Q1 2012 Navios Maritime Holdings Earnings Conference Call
May 17, 2012 AM EDT
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
NM - Navios Maritime Holdings Inc
Q1 2012 Navios Maritime Holdings Earnings Conference Call
May 17, 2012 / 12:30PM GMT
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Corporate Participants
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* Angeliki Frangou
Navios Maritime Holdings - Chairman & CEO
* Ted Petrone
Navios Maritime Holdings - President, Navios Corporation
* Ioannis Karyotis
Navios Maritime Holdings - SVP, Strategic Planning
* George Achniotis
Navios Maritime Holdings - CFO
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Conference Call Participants
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* Christian Wetherbee
Citi - Analyst
* Randy Laufman
Imperial Capital - Analyst
* Natasha Boyden
Global Hunter Securities - Analyst
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Presentation
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Operator [1]
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Good morning and thank you for joining us for this morning's Navios Maritime Holdings first-quarter 2012 earnings conference call. With us today from the Company are Chairman and CEO, Ms. Angeliki Frangou; President, Mr. Ted Petrone; SVP of Strategic Planning, Mr. Ioannis Karyotis; and Chief Financial officer, Mr. George Achniotis.
As a reminder, this conference call is also being webcast. To access the webcast please go to the Investors section of Navios Holdings' website, www.Navios.com. A copy of the presentation referenced in today's earnings call can also be found there.
Before I review the structure of this morning's call I would like to read 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 Holdings. Such forward-looking statements are statements that are not historical fact.
Such forward-looking statements are based upon the current beliefs and expectations of Navios Holdings' 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 Holdings filings with the Securities and Exchange Commission.
The information set forth in this conference call should be understood in light of such risks. Navios Holdings does not assume any obligation to update the information contained in this call. Thank you.
The agenda for today's call is as follows. First, Ms. Frangou will offer opening remarks. Next, Mr. Petrone will provide an operational update and an industry overview. Mr. Karyotis will go through an overview, including recent financials, for Navios South American Logistics. Then Mr. Achniotis will review Navios Holdings' financial results. Lastly, we will open the call to take your questions.
I would now like to turn the call over to Navios Holdings Chairman and CEO, Ms. Angeliki Frangou.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [2]
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Thank you, Laura, and good morning to all of you joining us on today's call. We are pleased to report our results for the first quarter of 2012.
We had a solid quarter in a market environment that continues to be challenging. Our focus during this period has been on increasing the efficiency of our global fleet as a means of further reducing expenses. Efficiency equals strength in this market and our technical group has been singularly focused on maximizing fleet utilization while reducing operating costs.
We have also been focusing on maintaining a solid balance sheet and returning capital to our shareholders through dividend payments. We, therefore, declared a $0.06 dividend for the first quarter of 2012 to shareholders of record on June 26, 2012.
Slide two shows our current structure. The value of Navios Holdings primarily derives from four areas -- the dry bulk fleet within the Navios Holdings and three principal operating subsidiaries. The whole continues to be valued [at least] on the sum of its parts.
As you can see, the value of Navios Holdings interest in the two publicly listed subsidiaries is $2.70 per share. The market values of the remaining two businesses is only $0.56 in total.
Navios Holdings (inaudible) fleet consists of 48 vessels in the water. This fleet has long-term charters with (inaudible) counterparties that are insured by a double-layered insurance company in the [Beijing]. Our charter coverage is unique and should continue to provide a great comfort to all our stakeholders as it has been doing historically.
The value of Navios Logistics is growing. We have a superb management team advancing the market opportunities and together we have transformed Navios Logistics into a key provider in the Hidrovia region of South America. Ioannis Karyotis will address Navios Logistics' result in further detail later.
Slide three shows our strong competitive positioning. As I mentioned a minute ago, we remain in a difficult drybulk market; however, we have worked hard to prepare for this market. We continue to focus on controlling experiences by raising the bar on our operational performance. Our operating cost, always favorable when compared to our peers, is about 35% below the industry average. We also have a fleet utilization of 99%.
