Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Ultrapetrol (Bahamas) Limited (NASDAQ:ULTR)

Q3 2009 Earnings Call

November 11, 2009 10:00 am ET

Executives

Len Hoskinson - Chief Financial Officer

Felipe Menendez - President and Chief Executive Officer

Analysts

Ben Nolan - Jefferies & Company

Jamie Nicholson - Credit Suisse

[Claire Caroka] - Raymond James

Marc Lebensfeld - Newland Capital

Ira Socket - Socket and Company

Operator

Good morning, everyone. Thank you all for standing by, and welcome to today's conference call. (Operator Instructions)

I will now turn the conference over to Len Hoskinson, CFO of Ultrapetrol. Sir, you may proceed.

Len Hoskinson

Thank you. good morning, everyone. Thank you for joining us. Welcome to the Ultrapetrol (Bahamas) Limited conference call to discuss the company's 2009 third quarter earnings.

I would like to remind everyone that this conference call is now being webcast at the company's website, www.Ultrapetrol.net. There are also additional materials related to our earnings announcement on our website, including a slide presentation which forms part of this conference call.

You should be aware that in today's conference call we will be making certain forward-looking statements to discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statement. For a discussion of factors that could cause results to differ please see the company's press release that was issued yesterday and the company's filings with the Securities and Exchange Commission, including without limitation the company's annual reports on Form 20-F for the year ending December 31, 2008 or Form 6-K for the third quarter of 2009 that was filed yesterday as well as Page 2 of the slide presentation that shortly follows.

With me today is Felipe Menendez, Ultrapetrol's President and Chief Executive Officer. Felipe will review Ultrapetrol's business segments as well as discuss our industry and future growth opportunities. I'll take you through the CapEx plan and the financials, and after our remarks we will be happy to take your questions.

So with that, I will hand the proceedings over to Felipe.

Felipe Menendez

Thank you, Len. Good morning, everyone, and thank you for joining us on the call today. In order to make the best use of materials that we have filed together with our press release, as we go along we will reference the slide number that corresponds to the information that we are discussing.

In Slide 3 you will find a summary of our third quarter results 2009 compared to the equivalent period in 2008. The adjusted EBITDA for the period is $15.8 million, which compares $30.5 million in the same period of 2008, while the adjusted net income and earnings per share in the third quarter of 2009 are a negative $0.8 million and negative $0.03 per share respectively, which compare to $11.1 million and $0.34 per share in the third quarter of 2008.

As we go through the results of the various segments you will notice that broadly speaking this difference between the third quarter EBITDA in both periods of approximately $11 million results from a difference of about $3.7 million in our River segment results, $4.7 million in our Offshore Supply Business and about $7.3 million in our Ocean Business counterbalanced by several factors, including our non-discontinued Passenger Vessel operation.

On the right-hand side of the table you will find a similar comparison of the first nine months of 2009 and the equivalent period in 2008, where our adjusted EBITDA and EPS have been $51 million and $0.10 per share compared with $82 million and $0.94 per share in the equivalent period of 2008.

As in previous quarters, we adjust our reported EBITDA and net income for the effect of a provision for income taxes for unrealized gains resulting from exchange variances in our Brazilian subsidiary. In addition, this quarter we have made an adjustment to deduct the effect of a non-cash $1.5 million provision charged against the quarter results for the possible penalty that may be incurred on account of the late delivery of UP Rubi under her new long-term employment with Petrobras. The provision in fact relates to the four-year contract that we have secured for the vessel and it may be paid month by month over the four-year period, but the loss is reflected completely in this third quarter.

During the quarter we signed with BNDES in Brazil an $18.7 million loan for a 17-year term at a fixed interest rate of 3% per annum. We have similarly signed an agreement for which DVB will provide a guarantee to this loan. We have ended the third quarter with approximately $41.9 million in cash.

Now turning to Slide 5, you will find the quarter-on-quarter comparison of our River results. As you can see, the volume loaded in the second quarter of 2009 was approximately 36% lower than the equivalent volume in 2008. Much as we anticipated in our second quarter call, the majority of this difference come from a significantly smaller quantity of soybeans and agricultural commodities shipped during the third quarter of 2009 because of the extreme drought that the entire region has experienced in 2009.

