Ultrapetrol (Bahamas) Ltd. (ULTR)
Q1 2008 Earnings Call
May 13, 2008 10:00 am ET
Leonard J. Hoskinson - Chief Financial Officer
Felipe Menendez R. – President, Chief Executive Officer and Director
Scott Burk – Bear Stearns
Justine Fisher - Goldman Sachs
Matthew Dundon – Miller Tabak Roberts
Welcome and thank you for standing by. At this time all parties are in a listen-only mode. (Operator Instructions). Today’s conference is being recorded. If you have any objections you may disconnect at this time. I would now turn today’s meeting over to the Chief Financial Officer Mr. Leonard Hoskinson. You may begin.
Good morning everyone, thank you for joining us. Welcome to the Ultrapetrol Bahamas Limited conference call to discuss the Company’s 2008 first quarter results. I would like to remind everyone that this conference call is now being webcast at the Company’s webcast www.ultrapetrol.net. There are also additional materials related to our earnings announcement, including the slide presentation on our website.
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 from the forward-looking statements, with discussion of the 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 in the Company’s annual report on Form 20-F for the year ending December 31st, 2007 and it’s subsequent reports on Form 6-K.
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 and I will take you through the financials. After we have completed our remarks we will be happy to take your questions and now I’ll hand it over to Felipe.
Thank you Len. Good morning everyone and thank you for joining us on the call today. In order to make the best use of the material that we have filed together with our press release as we go along we will reference to the slide number that corresponds with the information that we are discussing.
As you will see on slide three, our revenues during the first quarter of 2008 have increased by 48% over the same period of 2007 to $67.4 million. Similarly our recorded EBITDA for the first quarter was 34.25 million and our net income for the same period was $17.34 million or $0.52 per share. As we have anticipated in our last call, these results include non-cash gains on our Freight Future Agreements or FFAs of $6.3 million and cash losses already accounted for in our 31 December financial results, amounting to $5.4 million.
If you exclude these items our adjusted EBITDA and net income including a small $200,000 adjusted for deferred income taxes on unrealized currency exchange gains in Brazil for the quarter, were at $22.5 million and $5.8 million or $0.18 per share. These adjustments as you will recall stemmed from the non-cash mark-to-market losses of our $11.7 million that we are included in our December 31 2007 results. Regarding that all remaining FFA’s continue to qualify as cash flow hedges for accounting purposes, we do not expect as from the second quarter of 2008 to record in our income statement any further non-cash mark-to-market losses on our FFA transactions.
In other words, in this case, as from the second quarter you will see in our income statement only the cash results of our FFA side-by-side with the result of the vessels that they hedge, so that the addition of both results will reflect the earnings of our ocean vessels in that period.
Len will discuss our financials in more detail later in the call. I would just like to mention at this point that our overall results for the first quarter have been strong in all core segments, but particularly in our ocean business. We are very much inline with what we discussed during our last call, the expiry of the old charters that come in part of our fleet, as well as the addition of one more Capesize vessel at the end of 2007 have significantly changed the contribution of this segment through our results.
During the quarter the Board approved a share repurchase program of up to $50 million out of which, 638971 shares were repurchased. We have also signed the mandate letter with IFC to process a possible financing of up to $50 million to cover a part of our CapEx program in the River business. Let’s turn to slide four, for an update of what has happened in our River business in this quarter. Volumes loaded grew 14% from $1 million in the first quarter of ’07 to $1.14 million in the first quarter of ’08, but as we will see in a minute, primarily because we experienced a later commencement of the crop.
In 2008, not all of that cargo completed its load travel discharge cycle within the quarter, which means that the proportion of the revenues is not appropriated in the first months – in the first three months of 2008. We have shipped from USA the 57 barges and three push boats that we are adding to our fleet. 30 of them had already arrived at the beginning of the second quarter and the balance are scheduled to enter service in June. Two of the push boats that we are adding are of significantly higher power than that ones we currently operate, that is 7200 horsepower as opposed to 5500.
We believe that by adding these more powerful push boats instead of conventional units, will help us gain on efficiency in an immediate way and ultimately reduce the cost for re-engineering, when we convert these push boats to heavy fuel in 2007. We’re receiving the new heavy fuel engines and we are using the first three to build a new 8300 horsepower push boat as part of our previously announced $32 million re-engineering program. While we continue our barge enlargement program having processed already 44 units, we are progressing according to plan with construction of our new barge building facility in Rosario Argentina.