We have also focused on our balance sheet strength. We believe it's one of the best in our industry. Our net debt to capitalization is about 51%. This is particularly healthy when considering where we are in the market cycle, the actions of any CapEx funding requirement, and the fact that we have no material debt maturity until 2017.
Paying close attention to our debt maturities and CapEx funding requirements has positioned us favorably compared to our competitors. We are now in a precarious position of seeking significant liquidity when financial institutions are reducing their exposure to shipping. We are [flanking] the dollar-denominated loan portfolios and capital market (inaudible) selectively.
We are also well positioned for 2012 as about 90% of our fleet is covered. Even with almost 1,600 days open for the year, Navios generates substantially free cash flow of about $35 million. In addition, as you can see from the chart on page three, for every $1,000 per day we see for each open day Navios will earn almost $1.6 million.
Thus, assuming our chartering activities generated Navios $12,000 per day for the rest of the year, which is reasonable in this market, [we will add] almost $19 million. Therefore, free cash flow generation will be a total of $54 million for 2012.
During 2012 we have also received the delivery of two Kamsarmax vessels, the Navios Centaurus in March and the Navios Avior this week. These vessels have two years charters at $12,825 net per day and $12,716 net per day, respectively. We expect aggregate EBITDA over the duration of the charters for the two vessels to be $12.1 million.
We also acquired the Navios Serenity, a 2011-built South Korean Handysize vessel. Previously, we chartered-in this vessel so we know it well and took advantage of the market to acquire the vessel at a favorable price. We eliminated any financing risk for 2013 by entering a new credit facility which financed the acquisition of the Navios Serenity and refinanced the existing debt of the Navios Astra.
Slide four shows our liquidity of $223 million, of which $170.4 million is cash. Our net debt to capitalization is relatively modest at 51%, particularly at this position in the cycle when asset values are suppressed. Our debt is long term and stable with no material maturities until 2017.
Bonds represent about 65% of our outstanding debt and there is no amortization until maturity. These bonds have favorable covenants (inaudible) operating and the financial flexibility in this kind of market as we continue to have access to the debt market while the commercial lending market tightens.
Slide five sets forth Navios' substantial free cash flow generating capabilities from its fixed revenue and [low operating] costs. As mentioned, about 90% of Navios' revenue has been fixed for 2012 at about $22,000 per day. Our fully loaded cost is only $16,787 per day. Cost includes operating expenses, maintenance CapEx, like drydocking expenses, charter-in expenses for all our charter-in fleet, and G&A including credit default insurance, as well as interest expense and capital repayment.
I would like now to turn the call over to Mr. Ted Petrone, Navios' President, who will take you through Navios' operations and our industry perspective. Ted?
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Ted Petrone, Navios Maritime Holdings - President, Navios Corporation [3]
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Thank you, Angeliki, and good morning all. Please turn to slide six. Our long-term core fleet consists of 54 vessels totaling 5.6 million deadweight. We have 48 vessels in the water with an average age of 5.2 years. This is less than half the industry average of about 12 years.
Please turn to slide seven.
In Q1 2012 Navios charted-out four vessels for a total of five years time charter coverage to first-class counterparties. We recently took delivery of two Kamsarmaxes from a Korean yard. The Navios Centaurus and Navios Avior are both chartered out for two years at a net rate of $12,825 and $12,716 a day net, respectively.
We also recently took delivery of the Handysize vessel, Navios Serenity, a former long-term chartered-in vessel, which is currently chartered-out at a net rate of $10,616 a day.
We continually reassess our position in the shipping cycle to adjust our chartering strategy. In this current market we do not see long-term coverage. Navios' average chartered-out rate for its core fleet is $22,021 a day for 2012, which increases through 2014. 89.4% of Navios' fleet is chartered-out for 2012, 44% for 2013, and 26.7% for 2014. In total, we have contracted revenue of over $580 million through the end of 2014 and have insured our charters through an EU AA-rated insurance company.
Please turn to slide eight.
