Avenida de la Cúspide, No. 4755
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☑ Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Grupo TMM, S.A.B. and Subsidiaries
Grupo TMM, S.A.B. and Subsidiaries
In this Annual Report, references to “$,” “Ps,” “Mx. pesos,” “Pesos” or “pesos” are to Mexican Pesos and references to “US$,” “U.S. dollars,” “Dollars” or “dollar” are to United States Dollars. This Annual Report contains translations of certain Dollar amounts into Pesos at specified rates solely for the convenience of the reader. These translations should not be construed as representations that the Dollar amounts actually represent such Peso amounts or could be converted into Pesos at the rates indicated or at any other rate. In this Annual Report on Form 20-F except as otherwise provided, references to “we,” “us,” “our” and “Company” mean Grupo TMM, S.A.B. and its consolidated subsidiaries, and “Grupo TMM” means “Grupo TMM, S.A.B.”
Our financial statements are reported in Mexican pesos and prepared in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on the beliefs of the Company’s management as well as on assumptions made. Actual results could differ materially from those included in such forward-looking statements. Readers are cautioned that all forward-looking statements involve risks and uncertainty.
The following factors, among others described in this Annual Report, could cause actual results to differ materially from such forward-looking statements:
Grupo TMM, S.A.B. and Subsidiaries
Readers are urged to read this entire Annual Report including, but not limited to, the section entitled “Risk Factors,” and carefully consider the risks, uncertainties and other factors that affect our business. The information contained in this Annual Report is subject to change without notice. Readers should review future reports filed by us with the U.S. Securities and Exchange Commission (the “SEC”) and the
Bolsa Mexicana de Valores
(the “Mexican Stock Exchange”). We undertake no obligation to publicly update or revise any forward-looking statements included in this Annual Report, whether as a result of new information, future events or otherwise, except as required by applicable law or stock exchange regulation.
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not applicable.
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
Selected Financial Data
The following table sets forth our selected financial data. The financial information presented for the fiscal years ended December 31, 2017, 2016, 2015, 2014 and 2013 was derived from our Audited Consolidated Financial Statements, of which the financial statements for each of the years ended December 31, 2017, 2016, and 2015 are contained elsewhere herein. The Audited Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB.
The following data presents selected consolidated financial information of the Company and should be read in conjunction with, and is qualified in its entirety by reference to, the Auditied Consolidated Financial Statements of the Company, including the Notes thereto, also included in this Form 20-F, and to Item 5. “Operating and Financial Review and Prospects.”
Grupo TMM, S.A.B. and Subsidiaries
GRUPO TMM, S.A.B. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA UNDER IFRS
(in millions of Pesos, except per share data)
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
CONSOLIDATED INCOME STATEMENT DATA
(a)(b)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation revenues
|
|
$
|
2,464.9
|
|
|
$
|
2,647.5
|
|
|
$
|
3,261.9
|
|
|
$
|
2,937.3
|
|
|
$
|
2,968.8
|
|
(Loss) Income on Transportation
(c)
|
|
|
(177.9
|
)
|
|
|
37.9
|
|
|
|
274.2
|
|
|
|
70.6
|
|
|
|
315.0
|
|
Other Income — Net
(d)
|
|
|
3,217.7
|
|
|
|
52.8
|
|
|
|
187.0
|
|
|
|
367.0
|
|
|
|
64.0
|
|
Operating Income
(e)
|
|
|
3,039.8
|
|
|
|
90.7
|
|
|
|
461.2
|
|
|
|
437.6
|
|
|
|
379.0
|
|
Interest Income
|
|
|
24.8
|
|
|
|
24.7
|
|
|
|
21.4
|
|
|
|
23.7
|
|
|
|
37.9
|
|
Interest Expense
|
|
|
1,210.5
|
|
|
|
869.3
|
|
|
|
800.2
|
|
|
|
855.5
|
|
|
|
943.1
|
|
Exchange (Loss) Gain
|
|
|
(7.8
|
)
|
|
|
(21.3
|
)
|
|
|
15.7
|
|
|
|
(66.1
|
)
|
|
|
4.4
|
|
Income (Loss) before Taxes
|
|
|
1,846.3
|
|
|
|
(775.2
|
)
|
|
|
(301.9
|
)
|
|
|
(460.3
|
)
|
|
|
(521.8
|
)
|
(Provision) Benefit for Income Taxes
|
|
|
(516.7
|
)
|
|
|
268.6
|
|
|
|
(698.5
|
)
|
|
|
(4.7
|
)
|
|
|
(4.7
|
)
|
Income (Loss) from continuing operations
|
|
|
1,329.6
|
|
|
|
(506.6
|
)
|
|
|
(1,000.4
|
)
|
|
|
(465.0
|
)
|
|
|
(526.5
|
)
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
-
|
|
|
|
(18.5
|
)
|
|
|
(49.5
|
)
|
|
|
(24.9
|
)
|
Net Income (Loss)
|
|
|
1,329.6
|
|
|
|
(506.6
|
)
|
|
|
(1,018.9
|
)
|
|
|
(514.5
|
)
|
|
|
(551.4
|
)
|
Attributable to Non-controlling interest
|
|
|
2.0
|
|
|
|
1.4
|
|
|
|
(2.3
|
)
|
|
|
2.4
|
|
|
|
5.0
|
|
Attributable to stockholders of Grupo TMM, S.A.B.
|
|
|
1,327.6
|
|
|
|
(508.0
|
)
|
|
|
(1,016.6
|
)
|
|
|
(516.9
|
)
|
|
|
(556.4
|
)
|
Income (Loss) per Share from continuing operations
(f)
|
|
|
13.012
|
|
|
|
(4.957
|
)
|
|
|
(9.790
|
)
|
|
|
(4.551
|
)
|
|
|
(5.153
|
)
|
Loss per Share from discontinued operations
(f)
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.181
|
)
|
|
|
(0.484
|
)
|
|
|
(0.244
|
)
|
Income (Loss) per Share from Net Income (Loss)
(f)
|
|
|
13.012
|
|
|
|
(4.957
|
)
|
|
|
(9.971
|
)
|
|
|
(5.035
|
)
|
|
|
(5.397
|
)
|
Income (Loss) per Share attributable to stockholders of Grupo TMM, S.A.B.
(f)
|
|
|
12.992
|
|
|
|
(4.972
|
)
|
|
|
(9.949
|
)
|
|
|
(5.059
|
)
|
|
|
(5.445
|
)
|
Book value per Share
(g)
|
|
|
21.140
|
|
|
|
8.780
|
|
|
|
3.586
|
|
|
|
5.571
|
|
|
|
1.335
|
|
Weighted Average Shares Outstanding (000s)
|
|
|
102,183
|
|
|
|
102,183
|
|
|
|
102,183
|
|
|
|
102,183
|
|
|
|
102,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA (at end of period)
(a)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
461.6
|
|
|
$
|
902.7
|
|
|
$
|
1,045.4
|
|
|
$
|
743.1
|
|
|
$
|
895.0
|
|
Total Current Assets
|
|
|
1,318.2
|
|
|
|
2,121.3
|
|
|
|
2,603.6
|
|
|
|
2,806.1
|
|
|
|
1,954.3
|
|
Property, vessels and equipment – Net
|
|
|
2,623.5
|
|
|
|
9,564.9
|
|
|
|
9,553.1
|
|
|
|
9,052.9
|
|
|
|
9,053.1
|
|
Concessions – Net
|
|
|
13.2
|
|
|
|
17.0
|
|
|
|
20.8
|
|
|
|
24.6
|
|
|
|
28.4
|
|
Total Assets
|
|
|
4,149.2
|
|
|
|
11,923.3
|
|
|
|
12,416.1
|
|
|
|
12,924.3
|
|
|
|
12,179.4
|
|
Short-term financial debt
|
|
|
502.4
|
|
|
|
740.4
|
|
|
|
684.7
|
|
|
|
918.6
|
|
|
|
636.6
|
|
Long-term financial debt
|
|
|
396.3
|
|
|
|
9,330.1
|
|
|
|
9,995.5
|
|
|
|
10,069.6
|
|
|
|
10,254.1
|
|
Capital stock
|
|
|
2,169.9
|
|
|
|
2,169.9
|
|
|
|
2,169.9
|
|
|
|
2,169.9
|
|
|
|
2,169.9
|
|
Stockholders’ Equity attributable to Stockholders of Grupo TMM, S.A.B.
|
|
|
2,160.2
|
|
|
|
897.2
|
|
|
|
366.4
|
|
|
|
569.3
|
|
|
|
136.4
|
|
Non-controlling equity interest in subsidiaries
|
|
|
68.8
|
|
|
|
66.8
|
|
|
|
65.4
|
|
|
|
68.3
|
|
|
|
64.6
|
|
Total Stockholders’ Equity
|
|
|
2,229.0
|
|
|
|
964.0
|
|
|
|
431.8
|
|
|
|
637.6
|
|
|
|
201.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental Capital Investments
(h)
|
|
$
|
80.2
|
|
|
$
|
162.1
|
|
|
$
|
102.4
|
|
|
$
|
228.9
|
|
|
$
|
290.8
|
|
Depreciation and Amortization
|
|
|
562.9
|
|
|
|
555.2
|
|
|
|
672.6
|
|
|
|
858.3
|
|
|
|
589.5
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
(i)
|
|
|
381.7
|
|
|
|
610.8
|
|
|
|
612.4
|
|
|
|
756.2
|
|
|
|
882.3
|
|
Investing activities
|
|
|
(218.5
|
)
|
|
|
(74.4
|
)
|
|
|
792.2
|
|
|
|
(124.4
|
)
|
|
|
(208.7
|
)
|
Financing activities
|
|
|
(581.7
|
)
|
|
|
(744.5
|
)
|
|
|
(1,165.8
|
)
|
|
|
(801.8
|
)
|
|
|
(868.1
|
)
|
(a)
|
As of December 2017, the Company transferred 85% of the shares of TMM Division Maritima, S.A. de C.V. (“TMM DM”), formerly a wholly owned subsidiary, to the holders of certificates issued under our Mexican Peso-Denominated Trust Certificates Program (the “Trust Certificates Program”). Because the Company ceased to exercise control over TMM DM as of the date of the transfer, we have excluded TMM DM’s income from the consolidated income statement data and its assets and liabilities from the consolidated balance sheet data as of the transfer date.
|
(b)
|
As of July 2013, Grupo TMM sold 100% of its interest in its truck transportation and haul-away trailers business. Accordingly, as of such date Grupo TMM has categorized this business as a discontinued operation and has excluded it from the consolidated income statement data.
|
(c)
|
Represents “Operating Income” less “Other Income (Expense) – Net.”
|
(d)
|
See quantification of items in “Other Income (Expense) Integration” table below.
|
(e)
|
Operating Income is calculated by reconciling “Net Income (Loss)” with the items “Net Financing Cost” and “(Provision) Benefit for Income Taxes.”
|
(f)
|
As of December 31, 2013, 2014, 2015, 2016 and 2017 the number of Shares outstanding was 102,182,841.
|
(g)
|
Book value per Share results from dividing total shareholders’ equity attributable to stockholders of Grupo TMM by the outstanding Shares at the end of each period.
|
(h)
|
See Item 5. “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Expenditures and Divestitures.”
|
(i)
|
Commencing with fiscal year 2015, restricted cash is included as a part of the cash and cash equivalents line item. See Note 6 to the accompanying Audited Consolidated Financial Statements. Such inclusion has an effect on cash flows from operating activities disclosed in the consolidated statements of cash flows for all fiscal years reported.
|
Grupo TMM, S.A.B. and Subsidiaries
GRUPO TMM S.A.B. AND SUBSIDIARIES
SELECTED CONSOLIDATED OPERATING DATA
(
in millions of Pesos
)
|
|
Year Ended December 31
,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
TRANSPORTATION REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maritime Operations
(a)
|
|
|
1,951.3
|
|
|
|
2,167.6
|
|
|
|
2,770.9
|
|
|
|
2,488.3
|
|
|
|
2,455.3
|
|
Logistics Operations
(b)
|
|
|
229.5
|
|
|
|
190.9
|
|
|
|
169.7
|
|
|
|
162.0
|
|
|
|
219.2
|
|
Ports and Terminals Operations
(c)
|
|
|
134.2
|
|
|
|
116.7
|
|
|
|
114.2
|
|
|
|
114.9
|
|
|
|
113.4
|
|
Warehousing Operations
(d)
|
|
|
149.9
|
|
|
|
126.1
|
|
|
|
133.1
|
|
|
|
104.9
|
|
|
|
130.3
|
|
Other business
(e)
|
|
|
-
|
|
|
|
46.2
|
|
|
|
74.0
|
|
|
|
67.2
|
|
|
|
50.6
|
|
Total
|
|
$
|
2,464.9
|
|
|
$
|
2,647.5
|
|
|
$
|
3,261.9
|
|
|
$
|
2,937.3
|
|
|
$
|
2,968.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME ON TRANSPORTATION
(f)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maritime Operations
|
|
|
24.0
|
|
|
|
247.6
|
|
|
|
492.5
|
|
|
|
271.3
|
|
|
|
517.8
|
|
Logistics Operations
|
|
|
34.0
|
|
|
|
30.6
|
|
|
|
27.4
|
|
|
|
26.4
|
|
|
|
40.7
|
|
Ports and Terminals Operations
|
|
|
10.3
|
|
|
|
6.1
|
|
|
|
7.6
|
|
|
|
4.6
|
|
|
|
0.2
|
|
Warehousing Operations
|
|
|
(31.6
|
)
|
|
|
(44.6
|
)
|
|
|
(48.1
|
)
|
|
|
(51.4
|
)
|
|
|
(38.3
|
)
|
Shared corporate costs
|
|
|
(214.6
|
)
|
|
|
(201.8
|
)
|
|
|
(205.2
|
)
|
|
|
(180.3
|
)
|
|
|
(205.4
|
)
|
Total
|
|
$
|
(177.9
|
)
|
|
$
|
37.9
|
|
|
$
|
274.2
|
|
|
$
|
70.6
|
|
|
$
|
315.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain from loss of control of TMM DM
|
|
$
|
3,458.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from the sale of fixed assets
|
|
|
-
|
|
|
|
56.5
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Proceeds from the sale of subsidiaries
|
|
|
(273.0
|
)
|
|
|
-
|
|
|
|
185.3
|
|
|
|
358.1
|
|
|
|
8.1
|
|
Cancellation of provisions
|
|
|
-
|
|
|
|
2.1
|
|
|
|
5.9
|
|
|
|
16.7
|
|
|
|
9.8
|
|
Reserve for prepayment and arbitration expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13.1
|
)
|
Taxes recovered, net of expenses incurred
|
|
|
43.9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42.0
|
|
Other – Net
|
|
|
(11.7
|
)
|
|
|
(5.8
|
)
|
|
|
(4.2
|
)
|
|
|
(7.8
|
)
|
|
|
17.2
|
|
Total
|
|
$
|
3,217.7
|
|
|
$
|
52.8
|
|
|
$
|
187.0
|
|
|
$
|
367.0
|
|
|
$
|
64.0
|
|
(a)
|
Maritime Operations primarily consist of offshore vessels, product tankers, parcel tankers, tugboats and shipyard operations.
|
(b)
|
Logistics Operations consist of container maintenance and repair, automotive services and intermodal terminal operations.
|
(c)
|
Ports and Terminals Operations consist of a port in Acapulco, Mexico, a terminal at Tuxpan, Mexico, loading and unloading operations at the port of Tampico, Mexico, and the operation of shipping agencies at various ports in Mexico.
|
(d)
|
Warehousing Operations consist of warehousing and bonded warehousing facility management services and are conducted through our subsidiary, Almacenadora de Depósito Moderno, S.A. de C.V. Auxiliary Credit Organization (“ADEMSA”).
|
(e)
|
Represents certain new businesses which are in the development process.
|
(f)
|
Income on Transportation includes loss on revaluation of vessels in 2017, 2016 and 2015 of $39.3 million, $16.2 million, and $29.4 million, respectively.
|
Average Shares Outstanding
Income per Share is calculated based on the average number of Shares outstanding in each relevant year. The average number of Shares outstanding in 2013, 2014, 2015, 2016 and 2017 was 102,182,841. See Item 4. “Information on the Company — History and Development of the Company,” Item 9. “The Offer and Listing — Share Repurchase Program” and Exhibit 6.1 “Computation of Earnings per Share.”
Grupo TMM, S.A.B. and Subsidiaries
Dividends
Pursuant to Mexican law and our bylaws, the declaration, amount and payment of dividends are determined by a majority vote of the holders of the outstanding shares represented at a duly convened shareholders’ meeting. Shareholders have the ability, at their discretion, to approve dividends from time to time. No dividend has been declared since 1997.
Exchange Rates
We maintain our financial records, including our tax records, in Pesos. The amounts in Dollars are converted to the Peso equivalent using the prevailing exchange rate. In 2017, approximately 75% of our net consolidated revenues and 25% of our operating costs and expenses were generated or incurred in Dollars. In the first three months of 2018, approximately 46% of our net consolidated revenues and 35% of our operating costs and expenses were generated or incurred in Dollars. The remainder of our net consolidated revenues and operating expenses in 2017 and the first three months of 2018 were generated or incurred in Pesos.
