TBS International Q1 2009 Earnings Call Transcript

TBS International Ltd. (TBSI)

Q1 2009 Earnings Call

May 07, 2009 10:00 AM ET

Executives

Ferdinand V. Lepere - Executive Vice President and Chief Financial Officer

Joseph E. Royce - President, Chief Executive Officer, Chairman and Director

Analysts

Omar Nokta - Dahlman Rose & Co.

Presentation

Operator

Welcome to the TBS International Limited First Quarter 2009 Financial Results Conference Call. We have with us Mr. Joseph Royce, Chairman, President and CEO and Mr. Fred Lepere, Executive Vice President and Chief Financial Officer of the company.

At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions).

The conference call will also be webcast live, audio and slideshow on the Investor Relations section of the company's website, www.tbsship.com by clicking on the webcast banner. I must advise you that this conference is being recorded today, Thursday, May 7,2009.

We now pass the floor to one of your speakers today, Mr. Fred Lepere. Please go ahead, Mr. Lepere.

Ferdinand V. Lepere

Thank you. Well good morning and thank you for joining TBS International Limited's quarterly conference call.

The purpose of today's call is to discuss the results of TBS's first quarter ended March 31, 2009. Yesterday, we issued a press release after the close of the stock market in New York with financial and operational information for the first quarter.

If you have not received this release you may log onto our website at www.tbsship.com and navigate to the Investor Relations page, or you can call Capital Link at area code 212-661-7566. We will also post the transcript of this call on our website once it's been prepared.

Our remarks today will be followed by a question-and-answer session. For those of you who want to follow our slide presentation, please go to the TBS website, which again is www.tbsship.com, and click on the webcast link.

Note that the slides are user controlled. Those of you who want to follow the webcast, please click on the arrow at the bottom of the webcast screen to make the slides turn. Also please note that the webcast will be archived on our website.

Now, I'd like you to please turn to slide number one. This slide refers to forward-looking statements. During the course of this conference call, we may make forward-looking statements. Such statements are just predictions and involve risks and uncertainties such that actual results may differ materially.

I'd like to refer you to our filings with the Securities and Exchange Commission, in particular our quarterly reports on Form 10-Q and our annual reports on Form 10-K. These documents contain and identify important factors that could cause the actual results to differ materially from those expressed in these forward-looking statements.

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And with that, I'd like to introduce Joseph Royce, our Chairman, CEO and President.

Joseph E. Royce

Thank you, Fred. Good morning everyone and welcome to TBS International conference call for the results of the first quarter ended March 31, 2009.

You will forgive us, if this first quarter presentation, appears to be repetitious of the fourth quarter 2008 presentation we made April 1st. But conditions in the dry cargo markets have little changed in the intervening five weeks.

We will begin our presentation with slide number two, the challenges of the first quarter 2009. We are in the midst of a very challenging time for TBS and the dry cargo shipping industry. Since the last quarter of 2008, we have been experiencing a dramatic decline in the global economy, and we now operate in a completely different financial and economic environment, without clear visibility, as to when the turmoil will end.

The near term effects of this dramatic decline has been devastating on the dry cargo shipping industry. The freezing of the credit markets, the diminished availability of letters of credit which are the traditional, financial mechanisms of global trade and the resulting severe global recession have caused a significant decrease in the volume of cargo transported, thereby affecting freight rates, vessel utilization and asset values.

As a result, freight rates collapsed, as indicated by the bulk of dry index, which declined by 95% from its high value of 11,793 on May 20, 2008, to a low of 663 by December 5, 2008. Since then, the index has modestly recovered to 1,897 as of May 5, 2009.

Asset values in the sale and purchase market have dropped substantially from their spring-summer 2008 highs. Revenues, earnings and cash flows for the shipping industry are under significant pressure and are expected to continue to suffer during 2009.

TBS has not been immune to these conditions and for the first three months of 2009, our revenues and EBITDA declined significantly and we experienced a net loss of $21.3 million or $0.71 per share.

We expect that for the second quarter of 2009, there would be a slight upward modulation of these conditions, as cargo volumes and freight rates are beginning to show improvement.

Now let's turn to slide number three, TBS's business focus. In the current environment, we are staying the course to safeguard the value we have created and remain alert to new opportunities that may arise.

At TBS, our strongest asset is our worldwide team of shipping professionals. We have fully staffed affiliate agencies and representative offices on five continents. We offer a unique Five-Star Service consisting of Ocean Transportation, Logistics, Port Services, Operations and Strategic Planning.

We implement this Five Star Service with our fleet of 47 owned or controlled vessels consisting of 23 handymax and handysize bulk carriers and 24 multipurpose tweendeckers, one of which the motor vessel Zia Belle has two 150 ton cranes combinable to 300 tons. Multi-purpose Tweendeckers are an important segment of the TBS fleet.