As you can see in the right-hand column, our revenues and fuel expense compared to the same period in 2008 reduced more than proportionately to the volumes carried. The main reason for this is, of course, the reduction in fuel prices experienced during the period which adjust our freights automatically, leaving us neutral to the variation in the price of fuel. As you can see, however, the fuel expense reduced even further as a result of a better overall consumption efficiency achieved despite the very low volumes of cargo available.

We have also been able to reduce our running cost and our G&A by 27% and 21% respectively this quarter through a companywide cost-cutting effort. While larger volumes permit an efficient absorption of our fixed costs, consequently increasing our EBITDA margin, a temporary shrinkage of the total available volume has the opposite effect.

Overall, the quarter-on-quarter comparison indicates that revenues experienced a reduction of approximately $18.2 million while this segment EBITDA in the quarter reduced by $3.7 million.

In Slide 6 we have a detailed analysis of revenues and costs per ton for the third quarter and the first nine months of 2009. As you can see in the box at the top, the average freight rate in our River Business diminished by approximately $6.62 or 21.8% in nominal terms.

Really, the effect of the fuel adjustment formulas contained in all of our contracts - which increase or decrease the value of our freight in accordance with the variation of the price of fuel, leaving us indifferent to fuel price fluctuations - produced a reduction quarter-on-quarter of $4.64. So in real terms our average freight rate per ton for the period decreased in the quarter by $1.98 from the same period a year ago. This variation is mostly due to cargo mix since despite much lower volumes available for shipment, rates have not really dropped in any substantial way.

If you look at the same numbers in the context of the nine months, however, as shown on the right-hand side of the page, you will see that the average freight rates in 2009 are only $0.86 lower per metric ton than the equivalent averages in 2008.

In the box at the bottom of this slide you can see the effect of the reduced volume as we discussed in the previous slide over our expense items. Our voyage expenses other than fuel decreased by $0.46. Our running costs, which include a high fixed component of salaries, however, increased by $1.15 per ton. The combined effect from the quarter was then an increase of $0.69 per ton for the third quarter, which we believe is the successful result of a conscious effort by everybody in the company to cut fixed costs wherever possible.

Again, in the first nine months the accumulated result is an average fixed cost increase of $1.85 or 16%, which is substantially below the tendency which we had experienced in the first and second quarter, where period-on-period cost increases had reached 38%.

Turning to Slide 7, much as we anticipated in our last call the effects of the drought that the region has experienced - the worst in 70 years - has been quite devastating to the production of soybeans as well as most other agricultural commodities. As we have shown on previous occasions, in the bar chart at the top of this slide according to USDA the Paraguayan soybean production, which is shown here as a proxy for the soybean River volume for 2009, is expected to be 47% lower than it's originally been estimated. Private estimates and export statistics indicate that the total production could be even lower.

This extremely small crop has coupled with a lower than normal iron ore export through the River in the first nine months of 2009 and, while volumes had recovered somewhat in the third quarter, now the very low drop in the Paraguay River due to the seasonal low water period, which this year is exacerbated due to the drought, has effectively paralyzed iron ore shipments in the fourth quarter in this sector of the river. As a consequence of this, our volume for the year end will be even lower than anticipated, resulting in a reduction of about $1.5 million from our previous estimate of $3.5 million EBITDA from this segment in the year.

Rainfall so far in the early part of the seeding season has been abundant, and the USDA estimates of the seeded area and total production for 2010 are similar to those actually achieved in 2008, with which we expect full utilization of our fleet in the year to come.

Turning to Slide 8 and having a look at what our strategy is for the 2010 year, we are focused on trying to ensure the best operational capacity for the fleet in expectation of a normalized crop next year. We have continued our re-engining program throughout the quarter. Zonda I, the most powerful pushboat in South America powered with engines that consume heavy fuel instead of diesel, is in its final stages of construction and it is expected to be in service early in the first quarter of 2010.

The similarly-powered [Frontier I] is currently under conversion, and we have received in the third quarter the new engines for two more pushboats. We have continued this planned re-bottoming program, which is aimed at placing our entire fleet in the best operational condition for 2010. Our barge construction yard has commenced welding on a trial basis this week, and we expect to e in full production before the end of the year. Those of you looking at Slide 8 now may be able to see an updated picture of the yard in its present state.