The water levels which had affected the navigability of the upper stretches of the Paraguayan river in the fourth quarter returned to normal by the middle of January. So, we reassume service in this sector of the river, which is where we load primarily iron ore. Many of you may of read about the farmers strike in Argentina, so, we would like to mention that it has had no effect in our volumes or in the cost of our operations so far.
Turning to slide five, you will find a quarter and quarter comparison of our River segment revenues, expenses and EBITDA. The first quarter 2008 River segment EBITDA of $3.5 million seems to compare unfavorably with a $5.6 million obtained in the same period of last year. Our revenue recognition system appropriates revenues within a quarter on the basis of the proportion of the total duration of the voyage that each barge has completed within that quarter.
The adjustments for barge positioning affecting the first quarter of 2008 amount to approximately $3.1 million while in the first quarter of 2007, they amounted to only $0.5 million. We believe that by year end these adjustments should neutralize and normally do not represent a distortion to analysis year and year variances.
When comparing, however the first and sometimes our second quarter revenues and margin it is useful to extract the affect of these adjustments to visualize trends. As you can see from this slide five, when you add the affect of barge positioning adjustments to the segment EBITDA both in the first quarter of 2007 and 2008, you have a 9% increase in the pro Forma EBITDA from 6.1 to 6.6 million. While a portion in revenue on the basis of barge positioning is the recognized methodology to adjust quarterly results.
From this analysis, we can get a sense that when this effect is neutralized, we should be close to the historical EBITDA margins of 20% to 22% that the company has experienced in the past. When analyzing the expense side of our River results however; we note an increase in our voyage expenses of approximately $4.9 million. The majority of this increase $4 million is due to our fuel expense, which does not seem to be a reason for immediate concern.
As you can see in the analysis shown in the slide $3.3 million of this variance is due to pure fuel price increases which is consistent with what we have recovered from our customers during the first quarter with our fuel pass-through closures and 670,000 was caused by larger volumes consumed of fuel which is consistent with the growth in volumes loaded.
Our other non-fuel related voyage costs like port expenses, cleaning barges etc and our running costs however have increased on a faire invoice tone basis 14% and 26% respectively or $1.88 per ton. Unfortunately these cost increases are likely to continue effect us thought the year, since they are associated with increases in crew costs and generally with the revelation of local currencies against the U.S. dollar.
In slide six, we can see that our average and voyage freights per ton in the first quarter of 2008 grew by 23%, compared with the first quarter of 2007 from $21.03 to an average of $25.88 per ton 15% of this growth of $3.20 per ton is the result of our fuel pass-thorough closures that have reimbursed for the equivalent increase in fuel prices that we experienced in the quarter as we saw in the previous slide.
The balance were 8% are what analyst would real increases resulting from pricing of freight to the higher level or due to the differences in cargo mix that we carried during the quarter. These price increases equivalent to $1.65 per loaded ton have helped us partially offset the increases of $1.82 per loaded ton that we experienced in port and running cost that we referred to in the previous slide.
In slide seven, you would see a projection of the soybean production in Paraguayan, which is central to the River system. According to the last USDA estimate it is growing another 800,000 tons this year accumulating a 39% from Paraguayan growth for the last three years. Similarly the shipping mine iron ore in the first quarter of 2008 already showed part of the growth that the mines in the region had announced, which represents close to 300,000 or 46% above what they shipped in the first quarter of 2007.
The outlook for our business going forward is one of growing demand starting from the increased production of soybeans and iron ore in the area of influence long River system. In the short term we will be able to increase our volumes transported only through the 57 barges that we have added or about 10% additional capacity that we have shipped from the United States to commence service in May and June 2008. It is only from the second half of 2009 when we expect our new barge building shipyard will be in full production and when we will start – we will start adding push boats re-powered with heavy fuel that we expect to see the effect of the investments that we have planned for and which are now being executed.
Turning to the next slide in our offshore supply business during the first quarter we continue to operate five vessels. UP Agua-Marinha and Diamante operated in Brazil under long-term charter with Petrobras, and UP Esmeralda, Safira, and Topazio operated in the North Sea. Two of these vessels Topazio and Safira are committed in long-term contracts in the North Sea until August, 2008 and April, 2009 respectively. While UP Esmeralda is operating in the spot market. Our building program progresses as planned with our sixth and last vessel of the initial program being built in Brazil where we expect to take delivery towards the end of the year.