The following table sets forth the high, low, average and period-end noon buying rates for Pesos reported by Banco de México (the “Noon Buying Rate”) expressed as Pesos per U.S. dollar for the periods indicated below.
|
|
Exchange Rates
|
|
Year Ended December 31,
|
|
High
(1)
|
|
|
Low
(1)
|
|
|
Average
(2)
|
|
|
End of
Year
(3)
|
|
2013
|
|
|
13.44
|
|
|
|
11.98
|
|
|
|
12.76
|
|
|
|
13.07
|
|
2014
|
|
|
14.79
|
|
|
|
12.85
|
|
|
|
13.30
|
|
|
|
14.73
|
|
2015
|
|
|
17.38
|
|
|
|
14.56
|
|
|
|
15.87
|
|
|
|
17.34
|
|
2016
|
|
|
21.05
|
|
|
|
17.18
|
|
|
|
18.67
|
|
|
|
20.66
|
|
2017
|
|
|
21.91
|
|
|
|
17.49
|
|
|
|
18.93
|
|
|
|
19.74
|
|
|
|
Exchange Rates
|
|
Monthly,
|
|
High
(4)
|
|
|
Low
(4)
|
|
|
Average
(5)
|
|
|
End of Month
(6)
|
|
Year 2017 and 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2017
|
|
|
19.23
|
|
|
|
18.52
|
|
|
|
18.99
|
|
|
|
18.58
|
|
December 2017
|
|
|
19.79
|
|
|
|
18.62
|
|
|
|
19.10
|
|
|
|
19.74
|
|
January 2018
|
|
|
19.66
|
|
|
|
18.47
|
|
|
|
18.95
|
|
|
|
18.69
|
|
February 2018
|
|
|
18.88
|
|
|
|
18.40
|
|
|
|
18.62
|
|
|
|
18.79
|
|
March 2018
|
|
|
18.89
|
|
|
|
18.33
|
|
|
|
18.65
|
|
|
|
18.34
|
|
April 2018
(7)
|
|
|
19.05
|
|
|
|
17.98
|
|
|
|
18.32
|
|
|
|
19.05
|
|
(1)
|
The highest and lowest of the Noon Buying Rates for the Peso per U.S. dollar reported by Banco de México on the last business day of each month during the relevant year.
|
(2)
|
The average of the Noon Buying Rates on the last day of each month during the relevant year.
|
(3)
|
The Noon Buying Rates on the last day of each relevant year.
|
(4)
|
The highest and lowest of the Noon Buying Rates of each day in the relevant month.
|
(5)
|
The average of the Noon Buying Rates of each day in the relevant month.
|
(6)
|
The Noon Buying Rates on the last day of each relevant month.
|
(7)
|
Through April 25, 2018.
|
On April 25, 2018, the Noon Buying Rate was Ps. 19.0530 = US$1.00 (equivalent to Ps. 1.00 = US$0.0525).
Grupo TMM, S.A.B. and Subsidiaries
Risk Factors
Risks Relating to our Indebtedness
Our substantial indebtedness could adversely affect our financial condition and impair our ability to operate our business, and we may not be able to pay the interest on and principal amount of our indebtedness.
As of March 31, 2018, Grupo TMM’s total debt amounted to $796.1 million, which includes $701.3 million of bank debt owed to several different banks and $94.8 million owed to non-institutional lenders; of this debt, $439.2 million is short-term debt, and $356.9
million is long-term debt. Under IFRS, transaction costs in connection with financings are required to be presented as a part of debt.
As of December 31, 2017, Grupo TMM’s total debt amounted to $898.6 million, which includes $798.6 million of bank debt owed to several different banks, and $100.0 million owed to non-institutional lenders; of this debt, $502.4 million was short-term debt, and $396.3 million was long-term debt.
Although we have taken various measures to reduce our level of indebtedness, including eliminating approximately $10,440.95 million of debt under our Trust Certificates Program in December 2017 in connection with our transfer to certificate holders of 85% of the shares of TMM DM, our level of indebtedness remains substantial and could have important consequences, including the following:
|
§
|
limiting cash flow available for capital expenditures, acquisitions, working capital and other general corporate purposes because a substantial portion of our cash flow from operations must be dedicated to servicing debt;
|
|
§
|
increasing our vulnerability to a downturn in economic or industry conditions;
|
|
§
|
exposing us to risks inherent in interest rate fluctuations because future borrowings may be at interest rates that are higher than current rates, which could result in higher interest expenses;
|
|
§
|
limiting our flexibility in planning for, or reacting to, competitive and other changes in our business;
|
|
§
|
placing us at a competitive disadvantage compared to our competitors that have less debt and greater operating and financing flexibility than we do;
|
|
§
|
limiting our ability to engage in activities that may be in our long-term best interest; and
|
|
§
|
limiting our ability to borrow additional money to fund our working capital and capital expenditures or to refinance our existing indebtedness, or to enable us to fund the acquisitions contemplated in our business plan.
|
Our ability to service our indebtedness will depend upon future operating performance, including the ability to increase revenues significantly, renew our existing vessel contracts and control expenses. Future operating performance depends upon various factors, including prevailing economic, financial, competitive, legislative, regulatory, business and other factors that are beyond our control.
If we cannot generate sufficient cash flow from operations to service our indebtedness we may default under our various financing facilities. If we default under any such facility, the relevant lender or lenders could then take action to foreclose against any collateral securing the payment of such facility. Our shipping assets have been pledged to secure our various vessel financing facilities. See Item 3. “Key Information — Selected Financial Data.”
Grupo TMM, S.A.B. and Subsidiaries
Grupo TMM is primarily a holding company and depends upon funds received from its operating subsidiaries to make payments on its indebtedness.
Grupo TMM is primarily a holding company and conducts the majority of its operations, and holds a substantial portion of its operating assets, through numerous direct and indirect subsidiaries. As a result, Grupo TMM relies on income from dividends and fees related to administrative services provided to its operating subsidiaries for its operating income, including the funds necessary to service its indebtedness.
Under Mexican law, profits of Grupo TMM’s subsidiaries may only be distributed upon approval by such subsidiaries’ shareholders, and no profits may be distributed by its subsidiaries to Grupo TMM until all losses incurred in prior fiscal years have been offset against any sub-account of Grupo TMM’s capital or net worth account. In addition, at least 5% of profits must be separated to create a reserve
(reserva legal)
until such reserve is equal to 20% of the aggregate value of such subsidiary’s capital stock (as calculated based on the actual nominal subscription price received by such subsidiary for all issued shares that are outstanding at the time).
There is no restriction under Mexican law upon Grupo TMM’s subsidiaries remitting funds to it in the form of loans or advances in the ordinary course of business, except to the extent that such loans or advances would result in the insolvency of its subsidiaries, or for its subsidiaries to pay Grupo TMM fees or other amounts for services.
To the extent that Grupo TMM relies on dividends or other distributions from subsidiaries that it does not wholly own, Grupo TMM will only be entitled to a pro rata share of the dividends or other distributions provided by such subsidiaries.
Restrictive covenants in our financing agreements may restrict our ability to pursue our business strategies.
Our financing agreements contain a number of restrictive covenants and any additional financing arrangements we enter into may contain additional restrictive covenants. These covenants restrict or prohibit many actions, including our ability, or that of our subsidiaries, to, among others:
|
§
|
incur additional indebtedness;
|
|
§
|
create or suffer to exist liens;
|
|
§
|
make certain restricted payments, including the payment of dividends;
|
|
§
|
carry out certain investments;
|
|
§
|
engage in certain transactions with shareholders and affiliates;
|
|
§
|
use assets as security in other transactions;
|
|
§
|
issue guarantees to third parties;
|
|
§
|
engage in certain mergers and consolidations or in sale-leaseback transactions.
|
If we fail to comply with these and other restrictive covenants, our obligation to repay our indebtedness may be accelerated. If we cannot pay the amounts due under our financing facilities, the relevant lender or lenders could then take action to foreclose against any collateral securing the payment of such facility or facilities.
Grupo TMM, S.A.B. and Subsidiaries
We have to service our debt with revenues mostly generated in Mexican pesos. This could adversely affect our ability to service our debt in the event of a devaluation or depreciation in the value of the Mexican peso against the dollar.
As of March 31, 2018, approximately 84.3% of our debt was denominated in dollars. As of the date of this Annual Report, we do not generate sufficient revenue in dollars from our operations to service all of our dollar-denominated debt. Consequently, we have to use revenues generated in Mexican pesos to service our dollar-denominated debt. A devaluation or depreciation in the value of the Mexican peso, compared to the dollar, could adversely affect our ability to service our debt. During 2017, the Mexican peso appreciated approximately 4.5% against the dollar. From January 1 through March 31, 2018, the Mexican peso appreciated approximately 7.4% against the dollar.
Fluctuations in the Mexican peso/dollar exchange rate could lead to shifts in the types and volumes of Mexican imports and exports, negatively impacting results on some of our businesses. Although a decrease in the level of exports may be offset by a subsequent increase in imports, any offsetting increase might not occur on a timely basis, if at all. Future developments in U.S.-Mexican trade beyond our control may result in a reduction of freight volumes or in an unfavorable shift in the mix of products and commodities we carry.
Risks Relating to our Business
Uncertainties relating to our financial condition in our recent past and other factors raised substantial doubt about our ability to continue as a going concern and could have resulted in our dissolution under Mexican corporate law.
In accordance with the Mexican Companies Act (
The Ley General de Sociedades Mercantiles
), when a company has accumulated losses in excess of two-thirds of its capital stock, the dissolution of the company may be adopted by the shareholders of the company at an Extraordinary Shareholders Meeting called by the company’s board of directors upon the request of shareholders representing at least 33% of the company’s capital stock. At the Extraordinary Shareholders Meeting, the shareholders may vote to either dissolve company or approve any corporate strategy for addressing the accumulated losses.
Additionally, the Mexican Bankruptcy Act (
Ley de Concursos Mercantiles
) provides that any third party with legal interest may request the judicial authorities to declare the dissolution of the company. A third person is considered to have a legal interest to request dissolution if the person is a creditor of the company and (i) the company has failed continuously with its payment obligations to the third person and the amount of the failure represents at least 35% of all the obligations of the company, and (ii) the company does not have sufficient assets to satisfy at least 80% of the payment obligations in respect of which it has failed to make the required payments at the time of the request.
Although we generated a profit for the year ended December 31, 2017, we accumulated losses in excess of two-thirds of our capital stock in each of the years ended December 31, 2013, 2014, 2015 and 2016, respectively. Our ability to continue as a going concern is subject to our ability to generate sufficient profits and/or obtain necessary funding from outside sources and there can be no assurance that we will be able to generate such profits or obtain such funding.
As of April 23, 2018, the company had not received any request for an Extraordinary Shareholders Meeting concerning the accumulated losses of the Company, nor had the Company received notice of any request to judicial authorities to declare a dissolution of the Company.
Our results of operations may be adversely affected by our spin-off of TMM DM.
His
torically, our maritime operations segment has been the biggest contributor to our revenues, accounting for 79.2%, 81.9% and 84.9% of consolidated revenues for the year 2017, 2016, and 2015 respectively. A substantial portion of those revenues was generated through the chartering of offshore vessels, product tankers and tugboats owned by TMM DM and related services in repect of those vessels. Although we will continue to operate, market and manage TMM DM’s vessels pursuant to a maritime services contract following our transfer of 85% of the shares of TMM DM to holders of certificates issued under our Trust Certificates Program, the spin-off is likely to result in a decrease in our consolidated revenues. We cannot assure you that such a decrease will not have a material adverse effect on our results of operations. Further, we cannot assure you that TMM DM will not decide to terminate our services, or that such termination would not have a material adverse effect on our our business, results of operations and financial condition.
Grupo TMM, S.A.B. and Subsidiaries
If the time charter arrangements for the vessels we operate are terminated or expire, our business could be adversely affected.
As of March 31, 2018, we operated one product tanker on time charter to Petroleos de Venezuela (“PDVSA”), three product tankers on time charter to PMI Trading, Limited (“PMI”), and nine offshore vessels on time charter to PEMEX Exploración y Producción (“PEP”). PMI and PEP are subsidiaries of Petróleos Mexicanos, the national oil company of Mexico (“PEMEX”). In addition, as of March 31, 2018, we operated two offshore vessels under chartering agreements with private companies in the spot market for time periods of less than one year, and fifteen vessels were without a contract. In the event that these time charter agreements are terminated or expire without being renewed, we will be required to seek new bareboat or time charter agreements for these vessels. We cannot be sure that bareboat or time charters will be available for the vessels following termination or expiration, or that bareboat or time charter rates in effect at the time of such termination or expiration will be comparable to those in effect under the existing time charters or in the present market. In the event that bareboat or time charters are not available on terms acceptable to us, we may operate those vessels in the spot market. Because charter rates in the spot market are subject to greater fluctuation than longer term bareboat or time charter rates, any failure to maintain existing, or enter into comparable, charter agreements could adversely affect our operating results.
Our results from operations are dependent on fuel expenses.
Our parcel tanker operations consume significant amounts of energy and fuel, the cost of which has fluctuated significantly worldwide in recent years. With respect to our other operations, our customers pay for the fuel consumption. We currently meet, and expect to continue to meet, our fuel requirements through purchases from various suppliers at North American market prices. In addition, instability caused by imbalances in the worldwide supply and demand of oil may result in increases in fuel prices. Our fuel expense represents a significant portion of our operating expenses in our parcel tanker operations, and there may be increases in the price of fuel that cannot be hedged or transferred to the final user of our transportation services. We cannot assure you that our operations would not be materially adversely affected in the future if energy and fuel costs increase from current levels.
We may be unable to successfully expand our business.
Future growth of our businesses will depend on a number of factors, including:
|
§
|
the continued identification, evaluation and participation in niche markets;
|
|
§
|
the identification of joint venture opportunities or acquisition candidates;
|
|
§
|
our ability to enter into acquisitions on favorable terms;
|
|
§
|
our ability to finance any expansion of our business;
|
|
§
|
our ability to hire and train qualified personnel, and to maintain our existing managerial base;
|
|
§
|
the successful integration of any acquired businesses with our existing operations; and
|
|
§
|
our ability to manage expansion effectively and to obtain required financing.
|
Grupo TMM, S.A.B. and Subsidiaries
In order to maintain and improve operating results from new businesses, as well as our existing businesses, we will be required to manage our growth and expansion effectively. However, the management of new businesses involves numerous risks, including difficulties in assimilating the operations and services of the new businesses, the diversion of management’s attention from other business concerns and the disadvantage of entering markets in which we may have no or limited direct or prior experience. Our failure to effectively manage our business could preclude our ability to expand our business and could have a material adverse effect on our results of operations.
Significant competition could adversely affect our future financial performance.
Certain of our business segments face significant competition, which could have a material adverse effect on our results of operations. Our international and domestic maritime operations have faced significant competition, mainly from U.S., Mexican and other international shipping companies acting directly or through a Mexican intermediary.
In our logistics operations division, our automotive logistics services have faced intense competition, including price competition, from a large number of U.S., Mexican, and other international logistics companies. We cannot assure you that we will not lose business in the future due to our inability to respond to competitive pressures by decreasing our prices without adversely affecting our gross margins and operational results.
Downturns in certain cyclical industries in which our customers operate could have adverse effects on our results of operations.
The shipping and logistics industries are highly cyclical, generally tracking the cycles of the world economy. Although transportation markets are affected by general economic conditions, there are numerous specific factors within each particular market segment that may influence operating results. Some of our customers do business in industries that are highly cyclical, including the oil and gas and automotive sectors. Any downturn in these sectors could have a material adverse effect on our operating results. Also, some of the products we transport have had a historical pattern of price cyclicality, which has typically been influenced by the general economic environment and by industry capacity and demand. We cannot assure you that prices and demand for these products will not decline in the future, adversely affecting those industries and, in turn, our financial results.
Grupo TMM is a party to arrangements with other parties as joint investors in non-wholly owned subsidiaries.
Grupo TMM is a party to arrangements with other parties under which it and such parties have jointly invested in non-wholly owned subsidiaries, and Grupo TMM may enter into other similar arrangements in the future. Grupo TMM’s partners in these non-wholly owned subsidiaries may at any time have economic, business or legal interests or goals that are inconsistent with our interests or those of the entity in which they have invested with us. Furthermore, any dividends that are distributed from subsidiaries that Grupo TMM does not wholly own would be shared pro rata with its partners according to their relative ownership interests. For these or any other reasons, disagreements or disputes with partners with whom Grupo TMM has a strategic alliance or relationship could impair or adversely affect its ability to conduct its business and to receive distributions from, and return on its investments in, those subsidiaries.
Over time, vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of a vessel, we may incur a loss.
Vessel values can fluctuate substantially over time due to a number of different factors, including:
|
§
|
prevailing economic conditions in the market;
|
|
§
|
a substantial or extended decline in world trade;
|
|
§
|
increases in the supply of vessel capacity;
|
|
§
|
prevailing charter rates; and
|
Grupo TMM, S.A.B. and Subsidiaries
|
§
|
the cost of retrofitting or modifying existing ships, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, or otherwise.
|
In the future, if the market values of our vessels deteriorate significantly, we may be required to record an impairment charge in our financial statements, which could adversely affect our results of operations. If a charter terminates, we may be unable to re-charter the vessel at an acceptable rate and, rather than continue to incur costs to maintain and finance the vessel, may seek to dispose of it. Our inability to dispose of the vessel at a reasonable price could result in a loss on its sale and adversely affect our results of operations and financial condition.
Our growth depends upon continued growth and demand for the liquid bulk and offshore vessel industries which may have been at or near the peak of their upward trend and charter hire rates have already been at or near historical highs. These factors may lead to reductions and volatility in charter hire rates and profitability.