We enjoy vessel operating expenses about 35% below the industry average in all asset classes. Navios' currently daily OpEx is $4,214 a day. The $2,251 daily savings per vessel in operating expenses aggregates over $25 million in annual savings, which goes directly to our bottom line.
We aim to continue leveraging our economies of scale and operating proficiencies advantages. We also benefit from technical management services provided to our affiliates.
Please turn to slide nine.
2012 opened with negative overtones. The BDI lost more than 20% in the first week alone. By the end of January the BDI hit 680, less than half of where it stood at the end of 2011. At 867 the BDI recorded its lowest quarterly average since 1998.
For the second year in a row Q1 was adversely affected by severe weather in Australia and Brazil that reduced iron ore and coal exports by some $52 million, or 11%, as compared to Q4 2011. Both Brazilian iron ore exports were down by 27% quarter on quarter or about 25 million metric tonnes less. This decrease was the largest in the last five years.
On a positive note, the fall in iron ore and coal exports was attributable to production problems caused by extreme weather as opposed to weaker demand.
Subsequent to Q1, the BDI has increased about 20% driven by Panamaxes and Handymaxes following an increase in coal and grain shipments out of the Americas. However, negative seasonal and cyclical demand, along with rising tonnage supply, provides little confidence for improvement in rates in the near term. However, the silver lining is that the lower charter rates should induce more scrapping.
Please turn to slide 10.
World GDP continues to be driven by developing economies. These economies now contribute a higher percentage of total world growth than the developed economies and represent over half of the global consumption of most commodities. The IMF expects these trends to continue for the foreseeable future.
The IMF recently raised its forecast for 2012 world growth to 3.5% with emerging economies projected to grow at 5.7% in 2012 and 6% in 2013. China's economy grew at 8.9% in Q4. For 2012, the IMF expects the Chinese economy to grow at 8.2% and this economic growth is expected to reach 6.9% in 2012.
Turning to slide 11, the primary engines of trade growth continue to be China, India, and Brazil with other emerging countries adding strong growth. Drybulk trade has expanded by an average of 4.9% per year in the last decade since China joined the WTO. Consensus forecasts that 2012 [offer] global trade to grow approximately 5% and ton-mile growth of approximately 7%.
Please turn to slide 12.
In order to continue their urbanization and industrialization, China and India continue to invest heavily in infrastructure throughout Latin America, Africa, and the Middle East. Both countries are securing supply lines of natural resources with these infrastructure investments to ensure continued growth. As a larger portion of world trade is occurring between emerging and developing economies, trade patterns are shifting eastward and southward.
Turning to slide 13.
In the last 20 years about 700 million people have emerged from poverty to a new global middle class with Asia accounting for about one-quarter of this number. The emerging global middle class is expected to increase by over $3 billion in the next 20 years.
By 2020 more than half of the world's middle class could be in the Asia-Pacific region. The shift in the global economy towards Asia should support world trade by increasing movements of raw materials as shipping patterns adjust to the new global model.
Moving to slide 14.
The development and urbanization of the Western and Central parts of China will contribute significantly to steel consumption in 2012 and onwards. Infrastructure, housing construction, and consumer spending growth will underpin development in 2012 and beyond. Current steel production in China through April totaled 235 million metric tonnes. Steel production in March set a new record at 61.6 million metric tonnes, up 3% over March last year, and April's production was up about 3% year on year but did not surpass the March record.
Even with supply distribution disruptions in Brazil and Australia, China imported 244 million metric tonnes of iron ore through April, about 6% more than the same period last year. China also imported 38.3 million metric tonnes from minor exporters in the first three months of 2012, up 13% over the same period last year.
Going forward the growth in worldwide iron ore imports will be strained until new iron ore mines and expansion projects become operational. Over the medium to long term miners are investing in additional production. The chart in the upper right depicts potential new iron ore mining capacity of over 500 million tons per annum on a cumulative basis through 2014. These expansions will increase the tons carried and ton-miles.