The construction of the four vessels that we are in the process of building in India is also advancing satisfactory and the steel cutting process for the first two has already started. During the quarter we have also made the down payments for the two vessels that we're presently building in China. In slide nine, you can see that the spot rates for offshore in the North Sea started the year at the lower levels that within we had experienced during the last quarter of 2007.
However, towards the end of the first quarter, we’ve seen the market recover to very similar levels to those we experienced in April and May 2007. The present level of activity, the price of oil and the number of drilling rigs being built makes us feel quite confident that the future does in fact look very bright for the very modern, large state of the art vessel, such as the ones we operate and we are bounded.
As you can see in the pie chart, we’ve maintained the balance between period and spot employed and we have maintained our presence in both markets. The average rates obtained by our vessels in the North Sea and Brazil have been $26,645 and $23,978 per day respectively. On the basis of which our ships obtained full pay back in less than full-year.
Also as you can see the earnings have been higher in the North Sea than in Brazil, but this is also a function of the longer period employment of our vessels in Brazil and the fact that some of those Brazilian fixtures took place earlier in a lower market environment. The Brazilian Real revelation has increased our operating costs in Brazil.
If this tendency were to continue probably the affect will reflected in the charter levels paid for the Brazilian ships in the future. The new oil discoveries in Brazil of which I’m sure you aware of to be likely Jupiter and Carioca generated a great expectation from companies such as ours with Brazilian build and flagged vessel.
Turning to slide 10, during the first quarter this year we had five vessels in operation, versus four during the first quarter of last year and this explains most of the increases in revenue and EBITDA, of 9% and 11% respectively. Our UP Esmeralda suffered an unexpected off hire during the period. The economical impact of this was negligible since we had the risk covered by loss of higher insurance, which represents most of the $1.8 categorized as other operating income. On the negative side, we have experienced an increase in the running cost, from 2.6 to 3.9 as a result of a fifth vessel in operation but also as a function of our two Brazilian vessels mainly because of the revelation of the local currencies that we had just referred to.
In slide 11, you can find the brief description of our offshore fleet both operating and under construction. It is worth noting that our fleet is one of the most ingenious and modern fleets in the world, specialized in large deck vessels including dynamic positioning one and two in our present year build.
This is the reason why we operate in Brazil and in the North Sea. We have a very deep water drilling, requires this type of vessels, minimizing the competition of old tonnage that is not adapted to these environments. Turing to our Ocean business in slide 10, we would like to mention that the old charters allowed Princess Nadia and Katherine have come to an end and are being replaced by [Inaudible] time charter. The old Princess Susana charter has now also finished in April 2008 and was replaced as well by an [Inaudible] charter.
Its important to note that these three OBO same sized vessels during 2007 were operating in the previous lower fixed daily hires and that today, they enjoy the present market rates. Cut but also secured by the FFA hedges that we have put in place to ensure their cash flow.
In addition, during this first quarter, we have had the Capesize Princess Marisol in our fleet for the first time for the full quarter. This vessel has operated an attractive market prevailing rates and has had a significant possible impact in our first quarter results. It’s also perhaps important to note that in the future, provided our FFA positions continue to quantify as cash flow hedges, we don’t expect to show in our income statement non-cash losses or gain resulting from the mark-to-market of the FFA transactions that we may have.
Following with our previously announced program to increase our participation in the product and handy sized oil trades in the South America, we have recently added our MT Austral which we have taken on the 3-year bareboat charter. In slide 13, you can appreciate the impact of the revenues and the EBITDA of that the ocean segment previews by the edition of Princess Marisol and the higher endings of Princess Nadia and Princess Katherine already explained.
Revenues of 31.1 million are record in a quarter of this segment. As I said a few minutes ago, we don’t intend to include non-cash gains or losses. As a product of our hedges in the future, but for you to compare with the first quarter of 2007, we are also showing in this slide, the adjusted EBITDA for this segment of 14.8 million after allowing for $6.3 million and $5.4 million adjustments due to the effects of FFAs in the first quarter.
An adjusted EBITDA of $14.8 million is a very good start for the year specially considering that it only includes the new rates partially for Princess Nadia and Princess Katherine and non yet at all for Princess Susana as I just described.
The increase in the running cost that you can appreciate in the slide when comparing with the first quarter of 2007; is because in the first quarter of 2008 we have two full additional vessels; Princess Marisol and Amadeo and partially also Alejandrina; all of which represent approximately $3.5 million additional running costs. The balance of the difference of $800,000 represents costs increase on the preexisting fleets most due to crew cost increases.