The liquid bulk and offshore vessel industries are both cyclical and volatile in terms of charter hire rates and profitability. In the future, charter rates and demand for vessels may fluctuate as a result of changes in the size of and geographic location of supply and demand for oil and related products, as well as changes in maritime regulations. These and other factors affecting the supply and demand for liquid bulk, offshore and vessels in general are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
The factors that influence demand for vessel capacity include:
|
§
|
supply and demand for products suitable for shipping by vessels;
|
|
§
|
changes in global production of products transported by vessels;
|
|
§
|
the distance cargo products are to be moved by sea;
|
|
§
|
the globalization of manufacturing;
|
|
§
|
global and regional economic and political conditions;
|
|
§
|
changes in seaborne and other transportation patterns, including changes in the distances over which cargoes are transported;
|
|
§
|
environmental and other regulatory developments;
|
|
§
|
technological advancements;
|
|
§
|
currency exchange rates; and
|
The factors that influence the supply of vessel capacity include:
|
§
|
the number of newbuilding deliveries;
|
|
§
|
the scrapping rate of similar vessels;
|
|
§
|
the price of steel and other raw materials;
|
|
§
|
changes in environmental and other regulations that may limit the useful life of vessels;
|
|
§
|
the number of vessels that are out of service; and
|
Grupo TMM, S.A.B. and Subsidiaries
Our ability to re-charter the vessels we operate upon the expiration or termination of their current charters and the charter rates payable under any renewal or replacement charters will depend upon, among other things, the prevailing state of the charter market for vessels. If the charter market is depressed when vessels’ charters expire, we may be forced to re-charter the vessels at reduced rates or even possibly a rate whereby we incur a loss, which may reduce our earnings or make our earnings volatile. The same issues will exist if we acquire additional vessels and attempt to obtain multi-year time charter arrangements as part of our acquisition and financing plan.
Our growth depends on our ability to expand relationships with existing charterers and to obtain new charterers, for which we will face substantial competition.
One of our principal objectives is to acquire additional vessels in conjunction with entering into additional multi-year, fixed-rate time charters for these ships. The process of obtaining new multi-year time charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. Shipping charters are awarded based upon a variety of factors relating to the vessel operator, including:
|
§
|
shipping industry relationships and reputation for customer service and safety;
|
|
§
|
shipping experience and quality of ship operations (including cost effectiveness);
|
|
§
|
quality and experience of seafaring crew;
|
|
§
|
the ability to finance vessels at competitive rates and financial stability in general;
|
|
§
|
relationships with shipyards and the ability to get suitable berths;
|
|
§
|
relationships with ship owners and the ability to obtain suitable second-hand vessels;
|
|
§
|
construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications;
|
|
§
|
willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events, among others; and
|
|
§
|
competitiveness of the bid in terms of overall price.
|
We expect substantial competition from a number of experienced companies, including state-sponsored entities and major shipping companies. Some of these competitors have significantly greater financial resources than we do, and can therefore operate larger fleets and may be able to offer better charter rates. This competition may cause greater price competition for time charters. As a result of these factors, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends to our stockholders.
The aging of the vessels we operate may result in increased operating costs in the future, which could adversely affect our earnings.
In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As the vessels we operate age, we will incur increased costs. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels. Cargo insurance rates also increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of a vessel may also require expenditures for alterations or the addition of new equipment to vessels and may restrict the type of activities in which vessels may engage. We cannot assure you that, as the vessels we operate age, market conditions will justify such expenditures or will enable us to profitably operate the vessels during the remainder of their expected useful lives.
Grupo TMM, S.A.B. and Subsidiaries
Our results of operations may be adversely affected by operational risks inherent in the transportation and logistics industry.
The operation of vessels and other machinery relating to the shipping and cargo business involves an inherent risk of catastrophic marine disaster, mechanical failure, collisions, property losses to vessels, piracy, cargo loss or damage and business interruption due to political actions in Mexico and in foreign countries. In addition, the operation of any harbor and seagoing vessel is subject to the inherent possibility of catastrophic marine disasters, including oil spills and other environmental accidents, and the liabilities arising from owning and operating vessels in international trade. Any such event may result in a reduction of revenues or increased costs. The Company’s vessels are insured for their estimated value against damage or loss, including war, terrorism acts, and pollution risks and we also carry other insurance customary in the industry.
We maintain insurance to cover the risk of partial or total loss of or damage to all of our assets including, but not limited to, harbor and seagoing vessels, port facilities, port equipment, land facilities and offices. In particular, we maintain marine hull and machinery and war risk insurance on our vessels, which covers the risk of actual or constructive total loss. Additionally, we have protection and indemnity insurance for damage caused by our operations to third persons. With certain exceptions, we do not carry insurance covering the loss of revenue resulting from a downturn in our operations or resulting from vessel off-hire time on certain vessels. In certain instances, and depending on the ratio of insurance claims to insurance premiums paid, we may choose to self-insure our over-the-road equipment following prudent guidelines. We cannot assure you that our insurance would be sufficient to cover the cost of damages suffered by us or damages to others, that any particular claim will be paid or that such insurance will continue to be available at commercially reasonable rates in the future.
Additionally, some shipping and related activities decrease substantially during periods of bad weather. Such adverse weather conditions can adversely affect our results of operations and profitability if they occur with unusual intensity, during abnormal periods, or last longer than usual in our major markets, especially during peak shipping periods.
Our operations are subject to extensive environmental and safety laws and regulations and we may incur costs that have a material adverse effect on our financial condition as a result of our liabilities under or potential violations of environmental and safety laws and regulations.
Our operations are subject to general Mexican federal and state laws and regulations relating to the protection of the environment. The Mexican Attorney General for Environmental Protection (
Procuraduría
Federal de Protección al Ambiente
) is empowered to bring administrative and criminal proceedings and impose corrective actions and economic sanctions against companies that violate environmental laws, and temporarily or permanently close non-complying facilities. The Mexican Ministry of Environmental Protection and Natural Resources (
Secretaría del Medio Ambiente y Recursos
Naturales
or “SEMARNAT”) and other ministries have promulgated compliance standards for, among other things, water discharge, water supply, air emissions, noise pollution, hazardous substances transportation and handling, and hazardous and solid waste generation. Under the environmental laws, the Mexican government has implemented a program to protect the environment by promulgating rules concerning water, land, air and noise discharges or pollution, and the transportation and handling of wastes and hazardous substances.
We are also subject to the laws of various jurisdictions and international conferences with respect to the discharge of hazardous materials, wastes and pollutants into the environment.
While we maintain insurance against certain of these environmental risks in an amount which we believe is consistent with amounts customarily obtained in accordance with industry norms, we cannot assure you that our insurance will be sufficient to cover damages suffered by us or that insurance coverage will always be available for these possible damages. Furthermore, such insurance typically excludes coverage for fines and penalties that may be levied for non-compliance with environmental laws and regulations.
We anticipate that the regulation of our business operations under federal, state and local environmental laws and regulations will increase and become more stringent over time. We cannot predict the effect, if any, that the adoption of additional or more stringent environmental laws and regulations would have on our results of operations, cash flows, capital expenditure requirements or financial condition.
Grupo TMM, S.A.B. and Subsidiaries
Our maritime operations provide services to transport petrochemical products and refined clean and dirty petroleum products, respectively. See Item 4. “Information on the Company — Business Overview — Maritime Operations.” Under the United States Oil Pollution Act of 1990 (“OPA” or “OPA 90”), responsible parties, including ship owners and operators, are subject to various requirements and could be exposed to substantial liability, and in some cases unlimited liability, for removal costs and damages, including natural resource damages and a variety of other public and private damages resulting from the discharge of oil, petroleum or related substances into the waters of the United States. In some jurisdictions, including the United States, claims for spill clean-up or removal costs and damages would enable claimants to immediately seize the ships of the owning and operating company and sell them in satisfaction of a final judgment. The existence of comparable statutes enacted by individual states of the United States, but requiring different measures of compliance and liability, creates the potential for similar claims being brought in the United States under state law. In addition, several other countries have adopted international conventions that impose liability for the discharge of pollutants similar to OPA. If a spill were to occur in the course of operation of one of our vessels carrying petroleum products, and such spill affected the waters of the United States or another country that had enacted legislation similar to OPA, we could be exposed to substantial or unlimited liability. Additionally, our vessels carry bunkers (ship fuel) and certain goods that, if spilled, under certain conditions, could cause pollution and result in substantial claims against us, including claims under international laws and conventions, OPA and other U.S. federal, state and local laws. Further, under OPA and similar international laws and conventions, we are required to satisfy insurance and financial responsibility requirements for potential oil spills and other pollution incidents. Penalties for failure to maintain the financial responsibility requirements can be significant and can include the seizure of the vessel.
The vessels we operate must also meet stringent operational, maintenance and structural requirements, and they are subject to rigorous inspections by governmental authorities such as the U.S. Coast Guard for those vessels, which operate within U.S. territorial waters. Non-compliance with these regulations could give rise to substantial fines and penalties.
We could have liability with respect to contamination at third-party facilities in the United States where we have transported hazardous substances or wastes under the U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) and comparable state laws (known as state Superfund laws). CERCLA and the state Superfund laws impose joint and several liability for the cost of investigation and remediation, natural resources damages, certain health studies and related costs, without regard to fault or the legality of the original conduct, on certain classes of persons with respect to the release into the environment of certain substances. These persons, commonly called “potentially responsible parties” or “PRPs,” include the current and certain prior owners or operators of and persons that arranged for the disposal or treatment of hazardous substances at sites where a release has occurred or could occur. In addition, other potentially responsible parties, adjacent landowners or other third parties may initiate cost recovery actions or toxic tort litigation against PRPs under CERCLA or state Superfund law or state common law.
The U.S. Clean Water Act imposes restrictions and strict controls regarding the discharge of wastes into the waters of the United States. The Clean Water Act and comparable state laws provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants. In the event of an unauthorized discharge of wastes or pollutants into waters of the United States, we may be liable for penalties and could be subject to injunctive relief.
Potential labor disruptions could adversely affect our financial condition and our ability to meet our obligations under our financing arrangements.
As of March 31, 2018, we had 1,524 employees, approximately 17% of whom were unionized.. The compensation terms of the labor agreement with these employees are subject to renegotiation on an annual basis and all other terms are renegotiated every two years. If we are not able to negotiate these provisions favorably, strikes, boycotts or other disruptions could occur, and these potential disruptions could have a material adverse effect on our financial condition and results of operations and on our ability to meet our payment obligations under our financing arrangements.
Grupo TMM, S.A.B. and Subsidiaries
Continuing world tensions, including as the result of wars, other armed conflicts and terrorist attacks could have a material adverse effect on our business.
Continuing world tensions, including those relating to the Middle East, North Korea, Russia and the Ukraine, as well as terrorist attacks in various locations and related unrest, have increased worldwide political and economic instability and depressed economic activity in the United States and globally, including the Mexican economy. The continuation or escalation of existing armed hostilities or the outbreak of additional hostilities as a consequence of further acts of terrorism or otherwise could cause a further downturn and/or significant disruption to the economies of the United States, Mexico and other countries. The continued threat of terrorism within the United States and abroad and the potential for military action and heightened security measures in response to such threat may cause significant disruption to commerce throughout the world, including restrictions on cross-border transport and trade. Furthermore, the Mexican government’s efforts to combat illegal drug cartels have caused public safety issues that may hinder Mexico’s economic growth and could prompt restrictions on cross-border transport and trade.
Our information technology systems could be subject to security breaches or network disruptions, which could have a material adverse effect on our business.
Our business relies on information technology systems, including computer hardware and software systems, that may be targeted for attack by computer hackers and cyber terrorists. Although we employ various cybersecurity defenses and measures aimed at safeguarding the integrity of our information technology systems from attack, the risks from cyberattacks are constantly evolving and our protective measures may not adequately prevent cybersecurity breaches, which may result in unauthorized access to data by criminals, the theft, corruption or alteration of data, computer viruses, the installation of malware or ransomware, or other malicious acts aimed at disrupting our business operations. If, as a result of such attacks, our information technology systems do not perform as anticipated or become unavailable, we may experience a decrease in operating performance, an increase in operating costs and damage to our reputation. Any significant security breaches or disruptions in the performance of our information technology systems could have a material adverse effect on our results of operations and financial condition.
Our customers may take actions that may reduce our revenues.
If our customers believe that our financial condition will result in a lower quality of service, they may discontinue use of our services. Additionally, some customers may demand lower prices. While we have contracts with some of our customers that prevent them from terminating our services or which impose penalties on customers who terminate our services, it may be impractical or uneconomical to enforce these agreements in Mexican courts. If any of these events occurs, our revenues will be reduced.
Our financial statements may not give you the same information as financial statements prepared under United States accounting rules.
Our financial statements are prepared in accordance with IFRS. IFRS differs in certain significant respects from U.S. GAAP including, among others, the classification of minority interest and employees’ profit sharing, the accounting treatment for capitalized interest, consolidation of subsidiaries, the acquisition of shares of subsidiaries from minority stockholders and the computation of deferred taxes. For this and other reasons, the presentation of financial statements and reported earnings prepared in accordance with IFRS may differ in significant respects from the presentation of financial statements and reported earnings prepared in accordance with U.S. GAAP.
Risks Relating to Mexico
Economic, political and social conditions may adversely affect our business.
Our financial performance may be significantly affected by general economic, political and social conditions in the markets where we operate. Most of our operations and assets are located in Mexico. As a result, our financial condition, results of operations and business may be affected by the general condition of the Mexican economy, the valuation of the Peso as compared to the U.S. dollar, Mexican inflation, interest rates, regulation, taxation, social instability and political, social and economic developments in Mexico. Many countries in Latin America, including Mexico, have suffered significant economic, political and social crises in the past, and these events may occur again in the future. Instability in the region has been caused by many different factors, including:
Grupo TMM, S.A.B. and Subsidiaries
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§
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significant governmental influence over local economies;
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§
|
substantial fluctuations in economic growth;
|
|
§
|
high levels of inflation;
|
|
§
|
changes in currency values;
|
|
§
|
exchange controls or restrictions on expatriation of earnings;
|
|
§
|
high domestic interest rates;
|
|
§
|
wage and price controls;
|
|
§
|
changes in governmental economic or tax policies;
|
|
§
|
imposition of trade barriers;
|
|
§
|
unexpected changes in regulation; and
|
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§
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overall political, social and economic instability.
|
Mexico is an emerging market economy, with attendant risks to our results of operations and financial condition.
Mexico has historically experienced uneven periods of economic growth. Mexico’s gross domestic product (“GDP”) increased 1.4%, 2.8%, 3.3%, 2.9% and 2.0% in 2013, 2014, 2015, 2016 and 2017, respectively. For 2018, the Banco de Mexico Consensus Board
1
estimates that GDP in Mexico is expected to grow by approximately 2.3%, while inflation is expected to be 4.1%. We cannot assure you that these estimates will prove to be accurate. The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Accordingly, Mexican governmental actions concerning the economy and state-owned enterprises could have a significant impact on Mexican private sector entities in general and on us in particular, as well as on market conditions, prices and returns on Mexican securities, including our securities.
Currency fluctuations or the devaluation and depreciation of the Peso could limit the ability of the Company and others to convert Pesos into U.S. dollars or other currencies which could adversely affect our business, financial condition and results of operations.
Severe devaluation or depreciation of the Peso may also result in governmental intervention or disruption of international foreign exchange markets. This may limit our ability to transfer or convert Pesos into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our dollar-denominated indebtedness and adversely affect our ability to obtain foreign currency and other imported goods. The Mexican economy has suffered current account balance of payment deficits and shortages of foreign exchange reserves in the past. While the Mexican government does not currently restrict, and for more than ten years has not restricted, the right or ability of Mexican or foreign persons or entities to convert Pesos into U.S. dollars or to transfer other currencies outside of Mexico, the Mexican government could institute restrictive exchange control policies in the future. To the extent that the Mexican government institutes restrictive exchange control policies in the future, our ability to transfer or convert Pesos into U.S. dollars for the purpose of making timely payments of interest and principal on indebtedness would be adversely affected. Devaluation or depreciation of the Peso against the U.S. dollar may also adversely affect U.S. dollar prices for our debt securities.
1
|
The Banco de Mexico Consensus Board comprises 35 groups of private and international analysts and consultants specialized in the Mexican and international economies.
|
Grupo TMM, S.A.B. and Subsidiaries
Pursuant to the provisions of the North American Free Trade Agreement (“NAFTA”), if Mexico experiences serious balance of payment difficulties or the threat thereof in the future, Mexico would have the right to impose foreign exchange controls on investments made in Mexico, including those made by U.S. and Canadian investors. Any restrictive exchange control policy could adversely affect our ability to obtain U.S. dollars or to translate Pesos into U.S. dollars for purposes of making interest and principal payments to our creditors to the extent that we may have to make those translations. This could have a material adverse effect on our business and financial condition.
High interest rates in Mexico could increase our financing costs.
Mexico historically has had, and may continue to have, high real and nominal interest rates. The Mexican Interbank Equilibrium Interest Rate (TIIE) on 28-day averaged 4.28%, 3.52%, 3.32%, 4.47% and 7.05% in 2013, 2014, 2015, 2016 and 2017, respectively, and for the three-month period ended March 31, 2018, it averaged 7.74%. To the extent our debt is incurred in Mexican Pesos at interest rates linked to the TIIE or any other Mexican interest rate index, any increase in such rates will increase our financing costs.