Turning to slide 15, India has taken initial steps in to industrialize and urbanize. As you can see on the lower right-hand chart, India is expected to increase its urban population to 590 million people by 2030. That means India will have to build about 1.5 New York Cities per year during that time.
To keep pace with expanding steel and electricity production, India coal imports, shown on the left-hand chart, have increased dramatically at a 25% compound annual growth rate since 2006. According to the Central Electricity Authority of India, substantial demand will continue as 65% of current planned new power generation will be coal-fired. India currently generates 76% of its power using coal. As a comparison, the US uses coal to generate about 40% to 45% of its electricity.
India now imports more coal per year than the UK, Italy, France, and Germany combined. India companies are buying coal assets globally to ensure future supplies to meet projected growth. The government recently announced that state-owned enterprises are to invest in infrastructure and overseas energy purchases to promote energy security.
Turning to slide 16. Low freight rates, expensive fuel and high ship scrap prices led to a surge in scrapping of vessels in 2011. The 22.2 million deadweight scrapped last year represents the largest amount in deadweight and second-largest on percentage terms dating back to the '70s. Scrapping rates for older, less fuel efficient vessels have accelerated this year.
Through May 11 about 12.6 million deadweight has been scrapped. This represents an annual scrapping rate of about 35 million deadweight, or close to 6% of the fleet. The current rate environment should keep scrapping levels high as over 9% of the fleet is 25 years of age or older and 15.5% of the fleet is over 20 years providing about 99 million deadweight of scrapping potential.
Note that the current 2012 scrapping totals include five ships that were 20 years old or younger. Demolition prices appear to depend on overall steel prices, not on the supply of vessels.
Moving to slide 17. The order book for 2012 increased by 16% from about 120 million deadweight in December to 139 million deadweight in January as statisticians reclassified 2011 non-deliveries to 2012 deliveries. However, non-deliveries through April amounted to 42% as newbuilding deliveries were 36.6 million deadweight against an expected 63.3 million deadweight according to preliminary data.
Non-deliveries continue to be a substantial part of the drybulk order book. Fleet additions this year are expected to be about the same as 2011, but net deadweight growth should be lower after scrapping is taken into account. The order book declines dramatically in 2013 and beyond.
Please turn to slide 18. We currently own 25.2% of Navios Partners, including a 2% GP interest. Navios Partners operates a fleet of 18 vessels, including 1.9 million deadweight, with an average age of 5.9 years.
Please turn to slide 19. Navios Partners provides significant cash flow to Navios Holdings. Since its start of operations we have received more than $78 million in total distributions from Partners. In 2011 we received $25.6 million in distributions. This is more than 100% of Navios Holdings expected annual dividend including Navios Acquisition dividend.
Navios Holdings receives 133% of its expected annual dividend from its ownership in these two companies. In early May, Navios Partners completed the public offering raising gross proceeds of approximately $74 million.
Please turn to slide 20.
We have an approximate 54% economic interest in Navios Acquisition. Navios Acquisition's currently fleet consists of 29 tanker vessels totaling 3.3 million deadweight. Navios Acquisition currently has 15 vessels in the water with an average age of six years. We anticipate our newbuilding program for product tanker positions us to take advantage of favorable long-term industry dynamics.
Please turn to slide 21.
The Company is summarized on slide 21. Navios Acquisition has a large, modern, and diverse tanker fleet worth more than $1 billion. Navios Acquisition has long-term contracted revenue that is well above the Company's low operating breakeven. This cash flow can sustain Navios Acquisition for a long period in distressed market conditions.
Navios Acquisition has profit sharing agreements in many contracts. These agreements limit the downtime risk to the base rate and allow Navios Acquisition to enjoy the upside volatility. For example, profit sharing for Navios Acquisition's two chemical tankers came to approximately $2,400 per day per vessel on average over the last two quarters.
This concludes my presentation. I would now like to turn the call over to Ioannis Karyotis, Senior Vice President of Strategic Planning.
