IQ Ultra Short Duration ETF
Q4 2012 Earnings Call Transcript

Published: 15 Mar 2013

[Operator:]

Welcome, and thank you for standing by. [Operator Instructions] Today's call is being recorded. If you have any objections, please disconnect at this time. I would like now to turn the conference over to Mr. Len Hoskinson, Chief Financial Officer of Ultrapetrol. You may begin.

[Leonard J. Hoskinson:]

Thank you, Wendy. Good morning, everyone, and thank you for joining us. Welcome to the Ultrapetrol (Bahamas) Ltd. Conference Call to Discuss the Company's 2012 Full Year and Fourth 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 the slide presentation, which forms a 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 from the forward-looking statements. 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 Report on Form 20-F for the year ending December 31, 2012, which was filed yesterday as well, and on 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 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 Ross:]

Thank you, Len. Good morning, everyone, and thank you for joining us on the call today. In order to be able to make best use of the material that we have filed, together with our press release, as we go along, we will reference, as usual, the slide number that corresponds to the information we are discussing. In Slide 3, you will find a summary of our year-end results for 2012 compared to the equivalent results for 2011. The most significant event of 2012 has been the closing of a capital infusion in the amount of $220 million concluded in December. The beneficial effects of this transaction will be discussed in more detail later as we go along the presentation. The adjusted EBITDA for the period is $32 million, which compares with $54 million in the same period of 2011, while our adjusted net loss and earnings per share are $46 million negative and negative $1.30 per share, which compares to a negative $22.4 million and $0.76 per share in 2011. As usual, we adjust the net income and earnings per share to reflect the provision for exchange variance in our Brazilian subsidiary, which is a non-cash effect produced solely by the devaluation of the Brazilian currency. In 2012, we have also carried out a non-cash impairment charge on the value of our vessel, Amadeo, which Len will explain later in more detail. It is important to point out that most of our fleet is not exposed to the volatility in values common to some sectors of the shipping market. And that we do not anticipate any other significant impairment charge on our fleet values. Finally, in the adjustment to net loss, you will note that we include $900,000 noncash write-down of the expenses associated to the old DVB/Natixis financing, which was partially prepaid in 2012. Let's turn to Slide 4, where you will find our fourth quarter 2012 EBITDA per segment compared to the equivalent period in 2011. As you have seen in more detail, when we analyze each individual segment, the River results continued to suffer in the fourth quarter. The consequences of the very severe drought that reduced the volume carried and produced abnormally low river levels impacting our operating costs and resulting in a decrease of $11.4 million in the EBITDA of this segment, when compared with the fourth quarter of 2011. Our Offshore businesses provided its results substantially as a consequence of the improvement in the operation of the fourth quarter of one additional vessel, UP Jade, that entered service in August 2012, as well as a marginal increase in operating days of UP Diamante and Jasper, when compared to the same period of 2011. Our Ocean business adjusted EBITDA decreased $2 million, mostly as a consequence of the offhire time of MV Argentino, which carried out its regular drydock during most of the fourth quarter of 2012. Finally, there was a noncash variance associated to the regular exchange variation at the end of the period, which produced a $1.4 million positive variation across the segments in our adjusted consolidated EBITDA. In Slide 6, you will find the full year and fourth quarter comparison of our 2012 River results against those obtained in 2011. As you can see, the total volume transported in 2012 was 24% or 1 million tons lower than the equivalent total volume we carried in 2011. In the fourth quarter in particular, this comparison is even more unfavorable showing a 28% decline in volumes carried. This reduction, as we have discussed along the first 3 quarters of 2012, resulted from a very severe and prolonged drought that affected the region that we service, impacting both the agriculture production, soybeans in particular, and the navigation conditions in the river system that we navigate. We will be taking a closer look at these effects later in this presentation. Revenues associated with the transportation of cargo in our River business fell as a consequence of these events by $22.5 million when we compare 2012 with 2011. And even worse, revenues fell by $13.3 million or 32% when you compare the fourth quarter of both years. Revenues of our barge building activities derived from third-party sales in 2012 increased by $11 million or 59%, which partly compensated this effect. Of course, the manufacturing expenses associated with a larger number of barges sold to third parties in 2012 did increase the voyage and manufacturing expenses when comparing this period with 2011. Voyage expenses associated solely with the transportation of cargo in our River business, as well as running costs associated with operating the rural fleet, increased by 3% and 18%, respectively, in 2012 compared to 2011. As a consequence of the extraordinarily adverse river conditions, which forced us to carry less cargo in every barge and consumed significantly more fuel to carry every time. As we will see further on, the combined effect of these 2 factors in an environment where we were committed contractually to carry cargoes for fixed rates, produced, in 2012, a unique negative set of circumstances that produced a poor result of our River transportation activities. An additional contributing factor during 2012 was the continuation of inflationary pressures in our costs, not reflected in equivalent adjustments of the rate of exchange of the local currencies against the U.S. dollar, which compounded the above problems still further. In Slide 7, you will find a more detailed analysis of the combined effect of low volumes and adverse river conditions that we experienced in 2012. On the left-hand side, you will see a bar chart, which shows the Paraguayan seeded area and the corresponding soybean production for the past decade as estimated by the U.S. Department of Agriculture. The very significant drop in production for 2012 is clearly reflected in these figures. The impact on our volumes and revenues is even more significant, since 65% of the volume of cargo that we carry, in any given year, are soybeans or their derivatives. In 2012, we carried almost 1 million tons or 33% less soybeans in the year than we did in 2011. When the crop falls as dramatically as it did in 2012, the only alternative replacement of the lost volume is iron ore, which not only carries a lower freight per ton but is also loaded in a sector of the river which is far more distant and suffers seasonality in its available drop. As you can see in the graph on the right, not only did the river levels remain much lower than the average levels of the past decade, but this sector of the river system was innavigable for the entire first few months of the year, and then fell abruptly into the same situation in the second half of the third quarter. This navigation situation produces 3 effects