The result of this preparatory work, with normal rainfall as we are currently experiencing, should be a high degree of efficiency in a good volume scenario which combined we expect would produce strong financial results for this segment in our overall results in 2010.

In Slide 10 you will find the quarter-on-quarter comparison of our Offshore Supply Business. As you can see, the Offshore adjusted segment EBITDA for the third quarter was $1.1 million compared to $5.8 million in the same period of the previous year.

We received from the yard in Brazil our sixth PSV vessel, the UP Rubi, on August 7th. As we had announced, this vessel was delivered to Petrobras under a profitable four-year time charter at approximately $34,000 per day. In connection with this charter, this quarter we charged our results with a $1.5 million provision related to a possible late delivery penalty under the contract. This charge, as explained, if finally applicable, may be paid in installments through the full term of the contract; however, the loss is recorded entirely in this quarter. We have therefore adjusted the quarter EBITDA to correct this factor.

We have also positioned our UP Topazio in this quarter from the North Sea to Brazil to commence a three-year time charter with Petrobras. The time lost while the ship was being re-registered in Brazil meant a loss of earnings equivalent to almost half of the quarter on this vessel, which is of course not a repeatable incident looking forward. UP Agua-Marinha and UP Diamante have also entered into long-term charters with Petrobras at rates that exceed their current averages earned in Brazil.

Turning to Slide 11, as we explained in our previous slide, we repositioned one ship from the North Sea to Brazil and all four vessels that operate in Brazil have been contracted to Petrobras for three years or more at rates well in excess of the average obtained by the same ships up to now.

At the bottom right side of this slide you will find a comparative bar chart of the daily average time charter earnings of our vessels that operated in Brazil and in the North Sea in the third quarter of 2009 versus the same period in 2008. As you can see, the vessels that operated in Brazil obtained an average charter in excess of $24,500 per day, which is slightly above what they obtained in the same period of last year. As explained, now these ships have been fixed forward at improved rates of approximately $29,000 per day and therefore their earnings will be stronger in the future.

Daily rates in the North Sea, however, have generally been softer in 2009, when the financial crisis reduced the spot demand in some sectors, creating a temporary excess capacity in the spot market. This effect is clear when you compare the average earnings of approximately $8,500 this quarter with $31,400 per day produced by the same ships a year ago.

We are currently under offer to charter for a long period our two remaining North Sea vessels in Brazil as well. If we succeed, we will reposition these ships to Brazil, and our entire existing fleet of six vessels will be profitability employed for a long term in that market.

On the short term, the total EBITDA produced by this segment in the second half of the year will be affected by time lost in positioning and other similar factors that, while having a long-term beneficial effect, will reduce the fleet's earnings in the near term during the fourth quarter. EBITDA for the second half of the year is expected to be, therefore, some 40% lower than in the first half. The market in general expects a recovery of rates in 2010, which will have a beneficial effect for the new vessels that we have under construction that will be delivered during 2010 and 2011.

On Slide 13 you will find the quarter-on-quarter comparisons of the earnings of our Ocean vessels. As you can see, this segment's EBITDA in the third quarter of 2009 came to a total of $13.6 million, which compares with $20.3 million in the same period of last year. The [inaudible] of approximately $6.7 million in this segment's EBITDA results mainly, as we anticipated, from the lower Capesize earnings in the third quarter of 2009 compared to the equivalent period in 2008.

You will notice a substantial variation in voyage expenses when comparing one period with the other. This variation stems mostly from the fact that some of our Capesize vessels have operated under COAs rather than time charters, as they did in 2008. Under a COA, the owner pays for the fuel and the port expenses, which in the case of a time charter are paid by the charterers. Consequently, under a COA voyage expenses may increase with no impact on the final result.

Four of our tanker vessels in South America are chartered on a long-term basis to oil major companies. These employments, as we have previously announced, have been extended during 2009 for long periods, and they have performed satisfactorily under those charters during the third quarter. The fifth ship, which is the smallest in this fleet, will have to renew its present contract in the fourth quarter. Our expected outlook for the earnings of the tanker fleet is quite stable.

