Grupo TMM sees High Utilization and New Opportunities

Grupo TMM sees High Utilization and New Opportunities

Ken Nagy, CFA

On February 27, 2012, Grupo TMM, S.A.B. (TMM), the Mexican intermodal transportation and logistics company, reported financial results for its fourth quarter and fiscal year, ended December 31, 2011.

While the Company reported mixed results for the quarter due to continued challenging global economic conditions, we feel that if investors look beyond the surface they will like what they find. Grupo TMM continued to see higher than industry average utilization rates as well as recently acquiring a shipyard in the Gulf of Mexico.

In the 2011 full year, the Maritime segment revenue dropped 14.4 percent to $171.7 million compared to the 2010 full year due mainly to lower average daily tariffs and 17 vessels in dry dock. Maritime’s EBITDA for the 2011 full year was $81.6 million compared to $100.4 million in the comparable 2010 period. However, EBITDA margin remained similar at 47.5 percent in 2011 versus 50 percent in 2010. Looking back investors can see the strength that 2011 was compared to. 2010 EBITDA and EBITDA margin were the highest in the last five years, despite a global recessionary economic climate. Grupo exited 2010 having grown its EBITDA for five consecutive years. EBITDA grew at a lofty 182% or a compounded yearly growth rate (CYGR) of 29.6%.

The segment's fleet utilization continued its sequential improvement in 2011. In the fourth quarter offshore fleet utilization was 90.2 percent and product tanker utilization was 100 percent. Offshore fleet and product tanker utilization continued to stay well above the industry average.

The Company also made progress on reducing its net debt by $26.9 million in 2011 and ended the year with $3.6 million of cash flow. Additionally, the book value of its Trust Certificates debt was reduced $93.9 million from December 31, 2010, due to the depreciation of the peso versus the dollar in the 2011 full year. Finally, in the full year 2011, TMM prepaid principal and interests for a total amount of $121 million.

New Opportunities

In January 2012, Grupo TMM acquired a shipyard at the Port of Tampico which is strategically positioned in the Gulf of Mexico and currently working at full capacity. The Company anticipates generating approximately 32 percent of EBITDA margin from operations during its first year of the acquisition.

Similarly, Grupo TMM expects to provide service to more than 30 vessels per year. Approximately 37 percent of these serviced vessels are anticipated to be from TMM's own fleet which will result in reduced costs from increased efficiency in the maintenance, repair and positioning its vessels.

In the shorter term, the Company expects to have the necessary capabilities to build vessels at the Port of Tampico facility and added that the timing of this acquisition was in line with PEMEX’s intention to add 32 offshore vessels to its fleet, of which 21 are required to be Mexican built vessels, supporting national integration. The Company anticipates PEMEX to announce bids for these 21 vessels in April, for 10-year time charter contracts, including 2 years to build the vessels.

Additionally, the Company announced that during the fiscal 2012 first quarter, it renewed two offshore contracts for a three-year period each and that it currently has a backlog of $192 million.

Grupo TMM also reported that it continues to work with selected, interested parties for the financial implementation of the development of a container and liquids terminal at the Port of Tuxpan and has made significant progress on a joint venture, expected to be announced soon. Additionally, Grupo TMM continues to work on the addition of specialized offshore vessels to its fleet.

A Closer Look at the TMM’s Growth Plan.

The firm’s five-year growth plan includes two projects. The first project consists of the development of a container and liquids terminal at the Port of Tuxpan, Veracruz. The container terminal will meet increasing demand for capacity in the Gulf of Mexico, taking advantage of organic growth in the Mexican market. The liquids terminal will address current and projected increased demand for imported gasoline and diesel fuel through the construction of a pipeline and a berthing position. Investors should be aware that the development of the facility could take up to two years. Along the same lines, the addition of specialized offshore vessels to TMM’s fleet is anticipated to benefit the Company in meeting increased demand for deep water transportation.

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