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TBS International (TBSI) |
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WIKI ANALYSIS
TBS International is an ocean transportation services company that provides worldwide shipping services.
Note: this company raised the possibility that it may not be able to function as a going concern in its 1H FY 2011 report.[1]. See detail below.
Business Overview
The company offers multiple services to its clients (its "5 Star Service" - ocean transportation, projects, operations, port services, and strategic planning), it reports performance in only one segment.
Service, Routes
As of FY 2010, the company provided five major services across multiple routes[2]:
- TBS Pacific - Eastbound: From Japan, China, South Korea to the West, North, and East coasts of South America (steel products, project cargo, and general cargo). Westbound: from Peru, Ecuador, and Chile to East Asia (minerals, metal and metal concentrates, fishmeal).
- TBS Latin America - Northbound: From Brazil to the Caribbean basin and the west coast of South America (steel products, project cargo, and general cargo). Southbound: Columbia to Brazil and Argentina (coal and petroleum coke).
- TBS North America - Southbound: From North America to the Caribbean basin and the west coast of South America (fertilizer, agricultural products, and steel products). Northbound: From the Caribbean to North America (limestone and aggregates).
- TBS Middle East - Middle East region (UAE, etc.) to Kuwait and Qatar. Cargoes typically bulk aggregates
- TBS Ocean Carriers - Brazil to the west coast of Africa. Cargoes typically bulk sugar and salt.
Strategy
The company describes its strategy as one targeting niche markets, that can't easily be served by larger shipping companies. The vessel fleet comprises mostly Tweendeckers, which have the ability to handle a wider variety of cargo (cars to containers), and can access more ports vs. larger vessels.
Fleet
As of FY 2010, the company had 49 vessels in operation (excluding chaters-in and bareboat charters through a JV), with a total capacity of 1.5 deadweight tons (dwt), with an average age of 22.8 years; by type: 27 Tweendeckers, 18 Handymax, and 4 Handysize.[3]
The age of the fleet can have a direct impact on operating expenses. Older ships can require more maintenance, and can have higher survey costs than younger vessels (ships are required to be periodically surveyed) because some older ship surveys must be performed in dry dock (vs. in the water for younger ships). Drydocking can reduce fleet availability (and therefore earning potential) also by time required to sail to the drydock (from service in the Middle East to a shipyard in China, for example).
Business Growth
The company's plan for growth is to increase its existing businesses. Although an increase in global trade volumes would have a positive effect, TBSI focuses on niche markets that it claims are under-served by major competitors. Growth in niche markets would help the company, but could be a double-edged sword: as volumes in these niche areas increase, these markets become more attractive for larger players to enter.
Capital constraints are another factor impacting the company's long-term prospects. The company's core business is shipping, a capital-intensive business. Considering the global macro-economic headwinds (impacting banks' willingness to lend), capital scarcity could be a negative influence on the company's ability to buy (finance) new ships and capture nascent demand.
FY 2010 Results
Although revenue grew YoY, non-cash charges pushed operating profit and net income into negative territory.[2]
Revenue increased +36.1% YoY to $411.8 million. Voyage revenue grew +19.3% YoY, but the majority of the increase in top-line revenue was from Time Charter revenue, which increased about +107% YoY.
Operating profit was negative for the year, $-220.0, largely due to vessel impairment charges of $-201.7 million. The company wrote down the value of some of its ships after considering persistently low charter rates and vessel values.
Net income was negative for the year due to the non-cash expense related to vessel valuation (discussed above).
Going Concern
The company ceased payments on all of its indebtedness in September 2010 (with the consent of its lenders) so it could restructure its debt. In January 2011, the company and its lenders reached a restructuring agreement, which included the requirement for key members of management to contribute equity capital of about $10 million to the company.
In the 1H FY 2011 report[1], the company stated that it would need to raise additional capital to make payments as scheduled in September 2011 and to remain in compliance with its debt agreements.
The company announced that it had reached an agreement with lenders on payment deferral on September 7, 2011.[4]
If the company is unable to raise capital and successfully restructure its debt, its survival in its current state would strongly be called into question.
References
- ↑ 1.0 1.1 TBSI 2010 10-Q pg. 11
- ↑ 2.0 2.1 TBSI 2010 10-K pg. 6
- ↑ TBSI 2010 10-K pg. 7
- ↑ TBSI Press Release
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