IQ Ultra Short Duration ETF
Q1 2013 Earnings Call Transcript

Published: 9 May 2013

[Operator:]

Thank you for standing by. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time. And I'd now like to introduce your Chief Financial Officer, Cecilia Yad. You may begin.

[Cecilia Yad:]

Thank you. Good morning, everyone. Thank you for joining us for the call today. Welcome to the Ultrapetrol Limited conference call to discuss the company's first quarter 2013 outlook. 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 6-K on press release that we have filed 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 and March 14, 2013, as well as Page 2 of slide presentation that that shortly follows. With me today is Felipe Menendez, Ultrapetrol's President and Chief Executive Officer. Felipe will review Ultrapetrol's business segment, as well as discuss our industry and future growth opportunities. I will take you through the financials and after our remarks, we will be happy to take your questions, and now I will hand the proceedings to Felipe.

[Felipe Menendez Ross:]

Thank you, Cecilia. Good morning, everyone, and thank you for joining us on the call today. In order to make the best use of the materials that we have filed together with our press release, as we go along, we will reference the slide number that corresponds to the information that we are discussing. Let's turn to Slide 3. Before we start analyzing the figures for the first quarter 2013, let me take this opportunity to welcome Cecilia Yad, our new CFO, whom you heard at the beginning of the call. We are very glad that we could convince Cecilia to join us, and we are sure she will make a very positive contribution to our development. We will undoubtedly benefit from the combination of Cecilia's expertise and analytical capabilities, as well as Len Hoskinson's knowledge and experience from a long career in maritime international finance, which will be the main focus of his activity with the company the future. In Slide 3, you will find the summary of our first quarter results for 2013 compared to the equivalent period of 2012. The adjusted EBITDA for the period is $19.3 million, which compares with $7.3 million in the same period of 2012, while our adjusted net loss and adjusted EPS are 0.2 negative median and $0.00, which compares to net loss of $13.1 million and $0.44 in the same period of 2012. As usual, we adjust the net income and EPS to reflect the increase in the provision for exchange variance in our Brazilian subsidiary, which is the noncash effect produced solely by the reevaluation of our Brazilian currency against the U.S. dollar. In this quarter, we have also adjusted our results to reflect 2 other events. As we have discussed in previous quarters, under our agreement with Touax, we've built and sold 10 barges in the first quarter of 2013, and then leased this equipment from them for a period of 10 years. Since the actual cash profit element in the sale part of this transaction is only recognized in our reported net income over the 10-year period of the lease, we make an adjustment of $1.8 million to reflect the cash margin that we have actually obtained in our net income this quarter. Finally, you will note an adjustment of $3.6 million corresponding to the one-time charge of the expenses related to our $18 million Convertible Senior Notes, which we fully repaid, extinguishing the debt in the month of January 2013. At the end of the third quarter, we confirmed the sale of another set of 14 barges, 7 dry and 7 tank units from our Punta Alvear barge building facility. These units will be delivered within this year. Let's turn to Slide 4. In the table at the top of the slide, you will find the comparison between the first quarter 2013 EBITDA per segment and those obtained in each business segment in the equivalent period of last year. It is clearly noticeable from this table that our River business results were substantially better than those obtained in 2012, which as we have discussed in the past, was severely affected by the conjunction of a severe drought that cut the crops in half and very low water levels, which affected the navigation and the overall efficiency of transportation. As you can see, our Offshore Supply business results also improved significantly, mostly as a result of our larger fleet in operation. Our Ocean business EBITDA was almost identical to what we obtained in the first quarter of 2012. In the next few slides, we will go over the individual performance of each segment and what can be expected as the plans that we are executing evolve in the future. Let's turn to Slide 6, where you will find a comparison of our first quarter 2013 River results against those obtained in the same period of 2012. As you can see, the Rivers segment EBITDA in the first quarter produced an EBITDA of $6.5 million compared to a negative $0.5 million in the same period of 2012. In the first quarter 2013, we loaded into our barges 927,000 tons compared to 662,000 tons in the first quarter 2012. That is 40% more cargo loaded. This substantially higher volume reflects the satisfactory crop that has been experienced in 2013 as a result of a normal rainfall. The crop, as you can see, has already been collected and is being loaded into barges. Net ton transported, as you know, relates to our revenue recognition system in accounting, where we recognized a ton as fully transported once the barge has completed the full round-trip upriver to load the cargo and reach the destination fort downriver. Obviously, in 2012, with a much smaller volume loaded, gross and net tons were similar, around 663,000 tons, where in 2013, our net tons transported of 836,000 tons reflect a more typical year, where the concentration of loadings in the early part of the season will result in