TMM Grupo Tmm S.A. American Depositary Shares

Grupo TMM sees Utilization Well Above Average and a Net Debt Reduction

Ken Nagy, CFA

On October 26, 2011, Grupo TMM (TMM), a Mexican intermodal transportation and logistics Company, reported financial results for its fiscal 2011 third quarter, ended September 30, 2011. Investors should note a few significant items in the quarter.

•     The firm was free cash flow positive on both a sequential basis as well as over a nine-month time period.
•     Sequential improvement of revenue and utilization was seen at Maritime. Grupo TMM’s offshore fleet utilization was at 88 percent and product tanker utilization was at 99 percent. This is well above average.
•     TMM's net debt was reduced by $30.8 million during the first nine months of 2011. Only 1.4% or $11.0 million of the $761.5 million of the Company’s current total outstanding debt is short term debt. Likewise, the book value of the Company's Trust Certificates debt was reduced by $66.8 million in the first nine months of 2011 as a result of the strengthening of the dollar versus the peso.
•     Grupo TMM updated progress on its development of a container and liquids terminal at the Port of Tuxpan and the addition of specialized offshore vessels to its fleet. Both projects remain a potential source of growth going forward and are progressing well.

The third quarter performance resulted in an 8 percent year over year decrease in revenue, with revenue dropping $5.954 million to $68.839 million from $74.793 million for the three months ended September 30, 2010.The decrease in revenues was primarily due to a decrease in the Maritime and Logistics segments which was partially offset by improved revenues in the Ports and Terminal segment revenue.

The Maritime segment revenue, which was negatively impacted by global reduction of tariffs for offshore vessels and product tankers, dropped 12.7 percent for the three months compared to the comparable period of last year.

Similarly, the Company’s Logistics segment revenue during the quarter fell $807,000 or 4.4 percent year over year while Ports and Terminals revenue during the quarter improved $1.362 million or 24.7 percent.

While the Maritime segment was affected by a challenging economic marketplace, Maritime's revenue and fleet utilization sequentially improved from the first and second quarters of 2011.  Furthermore, Grupo TMM’s offshore fleet utilization was at 88 percent and product tanker utilization was at 99 percent.  Both offshore fleet and product tanker utilization were well above the industry average.

Operating income for the third quarter decreased $2.358 million or 28.6 percent year over year, due in part to lower margins. Gross margin for the third quarter dropped to 31.5 percent from 35.3 percent for the three months ended September 30, 2010.

For the nine months ended September 30, 2011, year over year revenues fell by 11.7 percent or $26.964 to 204.402 million while net income improved to $20.001 million compared to a net loss of $53.418 million for the nine months ended September 30, 2010.

Still, it should be noted that excluding $6.7 million from the sales of Logistics assets in April 2010, revenues for the nine months ended September 30, 2011 increased 3.5%.

Here again, the decrease in revenues  for the nine months was primarily due to a decrease in the Maritime and Logistics segments which was partially offset by improved revenues in the Ports and Terminal segment revenue.

Maritime revenue in the nine months of 2011 decreased $25.682 million or 16.7 percent to $127.776 million compared to the same periods of last year.

Similarly, Logistics segment revenue dropped $4.847 million or 8% in the nine months compared to the previous year, while revenues from the Ports and Terminals improved $3.555 million or 20.5% year over year for the nine months.

Gross margin for the nine months was 32.2 percent compared to gross margin of 34.8 percent for the nine months ended September 30, 2010.


Free Cash Flow Positive
Despite head winds in the year over year comparison TMM was cash flow positive for the Quarter,  $2.2 million and for the first nine months of 2011,  $10.3 million.  

Grupo TMM’s cash and equivalents as of September 30, 2011 came to $57.035 million while working capital totaled $53.676 million.  This compares to $142.319 million of cash and equivalents and working capital of $107.552 million for the period ended September 30, 2010.

Similarly, As of September 30, 2011, TMM's total debt was reduced by $30.8 million during the first nine months of 2011. It should further be noted that only 1.4% or $11.0 million of the $761.5 million of the Company’s current total outstanding debt is short term debt.

Likewise, the Company's Trust Certificates debt was reduced by $66.8 million in the first nine months of 2011 as a result of the strengthening of the dollar versus the peso.

Progress Continues
Finally, the Company updated progress on its development of a container and liquids terminal at the Port of Tuxpan and the addition of specialized offshore vessels to its fleet, both of which are expected to be funded with a combination of equity and debt.

The Container terminal is expected to take advantage of organic growth in the Mexican markets by addressing the increasing demand for capacity in the Gulf of Mexico. The Liquids terminal represents the replacement of an existing buoy system currently used by PEMEX for the construction of a pipeline and berthing position.

The addition of specialized offshore vessels to TMM’s fleet is anticipated to benefit the Company in meeting increased demand for deep water transportation. TMM has satisfied all preliminary requirements and continues to work very closely with selected, interested parties for financial implementation.

The Company expects these projects to significantly improve revenue base, profits and capital structure.

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