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Ioannis Karyotis, Navios Maritime Holdings - SVP, Strategic Planning [4]
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Thanks, Ted. As you can see on slides 22 and 23, Navios Holdings owns 63.8% stake in Navios South American Logistics.
Navios Logistics has three segments, each of which enjoys significant growth prospects. We seek long-term revenue from a diverse portfolio of high-quality clients. Our strategic relationships, investments, and the overall favorable export market fundamentals positions us well.
Slide 24 sets forth our recent developments. The new silo in Uruguay became operational in April 2012. Total storage capacity of the dry port consequently has increased by 100,000 metric tonnes to 460,000 metric tonnes.
We have already agreed to contract 100% of the storage capacity of the new silo to major global and internal commodity houses. We have also started the construction of the new conveyor belt that will increase vessel loading capacity by 60%. The new conveyor belt is expected to be operational in the first half of 2013.
We are successfully implementing our strategy to contract out our dry port capacity at fixed long-term contracts. At this moment, we have agreed to contract 94% of our storage capacity for 2012 and approximately 90% for an additional four years.
Turning to the barge business, in the beginning of the quarter a drought in the Hidrovia region prevented navigation in the Paraguay River. Although in the first quarter of 2012 transportation of cargo was effectively halted for about one-and-a-half months, this did not affect revenues from iron ore transportation that were earned on the basis of contracts with minimum guarantee quantities and time charter contracts.
In the cabotage business in May we extended the capital lease of two vessels, the San San H and the Stavroula, for four years. The two vessels were initially chartered-in for a two-year period expiring in June and July 2012, respectively. By expanding the bareboat charter-in contracts we deferred our purchase obligation under the original charters. In addition, we will continue to pay a favorable bareboat charter-in rate of $3,000 per vessel per day for four additional years.
Please turn to slide 25.
For Q1 2012 revenue increased by 15% compared to the same period last year to $50.1 million. EBITDA for Q1 2012 was $8.7 million, 9% lower compared to Q1 2011. Port terminals achieved a 51% increase in revenue attributable to increased volumes and prices in both our dry and liquid ports. The segment EBITDA increased by 44% to $5.4 million, mainly due to increased throughput and tariffs in our as dry port facility in Uruguay well as increased activity in our liquid port in Paraguay.
Barge business reported a 1% decrease in revenue, a 20% decrease in EBITDA to $1.8 million from $2.3 million in the first quarter of 2011. The increase in profitability in the iron ore transportation business that performed well on the back of new contracts was offset by a larger decrease in the liquid transportation business that was impacted from the difficulties in river navigation in the first half of the quarter due to the drought.
Cabotage business reported a 6% decrease in revenue while EBITDA decreased 56% to $1.5 million from $3.5 million in the first quarter of 2011. This occurred mainly due to off hires.
Interest expense and finance cost net in the first quarter increased to $4.9 million from $1.1 million for the same period in 2011 due to the interest expense associated with the senior notes issued in the second quarter of 2011. Depreciation and amortization expenses increased to $6.8 million as compared to $6.1 million in Q1 of 2011. This resulted in a net loss of $2.4 million in the first quarter of 2011 compared to a net income of $3.2 million in the same period last year.
Please turn to slide 26.
Slide 26 provides selected balance sheet data as of March 31, 2012. Navios Logistics had a strong balance sheet. At the end of Q1, cash and cash equivalents was $46.7 million compared to $40.5 million at the end of 2011.
It is worth mentioning that following the expansion of our capital leases discussed earlier, our related obligation now presented in the balance sheet as current will be reclassified as long-term liability as of the next quarter. Net debt to book capitalization was 34%, down from 35% at the end of 2011 and still conservative overall.
Now I would like to turn the call over to George Achniotis, Navios Holdings' Chief Financial Officer.
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George Achniotis, Navios Maritime Holdings - CFO [5]
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Please turn to slide 27 for the review of the financial highlights of the first quarter of 2012. As of March 31, 2011, Navios Acquisition was no longer consolidated into Navios Holdings. Therefore, for comparability purposes we present the consolidated earnings of Q1 2011 excluding Navios Acquisition.