Developments in other emerging market countries or in the United States may affect us and the prices of our securities.
The market value of securities of Mexican companies, the economic and political situation in Mexico and our financial condition and results of operations are, to varying degrees, affected by economic and market conditions in other emerging market countries and in the United States. Although economic conditions in other emerging market countries and in the United States may differ significantly from economic conditions in Mexico, investors’ reactions to developments in any of these other countries may have an adverse effect on the market value or trading price of securities of Mexican issuers, including our securities, or on our business.
Our operations, including demand for our products or services and the price of our floating rate debt, have also historically been adversely affected by increases in interest rates in the United States and elsewhere. Although in recent years interest rates have remained low, as interest rates rise, the interest payments on our floating rate debt and the cost of refinancing our financing arrangements at maturity will rise as well.
Mexico may experience high levels of inflation in the future, which could adversely affect our results of operations.
Mexico has a history of high levels of inflation, and may experience high inflation in the future. The annual inflation rates for the last five years, as measured by changes in the National Consumer Price Index, as provided by
Banco de México
, were:
2013
|
|
|
3.97
|
%
|
2014
|
|
|
4.08
|
%
|
2015
|
|
|
2.13
|
%
|
2016
|
|
|
3.36
|
%
|
2017
|
|
|
6.77
|
%
|
2018 (last twelve months ended March 31)
|
|
|
5.04
|
%
|
Mexico’s current level of inflation has been reported at higher levels than the annual inflation rate of the United States and Canada. The United States and Canada are Mexico’s main trading partners. We cannot give any assurance that the Mexican inflation rate will decrease, increase or maintain its current level for any significant period of time. A substantial increase in the Mexican inflation rate as currently in effect would have the effect of increasing some of our costs, which could adversely affect our financial condition and results of operations, as well as our ability to service our debt obligations. High levels of inflation may also affect the balance of trade between Mexico and the United States, and other countries, which could adversely affect our results of operations.
Grupo TMM, S.A.B. and Subsidiaries
Political events and declines in the level of oil production in Mexico could affect the Mexican economy and our business, financial condition and results of operations.
Mexican political events may significantly affect our operations. On December 1, 2012, Enrique Peña Nieto, a member of the Institutional Revolutionary Party (“PRI”), began a six-year term as president of Mexico following his victory in the July 1, 2012 presidential election. Following President Peña Nieto’s election, the Mexican government has begun to implement significant changes in laws, policies and regulations aimed at fostering growth in certain key sectors of the Mexican economy, including the energy and transportation sectors. These reforms, as well as the results of the upcoming Mexican presidential election to be held in July 2018, could significantly change Mexico’s political and economic situation, which consequently could affect the Company’s operations. Currently, no single political party holds a clear majority in either chamber of the Mexican Congress. The absence of a clear majority by a single party may hinder the timely implementation of political reforms, result in governmental gridlock and increase political uncertainty. We cannot provide any assurances that political developments in Mexico, over which we have no control, will not have an adverse effect on our business, financial condition or results from operations.
Mexico’s daily oil production statistics indicate that production has declined over the past eight years (2010-2017) at a compounded average rate of 3.9%, a trend that could continue in the coming years. In contrast, during the same period of time, imports of gasoline and diesel for domestic consumption grew 7.5%, and currently represent more than 70% of Mexico’s domestic consumption.
Experts have concluded that if the Mexican government does not follow through with its implementation of reforms designed to promote private investment in the energy sector, or fails to make further investments to increase PEMEX’s technological capabilities, Mexico’s oil production may drop considerably, weakening the financial position of the Mexican government.
Finally, the Mexican economy in the past has suffered balance of payment deficits and shortages in foreign exchange reserves, and we cannot assure you that these deficits and shortages will not occur in the future.
Political events in the United States could have a material adverse effect on our business, financial condition and results of operations.
On January 20, 2017, Donald J. Trump began a four-year term as president of the United States following his victory in the Nov. 8, 2016 presidential election. During his presidential campaign, President Trump expressed a desire to alter the direction of U.S. trade policy, including through a renegotiation of NAFTA, and raised the possibility of imposing border taxes, increasing tarrifs or enacting other measures which would increase the price of goods imported into the United States, particularly from Mexico. Negotiations with Canada and Mexico to modernize NAFTA have commenced, with President Trump focused on implementing U.S. trade policy objectives, including the addition of new provisions to address regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labor, the environment, and other matters which may affect our business or the businesses of our customers.
The United States is Mexico’s primary trading partner, and receives over 80% of Mexico’s total exports. A deterioration in trade relations between Mexico and the U.S. could have a negative effect on Mexico’s economic growth and its transportation and shipping industry in particular. Efforts by President Trump to enact changes to United States-Mexico policy, including action to materially modify NAFTA or increase trade barriers between the United States and Mexico, could have a material adverse effect on our business, financial condition or results of operations.
As a result of lower oil prices following declines from 2014 levels, our clients may reduce spending on exploration and production projects, resulting in a decrease in demand for our services.
Oil and natural gas prices, as well as market expectations of potential changes in these prices, significantly impact the level of worldwide drilling and production services activities. Reduced demand for oil and natural gas or periods of surplus oil and natural gas generally result in lower prices for these commodities and often impact the economics of planned drilling projects and ongoing projects, resulting in the curtailment, reduction, delay or postponement of such projects for an indeterminate period of time. When drilling and production activity and spending declines, vessel daily rates and utilization for our offshore vessels historically decline as well.
Grupo TMM, S.A.B. and Subsidiaries
Although worldwide oil prices increased during late 2017 and the first quarter of 2018, prices remain well below 2014 levels. If lower oil and natural gas prices persist for a prolonged period, or decline further, oil and gas exploration and production companies are likely to cancel or curtail their drilling programs and lower production spending on existing wells, thereby reducing demand for our services.
Any prolonged reduction in the overall level of oil and gas exploration and development activities, whether resulting from changes in the price of oil, natural gas or otherwise, could materially and adversely affect us by negatively impacting:
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§
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our revenues, cash flows and profitability;
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§
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the fair market value and profitability of our vessels;
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§
|
our ability to maintain or increase our borrowing capacity;
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§
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or ability to obtain additional capital to finance our business and make acquisitions, and the cost of that capital;
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§
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the collectability of our receivables; and
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§
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our ability to retain skilled personnel whom we would need in the event of an upturn in the demand for our services.
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If any of the foregoing were to occur, it could have a material adverse effect on our business and financial results.
The following table shows the high, low, average and period-end spot prices of Mexican crude oil as reported by the Bank of Mexico in U.S. dollars for the periods indicated below.
|
|
Spot price of Mexican crude oil
|
|
Year Ended December 31,
|
|
High
(1)
|
|
|
Low
(1)
|
|
|
Average
(2)
|
|
|
End of
Year
(3)
|
|
2013
|
|
|
110.42
|
|
|
|
88.58
|
|
|
|
98.5
|
|
|
|
92.51
|
|
2014
|
|
|
102.41
|
|
|
|
45.45
|
|
|
|
87.66
|
|
|
|
45.45
|
|
2015
|
|
|
59.45
|
|
|
|
26.54
|
|
|
|
44.70
|
|
|
|
29.80
|
|
2016
|
|
|
46.53
|
|
|
|
18.90
|
|
|
|
35.86
|
|
|
|
46.30
|
|
2017
|
|
|
56.19
|
|
|
|
39.20
|
|
|
|
46.36
|
|
|
|
56.19
|
|
|
|
Spot price of Mexican crude oil
|
|
Monthly,
|
|
High
(4)
|
|
|
Low
(4)
|
|
|
Average
(5)
|
|
|
End of Month
(6)
|
|
Year 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
59.75
|
|
|
|
56.72
|
|
|
|
58.53
|
|
|
|
58.39
|
|
February
|
|
|
59.44
|
|
|
|
53.20
|
|
|
|
55.95
|
|
|
|
55.59
|
|
March
|
|
|
58.30
|
|
|
|
53.94
|
|
|
|
55.80
|
|
|
|
56.44
|
|
April
(7)
|
|
|
55.39
|
|
|
|
54.66
|
|
|
|
55.08
|
|
|
|
54.66
|
|
(1)
|
The highest and lowest spot price of Mexican crude oil in U.S. dollars reported by Banco de México on the last business day of each month during the relevant year.
|
(2)
|
The average spot prices during the relevant year.
|
(3)
|
The spot price on the last day of each relevant year.
|
(4)
|
The highest and lowest spot price in the relevant month.
|
(5)
|
The average spot price of each day in the relevant month.
|
(6)
|
The spot price on the last day of each relevant month.
|
(7)
|
Through April 6, 2018.
|
Grupo TMM, S.A.B. and Subsidiaries
Federal tax legislation reforms in Mexico may have an adverse effect on our financial condition and results of operations.
The Mexican government has in recent years implemented various changes to the tax laws applicable to Mexican companies, including us. Should the Mexican government implement changes to the tax laws that result in our having significantly higher tax liability, we would be required to pay the higher amounts due pursuant to any such changes, which could have a material adverse impact on our results of operations.
In December 2013, the Mexican government enacted various federal tax reforms that entered into effect on January 1, 2014. Among other changes, these reforms maintained a corporate income tax rate of 30%; eliminated the corporate flat tax, or IETU; imposed withholding taxes at a 10% rate on the payment of dividends and capital gains from the sale of shares by and to Mexican and foreign shareholders; eliminated deductions previously allowed in respect of payments between related parties or certain foreign corporations; limited the tax deductions for certain benefits paid to employees; and increased the value-added tax in certain areas of Mexico.
On February 13, 2014, we filed an indirect writ of relief (
amparo
) challenging the constitutionality of various provisions of the tax reforms related to the elimination of the existing fiscal consolidation regime. On February 16, 2016, the court issued a ruling rejecting our constitutional challenge. We appealed this ruling on March 17, 2016 and on September 13, 2017, the court rejected our appeal.
We cannot predict the full impact that the tax reform will have on our business, financial condition and results of operations once it is fully implemented, including the effect on our business of higher payroll taxes and higher costs due to additional compliance measures. Our initial assessments indicate that the changes will increase our income tax base in the coming years, primarily as a result of the new limitations on tax deductions. In addition, we cannot predict the indirect impact that this legislation could have on our customers and shareholders. It is possible that our shareholders may be required to pay more taxes than they would have paid prior to the implementation of the January 1, 2014 tax reforms.
Mexican antitrust laws may limit our ability to expand through acquisitions or joint ventures.
Mexico’s federal antitrust laws and regulations may affect some of our activities, including our ability to introduce new products and services, enter into new or complementary businesses or joint ventures and complete acquisitions. In addition, the federal antitrust laws and regulations may adversely affect our ability to determine the rates we charge for our services and products. Approval of the
Comisión Federal de Competencia
, or Mexican Antitrust Commission, is required for us to acquire and sell significant businesses or enter into significant joint ventures and we cannot assure you that we would be able to obtain such approval.
Investors may not be able to enforce judgments against the Company.
Investors may be unable to enforce judgments against us. We are a stock corporation, organized under the laws of Mexico. Substantially all our directors and officers reside in Mexico, and all or a significant portion of the assets of those persons may be located outside the United States. It may not be possible for investors to effect service of process within the United States upon those persons or to enforce judgments against them or against us in U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. Additionally, it may not be possible to enforce, in original actions in Mexican courts, liabilities predicated solely on the U.S. federal securities laws and it may not be possible to enforce, in Mexican courts, judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of the U.S. securities laws.
Grupo TMM, S.A.B. and Subsidiaries
Risks Relating to Ownership of our Equity
The protection afforded to minority shareholders in Mexico is different from that afforded to minority shareholders in the United States.
Under Mexican law, the protections afforded to minority shareholders are different from, and may be less than, those afforded to minority shareholders in the United States. Under Mexican law, there is no procedure for class actions as such actions are conducted in the United States and there are different procedural requirements for bringing shareholder lawsuits against companies. Therefore, it may be more difficult for minority shareholders to enforce their rights against us, our directors or our controlling shareholders than it would be for minority shareholders of a U.S. company.
In accordance with the Mexican Companies Act (
Ley General de Sociedades Mercantiles
), shareholders representing at least 33% of our capital stock can request that the Board of Directors call an Extraordinary Shareholders Meeting to vote on proposals included by the shareholders in their request to the Board.
Holders of ADSs may not be entitled to participate in any future preemptive rights offering, which may result in a dilution of such holders equity interest in our company.
Under Mexican law, if we issue new shares for cash as a part of a capital increase, we generally must grant our stockholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage in our company. Rights to purchase shares in these circumstances are commonly referred to as preemptive rights. We may not be legally permitted to allow holders of ADSs in the United States to exercise preemptive rights in any future capital increase unless (1) we file a registration statement with the SEC with respect to that future issuance of shares or (2) the offering qualifies for an exemption from the registration requirements of the U.S. Securities Act of 1933, as amended. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC, as well as the benefits of preemptive rights to holders of ADSs in the United States and any other factors that we consider important in determining whether to file a registration statement.
If we do not file a registration statement with the SEC to allow holders of ADSs in the United States to participate in a preemptive rights offering or if there is not an exemption from the registration requirements of the U.S. Securities Act of 1933 available, the equity interests of holders of ADSs would be diluted to the extent that ADS holders cannot participate in a preemptive rights offering.
The Company is controlled by the Serrano Segovia family.
The Serrano Segovia family controls the Company through José Serrano Segovia’s direct and indirect ownership of our Shares, and members of the Serrano Segovia family serve as members of our Board of Directors. Holders of our ADSs may not vote at our shareholders’ meetings. Each of our ADSs represents five CPOs. Holders of CPOs are not entitled to exercise any voting rights with respect to the Shares held in the Master Neutral Investment Trust (
Fideicomiso Maestro de Inversion Neutra
) (the “CPO Trust”). Such voting rights are exercisable only by the trustee, which is required by the terms of the trust agreement to vote such Shares in the same manner as the majority of the Shares that are not held in the CPO Trust that are voted at any shareholders’ meeting. Currently the Serrano Segovia family owns a majority of the Shares that are not held in the CPO Trust. As a result, the Serrano Segovia family will be able to direct and control the policies of the Company and its subsidiaries, including mergers, sales of assets and similar transactions. See Item 7. “Major Shareholders and Related Party Transactions — Major Shareholders.”
A change in control may adversely affect us.
In the past, a portion of the Shares and ADSs of the Company held by the Serrano Segovia family was pledged to secure indebtedness of the Serrano Segovia family and entities controlled by them and may from time to time in the future be pledged to secure obligations of other of their affiliates. A foreclosure upon any such Shares held by the Serrano Segovia family could result in a change of control under the various debt instruments of the Company and its subsidiaries. Such debt instruments provide that certain change of control events with respect to us will constitute a default and that the relevant lenders may require us to prepay our debt obligations including accrued and unpaid interest, if any, to the date of such repayment. If such a default occurs, we cannot assure you that we will have enough funds to repay our debt.
Grupo TMM, S.A.B. and Subsidiaries
Our ADSs trade on the over-the-counter (“OTC”) market, which may limit the liquidity and price of our ADSs more than if the ADSs were quoted or listed on a national securities exchange.
Our ADSs currently trade on the OTC market under the ticker symbol GTMAY. The OTC market is a significantly more limited market than a national securities exchange such as the New York Stock Exchange (“NYSE”) or NASDAQ, with generally lower trading volumes and higher price volatility. Quotation of the ADSs on the OTC market may limit the liquidity and price of the ADSs and could adversely impact our ability to raise capital in the future.
ITEM 4.
|
INFORMATION ON THE COMPANY
|
History and Development of the Company
We were formed on August 14, 1987, under the laws of Mexico as a variable capital corporation
(sociedad anónima de capital variable)
to serve as a holding company for investments by certain members of the Serrano Segovia family.
TMM merged with and into Grupo TMM (formerly
Grupo Servia, S.A. de C.V.
(“Grupo Servia”)), which was effected on December 26, 2001, leaving Grupo TMM as the surviving entity. Under the terms of the merger, all of the assets, privileges and rights and all of the liabilities of TMM were transferred to Grupo TMM upon the effectiveness of the merger. TMM was founded on September 18, 1958 by a group of private investors, including the Serrano Segovia family.
In December 2001, the boards of directors of TMM and Grupo TMM unanimously approved a corporate reorganization and merger in which TMM was merged with and into Grupo TMM. After the merger, each shareholder of TMM continued to own the same relative economic interest in Grupo TMM as the shareholder owned in TMM prior to the merger. In preparation for the merger, the shareholders of Grupo TMM approved the division (
escisión)
of Grupo TMM into two companies, Grupo TMM and a newly formed corporation, Promotora Servia, S.A. de C.V. (“Promotora Servia”). Under the terms of the
escisión
, Grupo TMM transferred all of its assets, rights and privileges (other than its interest in TMM) and all of its liabilities to Promotora Servia. The transfer of assets to Promotora Servia was made without recourse and without representation or warranty of any kind, and all of Grupo TMM’s creditors expressly and irrevocably consented to the transfer of the liabilities to Promotora Servia.
On September 13, 2002, we completed a reclassification of our Series L Shares of stock as Series A Shares. The reclassification combined our two classes of stock into a single class by converting each share of our Series L Shares into one share of our Series A Shares. The reclassification also eliminated the variable portion of our capital stock and we became a fixed capital corporation
(sociedad anónima)
. Following the reclassification, we had 56,963,137 Shares outstanding. As a result of the elimination of the variable portion of our capital stock, our registered name changed from Grupo TMM, S.A. de C.V. to Grupo TMM, S.A.