less tons being recognized as carried than those actually laden at the end of the quarter. Net tons are still, as you can see, still 26% higher than those carried in the first quarter 2012. Revenues in running costs reflect the larger volumes carried together with their proportional expense. Administrative and commercial expenses show an increase in 2013, which is associated mainly to the allocation of corporate G&A to the segment in a different way in the first quarter of 2013 than we did in the first quarter 2012. So you would see variances in these expenses in this quarter, which do not necessarily reflect an equivalent variance expected for the entire year. You will notice a positive exchange variance affecting operating expenses in the Rivers segment in the first quarter of $3.2 million. The segment adjusted EBITDA of $6.5 million that we obtained in the River business this quarter, as you can see, is substantially above what we had obtained in the same quarter of last year. As discussed, the big difference, of course, had been the absence of the significant drought that affected us in 2012. In the next few slides, we will give you a few more details about how we see, at this point, the possible evolution of fundamental variables that may affect our business during the rest of 2013. Turning to Slide 7. In the bar chart on the top left, you will see the USDA statistics for the Paraguayan soybean production for the last 2 years as well as their 2013 estimate. As you can see, the soybean crop is expected to grow from 4.4 million tons last year to 8.4 million tons in 2013. The most important aspect relating to the 2013 estimate is that most of the crop has already been collected, and therefore, there is no remaining uncertainty at this point about what soybean volumes available to transportation are likely to be. In the center graph, you will see the water levels available in the Paraguay River during the first quarter and extending up to April this year compared to last year and the 10-year median for this sector of the river. While we started from a low point at the end of 2012, the conditions for navigation are satisfactory, and as you can see, substantially above last year. The bar chart on the right reflects the total gross tons loaded in our barge fleet in the 4 months period, January to April 2013, compared to the previous 3 years. The healthy volumes that we have experienced in 2013 are coupled with the renewal of substantial portion of our 3-year soybean contracts, which expired at the end of 2012 at higher freights. As this larger crops of soybeans is loaded, we expect that the total revenues will increase as a combined result of better volumes and higher prices. Let's move to Slide #8, where you will see a picture of our automated barge building facility at Punta Alvear, now working 2.5 shifts and producing simultaneously dry and tank barges. As you will recall, we started working in this yard in January 2010, and our first year in full production mode was 2011. As we obtained higher productivity rates and we secured orders to produce barges for third parties as well as our own fleet, the yard has made a significant contribution to our total EBITDA. As you can see in 2011, we sold a total of 19 barges to third parties with a total contribution of $6.9 million to our EBITDA. In 2012, the figures were 37 units sold to third parties and a contribution of $13.7 million. For delivery in 2013, we have already committed as we have progressively announced, the sale to third parties of a total of 51 barges. At the same average contribution obtained in the previous 2 years, these 51 barges would contribute $18.8 million of EBITDA, still leading additional capacity to expand our own fleet. In Slide 9, similar to what we presented in our last conference call, you will find a bar chart that puts together some of the elements we had discussed. If you take the 2011 River transportation EBITDA, we're using 2011 as the last year where normal crop was experienced, albeit a 7.1 million ton crop against an estimate of 8.4 million ton for 2013. And then you apply over that 2011 EBITDA a 35% increase in revenues due to higher volumes and higher freight rates. And finally, you add a pro forma $18.8 million EBITDA contribution from barge sales to third parties. The total pro forma River EBITDA resulting from that calculation will be $51.9 million. This pro forma does not include other sources of revenue EBITDA such as iron ore transshipment, which we have announced will be another source of revenue and earnings for us as from this year. Let's turn to Slide 11, where you will find a summary of the first quarter 2013 offshore supply vessels results compared with the same period of 2012. As you can see, the Offshore Supply segment adjusted EBITDA for the first quarter 2013 was $9.5 million compared to $6.4 million in the same period of the previous year. This represents an increase of 47%. Most of this increase, of course, is due to the operation of our new PSV, UP Jade, which entered into operation in August 10, 2012, as well as the larger number of operating days for UP to cross Jasper and Rubi. Of course, of note is the fact that our total running costs actually decreased by 2% in the first quarter of 2013 compared to the same period of 2012 despite the fact that we had one more vessel in operation, UPJ. This reduction in costs is the result, not only of our efficiency and productivity measures, but related also to a more favorable rate of exchange of the Brazilian real against the U.S. dollar in the first quarter of 2013 compared to the same period of 2012. In Slide 12, you will find a table showing the employment status of our entire offshore fleet. As you will recall, in our last conference call, we discussed that 3 of our Brazilian flagships

