Ferdinand V. Lepere – Executive Vice President and Chief Financial Officer
Joseph E. Royce – Chairman, President and Chief Executive Officer
TBS International Plc (TBSI) Q4 2010 Earnings Call March 15, 2011 10:00 AM ET
Thank you for standing by ladies and gentlemen and welcome to the TBS International Fourth Quarter and Full-Year 2010 Financial Results Conference Call.
We have with us Mr. Joseph Royce, Chairman, President and CEO and Mr. Fred Lepere, Senior Executive Vice President and Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. (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 advice you that this conference is being recorded today, Tuesday, March 15, 2011.
I will now pass the floor to one of your speakers today, Mr. Fred Lepere. Please go ahead Mr. Lepere.
Ferdinand V. Lepere
Well, good morning and thank you for joining TBS International’s quarterly conference call. The purpose of today’s call is to discus the results of TBS’ fourth quarter and year ended December 31, 2010.
Yesterday, we issued a press release after the market closed in New York, with financial and operational information for the fourth quarter and year ended December 31, 2010. If you have not received this release, you may log on to 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. For 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 would 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.
And with that, I'd like to introduce Joseph Royce, our Chairman, CEO and President.
Joseph E. Royce
Thank you, Fred. Good morning, everybody, and welcome to TBS International's conference call for the results of the fourth quarter and year ended December 31, 2010.
I'd like to begin with our presentation with slide number two, the Baltic Indices. TBS results for the fourth quarter 2010 reflect the ongoing downward pressure on dry cargo freight rates that have continued into the first quarter of this year, as evidenced by the Baltic Dry Indices.
The Baltic Dry Index or BDI, which was at 2,446 on September 30, 2010 descended to 1,773 on December 24, the last reporting date in 2010, and was at 1,559 on March 14, 2011.
Correspondingly, the Baltic Handysize Index or BHSI, which was at 1,039 on September 30, 2010 descended to 829 on December 24th and was at 736 on March 14, 2011. A number of factors have contributed to these circumstances. Of most importance is the continued drumbeat of the delivery of new-built vessels in all four of the major vessel sizes, Capesize, Panamax, Supramax and Handysize.
While cargo demand generally increased during most of 2010, numerous events over the last several months have interrupted the availability of cargo contributing to both the supply-demand imbalance and the Asia-Americas imbalance. There has been severe flooding in Australia that has interrupted shipments of coal, iron ore and wheat, along with Government imposed restrictions of the export of coal from Indonesia and iron ore from India, thereby causing the deviation of vessels that traditionally carried these cargoes from that region into the Atlantic.
As a consequence, TBS is operating at freight and charter rates that would cause us to fail to comply with certain financial covenants in our credit facilities, even as recently modified, as soon as June 30, 2011.
We are well aware of the terrible disaster that has affected Japan. I am pleased to announce that all of TBS’ staff members are safe. We had two vessels in the area that were affected by the earthquake, in which one was slightly damaged. Japan is important part of our Pacific service, where we both lowered and discharged cargos. It is too soon to evaluate the impact of the recent tragic events in Japan.
Now I’d like to turn the floor over to Fred Lepere, our Senior Executive Vice President and Chief Financial Officer.
Ferdinand V. Lepere
Thank you, Joe. We should now all be on slide number three. This slide summarizes our fourth quarter 2010 operating and financial highlights.
For the fourth quarter ended December 31, 2010, total revenues were $100.8 million, an increase of 19% over the same period in 2009. Voyage revenues for the three months ended December 31, 2010, were $75.6 million, an increase of 14% from the $66.6 million during the same period in 2009. Time charter revenues for the fourth quarter 2010 increased by $5.7 million or 34% to $22.6 million from $16.9 million for the three months ended December 31, 2009.
Our net loss for the fourth quarter 2010 was $217.4 million after non-controlling interest, an increase of $206.7 million compared to the net loss of $10.7 million during the same period last year.
Earnings per share on a basic and diluted basis for the fourth quarter 2010 was a loss $7.12 per share as compared to a loss of $0.36 per share for the fourth quarter of last year.
I’d like mention here that the increase in net loss and loss per share as compared to the same period in 2009 is mainly attributable to a $201.7 million non-cash vessel impairment charge that we recorded during the fourth quarter of 2010. Excluding vessel impairment, net loss and earning per share for the three months ended December 31, 2010 would have been $15.7 million and a loss of $0.51 per share respectively.
EBITDA, which is a non-GAAP measure, was $20.4 million for the fourth quarter of 2010, an increase of 5% over the same period in 2009. EBITDA for the fourth quarter of 2010 excludes the impairment charge of $201.7 million. A reconciliations of EBITDA is provided in the appendix of this presentation.
Our new building program continues of six multipurpose tweendeck vessels ordered, we have now taken delivery of five so far, including two in 2011. We expect to take delivery of the remaining vessel in the second quarter of 2011.
We currently have an operational fleet of 51 vessels, when in aggregate of $1.55 million total deadweight tons consisting of 29 tweendeckers and 22 handymax/handysize bulk carriers. During the fourth quarter we drydocked three vessels for 61 drydocking days as compared to the 182 drydocking days in the fourth quarter of 2009.
Please now turn to slide number four. This slide demonstrates the revenue metrics of our business for the fourth quarter of 2010. We begin with our Voyage business. During the fourth quarter of 2010, we operated 33 vessels in our freight voyage business and had 3,051 freight voyage days as compared to 30 vessels and 2,742 freight voyage days in the fourth quarter of 2009.