As a result of a reform to the securities law in Mexico promulgated in June 2006, publicly traded companies in Mexico were transformed by operation of law into
Sociedades Anónimas Bursátiles
(Public Issuing Corporation) and were required to amend their bylaws to conform them to the provisions of the new law. Accordingly, on December 20, 2006, the Company added the term “
Bursátil
” to its registered name to comply with the requirements under Mexico’s new securities law, or
Ley del Mercado de Valores.
As a result, the Company is known as Grupo TMM, Sociedad Anónima Bursátil, or Grupo TMM, S.A.B. In addition, the Series A Shares of the Company were renamed as nominative common shares without par value (“Shares”). The rights afforded by the new Shares are identical to the rights afforded by the former Series A Shares.
On December 15, 2017, as part of corporate restructuring to improve our debt profile, we transferred 85% of the shares of our wholly owned subsidiary, TMM Division Maritima, S.A. de C.V. (“TMM DM”), an owner and operator of supply vessels, tankers and tugboats, to the holders of certificates issued by TMM DM under our Mexican Peso-Denominated Trust Certificates Program (the “Trust Certificates Program”). The Trust Certificates Program involved the issuance to investors of certificates secured by trust assets and denominated in Mexican Pesos, the proceeds of which were used by us to consolidate and refinance our debt, as well as to finance the acquisition of additional vessels as contemplated by our expansion program. As a result of the transfer, we no longer exercise control over TMM DM and our financial statements no longer include TMM DM’s assets, liabilities, and income (loss). Going forward, we will continue to operate the supply vessels, tankers and tugboats owned by TMM DM pursuant to a maritime services contract. See Notes 4 and 5 to the accompanying Audited Consolidated Financial Statements contained elsewhere herein.
Grupo TMM, S.A.B. and Subsidiaries
Today, we are a fixed capital corporation listed on the Mexican Stock Exchange (
Bolsa Mexicana de Valores
)
incorporated under the
Ley General de
Sociedades Mercantiles
for a term of 99 years. We are headquartered at Avenida de la Cúspide, No. 4755, Colonia Parques del Pedregal, 14010 México City, México, and our telephone number is +52-55-5629-8866. Grupo TMM’s Internet website address is www.grupotmm.com. The information on Grupo TMM’s website is not incorporated into this Annual Report.
Business Overview
General
We are one of the largest logistics and transportation companies in Mexico, providing dynamic ocean transportation services, including maritime, ports and terminals management, logistics services and warehousing services, to premium clients throughout Mexico.
Maritime Operations.
Our Maritime Operations division provides maritime transportation services, including offshore vessels that provide transportation and other services to the Mexican offshore oil industry, tankers that transport petroleum products within Mexican and international waters, parcel tankers that transport liquid chemical and vegetable oil cargos from and to the United States and Mexico, tugboats that provide towing services at the port of Manzanillo, Mexico, and dry bulk carriers that transport unpackaged commodities such as steel between South America, the Caribbean and Mexico. As of March 31, 2018, we operate a fleet of 39 vessels, which includes product and chemical tankers, harbor tugs and a variety of offshore supply vessels. Of these vessels, 30 are owned by TMM DM and managed, operated and marketed by us pursuant to a maritime services contract.
In addition, we operate a shipyard with integrated services based in the port of Tampico, Mexico through our subsidiary, Inmobiliaria Dos Naciones, S.R.L. de C.V. (“IDN”). IDN is located near offshore oil and gas facilities and key commercial routes between the Southeastern United States and Mexico. IDN provides ship repair services and has two floating drydocks with a capacity of 3,000 metric tons each. IDN services more than 30 vessels per year and provides us with the necessary capabilities to build additional vessels.
Ports
and Terminals Operations.
We presently operate three Mexican port facilities, Tuxpan, Tampico and Acapulco, under concessions granted by the Mexican government, which provide for certain renewal rights. This business unit also provides port agent services to vessel owners and operators in the main Mexican ports.
Logistics Operations.
We provide dedicated logistics services to major manufacturers, including automobile manufacturers and retailers with facilities and operations throughout Mexico. The services that we provide include consulting, analytical and logistics outsourcing services, which encompass the management of inbound movement of parts to manufacturing plants consistent with just-in-time inventory planning practices; logistics network (order-cycle) analysis; logistics information process design; intermodal transport; supply chain and logistics management; product handling and repackaging; local pre-assembly; maintenance and repair of containers in principal Mexican ports and cities and inbound and outbound distribution using multiple transportation modes. Due to the scope of our operations, together with the extent of our experience and resources, we believe that we are uniquely positioned to coordinate the entire supply chain for our customers.
Warehousing Operations.
Through our subsidiary, Almacenadora de Depósito Moderno, S.A. de C.V. Auxiliary Credit Organization (“ADEMSA”), we provide warehousing and bonded warehousing facility management services. ADEMSA currently operates over 240,000 square meters of warehousing space throughout Mexico, including 64,939 square meters of direct warehouse space (the largest of which is located in northern Mexico City). Due to its regulated nature, ADEMSA is one of a limited number of warehousing companies authorized by the Mexican government to provide bonded warehousing services and to issue negotiable certificates of deposit.
Grupo TMM, S.A.B. and Subsidiaries
Set forth below are our total revenues over the last three fiscal years for each of our business segments:
|
|
Consolidated Transportation Revenues
(in millions of Pesos)
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Maritime Operations
|
|
$
|
1,951.3
|
|
|
$
|
2,167.6
|
|
|
$
|
2,770.9
|
|
Ports and Terminals Operations
|
|
|
134.2
|
|
|
|
116.7
|
|
|
|
114.2
|
|
Logistics Operations
|
|
|
229.5
|
|
|
|
190.9
|
|
|
|
169.7
|
|
Warehousing Operations
|
|
|
149.9
|
|
|
|
126.1
|
|
|
|
133.1
|
|
Other Business
|
|
|
-
|
|
|
|
46.2
|
|
|
|
74.0
|
|
Total
|
|
$
|
2,464.9
|
|
|
$
|
2,647.5
|
|
|
$
|
3,261.9
|
|
All of these revenues are earned in Mexico except for 3.57% of the revenues from our chemical tankers and product tankers.
Recent Developments
Spin-off of TMM DM
On December 15, 2017, as part of corporate restructuring to improve our debt profile, we transferred 85% of the shares of our wholly owned subsidiary, TMM DM, an owner and operator of supply vessels, tankers and tugboats, to the holders of certificates issued by TMM DM under our Trust Certificates Program. As a result of the transfer, we no longer exercise control over TMM DM and our financial statements no longer include TMM DM’s assets, liabilities, and income (loss). Going forward, we will continue to operate the supply vessels, tankers and tugboats owned by TMM DM pursuant to a maritime services contract. The terms of the contract provide for TMM DM to pay us a service fee based on the revenues generated by the vessels and their operating costs. The contract does not include a non-compete restriction, allowing us to continue our efforts to expand our existing fleet and develop new maritime business.
Strategic Partnership in Tuxpan
In light of the liberalization of refined products included in the Mexican Energy Reforms and the Company’s ownership of land strategically located in Tuxpan, in August 2016 we announced a new venture with TransCanada and Sierra Oil & Gas to jointly develop a mid-stream infrastructure in Tuxpan as well as an inland distribution center to serve the growing demand for refined products such as gasoline, diesel and jet fuel in the central region of Mexico. Once completed, this infrastructure should allow us to supply up to 100,000 barrels per day of refined products to Mexico City and the central Mexican states from our facilities in Tuxpan.
Corporate Restructuring, Issuance and Cancellation of Convertible Debentures
On August 15, 2016, the Company published in Mexico an announcement in the
Reforma
newspaper that an Extraordinary Shareholders’ Meeting would be held on August 31, 2016 at which the Company’s shareholders would vote on the adoption of a corporate restructuring and capitalization program aimed at significantly increasing the valuation of the Company’s assets and equity as reported on its financial statements. Under the proposed program, the Company was to merge with and into TTM, a private Mexican limited liability company formed as a holding company by the Company’s controlling shareholders VEX Asesores Corporativos, S.A.P.I de C.V. (“VEX”) and José F. Serrano Segovia, the Company’s chairman and CEO. VEX is a private Mexican company in which José F. Serrano Segovia holds a minority equity interest and controls 100% of the voting stock. Effective upon the proposed merger, in accordance with the General Law of Commercial Companies (
Ley General de Sociedades Mercantiles
)
,
TTM was to continue as the successor issuer to the Company and assume all of the Company’s assets, liabilities, rights and obligations. TTM would then assume the name “Grupo TMM, S.A.B.” and the Company’s current business, operations, corporate governance and organizational structure would continue in the same form as immediately prior to the merger, with no change to the Company’s current officers, directors or management. Completion of the merger was subject to various conditions precedent, including registration of the merger agreements in the Public Registry of Commerce (
Registro Público de la Propiedad y de Comercio
) as required by Article 223 of the General Law of Commercial Companies, as well as the approval of the National Banking and Stock Commission (
Comision Nacional Bancaria y de Valores
).
Grupo TMM, S.A.B. and Subsidiaries
In addition, the Company proposed to undertake a capitalization program providing for the issuance, in Mexico and only to Mexican investors holding debt related to the Company’s Trust Certificates Program, of convertible debentures in an aggregate principal amount of up to $4,600.0 million (the “Convertible Debentures”). The Convertible Debentures were convertible into Shares of the Company at specified dates over a 10-year period at a price of $19.55 per Share.
On August 31, 2016, Grupo TMM’s shareholders unanimously approved the corporate restructuring and capitalization program, including the merger and issuance of Convertible Debentures. However, following a detailed review of the accounting requirements and valuation rules applicable to the proposed merger, Company management elected not to proceed with the proposed merger. Accordingly, on April 3, 2017, the Company held an Extraordinary Shareholders’ Meeting at which the shareholders resolved to declare the merger null and void, as the conditions precedent for effectiveness, including registration of the merger agreements pursuant to Article 223 of the General Law of Commercial Companies, had not been fulfilled. As a result of the decision not to proceed with the proposed merger, TTM became a wholly owned subsidiary of the Company and the Convertible Debentures, which had been issued by TTM to holders of Company debt in contemplation of TTM continuing as the successor issuer to the Company following the merger, became obligations of the Company.
On September 29, 2017, the Company agreed with the Convertible Debenture holders to defer the date on which the first conversion of 10% of the aggregate of the principal amount of the Convertible Debentures would occur from September 30, 2017 to June 30, 2018.
On December 4, 2017, the Company and the Convertible Debenture holders agreed to terminate the Convertible Debentures program. Under the terms of the agreement, the Company delivered trust certificates to the Convertible Debenture holders in an amount equivalent to the principal value of the Convertible Debentures, plus accrued interest. Termination of the Convertible Debenture program extinguished any further liability of the Company in respect of the Convertible Debentures, and did not result in any gain or loss to the Company. See Note 18 of the accompanying Audited Consolidated Financial Statements.
Acquisition of TTM
On September 14, 2016, in connection with the corporate restructuring described above, the Company acquired 100% of the stock of TTM from VEX and José F. Serrano Segovia. The terms of the stock purchase agreement provided for the Company’s subsequent acquisition by, and merger into, TTM as approved at the August 31, 2016 Extraordinary Shareholders’ Meetings of the Company and TTM, subject to the condition that the merger be declared effective by no later than April 14, 2017. Because that merger did not take effect as described above, under the terms of the stock purchase agreement TTM became a wholly owned subsidiary of the Company effective as of September 14, 2016. See Note 5 of the accompanying Audited Consolidated Financial Statements.
Charter and Acquisition of Additional Vessels
AHTS “Subsea 204”
. In the first quarter of 2014 we entered into a two-year bareboat charter contract with Subsea Petroleum Services, S.A.E. The vessel was redelivered in early 2016.
Tugboat “TMM Colima”
. On November 11, 2016, the Company acquired a new generation harbor tug vessel, the “TMM Colima”, with azimuthal propulsion, from the Dutch shipyard Damen Shipyards Group. The vessel officially commenced operations on December 30, 2016 at the port of Manzanillo, where the Company has been an authorized concessionaire since 1997.
Sale of Vessels
As part of our plan to modernize our fleet, we sold some of our older offshore vessels. On June 16, 2015, we sold the Product Tanker “Palenque II” to Hydra Maritime LTD. Most recently, on September 4, 2017, we sold the tug vessel “Rey de Coliman” to Servicios Portuarios Generales SA de CV.
Grupo TMM, S.A.B. and Subsidiaries
Commencement of Bulk Carrier Service
In August 2017, we started to transport unpackaged commodities such as steel between South America, the Caribbean and Mexico in specialized ships called bulk carrier vessels.
Parcel Tankers Debt Restructuring
We restructured the payment schedule on the debt incurred to finance the purchase of the parcel tankers M/T “Maya” and M/T “Olmeca”, extending the maturity for one additional year to June 2018, with monthly principal and interest payments at a weighted average interest rate of 4.64% per annum.
The Mexican Market
Since TMM’s formation in 1958, the growth and diversification of the Mexican economy have largely driven our growth. As a result of NAFTA, which became effective on January 1, 1994, trade with and investment in the Mexican economy has significantly increased, resulting in greater traffic along the North-South cross-border trade routes, which comprise the NAFTA corridor. The following table illustrates the growth of the foreign trade segment of the Mexican economy over the last three years:
|
|
Foreign Trade 2015-2017
(a)
|
|
|
|
As of December 31,
(in millions of Dollars)
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Total Exports
|
|
US$409,494
|
|
|
US$373,939
|
|
|
US$380,550
|
|
Total Imports
|
|
US$420,369
|
|
|
US$387,064
|
|
|
US$395,232
|
|
Total Trade Flows
|
|
US$829,863
|
|
|
US$761,004
|
|
|
US$775,782
|
|
Growth Rate—Exports
|
|
|
9.5
|
%
|
|
|
(1.7
|
)%
|
|
|
(4.1
|
)%
|
Growth Rate—Imports
|
|
|
8.6
|
%
|
|
|
(2.1
|
)%
|
|
|
(1.2
|
)%
|
Growth Rate—Total
|
|
|
9.0
|
%
|
|
|
(1.9
|
)%
|
|
|
(2.6
|
)%
|
Growth Rate—GDP
(b)
|
|
|
2.0
|
%
|
|
|
2.9
|
%
|
|
|
3.3
|
%
|
(a)
|
The figures include the in-bound (
maquiladora
) industry.
|
(b)
|
The methodology for calculating Growth Rate-GDP was modified by the
Instituto Nacional de Estadistica, Geografia e Informatica
(INEGI) and is based on 2013 prices.
|
Source:
Instituto Nacional de Estadistica, Geografia e Informatica
(INEGI).
Business Strategy
As part of our continued effort to achieve the Company’s goals, throughout the past 5 years we have accomplished the following:
|
§
|
In December 2017, we restructured our Maritime Operations to decrease our consolidated debt and improve our debt profile by transferring 85% of the shares of our wholly owned subsidiary, TMM DM, an owner and operator of supply vessels, tankers and tugboats, to the holders of certificates issued by TMM DM under our Trust Certificates Program. As a result of the transfer, we no longer exercise control over TMM DM and our financial statements no longer include TMM DM’s assets, liabilities, and income (loss). This should allow us to reduce our comprehensive financing cost by approximately 90%, improving our debt to capital ratio and providing us with greater free cash flow. Going forward, we will continue to operate TMM DM’s vessel fleet pursuant to a maritime services contract under which we will be paid a service fee based on the revenues generated by the vessels and their operating costs. The contract does not include a non-compete restriction, allowing us to continue our efforts to expand our existing fleet and develop new maritime business.
|
|
§
|
We have expanded the customer base of our Maritime Operations, resulting in better operating margins while strengthening our market position.
|
Grupo TMM, S.A.B. and Subsidiaries
|
§
|
In August 2016, we announced a venture with TransCanada and Sierra Oil & Gas to jointly develop a refined products storage, transportation, and distribution infrastructure to serve the growing demand for refined products such as gasoline, diesel and jet fuel from Tuxpan, Veracruz to the central region of Mexico.
|
|
§
|
In November 2016, we acquired a new generation harbor tug vessel, the “TMM Colima”, with azimuthal propulsion, from the Dutch shipyard Damen Shipyards Group. The vessel officially commenced operations on December 30, 2016 at the port of Manzanillo, where we have been an authorized concessionaire since 1997. This vessel was acquired to enhance our fleet of vessels in response to the entry of a new competitor at the port of Manzanillo.
|
|
§
|
In August 2016, our subsidiary TTM authorized the issuance of up to $4,600 million of Convertible Debentures to holders of Company debt under the Trust Certificates Program. The Convertible Debentures allowed us to capitalize the debt held by trust certificate holders through the mandatory conversion of the debentures into shares of the Company over a 10-year period. On December 4, 2017, we and the holders agreed to terminate the Convertible Debentures program. Termination of the program extinguished our liability in respect of the debentures, and did not result in any gain or loss to the Company. See Note 18 of the accompanying Audited Consolidated Financial Statements.
|
|
§
|
The Company continues the strategic plan to offset some of the instability in the oil industry which included the following actions: (i) reduction of costs and SG&A expenses, (ii) establishment of an early payment program (the “supply chain program”) through Nacional Financiera, S.N.C., reducing liquidity risk and the effect of payment delays which may result from recent changes in PEMEX’s payment policies and, (iii) of customer diversification.
|
|
§
|
In the third quarter of 2013, we sold the ground transportation businesses (trucking and autohauling) in our Logistics Operations. In addition, in 2014 we agreed to sell our container terminal project in Tuxpan. With these sales, we continue our efforts to focus on our profitable businesses.
|
|
§
|
With respect to our liabilities, in addition to continuing to service our debt obligations and improving our debt profile through the TMM DM spin off in 2017, in 2016 we partially prepaid our indebtedness to DVB Bank SE (formerly DVB Bank AG), and in 2017, we restructured the payment schedule, extending the maturity for one more year to June 2018.
|
Moving forward, our business strategy is focused on the following:
Expansion and Improvement of our Maritime Operations
The recent Mexican Energy Reforms are anticipated to result in increased oil and gas activity in Mexico by PEMEX and other industry participants, both domestic and international. To better capitalize on this increase in activity in light of the preferences granted to Mexican ship-owners under the Mexican Navigation Law (Mexican flagged vessels have a preference to perform cabotage in Mexican waters), our Maritime Operations division is focused on consolidating and expanding operations by: (i) increasing cabotage services with medium and long-term contracts; (ii) satisfying increasing demand for exploration and distribution services in Mexico and abroad by meeting market requirements for new generation vessels with higher-rated and deeper-water capabilities; and (iii) increasing the current capacity of our shipyard repair services to more than 30 vessels per year, of which approximately 42% have been vessels we operate and, in the long term, to have the capacity to build vessels, enabling us to compete to satisfy the expected demands of PEMEX and future customers for offshore vessels.