Turning to Slide 14 now, you will see the same projection we have showed in previous presentations depicting the gross profit contribution that we estimate for our Capesize fleet in 2009 and 2010.

Our FFA coverage for the Capesize vessels has proven to be very effective throughout the significant volatility of the market experienced over the past year, as you can see in the graph on the right-hand side. While the international market's strengthened considerably at the end of the third and beginning of fourth quarter, our FFA hedges have allowed these vessels to enjoy average time charter earnings well in excess of the market averages throughout 2009. The total marked-to-market fair value of our future FFA positions as of September 30, 2009 was equivalent to an unrealized income of $31.7 million and as of 9 November, the fair market value of our then-outstanding future FFAs was equivalent to an unrealized income of $21.3 million.

As you can see in the bar chart at the top right, the total gross profit contribution expected from this fleet in 2009 is $48.5 million. That's the bar chart on the left, sorry. We have secured through FFAs approximately 66% of the available time of a reduced fleet of three ships of this size in 2010 wherefrom, assuming that the earnings of the vessel would correspond with 70% of the future curve of the full-time charter route averages shown in the graph to the right, should lead to approximately $28.4 million gross profit contribution for our Capesizes in 2010. If we decided to keep all four vessels in operation, that contribution would, of course, increase.

With that, I will turn the call back over to Len, who will guide you over the financials.

Len Hoskinson

Thanks, Felipe.

In Slide 15 you will find our CapEx plan for the fourth quarter of 2009 and the whole of 2010, which totals $107.7 million, of which $29.4 million is estimated for the balance of 2009 calendar year while $78.3 million is expected for 2010. Of this total amount over this year and next, about 44% or $47.1 million will be invested in our River Business, about 49% or $52.9 million will be invested in our Offshore Supply Business, and about 7% or the $7.7 million balance for our dry docks on the Capesize vessels.

As of 30th of September 2009, we have cash and cash equivalents of $41.9 million while our DVB/Natixis facility has an undrawn portion of $69.5 million and our DVB/BNDES facility is undrawn for $18.7 million. Therefore, with our available cash and undrawn financing, we have sufficient funds to cover the scheduled CapEx program for the remainder of 2009 and 2010. In addition, the company expects to have significant cash generation in each of these periods and has substantial leverage capacity with two new vessels paid for out of our own cash and not yet committed to any financing.

On Slide 16 we can see the breakdown across the business segments for revenues, voyage expenses and running costs for the third quarter of 2009 against the third quarter of 2008. Felipe has already discussed the main highlights of each of these businesses, so I won't repeat them here.

In summary, total revenues for the company during the third quarter of 2009 were 31% lower, $58.5 million compared to $84.6 million in the same period in 2008, voyage expenses were 21% lower, and running costs 19% lower compared to the figures for third quarter of 2008.

Operating profit was $3.8 million in the third quarter of 2009 compared with $22.3 million in the third quarter of 2008. We are reporting consolidated EBITDA for the third quarter of 2009 of $14.3 million, which is 53% lower than the equivalent 2008 figure of $30.6 million.

On Slide 17, the reported net loss for the third quarter of 2009 was $4.2 million compared to a $15.1 million net income in 2008. Earnings per share for the third quarter of 2009 were a negative $0.14 compared to $0.46 for the same period in 2008.

There's a typo on the third quarter 2009 net income figure adjusted for a provision for income tax on the unrealized foreign currency gains and the provision for the one-time penalty on the UP Rubi Petrobras time charter, which should read a loss of $800,000 versus an adjusted net income of $11.1 million for the same third quarter period in 2008, which results in an adjusted EPS of a negative of $0.03 in the third quarter of 2009 which compares to an adjusted EPS of $0.34 in the third quarter of 2008.

On Slide 17 our cash and cash equivalents as of 30th September 2009 were about $42 million. On the liabilities side you can see a 51% reduction in current maturities which reflects the paydown of the $22 million in bank debt.

As to our financings generally, we can report that we are in compliance on all our loans and there are no refinancing or loan renegotiations on the horizon.

And with that, I'd like to turn the proceedings back to Felipe.

Felipe Menendez

Thank you very much time. At this time we would like to answer any questions that you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Ben Nolan - Jefferies & Company.