[Leonard J. Hoskinson:]

Thank you, Felipe. Moving to Slide 19, we show the breakdown across the core business, segments, the revenues, voyage expenses and running costs. As Felipe has already discussed the main highlights of each business, I'm not going to repeat them here. What we have witnessed in 2012 is the financial impact of a very unusual set of circumstances that affected our River business. Firstly, the severe drought that curtailed agricultural cargo volumes on the river and to the extent that we are able to arrange substitute, iron ore cargoes, and we were affected by extremely low river levels, which extended the voyage times, increased the fuel costs and reduced the load of each barge with its consequence in revenues. The River business incurred an operating loss of $19 million, which was a decline from an operating profit of $13 million in 2011. However, total revenues for the company during 2012 were 3% higher at $313.2 million, compared with $304.5 million for the same period in 2011. In Offshore, our operating profit was up 60% when comparing 2012 with 2011, from $11 million to $17.6 million. In Ocean, our operating loss increased from $4.8 million to $23.8 million, principally due to the noncash $16 million impairment charge related to the Amadeo, but also arising from a mismatch and the devaluation of the local currency against the U.S. dollar on certain operating expenses. The company's adjusted EBITDA for full year and Q4 2012 was $32 million and $6.2 million, respectively, while the comparable figures in 2011 were $54 million and $16.1 million, respectively, i.e., 41% decline in EBITDA for -- comprised with the 12-month period and a 62% decline. Switching to the River business in particular, adjusted EBITDA fell by 88% from $31.4 million in 2011, $3.8 million in 2012 due to the particular circumstances that affected 2012, as we have mentioned earlier. For a reconciliation of EBITDA to cash flow from operating activities, please refer to the tables which we have included at the end of this presentation. Turning now to Slide 20. Net loss for continuing operations in 2012 amounted to $63.4 million, or a negative $1.80 per share, compared to a loss of $18.8 million or negative $0.64 per share for the same period in 2011. Net loss from continuing operation in the fourth quarter of 2011 declined further from $6.5 million or $0.32 a share, to $31.6 million or negative $0.60 a share for the same period in 2012. In 2012, there was a negative adjustment on a noncash charge relating from provision on income tax on exchange variance and result, and a positive adjustments from the yard EBITDA from the sale of barges to Touax. Because these barges are under an operating lease of 10 years, our accounting will only recognize these gains during the period. The non-cash loss on the write-down of the Amadeo and part of the extinguishment of debt expenses relating to the original loan on the Bharati new buildings, giving an adjusted net loss figure for 2012 of $46 million or negative $1.30 per share, compared to a loss of $22.4 million or negative $0.76 a share for 2011. Estimating the relevant adjustments for the fourth quarter 2012, adjusted net loss for the company for the fourth quarter 2012 is $13.4 million or adjusted earnings per share of negative $0.26 a share, compared with a loss of $7 million or negative $0.24 a share for the equivalent period in 2011. On Slide 21, we have a condensed version of the company's balance sheet as of 31st December 2012, as against 31st December 2011. At 31st December 2012, we hold $222.2 million in cash and cash equivalents, plus there was another $6 million in restricted cash, making a total $228.2 million. In 2012, we have new investments of $13.4 million in our various ongoing projects in our River business and $8.9 million in PSVs being mainly the