[Cecilia Yad:]

Thanks, Felipe. On Slide 17, we show the breakdown across all business segments with total revenue, voyage expenses and running costs. Felipe has already discussed the main highlights for each business so I would not repeat them here. Ultrapetrol total revenue for the Q1 2013 was $77.9 million, showing an increase of $15.4 million or 21% compared to $64.5 million for the Q1 2012. The increase was driven by the River and Offshore Supply business segments, which account of 78% of the total revenues in Q1 2013. The operating expense of the company was $1.9 million for the quarter ending March 31, 2013 from a loss of $4.1 million in the same period of last year. The operating loss related to the River business improved from $5.5 million in Q1 2012 to a loss of $3.9 million in Q1 2013. In Offshore, our operating profits improved 83% from $4 million to $7.4 million when comparing the same period of 2012. In ocean [ph], the related operating loss also improved from $2.6 million in Q1 2012 to $1.5 million in Q1 2013. The company's adjusted EBITDA increased $12 million or 155% from $7.3 million in Q1 2012 to $19.3 million in the first quarter of 2013, reflecting the significant improvement in the first quarter performance in the River and Offshore Supply business segments that Felipe just explained in detail. Pointing to the River Business segment, EBITDA increased $7 million from $6.5 million in the first quarter of 2013 from a loss of $0.5 million in the same period of 2012. Offshore Supply business increased 47% from $6.4 million to $9.5 million when comparing with the same period in 2012. For a reconciliation of EBITDA to cash flow from operating activities, please refer to the tables at the end this presentation. Turning to the Slide 18. Reported net loss on operations in Q1 2013 amounted to a loss of $5.9 million or $0.04 per share compared to a loss of $13.8 million or $0.47 per share for the same period in 2012. The adjusted net loss here amounts to $0.2 million only per share compared with the weighted adjusted net loss for Q1 2012 or $13.1 million or $0.44 per share. Adjustment of the reported net loss from operations were in detail explained by Felipe before, so that we'll not repeat them here. On Slide 19, we have a condensed version of the company's balance sheet as of March 31, 2013 versus December 31, 2012. At ending March 2013, we have $123.6 million cash and cash equivalent and a further [indiscernible] in restricted cash of $7 million and have a current ratio of about 1.5

[Felipe Menendez Ross:]

Thank you, Cecilia, and now at this point, we would welcome your questions.

[Operator:]

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

[Benjamin Nolan:]

I just have a few questions for you. First of all, what a difference a year makes, it's quite a remarkable turnaround. But the first question relates, I guess, to the River business. I know that last year or actually, I guess, it was 2 years ago, the water levels were better, but during the second or the third quarter, I guess, there's so much flooding that there were incidents or problems on the river that restricted flow. Has there been anything that would restrict trade or anything of that sort that might impact things going forward?