Turning to slide 14 we thought it’s important to show the effect of the new intellectual charters on our OBO vessel as we expect it to develop during the year, including the effect of RSFA hedges and how it compares to the 2007 performance of these same three ships. In the bar chart at the left, you can see that the average tone charter rate of 29,221 per day obtained by each of the three OBO vessels during 2007, compare with a 35,262 obtained by the same vessels during the first quarter of 2008 and yet again you can compare with the projection of 57,193 for the full 2008 year, based on the assumed earnings of our OBO Capesize fleet at the values of the four time chartered routes at market close in May 8 and the results of our 2000 FFA position that we have sold.
In the bar chart at the right you can see a comparison of the gross profit contribution obtained from these vessels of $27 million in the whole of 2007 compared with a projection of $52.7 million gross profit contribution that would be obtained from the same vessels in 2008 under the assumptions used in this page.
This very large increase of $25.7 million is the result of the renewal of the charter contract after the expiring of the OBO and the effect of the FFA hedges to secure their higher income plus a smaller contribution of the higher market rates assumed not covered by FFA hedges in the year. There are several assumptions and disclaimers at the bottom of this page, which we urge you to take into account when analyzing these figures.
In slide 15, we have similarly wanted to give you an idea of the effect of the Princess Marisol addition in the gross profit contribution of our Ocean segment for 2008. Even if the FFA hedges are not directly related to any particular vessel, we would like to point out that for the purpose of this presentation, we have considered that the FFA's we have entered into for 2008, correspond to the OBO fleet as we have shown in the previous slide.
On the left hand side of this slide, the average daily hire the Princess Marisol has obtained so far and a projection of what she would earn if the average daily hire that she was fixed for, for the balance of the year was equivalent to those rates that prevailed on May 8, less a 25% discount.
On the right hand side, the annual total gross contribution that could be obtained from this ship in 2008, as opposed to only $3.4 million in 2007, because she started her service with us on the 20th of November. Then the additional gross profit contribution for this vessel would be $23.6 million. It is important to note that since we have no FFAs to cover Princess Marisol, the projection of $37 million gross profit contribution estimated for 2008, is subject to the volatility of the market.
Again we suggested you read and take into account the disclaimers and assumptions contained in the bottom of this page when you analyze this information. For 2009, in slide 16, we have followed a similar pattern as we have done in 2008; securing for our OBO fleet throughout 2008 and using FFA hedges what we considered to be an attractive level of income. In this slide we provide a brief explanation of how we have achieved this.
In summary we have covered 93% of the available base of our three OBO vessels after giving consideration to estimated of higher periods due to schedule repairs and surveys, as well as estimated discount compared with the index type vessel. As you can see all other things being equal and subject to the assumption explained in this slide, we estimate that considering the hedges that we have taken so far in 2009, the gross profit contribution of this three vessel OBO fleet would reach in 2009 the same $52.7 million that we have calculated for 2008.
In slide 17, our Ocean fleet depicted in the slide, consists of nine ocean vessels, which the first four in this page correspond to the OBO Capesize ships that we have just been discussing. Our Miranda, Alejandrina, Amadeo and Austral are operating in a fixed rate time charters at attractive levels of the first class oil companies trading in South American. To complete the information on the segment we have included the slide that helps you understand the level of the market comparison with previous years and particularly of note in slide 19 -- sorry slide 18 is a comparison between the current order book and what will be available in 2009 and 2010 if those ships are built on the schedule.
Then slide 19, you can have a look at our passenger business, which is -- consist now of only one ship, the Blue Monarch. This ship is about half the size of the New Flamenco that we sold in 2007. The Blue Monarch is committed to operate in the Aegean for the 2008 season, but started at the end of April and as planned to continue till the end of October. We expect the performance of this vessel to improve over what we experienced in 2007, but the second quarter is generally slower in terms of bookings in the Aegean, so we are expecting a negative cash flow in the second quarter expected to recover in the European summer peak seasons, July to September.
In slide 20 you will find an update of fleet list. In slide 21 we have provided a summary of the CapEx program for 2008, '09 and '10 inline with the initiatives that we have discussed with the various business segments. This CapEx program is provided as a general reference only and we encourage you to read the language provided in slide 21 for a better understanding of the conditions that may affect this plan.