investment in our new PSV delivery of UP Jade, which occurred in 2012 and the stage payment for the UP Pearl. In 2012, we have marginally increased our year-end total financial debt by $4.5 million to $517.5 million from $513 million at 2011 year end. In 2012, we have repaid, under our loan agreements, as scheduled and drawn down and under our new DVB, NIBC facility took part from the purchase price of the then newly delivered UP Jade. On Slide 22, we show our current debt repayment schedule. For 2013, we are showing debt repayments of $49.4 million, which excludes the prepayment of the convertible notes, $18 million having already been repaid on January 23, 2013, but it includes a scheduled loan repayment as prepayments of the remainder of the predelivery financing of the Bharati new buildings, UP Amber, UP Pearl and UP Onyx, that will be prepaid with part of the proceeds from the new $84 million post-delivery financing, now agreed with DVB, NIBC and ABN AMRO, who are now financing the 4 Bharati vessels. I should mention, perhaps, this transaction was worked on throughout the second half of 2012, completing the stock at the time until the full replacement of the original DVB/Natixis facility were signed in 2013. Looking beyond 2013, we have balanced yearly principal repayments in the medium term. We have no refinancing requirements in the short or the medium term, other than the security mortgage notes which are due in November 2014. Our debt arrangements remain conservatively structured with either loan-to-value ratios that meet current valuation requirement, or no loan-to-value covenant is required, such as [ph] our 2014 security mortgage notes, covenants are in compliance. Moving to liquidity and significantly reduced exposure to debt, the company is now in a very good position to develop the business plan going forward. And with that, I like to hand the call back to Felipe.

[Felipe Menendez Ross:]

Thank you, Len. We are ready to answer your questions.

[Operator:]

[Operator Instructions] Our first question today is from Ben Nolan.

[Benjamin Nolan:]

This is Ben from Knight Capital. I have a few questions for you. So first of all, I guess, focusing on the River business. One of the things that wasn't really laid out in the presentation here is sort of a CapEx plan. And I know that you had said that you looked to be fully -- or surely engaged to sell your -- all of you capacity. Does that mean that there is -- there are no barges to be incorporated into your own fleet, and then everything is going to be sold? Or any color that you may have on sort of how you're thinking about spending capital over the course of this year would help.

[Felipe Menendez Ross:]

No, we don't want to convey the impression that we were selling completely our capacity for third parties. We do have orders that, if we wanted to accept-- all these clients that have come to us asking for us to build them a number of barges, we could cover all the capacity of the yard. With the orders that we have and the options of the current customers can exercise, it leaves room for building approximately 20 to 30 additional dry barges. We have to decide how many of those 20 to 30 additional dry barges we will need them to build for ourselves. And some the -- the first quarter, we have taken delivery of part of the 2x barges, which as you remember, were ordered last year, and those barges come on lease to us. So that increases our capacity without having actually spent CapEx. We build for ourselves, and the number that we decide to build for ourselves will be probably in the fourth quarter. But given the first 3 quarters, we will basically be busy building third-party barges. So we will be adding barges very much at the end of the year and the number can be anywhere from 0 to 30 because that's the capacity that we have left.