[Felipe Menendez Ross:]

No, nothing, nothing that we have seen so far, and we're not inviting any. As you know, weather can bring surprises. But so far, this year, I think the most important thing is that we're not expecting any surprises in relation to the crop because it's already in silos. So that's one main very big step ahead. And so volumes are already there, and now execution of transportation is the challenge. The loadings have been very active in March and April and they continue to be very active in May. The River remains completely transportable and there's nothing at this time which would make us fear that the situation may change. The big advantage, Ben, is that if something occurs now that should delay the loadings, finally, what we would see is probably an extension of the loading season of the seasonality which, as you know, runs from March to September, and we will see the cargo spreading more into the fourth quarter. But the volumes will be there and we think it's going to be a satisfactory year in terms of navigation.

[Benjamin Nolan:]

Staying with the River from a moment, I believe, Felipe, you mentioned that there were 10 barges that were sold and leased back during Q1. Are you guys done with that program, with the sale leaseback program? Or is there more that we should expect throughout the course of the year?

[Felipe Menendez Ross:]

That's correct. Sorry, we forgot to mention that. These 10 were the last of the contract that we had agreed with Touax. So at the moment, we do not have any contract to continue with that program. I'm not saying that we may not do something equivalent at some point in the future, but nothing is contemplated right now.

[Benjamin Nolan:]

Okay. And then as it relates to your capacity at the parts building facility, I know that you probably have most of the volume contracted through 3Q, and then, perhaps, some openings in the latter half of the year. What's your thinking currently as to whether to build those for your own fleet or sell them to third parties? Or what's the current thinking as to how to utilize your capacity there?

[Felipe Menendez Ross:]

Well, we -- that is something that we are debating at this time and it's -- we do have pressure from the bond and we see a number of opportunities that we would like to consider it now and we would also like to increase our own fleet. So it is something that is under debate. Of course, you remember that we can still add barges usually during the months of January, February and March for the beginning of the season. So while our calendar year ends in December, our seasonal year ends in March for the purpose of our capacity. So that's when we need the barges the most, allows us for 3 more months of production. So we are playing with that and yes, there is quite a strong demand for building barge at this time.

[Benjamin Nolan:]

Okay. And then switching gears for a few questions on the Offshore business, if I may. First of all, the reduction in running costs in the Offshore business was pretty remarkable really on a per ship per day basis. Do you have any sense of what a good run rate might be? I mean, should we -- do you think you can sort of replicate the daily running costs that you were able to do in 1Q? Or is that a bit of an anomaly and shouldn't model that forward, or how do you think of that?

[Felipe Menendez Ross:]

We're very happy with the running costs this quarter but we never get overenthusiastic then about just 1 quarter. First, rates of exchange can play us dirty tricks. In this case, the rate of exchange of the Brazilian real stayed more or less stable at BRL 2 per dollar, that definitely helped. As you recall, last year, but not only last year, for the past 3 or 4 years we have been experiencing continuous deterioration of the value of the dollar versus the local currencies and that was affecting our running costs. So -- but on the other hand, I think our team in Brazil has done a great job in reducing running costs and they've been able to reduce them 2% despite the fact that we're operating 1 more ship. We are now putting into Brazil 2 more ships into operation in the course of the next 60 days. I don't think that we can take the numbers of quarter 1 at this time and make an assumption that those will be the numbers for the rest of the year. We tend more to think of 1 year running averages and 6 months running average.

[Benjamin Nolan:]

Okay. Okay. That's helpful. And along those lines, I suppose, is there going to be a little bit of extra expense in Q2, maybe -- well, especially Q2 associated with the delivery of the other 2 vessels?

[Felipe Menendez Ross:]

There is, of course, the one-time positioning, which we always incur when we take delivery of a new ship at the yard in the Far East, and those positioning expenses have ranged between $0.5 million and $750,000 in the past. So we always figure that in because it's a long, long balance coming out of that. And there are also some startup expenses but those, of course, only occur that one time.