As you can see the total CapEx for the River segment in the three years is $187 million which includes $18 million in 2008 to complete the construction of the new barge building yard and then $28 million per year to construct the barges and other equipment necessarily for the growth of our fleet.
Similarly the reengineering program is estimated to require an additional investment for about $46 million in 2008, '09 and '10 to buy, build, modify and install the 24 engines that we have acquired under this program. In our offshore business, we estimate that the total investments to complete the building of the one vessel that we still have to complete in Brazil, plus the four Indian ships and the two foreign vessels that we have committed to build in China will come to approximately $113 million in the next three years.
Finally, we expect to invest about $34 million over the next three years in the new product carriers, to employ in South America. The total CapEx plan amounts to approximately $333 million in the next three years, $140 million of which will be spent in 2008, $134 million in 2009 and the balance of $60 million in 2010. We expect to finance this plan from internally generated cash, plus additional debt in line with what we have previously announced.
Turning to slide 22, before I turn it over to Len, you will find a quick summary of what you can expect in 2008 from our various business lines. In our river business you should not expect very significant changes over the 2007 results. As discussed, our new barge building yard and ranging projects will only add capacity or change our consumption pattern in a significant way after the second half of 2009.
The capacity that we have added from May -- as from May and June 2008 will less then 8% to our fleet and a normal level of the Paraguayan river in the fourth quarter as well as some price reopening we have had should contribute some what to volumes and results this hear, but rising cost were probably offset part of these gains.
Similarly, in our offshore business as we have discussed, we operated 4.6 vessels in average during 2007, while in 2008 we expect to be operating five ships the whole year or 0.4 of a vessel more. Consequently on an even rate environment, you should only expect to see marginal increases in the results produced by this line of business year-in-year. Again the growth in volumes will occur after the new ships being built are delivered after 2009.
In our Ocean business however, as we have described our three OBO vessels and our Princess Marisol, considering the FFAs that we have entered into and assuming employment in our -- all other variables as described in slides 14 and 15 contributes an additional $25.7 million and $23.5 million gross profit contribution above what they produced in 2007.
It’s important to understand, however that the contribution that has been calculated over Princess Marisol is dependent upon the spot market earnings that the ship is able to obtain for the balance of the year and as such expands to market volatility.
I will now hand it over to Lenn, who will run us through the financial highlight for 2008.
Thanks Felipe. On slides 23, 24, 25 they are dealing with our income statement both on a year-on-year basis as well as by segment. So I will refer to these three slides as a whole. Total revenues from the Company during the first three-months of '08 were 48% higher at $67.4 million compared to $45.4 million to the same period in 2007.
Net income for period was $17.3 million in 2008 compare to $2 million in 2007. Earnings per share for the 2008 period were $0.52 compared to $0.07 in 2007. However in analyzing these figures we should consider that we have recognized an unrealized non-cash mark-to-market gain in our FFA hedges of $6.3 million or $0.19 per share and we have not recognized cash losses on FFAs, which we already accounted for in our December 31, 2007 financial results of $5.4 million or $0.16 per share.
Also whereas the deferred income tax charge of about $200,000 or $0.01 per share from unrealized foreign currency exchange rate gains on our U.S. dollar denominator debt of our Brazilian subsidiary in the offshore business. The net income for the first quarter of 2008, excluding the effects of these three items is $5.8 million or $0.18 per share compared to the $2.8 million or $0.10 per share in the same period of 2007.
We’re reporting consolidated EBITDA for the first three months of 2008 of $34.3 million, which is 107% higher than an equivalent 2007 figure of $16.5 million. Again, adjusting for the non-cash mark-to-market gains and FFAs are $6.3 million and the cash loss on the FFAs already accounted for in our December 31, 2007 results of $5.4 million. The first quarter 2008 EBITDA is $22.5 million, $6 million or 36% higher that the comparable EBITDA for the first three months of 2007.
Our River business EBITDA for the first three months of ’08 was $3.5 million as compared to $5.6 million in the same period of 2007. Volumes loaded during first three months of ’08, with 14% higher than those loaded during the same period of 2007.
Revenues for our River business have been $27.2 million in the first quarter of ’08 compared to $21.5 million in the first quarter of 2007. The differences in voyage expenses and running costs in other businesses have already been explained by Felipe and we will not longer that again here. Offshore supply business EBITDA in the first three months of 2008 must be $4.9 million compared to $4.4 million in a same period of 2007.