[Benjamin Nolan:]

Okay. And then sort of associated with that, I know that, what you put in the presentation is somewhat theoretical more than guidance. But you did put sort of on a 2011 run rate, if you assume the adjustments in pricing and in capacity and so forth, that the $36.5 million of EBITDA would be maybe a target, call it for 2013. Does that incorporate EBITDA generated from the barge sale business? Or is that just from the operations of the fleet?

[Felipe Menendez Ross:]

What we did in that exercise, Ben, was basically take the 2011 pure transportation numbers, meaning, not associated with building barges, just the transportation. And we use a set of assumptions to show a performer effect. So people did have a sense of dimension. It is not meant to be guidance, but it can be useful, we think, to picture what would've happened in 2011, had these set of circumstances that we believe will flow this year -- have been in place. So it gives you a sense of guidance and it's based purely on transportation, but it doesn't mean to be a guidance of 2013 at this point.

[Benjamin Nolan:]

Right, right. So how much, again, not in terms of guidance, but just if you had sort of come up with a back-of-the-envelope type number, how additive do you think the barge building business may be to the -- in terms of EBITDA to the underlying River business? Or your...

[Felipe Menendez Ross:]

Well, we have said that in 2012, we built -- the barges that we built for third parties accounted for an EBITDA contribution of approximately $13.9 million. So the number of barges that we'd be selling to third parties in 2013 would probably be larger than that. So you can take these back as a figure to plug in.

[Benjamin Nolan:]

Okay, perfect, that's helpful. And then switching gears a bit to the Offshore side of the business. Obviously, there are quite a number of contracts with Petrobras for extensions or new contracts that are awaiting board approval, but the existing contracts come off -- or they roll off shortly. And any -- I mean, should these be back-to-back type transactions? Or is there a risk that perhaps, there's a bit of downtime associated with the time between contracts or how should we think of that? And then, also, one of the other things was that I noticed that some of the -- a few of the newer contracts are scheduled to start in August whereas, you guys have already taken delivery of one of the new PSVs. And of course, there's the transit time. But still, I would imagine that it would be available before August. How are you thinking about those things?

[Felipe Menendez Ross:]

Okay, just 2 things. No, we have not experienced any downtime, basically, because up to now, Petrobras has been requesting us. And I may clarify, all the rest of the industry is encountering the same problem. The new administration, Petrobras has put in place a commission, which basically has to authorize everything that is not regarded as a current operation, day-to-day thing. So it's essentially, while this commission provides its report to the board and the board approval is obtained, the vessels are renewed under the current contracts on a month-to-month basis, and in some cases, a 2-month basis, so there'll be no downtime associated. The length of the new contracts is still the same, but of course, the new rates don't kick in until those contracts are signed. So for the 2 new ships coming out of India that only start in August, that it does -- is not really a concern, because we have some time from here to there. The UP Agua-Marinha, Topazio and Diamante should've been in this new rate already since the beginning of the year and, well, we're working for that approval to come on line to switch on to the new rates. In the case of Esmeralda, which is the only other ship that we have to get an extension, that situation occurred in February -- sorry, early March, and now we've extended that for a couple of months to give them the time to execute. So there's no downtime, but of course, the new rates don't kick in until the contracts -- the new contracts are signed. And as to the employment in the intermediate period from the time the vessel arrives in Brazil, till the new contracts kicks in and August, which particularly will apply for UP Amber, what we're looking at is short-term employments in Brazil. There are 3 at the moment that we are considering. And there are also -- there's also a possibility of intermediate stopping [indiscernible] traffic of the short-time employment as well.

[Benjamin Nolan:]

Okay, perfect. Now, that's extremely helpful. And then, the last question that I had relates to the cost side of the business. And obviously, completely understand the inefficiencies associated with the running costs and the extra fuel expenses relative to the revenue associated with that. But one of the things that you've mentioned a bit, but to jump off at me was the G&A expenses, especially for the River and the Ocean business, seemed to have escalated quite a bit. I know that there's some currency element to that, but was just wondering if there's anything else associated with that? Or if that's something that you would envision continuing to rise? And just your, I guess, general thoughts around the general and administrative expenses.