[Benjamin Nolan:]

Right. Okay, and my last question, I guess, is a little bit more strategic in nature. Obviously you guys have a substantial amount of cash on the balance sheet, are generating positive cash flow, worked through most of your CapEx program. In the past, there's been some discussion about the possibility of developing your own shipyard in Brazil to build offshore vessels there. I'm curious as to where that stands, or away from that, where you guys are thinking about deploying capital or growing, in general?

[Felipe Menendez Ross:]

Well, all of those projects are under consideration. I would say in a very general way, our focus in Brazil is now on short-term growth. We see a window opportunity coming up in the next 2 years. There's a massive number of new drilling and production units that are coming into play in Brazil in the next 12 months and we think -- and that have come into play in the last 12 months and they are yielding results. So I don't know if you guys read the news about this new field that was discovered or that yielded production a few days ago. And that is now becoming a weekly or daily event in Brazil. So we think that there is going to be a very interesting window of opportunity in the next 2 years to fill out. So I think strategically, our focus is going to be to try to grow fast and also put in play longer-term projects, like the one you described, but more emphasis on how do we expand our capacity and make it available quickly.

[Benjamin Nolan:]

Okay. And away from that, any -- maybe in the Ocean business or in the River business, any other meaningful, incremental growth that you would foresee as most of the focus going to be on the Offshore business?

[Felipe Menendez Ross:]

On our River business, I think we are following the path that we have been describing for quite some time now. The yard should be producing more barges for our own use. If you look at our old projections and you see the number of barges that we had thought to incorporate into the fleet, well, we have grown from the original 1 million tons deadwood capacity to 1.2 tons at the end of last year. I think that you will -- that you just follow the line on the projections that we had offered, in the next 4 years up to the end of 2017 we should be growing another 30%. The re-engining program is now 60% completed or so. So we have 6 heavy-fuel boats in operation. We are going to reach 11 in 2 year's time. We can only take 2 push boats at a time out for conversion [ph]. So that will continue, and we have other minor projects that we are looking at. But basically there, we are following the program that we had announced and the strategy that you already know.

[Operator:]

Jamie Nicholson.

[Jamie Nicholson:]

I have a couple of follow-up questions regarding your River business. In your slide, you had shown a potential $18.8 million increase in EBITDA from barge sales expected this year and I'm just wondering if that is derived from the contact that you have for the 7 dry and 7 tanker jumbo barges or if it assumes additional barge sales. And if it is just this 14 jumbo barges, can you explain the $18 million EBITDA generated from that just given there was $1.8 million EBITDA from 10 barges sold in the first quarter? That's my first question.

[Felipe Menendez Ross:]

Sorry, Jamie, I may have confused you there. The $18.8 million results from the total of 51 barges that we are selling this year to third parties. We have been announcing several sales to third parties for the past few months. So we thought it might be useful, and now we have added these 14 barges that we sold in March that you mentioned. So we thought we might -- it might be useful for people if we added all those announcements together so people could realize how many barges had we committed to third parties in total for 2013, and that is 51 units. Now, if you take those 51 units and you assume that they are going to produce the same EBITDA contribution as the average of equivalent sales in previous years, you'll come up with that number of $18.8 million. Is that clear now?

[Jamie Nicholson:]

Yes. So the 51 is already contracted and the terms are already contracted so you're pretty clear on that $18.8 million achievability?

[Felipe Menendez Ross:]

Well, I can say 51 that have been contracted. We have received advanced deposits for them. And I can also say that if they generate the same EBITDA contributions as we did in the past, that will be the number. That's all I can tell you at the moment.

[Jamie Nicholson:]

Okay. All right. And then, also can you just clarify? There's $3.2 million in your EBITDA, reported adjusted EBITDA for the River business that says exchange differences after segment operating expenses. Can you just explain what that is and why it's in the EBITDA figure?