Revenues have been $9.2 million in the first quarter of ’08 compared with $8.4 million in ’07. This increase is mainly due for a fourth quarter of operation of our 50 SVD UP Diamante which was delivered towards on a second quarter of 2007 and the higher average rates obtained by the UP Agua-Marinha in Brazil in 2008 when compared to 2007. This was partially offset by lower average rates obtained by the UP Topazio in the North Sea spot market during January and February of this year when compared to a time charter rates in Brazil during the same months of 2007. This increase in revenues might seem low as we had one additional vessel. For fair comparison you should bear in mind that the $1.8 million of additional proceeds from the loss of higher insurance of our UP Esmeralda are accounted for under our operating income.
Net income came to $3.9 million compared to $2.6 million in 2007 mainly as a UP Diamante was operating in the first quarter of '08 under the revaluation of Brazilian real against the US dollar. Moving to the ocean business EBITDA for the first three months of '08 is $26.5 million as compared to $7.2 million in the same period of 2007. However, in analyzing these figures we should consider that we recognized an unrealized on cash mark-to-market gains and FFA hedges with $6.3 million and we have not recognized cash losses director phase already accounted for in our December 2007 financial results of $5.4 million. Excluding both effects the first quarter 2008, Ocean business EBITDA its $14.8 million, $7.6 million or 106% higher than the comparable EBITDA for the first three months of 2007.
Revenues in our Ocean business have been $31.1 million in the first quarter compared to $12.8 million in the first quarter of 2007. This increase is mainly attributable to higher average jet rates obtained by our capesize OBO vessels of Princess Nadia and Princess Katherine; a full quarter operations of our capesize consist Marisol, three months of operation of our product carriers Alejandrina, Amadeo which was delivered to us last year in March and August. All partially offset by the sale of our Aframax vessel, Princess Marina which occurred in September 2007.
Voyage expenses have increased to $1 million in the first three-months of 2008 from 300,000 in 2007, mainly due to the entry into operations of our Capesize Princess Marisol which partially operated in the COA's during this quarter of 2008. Our running cost came to $8.1 million compared to $3.9 million in '07 mainly due to full quarter operations of our vessel Alejandrina, Amadeo and Princess Marisol which have been delivered in March, August and November 2007 respectively and by a lesser number of days in operation of our Princess Maria, which had a dry dock in January 2007.
Our passenger segment business EBITDA for the first three months of 2008 has been a negative result of $1.1 million as compared to a negative result of non 2000 for the same period in 2007. This decrease is mainly attributable to the sales of our biggest vessel Amadeo which occurred in October 2007, as this has an off season employment in the first quarter of ’07 partially offset by lower voyage and running cost also related to the sales of the Amadeo.
Financial expenses grew 26% from $5.1 million during the first three months of 2007, to $6.4 million in the same period of 2008, because our variable interest rate debt increased between March 31, ’07 and March 31, ’08. They should be through our senior loan facilities with DVB Bank, Nordea Bank and Banco Bice.
Finally, you may wish to note that our total tax cost flow for the first three months of 2008 was $800,000 lower than the same period of 2007, mainly due to a lower effect of the deferred charge and unrealized foreign currency exchange rate gains in our Brazilian side of the offshore business.
Turning to slide 26 you will find the condensed version of the Company’s balance sheet. Total assets have increased $9.3 million from $622.2 million as of December 31, ‘07 to $631.5 million as of March 31, ’08 mainly due to 45 barges and three push boats acquired during the first quarter of ’08, partially offset by a 35% decrease in our tax position which was used to fund our several CapEx programs in the River and Offshore segment.
On the liability side this increase of $9.3 million between December 31, ’07 and March 31, ’08 principally stands from $3.8 million higher accrued interest mainly due to our full quarter of accruals of our new Loan Facility with DV Bank, Nordea Bank and Banco Bice as all of them drew down during the fourth quarter of 2007.
During the first quarter of 2008 we entered into a full year term loan of $25 million with Banco Bice for the purpose of repaying $25 million of re-impaired from the revolving credit facility and with that explanation I would like to turn this presentation back to Felipe.
Thank you very much for joining us on the call today and giving us giving us the opportunity of sharing with you some comments on our first quarter 2008 performance, we will be glad at this time to take your questions.
(Operator Instructions) Our first question comes from Scott Burk of Bear Stearns. Your line is open.