[Felipe Menendez Ross:]

Well, this currency situation has really played a devilish effect in terms of the G&A, because basically, by having the same number of people in the same organization, expenses over the period of 4 years has basically doubled. But I haven't said that the only sector where G&A is growing, in physical terms, will be in Brazil in relation to our offshore activities. And that is basically a question of the number of ships that we are operating there. When the 2 new Indian vessels come in, plus the remaining 2 that we have at the end of the year, we will have 11 vessels operating in Brazil, whereas 1.5 years ago, we had only 6. So essentially, we are growing a little bit in the number of people. But it's nowhere proportional to the increase in the fleet. Otherwise, no, we have -- after the disposal of the ocean ships, we have downsized our operation in Miami. We took care of the part, we took care of the operation of the international vessels, which we no longer have in 2010. And we have not upsized either our River or other offshore activities like in North Sea.

[Benjamin Nolan:]

Okay. So at this point, you don't -- other than the offshore business, you wouldn't envision any more escalation in the G&A away from possible changes in the currency, is that fair?

[Felipe Menendez Ross:]

That is correct.

[Operator:]

Our next question is from Steve Sylvester [ph].

[Unknown Analyst:]

Stephen Sylvester, Centra [ph]. You guys have obviously provided guidance in the past. This really worked out very well, but is your intent to provide guidance this year, or...

[Felipe Menendez Ross:]

Well, because we generally don't give guidance until we can see the second quarter results, and then it can be more accurate. What we are trying to do in this presentation is to give people building blocks, so that you can actually draw some conclusions at this point in trying to anticipate what might happen. And it's -- in the River, we already just discussed that with Ben. In Offshore, if you consider that our fourth quarter 2012 EBITDA for the fleet of 9 vessels in operation was equivalent to $8 million, that would represent for the same fleet, a $32 million EBITDA for the full year. And we have said before that the new rates, the new contracts will have an impact of $8 million and $4 million on an annualized basis, so that is $12 million. With the current calendar, those new rates would seem to be in effect for at least half of 2013, so you can put another $6 million there. That will give you $38 million for Offshore. And in Ocean, you can use any of the past EBITDAs on a normalized basis, whether they are or not affected by drydock. So if you take 2011, the Ocean, in contribution to EBITDA, was $5 million; and you take 2012, it was, I think, $7 million. Well, anywhere in between there would be your number. Now if you add them up, you can use those building blocks that we have tried to provide in today's presentation as to what once can roughly, very roughly look at in terms of production. But we're not giving guidance at this point until we can see the second quarter figures there.

[Unknown Analyst:]

Okay, but the intent would be potentially in second quarter providing some targets?

[Felipe Menendez Ross:]

When we disclose -- generally, what we do is when we disclose our second quarter results, and that is in early August, we provide guidance for the balance of the year, yes.

[Unknown Analyst:]

Great. Just in terms of the barge building business, is there a margin we could think about in terms of the business, and how profitable it is?

[Felipe Menendez Ross:]

Well, as we mentioned before, if -- because if you want to use a yardstick of a number, in 2012, we have discussed that the yard contributed $14 million, almost $14 million to our EBITDA. So provided we sell the same number of barges to third parties, you can use that number. Of course, if we sell more barges to third parties, that will increase, but it would also deprive us from barges for our own growth. So it is double-edged sword to that effect.

[Unknown Analyst:]

And just out of curiosity, as you -- this is still a new business for you. Are there efficiencies that you are realizing as you get better at this? Or is it -- that's not the case?

[Felipe Menendez Ross:]

Well, yes. It's a very difficult question. In 2012, we, for the first time, launched the yard into a dual-production mode and put in place a temporary second line to do that. Before that point, we used the yard in a single-product mode, so we were either producing dry barges or tank barges. And it's difficult to coordinate the building of both because when we get to the launching ramp, the tank barge takes 3 times the number of man hours than a dry barge, basically because you have to fit in pipes and valves and pumps and a lot of equipment that the dry barge doesn't have. So we had to -- what we did was build a temporary sideline in the launch ramp, so that we could build both types of barges at the same time. There was an initial loss of efficiency related to that, and little by little, we have been regaining efficiency in our aims to get to the same number of man hours that we could produce by building a single large type in the -- a single product at the time. If we do that, we can gain very significantly in the efficiency of the yard. At the moment, we are working 2.5 ships. So basically, we are working to absolutely full capacity. If we added a second panel line, it could actually grow by about 30% our production, but that would require an additional investment and a time lag to build. So it's a decision that we don't want to take at least in 2013. I think we'll continue to produce as we are. So what we are focusing on is improvements and efficiency until we reach the number of man hours that we've reached in single-product basis. And we can't work any more hours because we've already covered basically 24 hours of the day, including the maintenance time that we have to devote to the equipment.