Expansion of our Ports and Terminals Operations
Tuxpan is the closest port to Mexico City and the central Mexican states, which account for more than 50% of Mexico’s GDP. It is also the main port of entry of gasoline and diesel imports, which account for more than 70% of domestic consumption.
Grupo TMM, S.A.B. and Subsidiaries
In light of the liberalization of refined products included in the Mexican Energy Reforms and the Company’s ownership of land strategically located in Tuxpan, in August 2016 we announced a new venture with TransCanada and Sierra Oil & Gas to jointly develop a mid-stream infrastructure in Tuxpan as well as an inland distribution center to serve the growing demand for refined products such as gasoline, diesel and jet fuel in the central region of Mexico.
To capitalize on the growth potential of this market, we continue our efforts to develop port facilities and storage terminals in order to meet the future demand for gasoline and diesel imports.
We retain a significant portion of land in Tuxpan and continue to develop projects associated with that region, such as an automobile terminal and a citrus juice export terminal.
Expansion of our Logistics Operations
We are looking to leverage our experience and knowledge of Mexico and its laws, our customer relationships, and our skills in managing union and non-union labor resources to further expand our business with the automotive industry and in general in all activities related to yards and storage management, with an emphasis on “just-in-time” inventory planning, store, subassemblies and yards administration.
We expect to meet all of the above mentioned goals through a series of financial and commercial strategies that are described in greater detail under Item 5. “Operating and Financial Review and Prospects—Business Plan.”
Improvement of our Warehousing Operations
We are working to improve our bonded warehousing services and to issue negotiable certificates of deposit to be issued for the agricultural and steel industries as well as import duties services.
Certain Competitive Advantages
We believe that we benefit from the following competitive advantages:
|
§
|
We are one of the largest and leading Mexican owned and operated maritime and logistics companies in Mexico.
|
|
§
|
We have a demonstrated ability to contract vessels with limited disruptions.
|
|
§
|
The Mexican Navigation Law requires that Mexican flag carriers receive preferential treatment.
|
|
§
|
We are poised to grow along with the energy sector.
|
|
§
|
We have extensive and proven experience in ports, terminals and integrated services, such as yards operations, vessels and intermodal equipment maintenance and repair, warehousing.
|
|
§
|
Our operations in Tuxpan, Veracruz are in a prime location to capitalize on the growth of trade via the Gulf of Mexico.
|
Maritime Operations
Our Maritime Operations include: (a) supply and logistics services to the oil offshore industry at offshore facilities in the Gulf of Mexico and between ports, moving crews and/or cargo to and from oil platforms; (b) product tankers for the transportation in cabotage of petroleum products, such as the distribution of gasoline to a variety of Mexican and international ports where the gasoline is further distributed inland; (c) parcel tankers, also known as chemical tankers, for the transportation of liquid chemical cargoes between ports in Mexico and the United States; (d) tugboats that provide harbor towing services in and out of the port of Manzanillo; (e) bulk carrier vessels that transport unpackaged general commodities between South America, the Caribbean and Mexico; and (f) shipyard services, including ship repair and dry docking services. This segment accounted for 79.2%, 81.9% and 84.9% of consolidated revenues for the year 2017, 2016, and 2015 respectively.
Grupo TMM, S.A.B. and Subsidiaries
Fleet Management
As of March 31, 2018, we operated 39 vessels comprised of product tankers, parcel tankers, offshore vessels, and tugboats. Following the spin-off of TMM DM in December 2017, we entered into a maritime services contract with TMM DM pursuant to which we manage, operate and market the 30 ships belonging to TMM DM (22 offshore vessels, 4 tankers and 4 tugboats) for a fee based on the shipping revenues and the cost of services required to operate the vessels.
The table below sets forth information as of March 31, 2018, about the fleet we operate by type, size and capacities:
Vessel Type
|
|
Number of
Vessels
|
|
|
Total Dead
Weight Tons
(in thousands)
|
|
|
Total Cubic
Meter Capacity
(in thousands)
|
|
|
BHP
(*)
|
|
Offshore vessels
|
|
|
26
|
|
|
|
34.4
|
|
|
|
**
|
|
|
|
5,389
|
|
Product tankers
|
|
|
4
|
|
|
|
186.7
|
|
|
|
204.9
|
|
|
|
**
|
|
Parcel tankers
|
|
|
3
|
|
|
|
41.1
|
|
|
|
45.0
|
|
|
|
**
|
|
Tugboats
|
|
|
6
|
|
|
|
2.6
|
|
|
|
**
|
|
|
|
4,964
|
|
Total
|
|
|
39
|
|
|
|
264.8
|
|
|
|
249.9
|
|
|
|
|
|
*
|
Average Brake Horse Power.
|
Offshore Vessels
We have been participating in this business for more than 20 years. Our offshore division provides supply and logistics services to the offshore industry between the ports and the offshore facilities in the Gulf of Mexico through a specialized fleet that includes fast and conventional crew vessels, supply vessels, anchor handling tug supply vessels, floating production, storage and offloading (“FPSO”) vessels and Dynamic Positioning (“DP”) vessels. Other services include supply and administration of onboard personnel, coordination and supervision of the maritime transport of staff, materials and equipment from the base on shore to operational points of the vessels within the oil-drilling zone of the Gulf of Mexico, and coordination and supervision of catering and accommodation matters onboard the vessels. As of March 2018, the vessels we operate represent 15% of Mexico’s offshore fleet. As of March 31, 2018, nine vessels were directly hired by PEMEX, two vessels were hired by private companies, and fifteen vessels were available for hire.
Set forth below is information regarding the offshore vessels fleet as of March 31, 2018:
Vessel
|
|
Year
|
|
Flag
|
|
DWT
(1)
|
|
LOA
(2)
(m)
(3)
|
|
Beam (m)
|
|
BHP
|
|
Charterer
|
*Eco III
|
|
2008
|
|
Mexico
|
|
10,306
|
|
117.0
|
|
21.0
|
|
3,618
|
|
-
|
*Isla Arboleda
|
|
2002
|
|
Mexico
|
|
417
|
|
46.0
|
|
8.0
|
|
5,400
|
|
-
|
*Isla Arcas
|
|
2001
|
|
Mexico
|
|
224
|
|
50.3
|
|
9.1
|
|
7,200
|
|
-
|
Margot Marianne
|
|
1988
|
|
Mexico
|
|
320
|
|
39.6
|
|
7.9
|
|
2,100
|
|
-
|
*Isla Azteca
|
|
1998
|
|
Mexico
|
|
1,000
|
|
61.9
|
|
14.0
|
|
3,900
|
|
-
|
*Isla Blanca
|
|
2008
|
|
Mexico
|
|
480
|
|
49.4
|
|
11.0
|
|
1,700
|
|
PEP
|
*Isla Ciari
|
|
2009
|
|
Mexico
|
|
480
|
|
49.4
|
|
11.0
|
|
1,700
|
|
PEP
|
Isla Colorada
|
|
2001
|
|
Mexico
|
|
540
|
|
44.0
|
|
11.0
|
|
1,700
|
|
-
|
*Isla Creciente
|
|
2002
|
|
Mexico
|
|
357
|
|
42.7
|
|
9.0
|
|
6,750
|
|
-
|
*Isla de Cedros
|
|
1999
|
|
Mexico
|
|
2,000
|
|
67.0
|
|
14.9
|
|
8,000
|
|
PEP
|
*Isla San Jose
|
|
2006
|
|
Mexico
|
|
1,660
|
|
68.0
|
|
16.0
|
|
12,240
|
|
CASHMAN
|
*Isla Grande
|
|
2004
|
|
Mexico
|
|
2,800
|
|
75.0
|
|
16.0
|
|
12,000
|
|
CASHMAN
|
*Isla Guadalupe
|
|
1998
|
|
Mexico
|
|
1,598
|
|
61.0
|
|
13.8
|
|
5,300
|
|
-
|
*Isla Janitzio
|
|
2008
|
|
Mexico
|
|
480
|
|
49.3
|
|
11.0
|
|
1,700
|
|
PEP
|
Grupo TMM, S.A.B. and Subsidiaries
Vessel
|
|
Year
|
|
Flag
|
|
DWT
(1)
|
|
LOA
(2)
(m)
(3)
|
|
Beam (m)
|
|
BHP
|
|
Charterer
|
*Isla León
|
|
2008
|
|
Mexico
|
|
1,350
|
|
63.4
|
|
15.6
|
|
6,500
|
|
-
|
*Isla Miramar
|
|
2000
|
|
Mexico
|
|
255
|
|
48.8
|
|
9.1
|
|
6,750
|
|
PEP
|
*Isla Monserrat
|
|
2007
|
|
Mexico
|
|
3,250
|
|
71.9
|
|
16.0
|
|
5,450
|
|
PEP
|
Isla Passavera
|
|
1979
|
|
Mexico
|
|
293
|
|
32.0
|
|
7.3
|
|
2,100
|
|
-
|
*Isla Pelicano
|
|
1984
|
|
Mexico
|
|
1,200
|
|
59.2
|
|
12.1
|
|
6,140
|
|
-
|
*Isla San Gabriel
|
|
2009
|
|
Mexico
|
|
369
|
|
55.6
|
|
10.4
|
|
7,200
|
|
PEP
|
*Isla San Ignacio
|
|
2009
|
|
Mexico
|
|
488
|
|
50.0
|
|
11.0
|
|
7,200
|
|
-
|
*Isla San Luis
|
|
2009
|
|
Mexico
|
|
381
|
|
55.5
|
|
10.4
|
|
7,200
|
|
-
|
*Isla Santa Cruz
|
|
2008
|
|
Mexico
|
|
1,900
|
|
63.4
|
|
15.8
|
|
6,800
|
|
-
|
*Isla Verde
|
|
2001
|
|
Mexico
|
|
540
|
|
44.0
|
|
11.0
|
|
1,700
|
|
PEP
|
Subsea 88
|
|
2010
|
|
Mexico
|
|
1,115
|
|
55.0
|
|
13.8
|
|
2,574
|
|
PEP
|
*Isla San Diego
|
|
2009
|
|
Mexico
|
|
552
|
|
55.2
|
|
10.4
|
|
7,200
|
|
-
|
Product Tankers
Since 1992, we have provided product tanker chartering services to PEMEX for the transportation of clean and dirty petroleum products, from refineries to various Mexican ports. The fleet is comprised of 4 product tankers, which include three short-term contracts with PMI, one long-term time charter contract with PDVSA.
Set forth below is information regarding the product tanker fleet as of March 31, 2018:
Vessel
|
|
Year
|
|
Flag
|
|
Hull
|
|
DWT
(1)
|
|
LOA
(3)
(m)
(4)
|
|
Beam (m)
|
|
Charterer
|
*Veracruz (formerly Amatlan II)
|
|
2002
|
|
Mexico
|
|
DH
(2)
|
|
45,467
|
|
189
|
|
32
|
|
PMI
|
*Tajin
|
|
2003
|
|
Mexico
|
|
DH
(2)
|
|
47,147
|
|
183
|
|
32
|
|
PDVSA
|
*Tula
|
|
2005
|
|
Mexico
|
|
DH
(2)
|
|
46,911
|
|
183
|
|
32
|
|
PMI
|
*Durango (formerly Tulum)
|
|
2000
|
|
Mexico
|
|
DH
(2)
|
|
47,131
|
|
183
|
|
32
|
|
PMI
|
We have a competitive advantage in the Mexican market as Mexican Maritime law establishes that cabotage services should be provided by Mexican flag vessels and only Mexican companies are allowed to fly the Mexican flag.
OPA 90 established that vessels that do not have double-hulls will be prohibited from transporting crude oil and petroleum products in U.S. coastwise transportation after a certain date based on the age and size of the vessel unless they are modified with a double-hull. In addition, Annex II (Rules 13G and 13H) from MARPOL 73/78 establishes a phase out calendar for single hull tankers. We are aware of this regulation and do not charter or intend to acquire vessels that do not comply with these rules.
Parcel Tankers
Our parcel tanker business operates between Mexican and American ports in the Gulf of Mexico, transporting chemicals, vegetable and animal oils and molasses. The majority of the transported cargo is under contracts of affreightment (“COAs”) in which the customers commit the carriage of their cargo over a fixed period time on multiple voyages, with a minimum and a maximum cargo tonnage at a fixed price. The vessel operator is responsible for the vessel, the fuel and the port expenses. Currently, our parcel tanker fleet is comprised of two owned vessels and one chartered vessel. We transported 618 thousand tons of chemical products in our parcel tankers during 2017, 627 thousand tons during 2016, and 594 thousand tons during 2015. Our primary customers for our parcel tanker services include major oil and chemical companies.
Grupo TMM, S.A.B. and Subsidiaries
Set forth below is information regarding our parcel tankers as of March 31, 2018:
Vessel
|
|
Flag
|
|
Year
|
|
LOA
|
|
Beam
|
|
Draft
|
|
DWT
(1)
|
|
Capacity M
3
Total
|
|
|
|
|
|
|
(m)
(2)
|
|
(m)
|
|
(m)
|
|
|
|
|
Olmeca
|
|
Marshall Islands
|
|
2003
|
|
130.0
|
|
22.4
|
|
12.0
|
|
15,472
|
|
16,800
|
Maya
|
|
Marshall Islands
|
|
2003
|
|
123.0
|
|
20.0
|
|
8.7
|
|
12,452
|
|
14,102
|
CB Houston
|
|
Marshall Islands
|
|
2003
|
|
128.6
|
|
20.4
|
|
8.7
|
|
13,158
|
|
14,106
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
41,082
|
|
45,008
|
Harbor Towing
Since January 1997, TMM (formerly
Servicios Mexicanos en Remolcadores, S.A. de C.V
.) has held a concession to provide tugboat services in the port of Manzanillo, including port docking and navigation in and out of channels and port facilities into open waters. In December 2014, the concession to operate this business was renewed by the relevant authorities until January 17, 2023, with an option to extend for an additional eight years. As of March 31, 2018, we were operating six tugboat vessels, four of which are owned by TMM DM (the tugboats TMM Cuyutlan, TMM Tepalcates, Nevado de Colima and SMR Manzanillo).
Bulk Carrier
In August 2017, we commenced transporting unpackaged general commodities such as steel between South America, the Caribbean and Mexico in specialized ships called bulk carrier vessels. Our bulk carrier services typically involve the hiring of a bulk carrier vessel approximately once per month.
Shipyard
On January 30, 2012, we purchased IDN, a company that holds a concession to operate a shipyard in the port of Tampico, Mexico. The shipyard is strategically positioned in the Gulf of Mexico, in close proximity to offshore oil and gas facilities and other key commercial routes between the Southeastern United States and Mexico. The shipyard provides ship repair services and enables us to provide dry docking services to more than 30 vessels per year. In addition, we expect to develop the necessary capabilities to build vessels at the shipyard.
Customers and Contractual Arrangements
The primary purchasers of our Maritime Operations services are multi-national oil, gas and chemical companies. These services are generally contracted for on the basis of short-term or long-term time charters, voyage charters, COAs or other transportation agreements tailored to the shipper’s requirements. In 2017, our ten largest customers accounted for approximately 78% and 62% of Maritime Operations revenues and consolidated revenues, respectively. The loss of one or more of our customers could have a material adverse effect on the results of our Maritime Operations.
The services we provide are arranged through different contractual arrangements. Time charters are the principal contractual form for our Maritime Operations.
In the case of a time charter, the charterer is responsible for the hire, fuel and port expenses, and the shipowner is responsible for the nautical operation of the vessel including the expenses related with the crew, maintenance and insurance of the vessels. When we bareboat charter a vessel, the charterer is responsible for the hire, fuel and port expenses but also assumes all risk of the nautical operation, including the associated expenses. COAs are contracts with a customer for the carriage of cargoes that are committed on a multi-voyage basis over a period of weeks or months, with minimum and maximum cargo tonnages specified over the period at fixed rates per ton depending on the duration of the contract. Typically, under voyage charters and contracts of affreightment, the shipowner pays for the fuel and any applicable port charges.