Ben Nolan - Jefferies & Company

I had just a couple of brief questions, actually, but first I wanted to say that the slide that you guys put in the presentation on Page 6, where there was the breakdown per ton on the River Business, is very helpful, and I think certainly it's good for our modeling purposes, so I appreciate that.

But the questions I have actually relate to the Offshore Supply Business. First of all, you'd mentioned that you're negotiating with Petrobras to move the UP Esmeralda and the UP Safira perhaps to Brazil. Assuming that were to happen, would that be a fourth quarter event or something that we would expect next year?

Felipe Menendez

I think it should be a fourth quarter event as far as the award is concerned. These vessels participated in a tender, the results of which were opened about a month and a half ago. The award process is quite elaborate in Brazil, and so we would expect the final award to be made in the fourth quarter. And if that happens, in all likelihood we will be repositioning those vessels to Brazil at the very end of the fourth quarter or beginning of the first.

Ben Nolan - Jefferies & Company

And that sort of leads me to the next question. You've got the six remaining vessels, PSVs, scheduled for delivery starting early next year. Would the plan be to deploy those in the Brazilian market as well or perhaps, again, maybe half in the North Sea and the other half in Brazil?

Felipe Menendez

Well, as you know, Ben, our traditional split has been sort of a 50/50 between Brazil and the North Sea. At the moment, because Brazil has been so active, we have moved a lot of the vessels from the North Sea to Brazil and, in fact, if we are successful in the Esmeralda and Safira, we will have moved every vessel from the North Sea to Brazil. So we would expect the rates in the North Sea to pick up in 2010, and some of these ships can use those slots that we have left up there.

But Brazil has been also very active, and the expectation is that in 2011 Petrobras will continue to need substantial additional tonnage. And that will have a global effect, of course, as they absorb more tonnage in the market to reposition in Brazil, but it may open a possibility particularly for our two new Chinese vessels, which are larger than our existing fleet and very well adapted to the needs of Petrobras offshore, very far offshore, in deep sea drilling.

Ben Nolan - Jefferies & Company

And then just one last one. I believe that the charter that you guys have on the Mediator I expires later this year. In terms of the smaller product tankers in the coastal and [cavitage] trade, is that an area that you would anticipate maybe letting that contract lapse or perhaps even adding more vessels to it in the near future? Any color with respect to that?

Felipe Menendez

Well, as we had anticipated, we are going to grow in this sector, not only in Argentina but also in Chile and in Brazil, so we're looking to add more ships to this fleet.

This particular vessel, Mediator I, as you quite rightly point out, will renew its charter in the fourth quarter, and we are looking at various possibilities. I think what we had in mind was operating this ship, which, as you know, is a [bearer boat], for the next six months, and then perhaps renewing her by a larger vessel in the future.

So we shall see. I that's a decision we will take in the first quarter.

Operator

Your next question comes from Jamie Nicholson - Credit Suisse.

Jamie Nicholson - Credit Suisse

My question relates to your expected leverage. Given the comments you made about moving some of the PSVs and the seasonality of some of your businesses, it seems like the fourth quarter and first quarter at least will be significantly cash flow negative and presumably you'll be drawing down some of those bank lines to pay for some of the PSVs. So I'm just wondering, given your expectations for EBITDA, where you see your leverage ratio topping out? When do you see cash flow picking up to start bringing that down?

And when you mentioned you're in compliance with all your loans, do you have leverage ratios in those loans? If so, what are they? Is there any risk that you may breach them in the coming couple of quarters?

Felipe Menendez

Okay. Jamie, we'll take those I suppose in reverse order.

On the loans, Len will tell you a bit more, but generally, as you know, our [inaudible] and our IFC financing do not have loan-to-value ratios, and on the rest of the loans we don't have any significant loan-to-value relationships that we have to keep, so there's nothing there to be looked at in any immediate way.

We don't think that we're going to be cash flow negative in the fourth quarter or the third quarter bar, of course, the fact that we are taking the additional BNDES debt, which, as we announced, we'll be drawing upon in the fourth quarter. So with that money in hand, which will basically pay for the shipbuilding costs of the Rubi or part of the shipbuilding costs of the Rubi that we have financed out of our internally-generated cash, we have not planned any additional debt in the immediate future.

