed by now, so a very minimal amounts left.
Randy Giveans
Okay, and then assuming $25 or so a share, it seems like that'd be around 6.5 million, 7 million shares. Is that fair on the new share count?
Efstratios Desypris
You will have all the details in the filings. So let's be patient on that.
Randy Giveans
Okay, I'll wait on that. Two more questions.
I guess looking at your vessel fleet changes, you've been pretty active in acquiring vessels of late. Do you expect that to continue?
Or are you going to focus more on maybe selling some older vessels which you already have done a few here just looking at kind of changes in your fleet going forward?
Angeliki Frangou
This is an ongoing process meaning we will always and we have been, I think, getting good prices on all the fleet. We have disposal of the vessel in a nice order.
We have some vessels that – this is an ongoing positioning of the fleet. And also, we have done some new buildings and secondhand position in new buildings.
And I think that is needed we have I mean, you can see containership fleet, for example, which is older, so there is more upside into older. So, if we saw an opportunity and we position ourselves to acquire vessels like the – that are very good for the point-to-point transportation like the 5,200 we use.
We saw that that fleet is something that the market needs, there is no new orders. And we have been very successful.
And we see that the pandemic economy has created the need for this point-to-point transportation. So that is an area where we stepped in, we saw good opportunities, good value, and we went in.
Again, we'll be actually financing them via balance sheet in the beginning and then getting the right finance as we foreclose.
Randy Giveans
Got it. Okay.
And the last question from me, we're about halfway through the second quarter, can you provide maybe some quarter-to-date rates for your multiple drybulk asset classes with spot exposure or I guess index linked exposure?
Angeliki Frangou
I think you are a better expert than us. Everyone has collections, values, and I will not even compete with you guys.
You are very good on that and you can find. I think the one thing that I would like to say is that the company and I think this is an important issue, really positioning the company for the long term.
We went through nuclear [indiscernible] I mean we saw equity markets close, debt market has been unavailable. I mean in 2019 we had the Term Loan B and basically that was not available for the drybulk.
So, we have seen Capesize rate last year being around 8,000 containership, maybe Panamax around 8,000. So basically, the pandemic had a material effect on shipping.
So, we have positioned well the company, we saw opportunities, we stepped in, we acquired an MCI that has nicely paid dividends for us. We have seen – it was a nice transaction, we saw over 3.5 times value expansion.
So, our goal is to create a long term, a company that has a long-term durable cash flows and to position the company for the long term.
Randy Giveans
Sure. Yes, it seems like second quarter was great.
Clearly, the third quarter rate should be better than that. So, we will be looking forward to the next quarter indeed.
Thanks so much.
Angeliki Frangou
Yes, but I want to remind you last year, pandemic is still here. And we all should be very mindful of where we are.
Randy Giveans
Yes.
Angeliki Frangou
Thank you.
Randy Giveans
Thank you.
Operator
And we will turn the program back over to Angeliki for any additional or closing remarks.
Angeliki Frangou
Thank you. This completes our Q2 results.
Operator
This does conclude today's program. Thank you for your participation.
You may disconnect at any time. And have a wonderful day.