[Felipe Menendez Ross:]

Sure. I'm sorry, that's a bit confusing. First, let me clarify. Those exchange variances are actually cash exchange variances. They are not simply accounting gains. They are cash gains. In the fourth -- in the first quarter, these exchange variances in the rule of business affected expenses of previous periods. So we had to account for them as exchange gains. Now, in future quarters, these exchange variances will simply be reflected as lesser operating expenses. So we thought it would be useful to clarify that so people could understand it. And we are including it EBITDA because in fact, they do represent a lower expense in that period, but as the affected expenses in the previous periods, we had to account for them as exchange variances. But they are cash.

[Jamie Nicholson:]

Okay. And then regarding your cash on hand, you talked about -- in the previous question, you talked about using that as for -- to fund some of the growth CapEx plans. But can you clarify whether you plan to use any of that for debt reduction and then also what your strategy will be for refinancing the bond that comes due next year, the $180 million bond.

[Felipe Menendez Ross:]

Yes. Well, what we had said in the past is that we would expect for a favorable moment or an adequate moment to replace that bond by a new bond. We have, as you can see, substantial cash sitting in the balance sheet and so what we would do is after that is done, after the bond is refinanced, we would be using this cash to fund our future growth. And growth, as we just discussed with Ben, is going to be in primarily 2 areas, Offshore and River. And in Offshore, as I just described to Ben, we believe that we have a very good opportunity in Brazil. We are a very large percentage of the 4,500 class, which is the largest class of PSV that Petrobras employs today. We are 22% actually of that segment that we are Petrobras' second-largest service company in that category. We definitely would like to grow, and we think there's a great window of opportunity there and we would like to grow with ships so we can put in the water in a short time rather than a construction period in Brazil which will be extended. It doesn't mean that we wouldn't also like, in the long-term, to look at the other construction projects and take those into account as we have mentioned in the past. But we think there is an immediate window of growth that we are interested in filling out. In the River, as we have discussed I think, Jamie, in the past, now most of the heavy investments is behind us. We now just have to add barges every year to the River to increase our capacity. And if you look at the figures that we have produced, the ones I was just mentioning to Ben, if we increase our capacity 30% up to the end of 2017, which is basically the logical follow-up of the projections that we had used before, well, we are going to be adding 400,000 tons approximately to our current River capacity. And that will mean approximately 160 barges over the 5-year period, if you will, approximately from now. So that's basically the strategy going forward. We are planning to focus in these 2 areas. But I also want you to note that while these are strategic views that we have at this time, the primary intention is not to increase the level of debt that the company has. In fact, by the end of this year, we would expect that EBITDA-to-net-debt ratio to be within the parameters that we've always discussed with the BLR objective, meaning between 3 and 4, 3.5x and then reducing from there so we will invest when we have liquidity available. And this CapEx-es that we may contemplate as we develop our strategy going forward will be completely flexible in the sense that we can build them up or down as circumstances demand. It's not like we are committing now to very large CapEx-es in the future that then the company is frozen into.

[Jamie Nicholson:]

Okay. And then can you give us an update or just a reminder, is most of that debt and the new $84 million loan secured by the assets, mainly the PSV? Can you just give us an update on what the security is underlying your debt?

[Felipe Menendez Ross:]

Yes. Well, as you know, we haven't actually provided a list of collateral per se. But in broad terms, the barges and push boats in our river fleet are mostly guaranteeing the bond, the 180 million notes that are currently outstanding and our IFC-OFID obligations while the PSV fleets stand behind the various finances that we have with DVB and now with DVB, NIBC and ABN Amro.

[Jamie Nicholson:]

Okay. And then just one last question. One of your sources of working capital was a customer advance, about $11 million. Is that associated with a specific payout? Can you just describe that and when that might reverse?

[Felipe Menendez Ross:]

Sure. Most of that reversed -- refers to the advances that we received from the orders in the shipyard. When people places orders in the shipyard, they have to pay a certain percentage in advance. So as we received orders, we get those customers' advances. There are also minor customers in other areas as well, but it's mainly that.

[Operator:]

Steve Sylvester.