So what we're looking at is repayment of our debt as we go along in drawing down from that facility. Total debt stands at $389 million at the moment. We have reduced it by $22 million in the year, and now we're going to be increasing it when we drawn down BNDES and, of course, repaying as we go along in 2010.

Jamie Nicholson - Credit Suisse

So it seems like, I guess, looking at 2010 with the bulk of your CapEx and your undrawn DVB/Natixis, that will sort of match your CapEx spending? I guess it sounds like your cash flow will pick up starting second or third quarter next year. Am I looking at the business correctly from a seasonal perspective?

Len Hoskinson

The thing that Felipe mentioned in his presentation, Jamie, was the reference to the vessels being developed being in place at higher rates than previously, so I would take that in mind when you're looking at the cash flow going out from here.

We take a lot of care when taking on additional leverage to make sure that it matches the asset, so you'll have noticed that the new BNDES financing is 17 years, fixed rate, long term, like repayment, and it's a good facility for the company to take, matching one versus the other.

Felipe Menendez

I think you're right, Jamie, in the sense that we will be drawing from the DVB/Natixis facility for the forthcoming installments on the Indian vessels that we're building, and of the internal cash generation we'll speak at the end of the first quarter and nearing the second quarter of 2010. So at that time we will be generating substantial amounts of additional internal cash.

Jamie Nicholson - Credit Suisse

And what is the average cost of these new facilities, the cost of debt, roughly?

Felipe Menendez

Well, with BNDES loan we're saying it's a 3% fixed interest rate and then there is a component of the guarantee, which is going to cost another 2%, so the total would be 5%. In the case of the IFC facility, it is LIBOR plus a valuable margin that goes from 1.2% to 3% depending on certain circumstances. And LIBOR, of course, today or for six months is only 0.5% or thereabouts. And then the rest of our financings you know. The bond is 9% and that's for $180 million, and the balance are all LIBOR, a [inaudible] spread of between 1.5% and 2%.

Jamie Nicholson - Credit Suisse

And then just one last question, if I may - do you have targeted divestitures on the horizon?

Felipe Menendez

No, other than the ones we have announced. We are still to finalize the sale of the Blue Monarch, which is under way, and we are thinking about selling one of our older Capesizes, but that's a decision that we still have not made completely.

Operator

Your next question comes from [Claire Caroka] - Raymond James.

Claire Caroka - Raymond James

My question is at what price are you expecting to sell the Blue Monarch and, if you can tell us, in what timeframe are you expecting to sell it?

Felipe Menendez

Well, we have not announced the price at which we are expecting to sell her for. We have her written down in our books basically to a very, very low value, and actually the market for this type vessel has not been very high for a year, so I don't think it will be a very significant value either way.

Timing, we have been in the market with this vessel for quite some time. Now things have started to stabilize in the passenger vessel sector, so we have a couple of interested parties that are now looking at the ship, one in particular we hope will sign a contract on an immediate basis. And we shall see and announce it as soon as it's done.

Operator

Your next question comes from Marc Lebensfeld - Newland Capital.

Marc Lebensfeld - Newland Capital

My question is this year's been tough in terms of the River and the PSVs in the North Sea, but it clearly looks like things should improve going forward, especially in these two segments. As you're generating cash flow, is anything precluding you from buying back stock in the future?

Len Hoskinson

No. Well, in fact, thank you for asking that, Marc. We did not point it out. We have not renewed the Board's authorization to buyback stock. Basically, we do not anticipate the company to be spending cash in a stock buyback program at the moment. We're looking at our growth possibilities and using the company's cash for that, and that's why the Board basically was not requested to extend that authorization. But we could do it in the future. We just don't have any plans at the moment to do that.

Marc Lebensfeld - Newland Capital

And in terms of just thinking about normalized EBITDA, we've had two parts of your business very depressed this year, with your business kind of at trough levels in some of these areas. Even with FFA hedges and [inaudible] ship, it clearly looks like your business can go back to more normal levels of EBITDA, whether it's next year or then after. Can you talk to kind of what the businesses can generate in a more normal environment?