EBITDA for the first quarter of 2012 was $62.6 million. This is 7% lower than the adjusted EBITDA for the same period of 2011 which was $67.5 million. EBITDA for the first quarter of 2011 was affected by two events.
The first was the deconsolidation of Navios Acquisition. On March 30, 2011, the effective date of the deconsolidation, our investment in M&A was fair valued and was compared to our initial acquisition cost. This resulted in a non-cash accounting loss of $35.3 million.
The second event was the refinancing in Q1 2011 of our $300 million bond due in 2014 with a new $350 million bond due in 2019. As a result of this refinancing, we are required to write it off; $15.6 million of extinguishment fees and $5.6 million of deferred fees.
The decrease in Q1 2012 EBITDA is mainly attributable to a 12.7% decrease in the time charter equivalent rate achieved compared to the TCE rate in Q1 2011. Despite the significant weakness in the market, we will still manage a TCE rate of $21,496 per day well above the market average. This reflects our proven charter-in strategy over the past few years.
The reduction was mitigated by a 3% increase in the available days of the fleet, mainly due to the delivery of three long-term charter-in vessels since the end of Q1 2011. Net income for the period was $9.5 million compared to adjusted net income of $19.8 million in Q1 2011.
Net income in 2011 was also affected by the two events that affected EBITDA. The $10.3 million reduction is mainly attributable to interest paid on the $200 million bond issued by Navios South American Logistics in the second quarter of 2011 and the reduction in EBITDA.
Please turn now to slide 28 where the balance sheet highlights are presented.
The cash balance, including restricted cash, as of March 31, 2012, remained high at $170 million. This reflects our strategy of maintaining a strong cash position in order to be able to take advantage of potential distressed transactions that may become available over the next few quarters.
On January 1, 2012, the subordinated units issued at the time of the IPO of Navios Partners were converted into common units. At the same time, the accounting treatment of these units changed and they are now reflected in the line, Investments and Affiliates, which increased to $191 million in (inaudible) investments in available for sale securities which decreased to $257,000.
Deposits for vessel acquisitions reduced to $35 million from $64 million at the end of December 2011 following the delivery of the Navios Centaurus at the end of March. The balance reduces to zero in Q2 with the delivery of Navios Avior.
Despite the delivery of two vessels in the quarter and the refinancing of the Navios Astra, the long-term debt, including the current portion, remained the same. This was due to our (inaudible) to deploy part of our cash to make early pre-payments on some of our facilities and maintain a low leverage. Net debt to book capitalization remained the same at 51% between the end of Q1 and the end of December 2011.
Turning to slide 29, the Company continues to provide a return to shareholders through its uninterrupted dividends. A dividend for the first quarter of 2012 of $0.06 was declared to common shareholders as of June 26 to be paid on July 3, 2012. Please note that the total cash dividend inflows from the two investments in Navios Partners and Navios Acquisition exceed the cash paid out by Navios Holdings to its shareholders.
This concludes my review of the financials. At this point, I turn the call back over to Angeliki for your closing remarks.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [6]
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Thank you, George. This completes our formal presentation. We will open the call to questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Christian Wetherbee, Citi.
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Christian Wetherbee, Citi - Analyst [2]
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Good morning. Just wanted to get your sense I guess, Angeliki, on kind of the market and the outlook that you would have over the course of the next year or so. We have seen this persistent weakness; you have a solid order book. When do you guys -- what is your internal projection as far as rates coming back a little bit?
And when you think about a potential rate increase what do you think the magnitude can be? Are we in a new normal of shipping rates that will be depressed for an extended period of time? I just wanted to get your sense on that.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [3]
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Chris, to be honest, this is difficult to know for how long, but the one issue that I can tell you is I think Q1 we saw a very depressed rate environment. I think we saw now rates stabilizing. We also saw S&P values and values of vessels stabilizing.