[Unknown Analyst:]

Great. And also in terms of the third parties, it's still outside your River system? Or are there some sales to other competitors?

[Felipe Menendez Ross:]

Most of the sales have been outside our River system, essentially to Colombia. And we have also sold some barges within the River system to places where we don't feel that they are competing against us or we're -- even if they are competitive, it's a part of the business that we are not necessarily interested in. So most of it has been sales outside the River system.

[Unknown Analyst:]

And I'm sorry if you have repeat this, I just sort of missed it when Ben was asking this question. But just on the contracts for Offshore, just the EBIT, Slide 14, where there's 4, I think, that say agreed rate awaiting board approval. Is this -- again, is this -- it's not an issue, it's just new management's in -- is executing and takes longer to do that? Or is there anything we need to think about in terms of this approval?

[Felipe Menendez Ross:]

Okay. The only thing that we can say about this is that basically, in the case of the first 3 vessels, Agua-Marinha, Topazio and Diamante, we negotiated these rates with a Petrobras commission. The negotiation was over a period of 2.5 months. There was a final memorandum of agreement signed on these rates subject to the board approval. The board approval in Petrobras is normally 1.5 to 2 months exercise, because it requires that the documentation transit through several approval levels and legal approvals. So the only difference between the ordinary process and what is happening now is that the new administration of Petrobras that stepped in last year, basically has put in place a commission that studies everything and approves everything that requires long-term investments or expenses before it goes to the board. Our case is not unique, it's -- all the contracting of offshore services has been put through the pipeline of this commission and it is all being held up from its approval. The commission we are going to understand is now releasing things that were approved in August of last year, internally. So the only thing I can tell you is that we negotiated and agreed these new rates. The ships are on the Petrobras employment, it's not like they're idle, but the new rates don't kick in until the contract is signed. The situation with the other ships, with the 2 Indian ships under employ, as well as with Esmeralda, is slightly different in a sense that they won the tenders, they had required extension of those offers. We have confirmation that these ships are going to be required under the tender and that until the commission approves, then it goes to the Board, you don't have a signed contract for them. So in the case of the Esmeralda, again, we've been extending the contract, the old contract to work. And for the 2 new Indian ships, we've be waiting for it, because the contract doesn't kick in till August, and the ships, one of them will be coming shortly and the other one is still under construction, so that is the situation. We do not have any more clarity on this other than what I give you. Other than it doesn't really affect our company, it affects the entire spectrum of Petrobras offshore services. And the contracts that have been approved coming -- by the commission and one to the board and to seek board approval often very late, have not been changed in shape or renegotiated in any form. But has just taken a very long time. But of course, we don't have any other inside information to provide.

[Unknown Analyst:]

So in the worst case, if the contract isn't approved by contract end, potentially, it just -- the work continues, but at old rate? Is that...

[Felipe Menendez Ross:]

Well, what the operational people in Petrobras tells us, and what we sense on a daily basis is that we absolutely need the services of these ships. They are very, very short of capacity on the vessels. Let me give you a practical example. 1.5 week ago, one of our ships went into Victoria and we notified Petrobras that we need to pull the ship off for a short maintenance repair, which we do have the right under the contract, and Petrobras gave us a call at the very highest level saying, "Please don't do this, because we are very, very short of capacity. We need every ship that we have in service." So that -- we just be postponed that, the maintenance issue, and kept going. They are very short of capacity, the presold operations are now growing at a very fast rate and we sense that the ships are required. And actually, a company the size of Petrobras has held back on all its new contracting for a few months, and it's really hurting their operational needs. So our sense is there's no question, the ships will continue in operation. We'd like to see the new rates kick in. Petrobras' argument is you have nothing to worry -- you have a 4-year contract, and you still have a 4-year contract, which is true. But we would like to see it again earlier better than later.