Felipe Menendez

Yes. Well, very much as you pointed out, this has been a very tough year in terms of the volumes on the River, which have been cut almost in half - 40% odd - as we discussed earlier during the call, and therefore we haven't seen any substantial generation of EBITDA by the River this year.

Now, as you know, Marc, we have been investing in the River for the last three years, basically in our re-engining program, in our [bottom protection] program and in new yard. Where this should lead us by the end of 2011, when all these programs have blossomed and really are showing their full effect, we should be looking at a normalized EBITDA margin of around 27%, and we should be looking at revenues which would be some 37% or 40% for this type, higher on an annualized basis than they were in 2008.

So on the River front, if you take revenues from 2008, increase them by 40% and take that sort of general guideline of [20%] EBITDA margin, that will give you an idea where we should be.

Now, 2010 we won't see the full deployment of all our new assets, but we will start to see the effects in earnest. We will have at least four vessels, perhaps five, operating on the new engine systems and with considerable fuel efficiencies and much more pushing capacity. We should see a fully active fleet and new barges turning out from the yard basically every week. And we should see significant improvements in our EBITDA margins because of the size of the barges and the way that we are designed to operate.

So if rainfall is normal - and so far rainfall has been more than normal; it's been extremely good for the early part of the seeding season, so crop volumes are back to normal and there's no reason to expect anything different - we should start to show in 2010 part of those significant gains that we expect to achieve when the full program effects have been seen.

In Offshore, much as we discussed during the call, if we are successful in what we're doing with UP Esmeralda and Safira, all six existing ships will be fixed long terms at rates which are considerably better than what they've experienced so far. So you can look at the 2008 EBITDA for this fleet and the 2009 EBITDA for this fleet and make the adjustments according to the earnings that we have announced that these vessels will be having.

The new ships will be delivered as we go along in 2010 and 2011, and those will kick in in a market where we think rates are going to be improving. But anyway, they will be accretive to the overall EBITDA picture of our Offshore segment. The six existing vessels already provide much stronger cash flows than they have in any of the previous two years.

In Ocean you can look at what we described, if you will turn back for a second to I believe it was Slide 14, we are saying that the tanker sector will remain stable and the EBITDA provided by that side of the business will not change much in 2010.

Capesize vessels, there's two possibilities - we will reduce this fleet to only three ships in 2010 or we will maintain all four. If we reduce them to three, based on the FFA coverage that we have or 66% of three or two vessels, and the current earnings that the future curve provides for those three ships, we will have a gross profit contribution of $31.4 million coming from these vessels as opposed to $48.5 million. If we keep all four ships, at the current future curve that gross profit contribution could increase by almost one-third, but we haven't made that decision yet.

So there you have good guidance as to what to expect from this fleet in 2010, which is quite a good number. I mean, put it in perspective of 2007, which was a good year, three ships produced $24.3 million, and we're saying that with what we have in hand right now that should look like $31.4 million and, if we keep a fourth ship, more closer to $40 million.

So I suppose that sort of covers the three segments of our business.

Marc Lebensfeld - Newland Capital

If you walk through all those different parts and add them up, it's clear that 2010 is an up year even with one fewer Cape. And it could be up depending on how the River does substantially. Is there something I'm not considering in that logic?

Felipe Menendez

No. No, we're expecting it the way we have described it. And of course there are uncertainties in most businesses, but in Offshore, if we do fix these two remaining ships, the six existing vessels will have very predictable cash flows. If we have a good crop in the River, I think the reading that we have is what we just described. And in Ocean, we have a good portion of it fixed either on the tankers through the term contracts that the vessels have or in the case of the Capesizes with FFAs. So there shouldn't be tremendous variability in those rates.

Marc Lebensfeld - Newland Capital

One last quick question. The reason I mentioned the share purchases, you know, your tangible book and NAV calculations are still well higher than the stock price. My understanding is your asset prices are at least at current levels; it's not below. And that's the reason I stressed to please consider it for the future. Is there anything I'm misunderstanding about that in terms of the asset values?

Felipe Menendez

No. Well, we haven't commented on the asset values at all, but I'd guess most analysts would agree with you in that the asset values are above those levels.

So, no, there's nothing you're missing, only that the Board has taken into consideration the CapEx plan going forward and that most of our cash should be used for growth and let the market appreciate the share as we produce results.