But (inaudible) have a weak summer which was seasonally low, but I don't think from where we are will see something substantially different on rates. I think a rate of retail level have more or less represent a situation. Now the full recovery, I would say that to see a substantial recovery it will rely, of course, on the scrapping rate which is going very nicely, and the deliveries.
But the most important issue, I think, will be also to see that how the growth in the US, which is stable at 2%; China is a little bit weaker growth but still a very nice growth. I think the most important issues to assess what is the European development. At this point in the world we have included a mild recession for Europe. If this substantially changes (technical difficulty) more for a long period.
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Christian Wetherbee, Citi - Analyst [4]
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Okay, that is helpful. Kind of along those lines, we know that European banks have not necessarily been lending to the shipping market kind of in mass for an extended period of time. But outside of your individual interactions with your lenders, which seem to be still fairly fluid have you seen anything in the last month or two that would suggest an incremental level of tightening of capital from these traditional lenders?
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [5]
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If you take -- apart from Navios, as we are very well positioned with a strong balance sheet, I think that, okay, there is some institutions that are financially strong and they can provide the lending. I think the majority of the rest of the banks are in a difficult position.
I think German banks are undergoing a cleanup. We have seen that -- you have seen it also in the (inaudible) news that they are going through a clean-up process and this will continue. Until the European [sovereignty] risk comes to close you will not see substantial changes in the banking market, because this is totally affecting -- the sovereignty crisis affects is directly related to the banking crisis. So unless these things you see a stabilizing of the European sovereignty crisis that this somehow comes to closure normalization you will not see the banking market also normalizing.
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Christian Wetherbee, Citi - Analyst [6]
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Okay, that is helpful. Then one final question just on the Navios Logistics side. I apologize if you went through this, but on the barging side of the business how has business been to date in 2Q? And, again, I apologize if you gave it, but I just wanted to get a sense of how the business has progressed coming out of some of that weakness that we saw earlier in 1Q.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [7]
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I think Ioannis mentioned this also in his speech, the one important and you can see really the strength of the contracts we have, the take-or-pay. Because of these new contracts of take-or-pay we had the ability, even with a very weak in -- it was a very weak level in the beginning of 2012 we show that we only had a 20% year-on-year variance on the barge business. So the new take-or-pay contracts really provide that.
The dry shipments provide a stability in this segment and I think this is a vindication of our strategy. I think this was a very important part and it provides us with a lot of stability.
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Christian Wetherbee, Citi - Analyst [8]
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Okay. But just as far as the activity that we have seen so far, have we seen a pick up? It sounds like the river conditions have improved somewhat from the first quarter. Is that the right way to think about it?
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [9]
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Yes, but the river has improved and you have flow of [liquids] and everything has been coming to a regular situation. But I think what was good to see that this, because of our new contracts, the take-or-pay or a time charters, it has not been a devastating event.
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Christian Wetherbee, Citi - Analyst [10]
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Okay, that is absolutely right. That is very helpful. Thank you very much for your time. I appreciate it.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [11]
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Thank you.
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Operator [12]
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Randy Laufman, Imperial Capital.
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Randy Laufman, Imperial Capital - Analyst [13]
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Hi, good morning. Just a couple of questions; wanted to ask about your strategy from a capital perspective going forward.
You highlighted in the presentation your ability and likelihood to generate free cash flow this year. You are kind of completing the last of your vessel acquisitions. As we look out to the back half of the year and asset values are still depressed, do you see the Company actively looking for opportunities to acquire assets at these depressed levels? Or do you think you might be in a cash flow preservation and debt pay down mode?
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [14]
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I think our ratios are in a good level. We have a liquidity of $223 million. We have fully completed with Navios Avior that we got delivery yesterday. We have completed that newbuilding program, so I think we are in the position to look for new opportunities. Of course, in a usual conservative way.
Because of the banking crisis in Europe there will be -- we know that portfolios will have to be cleaned up and the bank loan portfolios will be rationalized, so we are in the process of assessing opportunities. I think our level -- we are not going to jeopardize our balance sheet but in today's values today's earnings makes sense. So we are willing to, of course, put some of this money in use conservatively without jeopardizing anything of our financial strength.