Our Daily Average Voyage Time Charter Equivalent was $12,803, a decrease of 3% compared to last year's fourth quarter. As you can see on this table, during the fourth quarter of 2010, we had a 31% increase in the total tons of cargo shipped and a 2% decrease in the tons of cargo shipped excluding aggregates.
We now turn to our time charter revenue metrics on the same slide. Our Average Daily Time Charter Equivalent for this business was $15,216 in the fourth quarter of 2010, an increase of $3,032 from the $12,184 during the same period of 2009. We operated 15 vessels in this business for a total of 1,381 days, as compared to 14 vessels for 1,322 days in fourth quarter of 2009.
Now slides five and six depict our operating and financial highlights, as well as key metrics for the full year 2010. These slides are self-explanatory and the information is presented in more detail in our fourth quarter and year ended December 31, 2010 earnings press release we issued yesterday, as well as in our 10-K for the period. I'll answer any questions you may have during the question-and-answer session of this conference call.
Please now turn to slide number seven. This slide provides the highlights of our consolidated balance sheet. As of December 31, 2010, our net debt-to-capitalization ratio stood at 51.3%. Our cash balance at December 31, 2010 was $19 million plus $6.7 million in restricted cash, of which $6.2 million pertains for our newbuilding program.
As announced on January 31, 2011, we and our lenders agreed on a restructuring of our debt repayment schedules and modifications of the covenants under our credit facilities and our lenders agreed to wait any existing defaults under those credit agreements.
However, due to the continuing imbalance of supply and demand and the associated decline in freight and charter rates, we are operating at freight and charter rates that would cause us to fail to comply with certain financial covenants in our credit facilities, even as recently modified, as soon as June 30, 2011.
Unless the Baltic Dry Index and in particular the freight and charter rates that we are able to obtain strengthen significantly in the near future, it is likely that we would fail to meet the tests under certain of our financial covenants and that we would need to enter into negotiations with our lenders to seek modifications of those financial covenants.
We have implemented numerous cash saving initiatives to conserve cash including drydocking and capital expenditures. These measures will not be sufficient to alleviate the potential covenant violations, however, may allow us to meet our cash obligations through this period.
We have now reached the end of our presentation. The slides in the appendix provide our EBITDA reconciliation and additional information on our affiliates, business model, trade routes, 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.
(Operators Instruction) And your first question comes from the line of William Harrington.
Hi, good morning. I was wondering if you could provide a little bit more detail on which covenants you see being potentially violated by June 30, 2011?
Ferdinand V. Lepere
EBITDA-to-interest and debt-to-EBITDA, so all of the covenants affected by EBITDA.
And I guess just a follow-up question, when you met with your lenders a couple of months ago and just finalized it, I would imagine you ran sensitivities of potential market conditions that would cause you to violate these covenants in the future. What assumptions did you make and I guess I’m very surprised that we’re having to go through this again and that we’re in violation given that this was done so recently, can you just provide some more color on what you saw the market at that time and kind of what the thinking was?
Ferdinand V. Lepere
Well, when we were working with our banks looking forward, we didn’t anticipate events that occurred first of all, that affected the ship balance around the world. The first big event was the situation in Australia, it was where you have plugs of difficult proportion, which had a major disruption in the Pacific market. Australia is a major exporter of iron ore, coal and wheat especially into the Pacific Basin from Japan all the way into the Indian, Arabian Gulf area.
In addition to that, there were bands of iron ore in India, as well as export bands of coal in Indonesia. This drew the balance for the quarter nearly out of black. In addition, these ships that were in places like Pacific, decided to bounce into the Atlantic for employment. And this put tremendous downward pressure on the market and on freight rates. And this has been one of the major factors that has effected our numbers going forward since the end of last year, as well as that we had strikes in different places in Latin America, in Peru for example that disrupted our business for about three weeks.
Joseph E. Royce
And just to add a little more not so much market color, but to be more specific really about covenant violations, we’re looking at June 30, ’11 we’re not sitting here with financial covenant violations today and further the EBITDA that we’re seeing in the early part of January and February, some 33% to 40% book in the EBITDA that we had envisioned when we met with our bankers and we completed the restructuring.
Good, thank you. I just have one last question. So, I know it’s early in the year, but how comfortable do you feel that you could work with the lenders again to adjust these repayment terms. I’m trying to think from their perspective, at what time do they say, okay, enough is enough, we’re going to wave the white flag here versus them saying, okay, we’ll work with you, again, and I understand and respect of the events that have happened recently, but I think there has been issues well before that. So can you just, I guess for the investors, make us a little bit more comfortable on how successful you think these meetings will be before June 30th?
Ferdinand V. Lepere
Well, I mean just to be clear, we’re talking about some 30 banks and it’s very difficult for me to predict what each and every one of those banks are going to do and there is across the folks in all of the loan agreement.
Having said that, we’ve already started discussing this situation with our bankers, we’re modifying our forecast and our projections. To be clear, in the first half of the year, we’re talking more about technical covenant violations and we are about cash, our inability to meet rescheduled principle repayments. So we have to distinguish between those two events.
I personally feel that if we can keep this two events related to covenant violations and waivers there too, the banks will be open to discussions along those lines. And we’ll have to see how the year develops as we work these various things that Joe mentioned through the system and get back to a more normal market environment.
(Operator Instructions) And there are no further questions. I’d now like to turn the call back over to your Chairman and CEO, Mr. Ferd Lepere.
Ferdinand V. Lepere
Well, thank you very much. And again I would like to thank you for your interest and support and look forward to our next conference call for the first quarter 2010 results and I would like to wish everybody a nice day. Thank you.
Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.
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