Operator

Your final question comes from Ira Socket - Socket and Company.

Ira Socket - Socket and Company

All of your loans, are they all dollar based?

Len Hoskinson

They are. We have no debt in other currencies.

Ira Socket - Socket and Company

Good. Early on you indicated that the new PSV are booked at $34,000 per day to Petrobras.

Len Hoskinson

That's what we said, yes.

Ira Socket - Socket and Company

And that's on a 7-day, 365 basis?

Len Hoskinson

Yes, that's the current calendar, yes.

Felipe Menendez

Of course, ships do have some technical downtime during the year, so we spare a few days for that. But the charter is 365 days, 7 days a week, 24 hours a day.

Ira Socket - Socket and Company

Can you tell us what the rates are on the smaller vessels that you have repositioned and on the two other vessels that you're planning to reposition, just an approximate per diem?

Felipe Menendez

Well, the vessels are identical sisters, so they are the same, but the contracts differ because of the terms and the timing with which they were done. So what we have said, Ira, is that the other three vessels are in Brazil - the UP Agua-Marinha and the UP Diamante and now the UP Topazio, which has been repositioned in Brazil. They're all fixed to Petrobras for three years at $29,000 a day, approximately.

We have not revealed the charter rates of the two -

Ira Socket - Socket and Company

No, until the tender is finished. I'm sorry for interrupting.

Felipe Menendez

No problem. That's the reason.

Ira Socket - Socket and Company

The previous caller talked about your balance sheet. One of the things that is not really on the balance sheet but it is the big infrastructure you have along the Piranhas River, with all those different loading points and transshipping points and so on. Are they valued pretty much fully depreciated? In other words, these things were in existence when the company went public.

Len Hoskinson

Yes. You're right. A large portion of those assets were, of course, for accounting purposes valued at the cost of constructing them and they have been amortized over the years, and the book value does not necessarily represent their commercial value today.

Ira Socket - Socket and Company

Based on your - and we know you have a business plan for 2010 - with most of the ships being delivered during the first half, could you again, in just approximation, what you expect in the second half of the year just in percentage breakdowns between the three segments? In other words, what percentage of your volume and your EBITDA would be coming from each segment in the last half of the year?

And, again, just in general - 30%, 50%, 60%, so on.

Felipe Menendez

Let me just correct one thing here. The schedule for deliveries in 2010 and 2011 is on Slide 11, and actually you will see that we're receiving the two Chinese vessels early in the year, but then the Indian vessels will come very much at the end of 2010, so you shouldn't expect them to play a significant role in terms of EBITDA generation in 2010.

Ira Socket - Socket and Company

Okay, but by the second half you'll have eight of those PSVs onboard.

Felipe Menendez

No, no. The six that are there will continue to produce, of course.

Ira Socket - Socket and Company

Right. And the other two -

Felipe Menendez

New tonnage, only two will be added in the first half of the year.

Ira Socket - Socket and Company

Right, but you'll have eight. It'll be those two plus the new one will be contributing fully in the last half?

Felipe Menendez

Oh, yes. Absolutely.

Ira Socket - Socket and Company

What do you anticipate, just a breakdown, between - up to now the Ocean has been dominant.

Felipe Menendez

The Ocean has been dominant. And, of course, as we explained in 2010 we will see the River and Offshore unfold some of its capabilities. We have not made so far a prediction for 2010, but as you can see, we're expecting the Ocean to moderate basically because we are reducing one vessel in the Capesize sector, which has contributed very strongly to our results.

So end of the year 2010 if everything is normal perhaps we will see a very balanced equation between all three sectors. And at this point I'd like to leave it at that because we're not making any precise predictions as to the 2010 result.

Operator

Thank you. That does conclude the Q&A portion of our call today. I will now turn the conference back over to Mr. Menendez.

Felipe Menendez

Thank you very much, everybody, for participating in the call today, and I look forward then to talking to you in our next quarter. Thank you very much.

Operator

That does conclude our conference call for today. We thank you all for participating. You may now disconnect and have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Ultrapetrol (Bahamas) Limited Q3 2009 Earnings Call Transcript
This Transcript
All Transcripts