[Unknown Analyst:]

Last question. With the new partnership with Southern Cross, are they at all involved in day-to-day operations? Are there some -- I would assume part of the investment, potentially includes doing some -- not cleaning house, but getting costs down and figuring how their investment is going to work. Has anything changed since the investment?

[Felipe Menendez Ross:]

Well, Southern Cross is a very hands-on private equity manager, and we are in close contact with them on a daily basis and exchanging ideas on how to do things. So I think their support has been very constructive. And we are studying things going forward to improve our operational base and reduce costs. So I think we have a very good collaborative effort to them, and their supply and view about how to manage the company coincides completely with us.

[Operator:]

Our next question is from our Arieh Coll.

[Arieh Coll:]

With Coll Capital. Can I just turn your attention to Slide 6 of your presentation. I'm just trying to build -- use you building block analogy and try and better understand the River business here going forward. If we look at 2011, you had revenues of $175 million. Can I just kind of clarify what portion of that $175 million was exclusively the River barge revenue versus the barge construction?

[Leonard J. Hoskinson:]

Sure. It's not shown in there, Arieh. But roughly, transportation services were $155 million of that $174 million and barge revenues from third-party sales were $19 million.

[Arieh Coll:]

Okay. So the $155 million of River revenue led to approximately $25 million of EBITDA in 2011?

[Leonard J. Hoskinson:]

Yes, sir. That's correct.

[Arieh Coll:]

Okay. So using that as a building block with your analogy, what I'm trying to understand is you've been retrofitting or operating the engines in a lot of your barges. If you end up having a similar year, 2011, in terms of tons transported and maybe the same amount of River miles as well, and consumption -- River miles as well, what would be the reduction in your voyage or running cost because of reductions and fuel use?

[Felipe Menendez Ross:]

Can you hear, Arieh?

[Arieh Coll:]

Yes, sure. Let me repeat the question.

[Felipe Menendez Ross:]

No, we heard about the first of it and then you died out. "What would be the" and then we couldn't hear your end [ph].

[Arieh Coll:]

Well, I'll just summarize. I'm trying to understand your expected fuel savings in 2013 compared to 2011 because of the upgrades of numerous of your barges to be more fuel efficient.

[Leonard J. Hoskinson:]

It's a number we have not discussed publicly in detail. We have said in the past -- we provided a slide, which indicates the fuel savings at various stages of the program. And we are now -- we have now executed -- it's about 60% of that program. So for the gap, the fuel price gap that we have today, if you follow that graph, compared to the fuel, the fuel gas oil pricing, I think you will find the savings in the order of $3 million to $4 million. But of course, I must point out that the 2011 operation was not a complete diesel oil operation. We already had the pushboats that are running on fuel, one that was there for a good part of the year, and the other one was there for half of the year. So it's difficult at this point to give you an exact impact on the 2011 number.

[Arieh Coll:]

Okay. Let me ask a different question. 2011, when your mix of soybean volumes were more normal, I believe about 60% of your 2011 River revenue was derived from soybeans?

[Felipe Menendez Ross:]

Yes, that is correct.

[Arieh Coll:]

And there were a number of contracts that you renewed at the end of last year with the soybean customers. I believe, and please clarify for me, that about 2/3 of your soybean contracts were renewed after their 3-year expiration. What was the approximate price increases you were able to achieve for the next 3 years with these renewed contracts?

[Felipe Menendez Ross:]

Well again, we haven't really specifically revealed the exact increase of those particular contracts. What we have tried to picture in that pro forma 2011 calculation is that if those increases represented a 35% increase across the board, then the impact would be what you see in Page 19 -- sorry, 9. So we don't -- we haven't disclosed the exact increases of those soybean contracts. But if you take the impacts of increases across the board, and you imagine that is 35%, then the incremental earnings from those adjustments would be $9.7 million over the 2011 figures, as we show in the presentation.

