The company reports results across three segments: Drybulk Vessel Operations (64% of 1H FY2011 revenue), Logistics Business (about 29% of 1H FY2011 revenue), and Tanker Vessel Operations (about 7% of 1H FY2011 revenue). The Drybulk Vessel Operations business consists of transportation and handling of bulk cargoes through ownership, operation and trading of vessels, freight and forward freight agreements. The Tanker Vessel Operations business consists of transportation and handling of liquid cargoes through ownership, operation, and trading of tanker vessels. The Logistics business consists of operating ports and transfer station terminals, handling of vessels, barges and push boats, as well as upriver transport facilities.
The shipping industry is going through transition at a time when there is healthy underlying demand for mineral and grain commodities and crude oil globally. Navios has benefited from the continued demand for commodities from the urbanization of emerging markets.
Demand Recovery, Capacity Growth
Demand for drybulk commodity transportation is arguably driven by perceived economic growth (commodity producers anticipating where demand will materialize). Therefore, as the global macroeconomic picture improves following the 2008 recession, it seems reasonable to conclude that demand for drybulk transportation will also improve.
Drybulk commodity transportation is a capital-intensive business; ships are expensive and the payback period can be lengthy. Therefore, to increase capacity (either via purchase or charter), shipping companies need access to capital. Traditionally, banks have been the source for financing for European companies, but it could be argued that European banks' willingness and ability to lend was negatively impacted by the 2008 financial crisis. The company commented that its ability to secure financing through subsidiary NMM could be a competitive advantage if capital continues to be scarce for newbuild financing.
Another avenue for financing capacity expansion is cash on the balance sheet. The company's cash situation has been on an improving trend from 2009 - 2010. The company reported 207.4 million dollars of unrestricted cash for FY 2010, vs. 173.9 million dollars in FY 2009 and 113.6 million dollars in FY 2008.
Aside from exposure to the dynamics of the drybulk commodity transportation market, Navios also has exposure to the South American logistics business through Navios South American Logistics (NSAL). The company plans to continue capital investments to expand terminals, add barges and increase market share. Although the company did not offer a capex schedule, it referenced grain, iron ore, and minerals as key areas for future projects. The main driver behind the expected growth was demand from China.
Revenue increased +2.1% YoY to 173.8 million dollars.
Gross profit (revenues less time charter, voyage, and port terminal expenses as well as direct vessel expenses) fell 2.8% YoY and gross profit margin fell to 41.7% vs 43.8% in Q3 FY 2010.
Income Before Affiliates increased +75.2% YoY to 7.7 million dollars; a nearly 40% reduction in general and administrative expenses was the key factor in the YoY growth.
Net income grew +11.3% YoY to 16.3 million dollars, and the net profit margin was 9.4% (vs. 8.6% in Q3 FY 2010). Although equity in net earnings of affiliated companies declined 17.7% YoY, performance at the parent company level (income before affiliates) drove net income growth.
Fleet - 56 vessels (43 in operation), approximately 5.8 million dwt . Including expected deliveries, the fleet comprised 30 owned vessels and 26 chartered-in. The operating fleet average age was 5.0 years.
Key Financial Data
Revenue increased to 347.1 million dollars (+8.5% YoY).
Gross profit (revenues less time charter, voyage, and port terminal expenses as well as direct vessel expenses) was 159.7 million dollars (+22.9% YoY). Gross profit margin improved to 46.0% vs. 40.6% in 1H FY2010. Time charter, voyage, and port terminal expenses declined YoY due to lower fleet activity. Direct vessel expenses increased +59.5% YoY, mainly due to operating expenses for new vessels leased by Navios Logistics.
Income Before Affiliates was -0.6 million dollars vs. 57.8 million dollars in 1H FY2010. The decrease in income was related to deconsolidation of Navios Acquisition (accounting charge of 35 million dollars) and charges related to extinguishing debt (21 million dollars).