[Stephen Sylvester:]

I have 3 questions, mostly on the River business. Your projection for your barge sales in '13 and previous sales, it doesn't look like there's much variation in price or where you're selling these is -- given that the river is healthy and demand is picking up, is there an ability to improve your margin on that, on barge sales?

[Felipe Menendez Ross:]

Well, barge pricing is a very long-term investment for the people that make it and there isn't a tremendous volatility in barge prices responding to a one particular good year. Of course, the fact that there is a good year in general about the River, fosters demand in the long-term, Steve. But no, I don't think that you will find that barge prices sort of are responsive immediately to the demand in the transportation market on the good years or the bad years. They remain a lot more stable.

[Stephen Sylvester:]

But in general, the tank barges are also -- they are more expensive. Is it same margin on a tank barge as there is on a regular barge?

[Felipe Menendez Ross:]

Well, there's a larger margin in absolute terms, but of course since they take a longer time to manufacture and they employ more than double of the manhours, actually closer to triple the manhours, the end result of producing one thing or the other is not necessarily that different by year-end.

[Stephen Sylvester:]

For '13 in the River, that doesn't assume any ore trade at all, correct?

[Felipe Menendez Ross:]

I'm sorry, Steve. We couldn't hear you there.

[Stephen Sylvester:]

Sorry. The $8 million incremental River business based on volume and capacity increase, that doesn't include any ore business, correct?

[Felipe Menendez Ross:]

I'm sorry, Steve, the $8 million you were saying does not and then we couldn't hear you.

[Stephen Sylvester:]

Does not include any ore transport or volume?

[Felipe Menendez Ross:]

Oh, I see. Only a small portion. As you know, iron ore has traditionally never been more than -- in a normal year, not last year, but in a normal year has never been more than 14%. In fact this year, I think it's going to be less than 11%. And -- but what perhaps your question referred to is that mentioned that have not included in that pro forma number the iron ore transshipment. If you recall last year, we announced that we had entered into a contract to transship iron ore from barges to ocean vessels. That's a new service that we will be providing this year that we had not been providing before and we expect that will commence sometime in the third quarter. But we have not included that in these projections, no.

[Stephen Sylvester:]

Sorry. One last question. Is there any upriver trade at this point?

[Felipe Menendez Ross:]

Upriver trade, meaning that volumes are being carried? Yes. Yes, very active. We are now entering the peak of the season.

[Stephen Sylvester:]

No. I meant upriver.

[Felipe Menendez Ross:]

You mean backhauls? Yes, very small. We regularly do carry cargoes in the backhaul in the northbound leg. But it's less than 10% of our total volume. Most of our return legs are empty.

[Operator:]

Our final question comes from Arieh Coll.

[Arieh Coll:]

Regarding couple of quick questions. On the River business, as you said in your slide presentation on Slide 7, please correct me if I'm wrong. I believe about half of the volume that you ship under your soybean contracts were recontracted at the end of 2012. I believe the remaining half of the volume of soybean contracts will be recontracted with the end of 2013 with other customers. Is that correct?

[Felipe Menendez Ross:]

Well, the proportions are a bit different. At the end of 2012, we've repriced about 2/3 of our soybean contracts. So -- but yes, there is 1/3 that remains to be repriced at the end of this year. And a little bit in 2015, but just a little bit.

[Arieh Coll:]

Right. And on the contracts that will be repriced at the end of 2013, it is fair to presume that the price increases you'll realize on the renegotiated contracts will be similar to what was realized here at the end of 2012?

[Felipe Menendez Ross:]

I think that's a fair assumption, yes. Because most of the markets is now operating on these new higher levels. So that would be right, yes.

[Arieh Coll:]

And just to understand, when does that pricing get realized? Because if I look to, I think it's Slide 6, if I just computed your revenue per ton in the March quarter, it looks to have been about $45 per ton transported, and that's a 6% increase year-over-year. If the contracts on soybeans that you'll realize, the price increases were materially higher, why are those higher revenue not being seen on a price-per-ton basis?