We are proceeding with our plans to complete construction of the six Roymar Class 34,000 total dead-weight multi-purpose tweendeckers that were contracted in February 2007. We expect to receive delivery of the motor vessel Rockaway Belle, the first vessel in this series, in June.

With our Five Star Service and our team of approximately 300 dedicated employees throughout the world, we are able to provide complete logistics and transportation solutions for our customers. We believe that this value-added approach combined with our efficient and reliable service will serve TBS well through the challenging times we will face in 2009.

Now slide four, looking forward. Turning an eye towards the future, we expect to see some balance returning to the supply and demand of the handysize handymax dry bulk vessels. Scrapping of all the vessels has accelerated, new building orders are being cancelled, and many ships have been laid up and will likely never return to trading.

On the demand side of the equation, China, India and South America remain the main drivers in the dry cargo industry. These countries are expected to achieve positive growth in 2009 despite the slowdown caused by the recent crisis.

According to Clarkson's statistics, China is expected to grow by approximately 6.7% and India by 5.1% in 2009. This growth reflects their continued infrastructure development which requires imports of core commodities and project goods.

Our view of the dry cargo market environment for the second half of 2009 is that it will continue to be challenging. Despite the lack of visibility, we are cautiously optimistic for a gradual return to a more normalized market conditions.

Urbanization and core economic development which have been the prevalent trends in developing economies around the world and especially in China, India and South America, may temporarily slow down but we believe they are irreversible.

The concerted efforts of governments around the world to inject liquidity into the credit markets and to implement stimulus programs aimed mainly at infrastructure development should eventually result in increased dry cargo movements. Accordingly, we are positioning TBS to move quickly to participate in any economic recovery and to take advantage of new opportunities that may arise.

Now, I'd like to turn the floor over to Fred Lepere, our Executive Vice President and Chief Financial Officer.

Ferdinand V. Lepere

Thank you, Joe. We should now all be on slide number five.

This slide summarizes our first quarter 2009 operating and financial highlights. For the first quarter ended March 31, 2009, total revenues were $71.2 million, a decrease of 46% over the same period in 2008.

Voyage revenues for the three months ended march 31, 2009 were $64.5 million, a decrease of 34% from the $98.2 million during the same period in 2008. Time charter revenues in the first quarter of 2009, decreased by $26.5 million or 81% to $6.2 million from $32.7 million for the three months ended March 31, 2008.

Our net loss for the first quarter 2009 was $21.3 million as compared to a net profit of $45.4 million during the same period last year.

EBITDA which is a non-GAAP measure was $4.9 million for the first quarter of 2009, a decrease of 92% over the same period in 2008. A reconciliation of EBITDA is provided in the appendix of this presentation.

Earnings per share on a basic and diluted basis for the first quarter of 2009 was a loss of $0.71 as compared to the earnings per share of $1.61 for the first quarter of last year.

Taking into account the current market conditions, we have decided to cut back on our accelerated maintenance program and we'll be making only necessary maintenance related capital expenditures in 2009.

We drydocked nine vessels in the first quarter 2009 that included one vessel that had entered in to drydock during the fourth quarter of 2008, for 154 drydocking days in total.

Please now turn to slide number six. This slide demonstrates the revenue metrics of our business for the first quarter of 2009. We begin with our voyage revenues. During the first quarter of 2009, we operated 35 vessels in our Freight Voyage business and had 3,116 freight voyage days, as compared to 26 vessels and 2,375 freight voyage days in the first quarter of 2008.

As you can see on this slide, during the first quarter of 2009, despite the turmoil in the market, we had a 5% increase in tons of cargo shipped and a 16% increase in the tons of cargo shipped excluding aggregates.

Our average revenue per ton decreased however, by 37% to $30.04 per ton in the first quarter of 2009.

We now turn to our time charter revenues on the same slide. Our average daily time charter equivalent for this business was $5947 per day in the first quarter of 2009, a decrease of 80% from the $30,339 per day during the same period of 2008. This is indicative of the decrease in charter hire rates, due to the collapse in the worldwide shipping markets.

Please now turn to the slide number seven. This slide provides the highlights of our consolidated balance sheet. At the end of the first quarter, March 31, 2009 our net debt to capitalization ratio stood at 32.4%. Our cash balances at the end of March 2009, were $51.9 million, plus $20 million in restricted cash that will be used to make payments to the yard, as construction milestones are reached in our new building program.

The decrease in cash compared to year-end December 31, 2008, is due to the pre payment of loan principal made in connection with the loan modification and covenant waivers obtained in March 2009.

We have now reached the end of our presentation. The slide in the appendix provide our EBITDA reconciliation and additional information on our business model, our trade routes, our fleet and our global network. Please take a look at them at your convenience. We thank you for your interest in and support of our company and I would like to open the conference call to questions from our investors.

Operator, please open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Omar Nokta of Dahlman Rose.

Omar Nokta - Dahlman Rose & Co.

Good morning. Hi Joe and Fred.

Joseph Royce

Good morning.