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Randy Laufman, Imperial Capital - Analyst [15]
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Okay, great. Thank you for that color. Then also wanted to bring up the recent equity raise at Navios Partners and wondering if you could comment on potential dropdowns going forward given that they have some new capital at that entity.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [16]
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Navios Holdings earnings presentation, so we cannot comment on raisings.
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Randy Laufman, Imperial Capital - Analyst [17]
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It obviously has an impact on Navios Holdings if you were to dropdown those assets, so I mean is that -- you have some in your fleet that would technically qualify. I guess, do you still view that as a vehicle to raise capital for Holdings?
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [18]
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This will be up to the Board of Navios Partners to view opportunities and decide on what they would like to do. So I mean you have seen that prudently whatever is done -- any deal that will be done will be something that will have to be approved by independent Boards, by the independent members of the Board. So I don't think I can comment on this.
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Randy Laufman, Imperial Capital - Analyst [19]
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Okay, fair enough. Thank you very much.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [20]
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Thank you.
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Operator [21]
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Natasha Boyden, Global Hunter.
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Natasha Boyden, Global Hunter Securities - Analyst [22]
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Thank you, operator. Good morning, everybody.
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Natasha Boyden, Global Hunter Securities - Analyst [23]
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I just wanted to ask you, Angeliki, given the state of the shipping environment and how depressed it has been, what kind of distressed assets is Navios Holdings being presented with. And I am assuming that you are given the size and scope of the Company.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [24]
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I think the environment is now shaping up. I think you will see not only vessels, we saw single vessels now beaten by a five-year-old Panamax having eight entities going after. But now you will see -- what we are seeing is also that large banks have decided to be more realistic about market values and look at disposing of these portfolios and this has been in the news.
I think this is an inevitable part. To be honest, we were looking in 2011 and 2012 is inevitably here as part of also the scenario of portfolio [of assets] that are coming out.
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Natasha Boyden, Global Hunter Securities - Analyst [25]
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So you are saying you are actually seeing fleets of vessels being offered as opposed to single entities now?
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [26]
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Yes.
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Natasha Boyden, Global Hunter Securities - Analyst [27]
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Okay. And what is sort of your take on that? I mean are there other attractive fleets out there that Navios would look out or would you prefer to still buy single entities?
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [28]
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I think it's a matter of value and a matter of earning capacity. I mean you have to be a disciplined buyer, so (inaudible) is irrelevant one or the other. But the reality is what is substantial, important is that you see now fleet of vessels that are coming at reasonable market values and that is important.
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Natasha Boyden, Global Hunter Securities - Analyst [29]
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Right, right, right. Okay. And then just lastly, obviously you have got significant amount of coverage for this year and that does pull back a fair amount next year. What level do rates have to get to before you really start actively fixing out the fleet for more than sort of a one year or six to one year, month to one year time charter?
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [30]
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Substantially higher than now. I think, Natasha, you know the Navios Group well and you have seen that we are not shy of fixing a vessel for three-, five-, and 10-year periods. The issues that we like to see are really healthy margins.
In today's market it will be unreasonable from a point of our shareholders to fix in the longer term, because if you are in low levels of the chartering market so why you should go longer. The downside risk from where we are is very limited, so you are trying to have the rechartering opportunity to be within six months to a year.
But we are not shy if we see healthy margins, and if we see markets recovering to do longer periods. We like the portfolio growth. We have been doing it for a very long time and this is the way we view the world.
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Natasha Boyden, Global Hunter Securities - Analyst [31]
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Okay, great. Thank you very much.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [32]
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Thank you.
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Operator [33]
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At this time there are no further questions. I will now return the floor to Angeliki Frangou for any closing remarks.
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Angeliki Frangou, Navios Maritime Holdings - Chairman & CEO [34]
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Thank you. This completes our first-quarter results. Thank you.
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Operator [35]
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Thank you for participating in today's conference call. You may now disconnect your lines. Thank you and have a great day.
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