Grupo TMM, S.A.B. and Subsidiaries
Markets
The demand for offshore vessels is affected by the level of offshore exploration and drilling activities, which in turn is influenced by a number of factors including:
|
§
|
expectations as to future oil and gas commodity prices;
|
|
§
|
customer assessments of offshore drilling prospects compared to land-based opportunities;
|
|
§
|
customer assessments of cost, geological opportunity and political stability in host countries;
|
|
§
|
worldwide demand for oil and natural gas;
|
|
§
|
the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and pricing;
|
|
§
|
the level of production of non-OPEC countries;
|
|
§
|
the relative exchange rates for the U.S. dollar; and
|
|
§
|
various government policies regarding exploration and development of their oil and gas reserves.
|
Ports and Terminals Operations
We conduct operations at the Mexican ports of Acapulco, Tuxpan and Tampico. We have been granted two partial assignment agreements of rights and obligations in respect to our operations at Tuxpan and Tampico. Additionally, we own land in Tuxpan on which we are developing various terminals, including a liquid oils terminal, a citrus juice export terminal and an automobile terminal. Our concession in Acapulco and our partial assignment agreement of rights and obligations in Tuxpan give us the right of first refusal to continue operations for a second term once the term of the original contract expires. In August 2010, we began operations in the port of Tampico, where we were granted a two-year permit (renewable for an additional two years) to conduct vessel loading and unloading. In September 2012, the permit was extended for four years with the option to extend upon request. The permit was renewed in October 2016 and again in October 2017, in each case for an additional one-year period. Ports and Terminals operations accounted for 5.4%, 4.4% and 3.5% of consolidated revenues in 2017, 2016, and 2015 respectively.
The following table sets forth our existing port facilities and concessions:
Port
|
Concession
|
Date Awarded
|
Duration
|
Acapulco
|
Integral port administration
|
June 20, 1996
|
25 years (with the possibility of extension)
|
|
|
|
|
Tuxpan
|
Stevedoring Services
|
August 4, 1999
|
20 years (includes extension for 10 years that was exercised in 2009).
|
|
|
|
|
Tampico
|
Permit for loading and unloading operations
|
October 30, 2017
|
1 year
|
Grupo TMM, S.A.B. and Subsidiaries
Acapulco
In June 1996, we received a 25-year concession to operate the tourist port of Acapulco and commenced operations in July 1996. Our port interests in Acapulco are operated through a joint venture with SSA called Administración Portuaria Integral de Acapulco, S.A. de C.V
.
(“API Acapulco”), in which we have a 51% interest.
Through API Acapulco, we operate and manage an automobile terminal, a cruise ship terminal with a capacity to receive two cruise ships simultaneously and an automobile warehouse with a capacity to store up to 1,700 automobiles.
In 2017, we handled 36,835 automobile exports for Volkswagen, Chrysler and Nissan to South America and Asia, reflecting a decrease of 9.5% from 2016, when we handled 40,680 automobiles at our terminal.
Acapulco is one of the main tourist ports in Mexico. During 2017, we received 30 cruise ship calls in Acapulco, representing an increase of 67% from 2016.
Tuxpan
We own approximately 1,830 acres of land in the port of Tuxpan through our wholly owned subsidiary, Prestadora de Servicios MTR, S.A. de C.V., and Optimus Services and Solutions, S. de R.L. de C.V., a joint venture with Sierra Oil & Gas, giving us access to a contiguous public berth where containers and general cargo can be unloaded and delivered to our terminals. While we currently handle only a small volume of cargo at the port, we are in the process of developing a liquid oils terminal, a citrus juice export terminal and an automobile terminal at the site. In addition, we offer container-warehousing services at this port. In 2014, we agreed to sell our container terminal project in Tuxpan. Our remaining Tuxpan port facilities are operated through Prestadora de Servicios MTR, S.A. de C.V., a wholly owned subsidiary of Grupo TMM.
In August 2016 we announced a new venture with TransCanada and Sierra Oil & Gas to jointly develop a mid-stream infrastructure in Tuxpan as well as an inland distribution center to serve the growing demand for refined products such as gasoline, diesel and jet fuel in the central region of Mexico. Once completed, this infrastructure should allow us to supply up to 100,000 barrels per day of refined products to Mexico City and the central Mexican states from our facilities in Tuxpan.
Tampico
In July 2010, we were granted a two-year permit to conduct vessel loading and unloading operations in the public berths at the port of Tampico. In September 2012, the permit was extended for four years with the option to extend upon request, and then renewed in October 2016 and again in October 2017, in each case for an additional one-year period. Our operations in Tampico involve the loading and unloading of general cargo, such as steel and wood.
Shipping Agencies
We operate shipping agencies at ports throughout Mexico, including the ports of Acapulco, Veracruz, Coatzacoalcos, Ciudad del Carmen, Dos Bocas, Tuxpan, Cozumel, Costa Maya, Progreso and Zihuatanejo. Our shipping agencies provide services to vessel owners and operators in Mexican ports, including (i) port agent services, including the preparation of the required documentation with the relevant port authorities for the dispatch of vessels; (ii) protective agent services, which support the rotation of crew members and the supply of spare parts; (iii) cargo and multimodal supervision; (iv) ship chandler services, which include the procurement of food, water and supplies and (v) bunkering services, which include the coordination of fuel delivery services. Our shipping agencies also provide shipping agency services at other major ports through agreements with local agents.
Grupo TMM, S.A.B. and Subsidiaries
Logistics Operations
Through TMM Logistics, S.A. de C.V. (“TMM Logistics”), a wholly owned subsidiary of Grupo TMM, we provide dedicated logistics services to major manufacturers, including automobile manufacturers, and retailers with facilities and operations throughout Mexico. The services that we provide include consulting, analytical and logistics outsourcing services, which encompass the management of inbound movement of parts to manufacturing plants consistent with just-in-time inventory planning practices; logistics network (order-cycle) analysis; logistics information process design; supply chain and logistics management; product handling and repackaging; local pre-assembly; and maintenance and repair of containers in principal Mexican ports and cities. Due to the scope of our operations, together with the extent of our experience and resources, we believe that we are uniquely positioned to coordinate the entire supply chain for our customers. This segment accounted for 9.3%, 7.2% and 5.2% of consolidated revenues in 2017, 2016 and 2015, respectively.
Automotive Services
We provide specialized logistics support for the automotive industry within Mexico. Services include the arrangement and coordination of the movement of motor vehicle parts or sub-assemblies from supplier facilities to assembly plants, warehousing, inspection and yard management. Our logistics services can be provided as end-to-end integrated logistics programs (bundled) or discrete services (unbundled) depending on customer needs.
Container Repair and Maintenance
We offer maintenance and repair services for dry and refrigerated containers in Manzanillo, Veracruz, Altamira, Ensenada, Aguascalientes, Mexico City (Pantaco) and Mazatlan. These services involve keeping refrigerated components and other parts of a container in useable condition, including mechanical repair, welding and repainting of such containers.
Warehousing Operations
We offer warehousing and bonded warehousing facility management services through our subsidiary, ADEMSA. ADEMSA currently operates over 240,000 square meters of warehousing space throughout Mexico, including 64,939 square meters of direct warehouse space (the largest of which is located in northern Mexico City). Due to its regulated nature, ADEMSA is one of a limited number of warehousing companies authorized by the Mexican government to provide bonded warehousing services and to issue negotiable certificates of deposit.
Grupo TMM’s Strategic Partners
We are currently a partner in the following strategic arrangement:
Business
|
Partner
|
Ports (Acapulco)
|
SSA Mexico, Inc.
|
Terminals (Tuxpan)
|
TransCanada and Sierra Oil & Gas
|
Sales and Marketing
Much of the success of our business depends on our marketing network. Our marketing network includes affiliated offices, agencies at Mexican ports and a sales force based throughout Mexico to sell our logistics, warehousing, ports and specialized maritime services. Our marketing and sales efforts are designed to grow and expand our current customer base by initiating long-term contracts. We have devised, implemented and will continue to implement several customer service initiatives in connection with our marketing efforts, which include the designation of customer sales territories and assignment of customer service teams to particular customers.
Since we commenced operations, we have been actively seeking to obtain new customer contracts with the expectation of entering into long-term contracts with such new clients or with existing customers. Although written customer contracts are not customary in Mexico, we have succeeded in negotiating written contracts with a number of our major customers.
Grupo TMM, S.A.B. and Subsidiaries
Systems and Technology
We continually enhance our technology and information systems to support our operations. Our systems are updated regularly to increase operating efficiencies, improve customer satisfaction and maintain regulatory compliance. We have deployed devices and software to increase accuracy and security in our information systems in order to ensure the continuity of our business operations.
TMM Integral Solutions is our new state-of–the-art corporate platform with SAP working as our Enterprise Central Component, allowing us to have an accurate administrative and financial control, effective risk management and access to decision-ready information, while providing real-time information.
TMM Integral Solutions is comprised of specialized software customized for each of our business segments such as Warehouse and Yard Management (EWC), Transport Management (TM), Customer Relationship Management (CRM), Governance, Risk and Compliance (GRC), and Business Intelligence (BI) for data analytics.
Competition
Maritime Operations
The Company’s primary competitors in the offshore vessel business are Tidewater de Mexico, S. de R. L. de C.V., Naviera Bourbon Tamaulipas, S.A. de C.V., Mantenimiento Express Marítimo, S.R.L., Naviera Integral, S.A. de C.V., Marinsa S.A. de C.V. and Blue Marine Technology Group, Aquamarine International Shipping, S.A. de C.V., Constructora Subacuática Diavaz, S.A. de C.V.
The Company’s primary competitor in the parcel tanker business is Stolt-Nielsen Transportation Group Ltd. Some other competitors in this business include Team Tankers, Ace Tankers, Eitzen and Caribbean Tankers, Inc. and Nordic Tankers.
In 2015, our tugboat business did not have a direct competitor within the port of Manzanillo. However, other important tugboat operations in Mexico are provided by Saam Remolques, S.A., Cia. Marítima del Pacífico, S.A. de C.V., Cia Marítima Mexicana, S.A. de C.V., Svitzer and Intertug. In June 2016, however, Cia Marítima Mexicana, S.A. de C.V. was awarded the right to be the second supplier of towing service at the port of Manzanillo following the conclusion of a bidding process conducted by harbor administrator “Administración Portuaria Integral de Manzanillo, S.A. de C.V”. (“API”). As a result, Compañía Marítima Mexicana, S.A. de C.V. has been a competitor of our tugboat business in the port of Manzanillo since April 2017.
The Company’s primary competitors in the product tanker business are Scorpio Tankers, Maersk Tankers, and PEMEX Refinación.
The primary competitors of our shipyard business are Talleres Navales del Golfo, Astilleros Mexicanos JP, Astilleros de Marina, Astilleros Pergasa en Progreso, and Reparaciones Navales Zavala S.A. C.V.
The Company believes the most important competitive factors concerning the Maritime Operations segment are pricing, the flying of the Mexican flag and the availability of equipment to fit customer requirements, including the ability to provide and maintain logistical support given the complexity of a project and the cost of transferring equipment from one market to another. The Company believes it can capitalize on opportunities as they develop for purchasing, mobilizing, or upgrading vessels to meet changing market conditions.
Ports and Terminals Operations
The Company’s key competitors in its ports business are Hutchinson Ports, SSA Mexico, Grupo CICE and Amports.
Grupo TMM, S.A.B. and Subsidiaries
In its shipping agencies business, the Company’s primary competitors are Representaciones Marítimas, Meritus and Aconsur.
The Company believes the most important competitive factors concerning the Ports and Terminals Operations segment are customer service, experience and operating capabilities.
Logistics Operations
In the logistics business, the Company faces competition primarily from Car Logistics S.A. de C.V., Axis Logistics S.A. de C.V., Wallenius, SEGLO, Ceva Logistics, Syncreon, Keuhne-Nagel, SeSe, Amport, DHL, CSI, SSA, CPV and CSI.
In its maintenance and repair business, the Company faces competition primarily from Container Care International Inc., Reparación Internacional de Contenedores, S.A. de C.V. and Maersk Sealand Inc.
The Company believes the most important competitive factors in the Logistics Operations segment are price, customer service, brand name, experience, operating capabilities and state-of-the-art information technology.
Warehousing Operations
Our warehousing business’ main competitors are Almacenadora Mercader, Almacenadora Sur, ACCEL, Almacenadora Banorte, and Afirme Almacenador.
The Company believes the most important competitive factors in the Warehousing Operations segment are value-added services, competitive rates, nationwide coverage, customer service, brand name, experience, operating capabilities and state-of-the-art information technology.
Regulatory Framework
Certain countries have laws which restrict the carriage of cargos depending upon the nationality of a vessel or its crew or the origin or destination of the vessel, as well as other considerations relating to particular national interests. In accordance with Mexico’s Navigation Law
(
Ley de
Navegación y Comercio Marítimos
), cabotage (intra-Mexican movement) is reserved for ships flying the Mexican flag. We believe we are currently in material compliance with all restrictions imposed by the jurisdictions in which we operate. However, we cannot predict the cost of compliance if our business is expanded into other jurisdictions which have enacted similar regulations.
We are also subject to the laws of various jurisdictions and international conferences with respect to the discharge of materials into the environment. See “— Environmental Regulation” and “— Insurance.”
Our port operations are subject to the
Ley de Puertos.
Port operations require a concession title granted by the Mexican government to special companies incorporated under the
Ley de Puertos
, which companies may partially assign their concession title to third parties for the use and exploitation of assets owned by the Mexican government in the different port facilities (subject to the
Ley de Puertos
and the terms and conditions of the concession title). Various port services require a special permit granted by the Ministry of Communications and Transportation of Mexico. Concession titles may be revoked under certain circumstances in accordance with applicable law and the terms of the concession title. Partial assignments of concession titles may be rescinded under certain circumstances established in the corresponding assignment agreements. Foreign investment in special companies incorporated under the
Ley
de Puertos
(such as API Acapulco) may not exceed 49%, except through vehicles or securities deemed by applicable Mexican law as “neutral investments.”
Mexican Navigation Law
The Mexican Navigation Law (
Ley de Navegación y
Comercio Marítimos
) was enacted in 2006, with its most recent amendments effective as of January 23, 2014. This law: (i) strengthens the reservation of cabotage services for Mexican individuals dedicated to shipping or Mexican shipping companies; (ii) establishes mechanisms and procedures for the resolution of maritime controversies or disputes and (iii) in general terms, is protective of the Mexican shipping industry. Nevertheless, there can be no assurance that the percentage of Mexican-flagged vessels operating in Mexico will continue to increase in the future.
Grupo TMM, S.A.B. and Subsidiaries
The law gives precedence to international treaties ratified by Mexico
to foster uniformity in the type of regime applicable to specific circumstances such as the Hague Visby Rules, CLC/FUND Conventions, 1976 Limitation Convention, Salvage Convention, COLREGS, and MARPOL. (All vessels navigating Mexican waters must enter into protection and indemnity insurance agreements.)
Listed below are some of the salient points of the legislation:
|
§
|
customary provisions enabling authorities to carry out inspections of vessels and investigations of incidents;
|
|
§
|
regulations concerning registration of vessels and waivers allowing Mexican companies to operate foreign flag vessels in otherwise reserved domains;
|
|
§
|
foreign vessels are obliged to designate a shipping agent in order to call at Mexican ports;
|
|
§
|
Mexican flag vessels are required to operate with Mexican crews only and cabotage is in principle reserved for Mexican vessels;
|
|
§
|
when a foreign vessel is abandoned by the owners with cargo on board, provisions of the legislation coordinate repatriation and temporary maintenance of the crew which the law deems ultimately to be the joint and several liability of the owner and agent;
|
|
§
|
the carriage of passengers, cargo and towage in ports and pilotage are also regulated;
|
|
§
|
captains are responsible for damage and loss caused to vessels or ports due to negligence, lack of proper qualification, carelessness or bad faith, but are not responsible for damages caused by an act of God or
force majeure
;
|
|
§
|
companies providing towage services must carry insurance to cover their liabilities to the satisfaction of the authorities;
|
|
§
|
pollution is regulated by international treaties; however this only covers CLC-type liabilities. Pollution in respect of other substances is dealt with under local legislation which has no limitation. This is irrespective of any criminal proceedings or sanctions against the party responsible for the incident; and
|
|
§
|
maritime privileges are also considered within the law.
|
The law establishes time limits for commencement of proceedings with respect to 7 specific types of contracts as follows:
Grupo TMM, S.A.B. and Subsidiaries
Regulations of the Mexican Navigation Law
On March 4, 2015, the Regulations of the Mexican Navigation Law (“
Reglamento de la Ley de Navegación y
Comercio Marítimos”
) were published in Mexico’s Official Gazette and became effective 30 days thereafter. These regulations, which are intended to enhance legal certainty and promote trade, represent a significant event in the merchant maritime sector. In particular, the new regulations reduce administrative complexity by consolidating several existing laws or regulations into a single set of regulations.
The regulations develop various substantive aspects of the Mexican Navigation Law, including:
|
§
|
general provisions (definitions, guarantees, and maritime insurance);
|
|
§
|
extraordinary specialization of vessels, registration, national maritime registry, maritime agents and nautical education;
|
|
§
|
temporary navigation permits and permits for permanent stay, maneuver, nautical tourism and pollution prevention; and
|
|
§
|
revisions to conform hydrocarbons terminology to the new Hydrocarbons Law.
|
Following the adoption of the new regulations, several topics covered by the Mexican Navigation Law are addressed in a single document, including merchant marine education, maritime insurance, vessel inspection, maritime public registry, flag and registration of vessels and naval crafts, and marine prevention.