Ferdinand Lepere

Good morning, Omar.

Omar Nokta - Dahlman Rose & Co.

I just wanted to get a sense on, just the cargo volumes during the first quarter. I know you showed that, I think volumes were about nearly 1.2 million. It looks like they are sequentially down from the 1.5 in the forth quarter. I just want to get a sense, was that something that was exacerbated by the drydocking? Or was there may be a utilization issue during the quarter?

Joseph Royce

Well, it was exacerbated by the crisis. Being one of the areas that we've been hit, obviously it started at the end of last year whereas in the volumes especially in steel. Steel is a big part of our business, it is the core of our east coast South America liner of service, TLA service, and just there was an overall reduction in volumes, steel being the leader, as a result of the crisis and the credit problems.

What we are starting to see today, is that slowly these volumes are starting to come back. I just spent three weeks, close to three weeks in South America, visiting all our offices and talking to our major customers. And when you look at South America, divided from the east coast, into the east coast and west coast, on the east coast of South America, we were talking to our steel shippers and they were all complaining, there were certainly suffering as a result of the crisis. They were complaining about the prices.

But the one thing that was starting to show life was an increase in volumes. We used to have three to five sailings a month prior to the crisis and in -- out of the east coast of South America, Brazil in January, we had one sailing, February we had two, and we had three sailings in March and we are experiencing now three sailings through April and it also looks like we'll have three sailings in May.

So the volumes are starting to come back. We're seeing more request from our customers, our core customers for quotes as we look into the future. And I think the trend here is that the volumes come back and the rates follow.

Now we go to the west coast of South America, and there, our business, at the best part of the world is basically in the minerals and metals. And there, the volumes have been increasing on a steady basis, pretty much from February onwards.

Traditionally we sit with all our customers, in any given year in November, December and discuss contracts going forward. Obviously, this year was different because of the crisis and instead of talking contracts, people just were not comfortable, and we were doing voyage-by-voyage but in February, two of our major long-term suppliers of copper, stepped up for contracts for the balance of the year.

And the interesting thing about the contracts, they were a little bit conservative on the overall volumes but their expectations and again this was back in the February when we concluded these contracts, was that they expect the volumes to grow as the year progress and we're starting to see that.

So when you look at what's happening at least from our view, and especially a large volume of this, a large volume is these metals are going into China. The Chinese stimulus program is a reality.

We are seeing it in the market. We are seeing it on the big ships obviously with the increase in the iron ore but we are also seeing it the increased volumes of minerals and metals from our traditional suppliers in South America. And it's also being reflected in the commodity prices, in the price of copper which took -- about three weeks ago, it took a solid step forward.

So, I think as we look forward, we're going to start to see our volumes slowly increase, what I feel on a steady basis and we're seeing it now and we'll see it much more in the second half of the year and then it becomes a question of getting back into balance.

I think that's the big thing with us here at TBS right now. The crisis, with the problems that it caused to our lines at balances, at a balance and now we're slowing getting back into balance and it will be reflected as we look forward into the future.

Omar Nokta - Dahlman Rose & Co.

Okay and then I guess, as that would, as the consistency continues and potentially increases the volumes, you're saying, that you'll probably start seeing some period activity as well, maybe over -- maybe during the second half? Or is it too early to make the case that could start now?

Joseph Royce

Well I'm trying to be cautiously optimistic. I think that we are in a much better place in the second quarter than we were in the first quarter, at least the way customers are looking forward and this is good news, and but I think everybody is cautious. And I think that's going to be the trend as we look forward towards the balance of the year.

People are going to be cautious but we're starting to see more inquiry, we're starting to see more cargo being moved and I think this whole system has to be built-up and you'll probably see it on a month-by-month basis.

I don't think that the world is taking two steps forward and one step back, like that we're taking right now. We're stepping a half forward and maybe a step back every now and then. But we're going in the right direction.

Omar Nokta - Dahlman Rose & Co.

Okay. And just to double check, basically the weakness in the first quarter was front-end loaded and then as we got to March, your volumes started to pick up a little bit and we should probably use maybe the March month as a basis going forward for what to expect for 2Q?

Joseph Royce

Well again, I want to be cautious on all of this. I mean we're starting to see trends. I don't want to make definite statements on how these trends will come through. I think that we're starting to see a positive movement in our volumes. I think the second quarter and we're only into really the first month. I'd like to give it a little bit of time. But again we are cautiously optimistic.

Omar Nokta - Dahlman Rose & Co.

Okay. That's very helpful. Thank you so much.

Joseph Royce

You're welcome.

Operator

(Operator Instructions). And you have no questions at this time. I will now turn the call back over to Mr. Joseph Royce for closing remarks.

Joseph Royce

Thank you. Again, we would like to thank everyone and again for your interest and support and look forward to our next conference call for the second quarter 2009 results. And I would like to wish everybody a nice day. Thank you, operator.

Operator

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect.

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