[Felipe Menendez Ross:]

Well, 2 reasons. First, when you see revenues in that first line of Slide 6, you have a mix of the revenues of our shipyard and the revenues of our pure transportation. So in a year like 2012 where transported volumes were relatively low, of course, the function of the sales of the shipyard were more significant. That and therefore, that sort of distorts the analysis that you were just doing. The other factor is -- there are 2 other factors, perhaps, to take into consideration when one compares absolute revenues quarter-on-quarter is that the revenues go up and down as the price of fuel goes up and down. So if there is a variation in the price of fuel from 1 year to the next, you will see the revenues go up or down as they reflect those higher prices of fuel. But, of course, the same equivalent adjustment will occur in our fuel consumption. So it is the net result of that really matters. And the third element that sometimes is a bit distorted, Arieh, in the first quarter is that when you have very low volumes as we had in 2012, the participation of liquid petroleum products in the mix is very high and liquid petroleum products have a much higher freight in any event and -- in any market. And then the average rate per ton seems to be higher only because the liquid petroleum products are a much higher component of the total volume loaded. And then when you compare on a per-ton basis, it appears a bit distorted. So you have those 3 factors that don't really let you see clearly through that. For some time, we did use a slide to breakdown these factors, but people found it so confusing that we eliminated it from our presentation.

[Arieh Coll:]

Just 2 quick follow-up questions on the Offshore business. If you were -- it sounded like you were considering potentially acquiring some existing PSV's as opposed to doing newbuilds. If my interpretation is correct, what would it cost approximately to purchase PSV's of the similar size that you now have in your fleet?

[Felipe Menendez Ross:]

Well, our vessels, as you know, are plus-800 square meters on deck. And in fact, 2 of them are plus-1,000. These ships have valuations in the market of around $35 million, $36 million. Now, we are probably going to be looking at a -- ships with a cheaper spec or ships that we can adapt to the Petrobras requirements quickly and easily with -- by introducing some changes into them. So perhaps, we can obtain resales of ships off the yard, that we can adapt to the cheaper price. We're looking all sorts of opportunity.

[Arieh Coll:]

Okay. And just lastly on your 4-year charters that you just signed with Petrobras, is there any opportunity for the day rates to rise over that 4 years? Or would they be a flat rate of $32,000 or $35,000 per day depending on the PSV we're talking about?

[Felipe Menendez Ross:]

It is a flat rate. Now there's -- I don't want to confuse you by introducing something which is not really that meaningful, but 25% to 30% of these earnings are denominated in dollars but converted into Brazilian reals on the day of inception of the contract. And that corresponds basically with our expenses in reals. So essentially, that 25% is subject to a yearly inflation adjustment which basically corresponds or pretends to reflect the increasing costs that we will have over the local currency portion as well. So while some adjustment is included there, the effect of it is neutral really because it only pretends to compensate you for the increasing costs. And in fact, it doesn't even do that.

[Arieh Coll:]

Okay. And just lastly, since we last spoke, the yields in high yield market continue to hit new lows. Can you just give us an understanding of how much of your existing debt you are in a position to potentially refinance, how much in -- of it in dollars? And would you be looking to do so? Or are you happy with just leaving the balance sheet as is?

[Felipe Menendez Ross:]

We're never happy. We always like to see interest rates go lower, of course. Now, as to the portion of our debt which is on fixed interest, we have the bond, the 2014 notes are $118 million, those are in fixed interest. And then all of the rest is floating, except that we have agreed that cap collar coverage for $75 million of the IFC debt which basically puts a floor and a ceiling to the interest rates that we are paying. And we have some troughs in offshore as well. But essentially, other than those, our debt is completely floating and rated LIBOR plus 1 1/4 to 4%.

[Operator:]

No further questions, Mr. Menendez.

[Felipe Menendez Ross:]

Thank you very much. Thank you all for participating in the call today. And we'll be talking to you when we report our next quarter.

[Operator:]

Thanks for participating in today's call. You may disconnect at this time.