Net Income was 14.0 million dollars (-82.2% YoY). The decrease was due to change in control and bond extinguishment accounting charges.
Fleet - 56 vessels (43 in operation). Including expected deliveries, the fleet comprised 29 owned vessels and 27 chartered-in; average age of 5.0 years.
Key Financial Data
Revenue increased to 680.0 million dollars (+13.6% YoY).
Gross profit (revenues less time charter, voyage, and port terminal expenses as well as direct vessel expenses) was 296.3 million dollars (+38.8% YoY). Gross profit margin improved to 43.6% vs. 35.6% in FY2009. Although time charter, voyage, and logistics business expense declined YoY, direct vessel expenses increased due to an increase in ownership days following delivery of owned vessels.
Income Before Affiliates was 105.0 million dollars (+161.6% YoY). The increase was due to technical accounting details: a gains on sale of assets (55.4 million dollars) and a change in control gain (17.7 million dollars).
Net income was145.3 million dollars (+104.7% YoY), and net profit margin increased to 21.4% vs. 11.9% in 2009. The improvements in net income and margin were due largely to gains in Income Before Affiliates, however increases in earnings of affiliate companies also contributed.
Fleet - 57 vessels (30 owned, 27 chartered-in), with an average age of 4.7 years. The company noted that it's average vessel age of 4.7 years was less than the industry average of over 20 years.
Drybulk Vessel Operations (64% of 1H FY2011 revenue)
As of 1H FY2011, the company's fleet comprised 56 vessels totaling 5.9 million dwt (including newbuild ships expected to be delivered), with an average age of 5.0 years. The company purchases vessels as well as secures long-term charters from vessel owners, but as of 1H FY2011, the fleet was mostly owned by Navios.
The company typically tries to secure long-term charter-in and charter-out agreements with both its suppliers (vessel owners) and its customers. Additionally, Navios typically obtains insurance on the contracts with customers, thereby limiting non-payment risk from customers.
Logistics Business (29% of 1H FY2011 revenue)
The company's Logistics Business is geographically focused on South America. The Logistics Business comprises three areas: Port Terminal Operations, Barge Business, and Cabotage Business.
Tanker Vessel Operations (7% of 1H FY2011 revenue)
This segment was discontinued by the company on June 30, 2011 following the deconsolidation of Navios Acquisition. 
Navios' core business is its Drybulk Vessel Operations segment. Revenues in this segment are a function of days that ships are available for hire and the contracted rate per day. Days available for hire is a function of the vessel's age as well as other factors (older vessels typically have higher maintenance and upgrade costs vs. newer vessels). The daily rate customers pay can be impacted by the length of the charter, the age of the vessel (newer vessels are typically more fuel efficient and can have lower operating costs), and other market conditions. The company takes an active approach to secure long-term agreements with customers to minimize the volatility of spot rates when management considers it appropriate.
The company indicated that typically it tries to secure 75% of revenues for the upcoming year, and 50% for the following year, and adjusts the mix of contracted vs. spot rates as the year progresses.
|Contracted Revenue |
Costs include commissions on charters, vessel operating expenses (crew, insurance, maintenance), and financing (or charter-in) expenses.
Therefore, profitability is driven by fleet utilization and securing the best rates possible.
Navios' fleet is financed with a mix of bank loans and bonds. As of 1H FY2011, the company had total debt of approximately 1.5 billion dollars.
The refinancing needs are shown below:
The main companies in the Navios Group include the following (as of 1H FY2011):
Economic growth causes demand for all ranges of inputs to increase. Population growth causes demand for food and electricity generation materials to increase. Infrastructure growth causes demand for steel and ore to increase. Increases in any of these causes increases in dry bulk trade. If there are more buyers (companies who need to move the materials) coming to the market, the sellers (companies like Navios who possess dry bulk vessels) can demand higher rates to move the necessary cargo.
Most of Navios' competitors offer very similar services. However, all of them operate largely in specific regions and thus are dependent on both global and region-specific economy.