[Arieh Coll:]

Okay, so in that Slide on -- on 9, I'm just trying to understand the math a little better, because I'm clearly making different calculations. If you took the 2011 River revenue of $155 million and have a 35% price increase, that would be $54 million. I'm clearly -- I guess, I'm adding too much revenue, because not all the River business was soybeans and not all of those recontracted. What I'm trying to just understand...

[Leonard J. Hoskinson:]

That's right. The revenue that the increase is only the freight revenues. And we apply the same EBITDA margin that we had in 2011. If you want, we intend to prepare for you how that math was done on that pro forma exactly. But it was pulled off, the freight revenue that is contained within that $155 million. And you will remember in 2011, it was the impact of $5 million, for instance, that was a result of an arbitration that we won against Rio Tinto, which we covered just partly for in 2011 and 2010, lost revenue on the default on a contract. Of course, we shouldn't subject that to a 35% increase with our pro forma because it will distort the end result. But if you want, then you give us your details, later, we can publish and circulate how exactly we got to that calculation. But it's taken from the freight adjustable River revenues of 2011 and applying that 35% number.

[Arieh Coll:]

Okay. And then 2 more quick questions. I know you're trying to protect yourself against foreign currency changes going forward. If the foreign currency adjusts against you going forward, how quickly will you recapture a cost to judgment -- a cost adjustment from your customers? Will it be a 1 month delay, or take much longer?

[Felipe Menendez Ross:]

Well, can you hear me like this?

[Arieh Coll:]

I can hear you.

[Felipe Menendez Ross:]

Arieh?

[Arieh Coll:]

This is Arieh, yes.

[Felipe Menendez Ross:]

Yes. Can you hear me all right? The line is crashing a bit. The contracts up to 2012 did not include, except for fuel adjustment, the possibility of discontinuing services or adjusting the prices for incremental costs. And in all the contracts that we have renewed in 2012, and now 2013, going forward, we have incorporated a clause that allows us either to adjust the rates, in some cases, or to trigger a reopening of rate negotiations, saying our cost base has increased over a certain percentage. We require an adjustment. If the customer doesn't agree to that adjustment, or we can't mutually agree to that adjustment, then we can discontinue the services under the contract given certain pre-advanced notices. But the effect of this clause is basically to prevent being -- prevent us from being trapped into the same situation we were over with 2009, 2012 period where we were committed to carry cargoes at fixed rates with no possibility of interrupting the service during the period of the contract and because of an escalation in cost. So with this new clause, we will have the flexibility that if the cost elements work against us, we can give it a cutoff and open a renegotiation.

[Arieh Coll:]

Okay, great. And one last thing, on refinancing your debt, we're both presuming that your profitability is going to have a very healthy improvement in 2013. Do you have any sort of sense for how attractive the coupon rates might be for you when you refinance your debt? The reason I ask is, as recently this week, CEMEX in Mexico was trying to sell $600 million of debt. And there was, amazingly, a $9 billion of demand for their offering, so 15x more. So there is clearly a strong demand for high-yield securities out there. I was kind of curious what you've seen so far in terms of your optimism regarding being able to refinance your debts that's even more affordable.

[Felipe Menendez Ross:]

Well, we have been seeing exactly the same thing that you point out to. The high-yield market is very liquid, spreads have gone down and rates have moderated. If we used the recent yardsticks, 1.5 weeks ago, another shipping company issued an additional to an existing bond will have rather short maturity. I think it's callable, 2017, and has a maximum maturity of 2019. And they paid 8.15%, I think. Yesterday, we heard about a transaction outside the shipping sector over a B- company that did $300 million at 7.65%. So certainly, the market is growing, showing signs of strength in terms of the high-yield and growing our way in terms of reducing the interest cost for replacement, and we sense exactly the same thing that you mentioned.

[Operator:]

And I'm showing no more questions. I would like to turn the call over to Mr. Felipe Menendez for closing remarks.

[Felipe Menendez Ross:]

Thank you very much, all of you, for joining us in the call today. And we will be talking when we disclose our first quarter 2013 results. Thank you.

[Operator:]

Thank you. This does conclude today's conference. Thank you very much for joining. You may disconnect at this time.