Scott Burk – Bear Stearns
I’m sorry I had the mute button on. I wanted to ask about the 2009 FFAs, are those going to be qualifying hedges as well or are we going to have to see some movement in the income statement as you had non-cash losses or gains on those FFAs?
No, we believe they will remain to be cash flow hedges. So, we should not see the impact of those come through our profit and loss statement either Scott. The only FFAs that would not qualify as cash flow hedges were the short-term ones that expired in the 31 March.
Scott Burk – Bear Stearns
Okay and have you reduced or have you done anything to reduce the risk of the spread between your vessels and the indexes that you are hedging off of. Have you done anything to reduce the risk of that spread widening or narrowing?
Well, as you know that is a negotiated matter between the owner and timely charter. We have -- for the purpose of the calculations here we have used 25%, but as you know and as we have previously reported some of these charters we have fixed with lesser discounts. It’s not possible to take an insurance against that spread. Generally what we fixed up to now has been a little lesser discount than 25.
Scott Burk – Bear Stearns
Okay and then Felipe, I wanted to ask you about your comments that you kind through the recap of '08 versus '09; just wanted to make sure I got that right. So you are saying that we should expect similar performance in terms of EBITDA from the river and the PSV segments but about a $25 million increase from the Ocean business. Did I get that right?
Yes we said that in River and offshore you should not expect to see any substantial differences; there might be marginal increases there because as we mentioned for off shore for instance, we are operating 0.4 of a ship more. Now in Ocean as we detailed, I think in the slides, you should expect to see incremental revenue and gross profit contribution coming from the three OBOs of about $25 million and from the Princess Marisol of another $23 million approximately.
Scott Burk – Bear Stearns
So, the Princess Marisol another $23 million, okay. Okay that makes sense, but then on the river front I mean we saw significantly higher rates of $25 a day and I realized that three bucks of that or $25 a tone, $26 a tone -- I know the three bucks was just fuel recovery, but with such higher rates its surprising me that we won’t be able to see a little bit more growth in the river business this year, just in terms of bottom line growth?
Well, as we explained on the slide, there is a real increase if want to call it that or about 8%; that’s $1.65, but we’re also experiencing cost increases of about $1.82 this quarter. As you can see finally we -- that is May end up being a wash. Perhaps there is going to be an incremental result coming from the fact that the 2007 year experienced very low water in the fourth quarter and of course we don’t expect to see that in 2008. If that normalizes -- if we have a normal fourth quarter -- what we had announced in 2007 was 10% increase in our EBITDA for the year over 2006, so that would be more or less effect that you could expect to see a bit now.
Scott Burk – Bear Stearns
Okay, I understood and then also one other thing I wanted to clarify; it looks like you -- the new building barges are being delayed until second quarter or second half of ’09 at this point. So, we have seen some delays in the new building yard; can you comment on that?
No, we don’t; absolutely yes, sorry. I perhaps -- I didn’t explain that correctly. The yard is on the plan and it’s going to start producing by the beginning of 2009, but you can have dry runs at the end of 2008, but of course it builds one barge a week. So until accumulates into a significant additional capacity it will only be in the second half, when you will start feeling the effect, is that clear?
Scott Burk – Bear Stearns
Oh I see, I understand. So, basically the timeline is still as same as it was a couple of quarters ago?
Our next question comes from Justine Fisher of Goldman Sachs. Your line is open.
Justine Fisher - Goldman Sachs
My first question is why did the strike in Argentina not have an effect on the river business?
Well, you must remember that the river business only 10% of our total volumes come from Argentina and that the largest part of the volumes come from Brazil, Paraguay and Bolivia and this time of the year we’re not typically carrying a lot of Argentine soybean, the crop in Argentina starts from the Inland destinations and then it moves up north. So, typically until April, May we wouldn’t have seen any of the Argentine soybean be moving in large quantities through the river. So, the impact would be small anyway and really it wouldn’t have been felt time of the year in any case.
Justine Fisher - Goldman Sachs
Okay and then second of all; thank you first for the extreme detail on the Ocean business and I just wanted to clarify, maybe I missed it in a lot of the finances in the slides but you said on slide 16 that for 2009 you have 93% of available capacity covered by FFAs, did you give a percentage for 2008, because I know some ships are on time charters, some not, but what percentage of days is covered by our FFAs for 2008?
We didn't give that percentage and actually we can calculate that that for you, but essentially it is a very large proportion of the three OBO vessels that we operated in 2007 and I think on the graph there, you have two colors; that may help you to see how -- what portion is covered and what not. Out of the $25.7 million that we are expecting as an increase in the gross profit contributions produced by these three vessels, $19.8 million are secured FFAs and $5.9 million…
Justine Fisher - Goldman Sachs
Alright okay. Okay, so it’s the dollar amount okay and just I mean -- I realized that there are not environmental fade out dates for dry dock vessels like there are for tanker age, but your dry dock vessels you are still kind of getting up there on age and have you guys -- have you made any additional plant to kind of renew that fleet or are you seeing the charters concerned about the age of the fleet or not?
No, not really all of our ships are vetted vessels by the maintain institutions that dry cargo vessels for loading. They all have their surveys up to date and generally we maintain them in a very high -- to a very high standard, so no we do not experience problems in fixing these vessels or of course they are on the relatively advanced stage as you quite rightly pointed out. We are thinking of the renewal of this fleet come to 2011 when the three main novo’s will reach to 25 year age mark and as you can see from the order book that the deployed that we presented in the slide we expect the supply side of Capesize in 2010 and '11 to be more plentiful, so we think that will be a good time in the market to replace some as well.
Justine Fisher - Goldman Sachs
The 25-years is pretty much the age that you are looking at as far your replacement goes?
Well not really you can -- many ships are operating beyond the younger 25 year mark now, because with these very high rates you can pay for the special with 25-year special survey. So it's quite possible that these shale's would quantify for further trading, but we are sort of targeting a replacement date around 2011.
Justine Fisher - Goldman Sachs
Okay and then I think that you guys obviously spend a lot more time talking about the offshore and the ocean and the river businesses versus the passenger business because those are clearly the high growth businesses, but are you -- what is the longer-term gain plan for the passenger business?
We don’t have a long term plan defined at the moment. We are operating the ship; we are looking at facilities for her and what can we do in this sector, but really our participation here is very small and is clearly not one of our core businesses. I think that's all we can say at the moment.
(Operator Instructions) Our final question comes from Matthew Dundon of Miller Tabak Roberts. Your line is open.
Matthew Dundon – Miller Tabak Roberts
Thanks. So just to be clear, all the 2007 FFAs expired as of March 31 and the FFAs in effect are the four 2008 FFAs described in yesterday 6-K?
Mathew, let me confirm that we have announced every FFA that what we did. So you will find them listed one-by-one in our 20-F and then in the 6-K that we filed yesterday. Yes everyone has been individually disclosed. The FFAs that covered our ships up to the 31 of March 2008 were not found to be quantified as cash flow hedges by our auditors and therefore they were accounted for -- the results of those FFAs were accounted for against our profit and loss statements. So every quarter the mark-to-market of those FFAs gains or losses would be recorded against our profit and loss. For every FFA, which expires beyond the 31 of March, we have a scenario where they quantify as cash flow hedges and therefore they do not impact our profit and loss. The results of those hedges are only recorded in the profit and loss when they settle; is that clear?
Matthew Dundon – Miller Tabak Roberts
I guess what’s not clear is that just before contracts that the four FFAs that were disclosed in last night’s filing or there were still some cash flow hedge impacts of the FFAs that were signed in 2007?
There is still some impact of the ones that we bought -- or sold in 2007.
Matthew Dundon – Miller Tabak Roberts
Okay. So, we can [inaudible] but the accounting impact will strictly be on the cash flow side and disclosed on a vessel-by-vessel net basis? And that will be in the 6-K going forward?
Yes. In the 6-K’s going forward you will see the impact of the cash settlements only.
Matthew Dundon – Miller Tabak Roberts
What did you -- in press reports last week there was a speculation that the high levels of multi dry indexes were attributable to at least impart, credit difficulties at the shipyards. Do you think that might create opportunistic opportunities for new buildings, for people with access to capital or was that a overdone concern and people are going to take their new buildings as schedule to be able to pay for them?
There are as many opinions printed as there are writers, but no we don’t generally think that the new buildings being constructed now will not be taking delivery off. At least not the immediate ones, because at the movement those ships can be fixed at very significant rates, so the outlook of the order book is that people would receive their ships that’s our duty.
And I’m showing no other questions at this time.
Well, thank you very much for participating in the call today and we look forward to talking to you in our next quarter reporting, thank you.
Thank you for participating in today’s conference. You may disconnect at this time.
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