Mexican Energy Reforms
On December 12, 2013, the Mexican government passed legislation amending articles 25, 27 and 28 of the Mexican Constitution (
Constitución Política de los Estados Unidos Mexicanos
) and providing 21 transitional articles to establish the legal framework for reforming the Mexican energy sector. The reforms aim to modernize the Mexican energy sector and increase private investment by,
inter alia
:
|
§
|
providing for PEMEX and CFE to become state-owned, for-profit companies (
empresas productivas del estado
);
|
|
§
|
establishing a contractual regime to allow the Ministry of Energy (
Secretaría de Energía
or SENER), with the technical assistance of the new National Hydrocarbons Commission (
Comisión Nacional de Hidrocarburos
or CNH), to award to PEMEX and private entities the right to participate in upstream oil and gas operations through the use of service contracts, profit-sharing agreements, production sharing agreements and license agreements, with the Ministry of Energy authorized to determine the best contractual form in each case so as to maximize revenue to the Mexican government;
|
|
§
|
allowing private entities that have entered into a contract with PEMEX or the Mexican government to report, for accounting and financial purposes, the awarding of the contract, the related oil and gas reserves and the contract’s forecasted benefits, provided the private entities affirm that all oil and gas within the subsoil remains the property of Mexico;
|
|
§
|
requiring PEMEX to participate in a “round zero” and submit to SENER for consideration a list of the areas where it intends to continue conducting exploration or production operations pursuant to the new contractual regime, establish that it has the technical, financial and execution capabilities needed to explore for and develop the oil and gas from those areas in an efficient and competitive manner, and provide a work program and budget for those areas;
|
Grupo TMM, S.A.B. and Subsidiaries
|
§
|
allowing PEMEX to transfer its rights to explore for and develop oil and gas resources to private entities upon application to SENER;
|
|
§
|
allowing the Energy Regulatory Comission (
Comisión Reguladora de Energia
) to grant permits for the storage, transport and distribution of oil and gas through pipelines as well as for the generation and commercialization of electricity;
|
|
§
|
creating the Mexican Petroleum Fund for Stabilization and Development
(
Fondo Mexicano del Petróleo para la Estabilización y el Desarollo
) to act as a government trust fund for the collection and administration of income received by the Mexican government from contracts with PEMEX and private entities; and
|
|
§
|
creating the National Agency of Industrial Security and Environmental Protection of the Hydrocarbon Sector
(
Agencia Nacional de Seguridad Industrial y de Proteccion al Medio Ambiente del Sector de Hidrocarburos
) to regulate and supervise matters concerning operational security and environmental protection in the oil and gas industry.
|
In August 2014, SENER and CNH announced the results of PEMEX’s “round zero” lease allocation, awarding PEMEX approximately 83% of Mexico’s proven and probable (2P) reserves and 21% of its prospective resources. “Round one”, which consisted of four phases that took place in July, September, and December 2015 and December 2016, respectively, awarded to various international oil and gas companies the right to conduct oil and gas operations in shallow water exploration and production areas, onshore production areas and deepwater exploration areas. “Round two”, which began in June 2017, is divided into four tenders, the first of which involved the award of production sharing contracts, while the following three rounds involved the award of license contracts. “Round three” began in September 2017 and consisted of three tenders, the first of which involved the award of production sharing contracts, with the following two rounds featuring license contracts. Additionally, there are the so-called “farmouts” in which PEMEX will conduct oil and gas operations jointly with a third party, either to increase production, share risks, obtain geological information or access new technology. Farmouts are to be divided into four tenders, the first of which resulted in the signing of a license contract in March 2017. The bidding process for the remaining farmout tenders began in 2017 and has resulted in two license contracts signed in March 2018.
We continue to analyze the scope and implications of the recent Mexican Energy Reforms on our business. We cannot predict the full impact that the reforms will have on our business, financial condition and results of operations once they are fully implemented. Our initial assessment is that the reforms have the potential to significantly increase Mexican oil and gas production in the coming years. Although there is no guarantee that these reforms will produce such an effect, we believe that an increase in Mexican oil and gas production would likely have a positive impact on our business, financial condition and results of operations.
Mexican Tax Reforms
On December 11, 2013, the Mexican government published in the Official Gazette various federal tax reforms that entered into effect on January 1, 2014. Key aspects of the reforms include:
|
§
|
Elimination of the corporate flat tax (IETU) and the tax on cash deposits (IDE);
|
|
§
|
Elimination of the existing fiscal tax consolidation regime. A transition scheme was established for taxpayers that previously operated under this regime and three alternatives have been established to calculate the deferred taxes for these taxpayers until December 31, 2013, which will be paid through partial payments made over the following five years;
|
|
§
|
Establishment of a new optional tax integration regime for groups of companies that meet certain conditions similar to those used under the former fiscal consolidation regime. The new optional tax integration regime requires an equity ownership of at least 80% for qualifying subsidiaries and would allow groups of companies to defer the annual tax payment for these subsidiaries for up to 3 years. Under this regime, Grupo TMM would not be permitted to incorporate tax losses from previous years generated by our subsidiaries, but would be permitted to incorporate tax losses generated as of January 1, 2014;
|
Grupo TMM, S.A.B. and Subsidiaries
|
§
|
Introduction of a new 10% withholding tax on dividends and/or distributions of earnings generated in 2014 and later years;
|
|
§
|
Elimination of the exemption on gains from the sale of shares traded on the Mexican Stock Exchange or through a stock exchange recognized under applicable Mexican tax law. The gain will be taxable at the rate of 10% and will be withheld by the financial intermediary. Transferors that are residents of a country with which Mexico has entered into a tax treaty for the avoidance of double taxation may be exempt. See “Item 10. Additional Information—United States Federal Income and Mexican Federal Taxation —Certain Mexican Federal Tax Consequences.”
|
|
§
|
Cancellation of scheduled decreases to the corporate income tax rate from its current 30% in 2013, 2014 and 2015;
|
|
§
|
Payments to resident or non-resident related parties are nondeductible when these are also deducted by the related party, except when the related party also regards the income as taxable in the same tax year or in the following year. Generally, payments made to non-residents located in a low tax jurisdiction will not be deductible unless they are carried out on an arm’s-length basis; and
|
|
§
|
Tax deductions on exempt payments to employees are limited to 47% of the exempt payments, subject to a potential increase to 53% where the exempt payments are not lower than the payments made to employees in the previous year.
|
On February 13, 2014, we filed an indirect writ of relief (
amparo
) challenging the constitutionality of various provisions of the tax reforms related to the elimination of the existing fiscal consolidation regime. On February 16, 2016, the court issued a ruling rejecting our constitutional challenge. We appealed this ruling on March 17, 2016 and on September 13, 2017, the court rejected our appeal.
We cannot predict the full impact that the reforms will have on our business, financial condition and results of upon implementation, including the effect on our business of higher payroll taxes and higher costs due to additional compliance measures. Our initial assessments indicate that the changes will increase our income tax base in the coming years, primarily as a result of the new limitations on tax deductions. In addition, we cannot predict the indirect impact that this legislation could have on our customers and shareholders. It is possible that our shareholders may be required to pay more taxes than they would have paid prior to the implementation of the tax reforms.
Environmental Regulation
Our operations are subject to Mexican federal and state laws and regulations relating to the protection of the environment, as well as technical environmental requirements issued by the SEMARNAT. Under the General Law of Ecologic Equilibrium and Protection of the Environment (
Ley General de Equilibrio
Ecológico y Protección al Ambiente
) and the General Law for Integral Prevention and Handling of Residues (
Ley General de Prevención y Gestión Integral del
Residuos
), the SEMARNAT and other authorized ministries have promulgated standards, for, among other things, water discharge, water supply, emissions, noise pollution, hazardous substances, transportation and solid waste generation. The terms of the port concessions also impose on us certain environmental law compliance obligations. See “— Insurance.”
Under OPA, responsible parties, including owners and operators of ships, are subject to various requirements and could be exposed to substantial liability, and in some cases, unlimited liability for removal costs and damages, including natural resource damages and a variety of other public and private damages, resulting from the discharge of oil, petroleum or related substances into United States waters by their vessels. In some jurisdictions, claims for removal costs and damages would enable claimants to immediately seize the ships of the owning and operating company and sell them in satisfaction of a final judgment. The existence of comparable statutes enacted by individual states of the United States, but requiring different measures of compliance and liability, creates the potential for similar claims being brought under state law. In addition, several international conventions that impose similar liability for the discharge of pollutants have been adopted by other countries. If a spill were to occur in the course of the operation of one of our vessels carrying petroleum products, and such spill affected the United States or another country that had enacted legislation similar to OPA, we could be exposed to substantial or unlimited liability.
Grupo TMM, S.A.B. and Subsidiaries
The U.S. Clean Water Act imposes restrictions and strict controls regarding the discharge of wastes into the waters of the United States. The Clean Water Act and comparable state laws, provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants. In the event of an unauthorized discharge of wastes or pollutants into waters of the United States, we may be liable for penalties and could be subject to injunctive relief.
In addition, our seagoing transport of petroleum and petroleum products subjects us to additional regulations and exposes us to liability specific to this activity. Laws and international conventions adopted by several countries in the wake of the “Exxon Valdez” accident, most notably OPA (discussed above), could result in substantial or even unlimited liability for us in the event of a spill. Moreover, these laws subject tanker owners to additional regulatory and insurance requirements. We believe that we are in compliance with all material requirements of these regulations.
We could have liability with respect to contamination at our former U.S. facilities or third-party facilities in the United States where we have sent hazardous substances or wastes under the U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) and comparable state laws (known as state Superfund laws). CERCLA and the state Superfund laws impose joint and several liability for the cost of investigation and remediation, natural resources damages, certain health studies and related costs, without regard to fault or the legality of the original conduct, on certain classes of persons with respect to releases into the environment of certain substances. These persons, commonly called “potentially responsible parties” or “PRPs” include the current and certain prior owners or operators of a facility and persons that arranged for the disposal or treatment of certain substances at a facility where a release has or could occur. In addition, other potentially responsible parties, adjacent landowners or other third parties may initiate cost recovery actions or toxic tort litigation against PRPs under CERCLA, state Superfund laws or state common law.
Noncompliance with applicable environmental laws and regulations may result in the imposition of considerable administrative or civil fines, temporary or permanent shutdown of operations or other injunctive relief, or criminal prosecution. We currently believe that all of our facilities and operations are in substantial compliance with applicable environmental regulations. There are currently no material legal or administrative proceedings pending against us with respect to any environmental matters, and we do not believe that continued compliance with environmental laws will have a material adverse effect on our financial condition or results of operations.
We cannot predict the effect, if any, that the adoption of additional or more stringent environmental laws and regulations would have on the operations of companies that are engaged in the type of business in which we are engaged, or specifically, on our results of operations, cash flows, capital expenditure requirements or financial condition.
Insurance
Our business is affected by a number of risks, including mechanical failure of vessels and other transportation equipment, collisions, property loss of vessels and other transportation equipment, piracy, cargo loss or damage, as well as business interruption due to political circumstances in Mexico and in foreign countries, hostilities and labor strikes. In addition, the operation of any oceangoing vessel is subject to the inherent possibility of catastrophic marine disaster, including oil spills and other environmental accidents, and the liabilities arising from owning and operating vessels in international trade.
Grupo TMM, S.A.B. and Subsidiaries
We maintain insurance to cover the risk of partial or total loss of or damage to all of our assets, including, but not limited to, harbor and seagoing vessels, port facilities, port equipment, land facilities and offices. In particular, we maintain marine hull and machinery and war risk insurance on our vessels, which covers the risk of actual or constructive total loss. Additionally, we have protection and indemnity insurance for damage caused by our operations to third persons. With certain exceptions, we do not carry insurance covering the loss of revenue resulting from a downturn in our operations or resulting from vessel off-hire time on certain vessels. In certain instances, and depending on the ratio of insurance claims to insurance premiums paid, we may choose to self-insure our over-the-road equipment following prudent guidelines. We believe that our current insurance coverage is adequate to protect against the accident-related risks involved in the conduct of our business and that we maintain a level of coverage that is consistent with industry practice. However, we cannot assure you that our insurance would be sufficient to cover the cost of damages suffered by us or damages to others, that any particular claim will be paid or that such insurance will continue to be available at commercially reasonable rates in the future. OPA 90, by imposing potentially unlimited liability upon owners, operators and bareboat charters for certain oil pollution accidents in the United States, made liability insurance more expensive for ship-owners and operators.
Organizational Structure
We hold a majority of the voting stock in each of our subsidiaries. The most significant subsidiaries, as of March 31, 2018, include:
Name
|
|
Country of
Incorporation
|
|
Ownership
Interest
|
|
|
Voting
Interest
|
|
Administración Portuaria Integral de Acapulco S.A. de C.V. (Ports)*
|
|
Mexico
|
|
|
51
|
%
|
|
|
51
|
%
|
Autotransportación y Distribución Logística, S.A. de C.V.(Logistics)
|
|
Mexico
|
|
|
100
|
%
|
|
|
100
|
%
|
TMM Logistics, S.A. de C.V.(Logistics)
|
|
Mexico
|
|
|
100
|
%
|
|
|
100
|
%
|
Transportación Marítima Mexicana, S.A. de C.V. (Product and parcel tankers, offshore vessels, harbor tugboat operations, and shipping agencies)
|
|
Mexico
|
|
|
100
|
%
|
|
|
100
|
%
|
Prestadora de Servicios MTR, S.A. de C.V. (Ports)
|
|
Mexico
|
|
|
100
|
%
|
|
|
100
|
%
|
Operadora Portuaria de Tuxpan, S.A. de C.V. (Ports)
|
|
Mexico
|
|
|
100
|
%
|
|
|
100
|
%
|
Optimus Services and Solutions, S. de R.L. de C.V. (Ports)*
|
|
Mexico
|
|
|
50
|
%
|
|
|
50
|
%
|
TMM Parcel Tankers, S. A. de C. V. (Tanker vessels)
|
|
Mexico
|
|
|
100
|
%
|
|
|
100
|
%
|
Almacenadora de Deposito Moderno, S. A. de C. V. (Warehousing)
|
|
Mexico
|
|
|
100
|
%
|
|
|
100
|
%
|
Inmobiliaria Dos Naciones, S. R. L. de C. V. (Shipyard)
|
|
Mexico
|
|
|
100
|
%
|
|
|
100
|
%
|
(*)
|
Less than wholly owned by the Company.
|
Property, Vessels and Equipment
Our principal executive offices are located in Mexico City, and are currently under lease from May 2006 through April 2029. Our business activities in the logistics and transportation fields are conducted with both leased and owned equipment, and, in certain instances, through concessions granted to us by the Mexican government. We were granted the right to operate certain facilities, including certain warehouses, cruise ship terminals and ports, as part of franchises awarded through the Mexican government’s privatization activity. We operate facilities, either through leases or with direct ownership interests, in Acapulco, Aguascalientes, Altamira, Cancun, Ciudad del Carmen, Ciudad Juarez, Ciudad de Mexico, Celaya, Coatzacoalcos, Cuernavaca, Dos Bocas, Ensenada, Guadalajara, Veracruz, Manzanillo, Monterrey, Nuevo Laredo, Puebla, Reynosa, Tapachula, Tampico, Toluca and Tuxpan. See Item 4. “Information on the Company — Business Overview,” and Notes 12 and 13 to the accompanying Audited Consolidated Financial Statements contained elsewhere herein.
Concession Rights and Related Assets as summarized below:
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Estimated
Amortization
Life
(Years)
|
|
|
|
(in thousands of Pesos)
|
|
API Acapulco
|
|
$
|
94,607
|
|
|
$
|
94,607
|
|
|
|
9
|
|
Tugboats in the port of Manzanillo
|
|
|
30,266
|
|
|
|
30,266
|
|
|
|
*
|
|
|
|
|
124,873
|
|
|
|
124,873
|
|
|
|
|
|
Accumulated amortization
|
|
|
(111,629
|
)
|
|
|
(107,844
|
)
|
|
|
|
|
Concession rights and related assets – net
|
|
$
|
13,244
|
|
|
$
|
17,029
|
|
|
|
|
|
(*) Fully amortized.
Grupo TMM, S.A.B. and Subsidiaries
Property, Vessels and Equipment are summarized below:
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Estimated Total
Useful Lives
(Years)
|
|
|
|
(in thousands of Pesos)
|
|
Vessels
|
|
$
|
1,118,250
|
|
|
$
|
8,028,276
|
|
|
|
25
|
|
Shipyard
|
|
|
318
|
|
|
|
363
|
|
|
|
40
|
|
Drydocks (major vessel repairs)
|
|
|
12,608
|
|
|
|
4,457
|
|
|
|
2.5
|
|
Buildings and installations
|
|
|
242,204
|
|
|
|
253,396
|
|
|
20 and 25
|
|
Warehousing equipment
|
|
|
647
|
|
|
|
1,242
|
|
|
|
10
|
|
Computer equipment
|
|
|
556
|
|
|
|
794
|
|
|
1 and 2
|
|
Terminal equipment
|
|
|
6,885
|
|
|
|
3,319
|
|
|
|
8
|
|
Ground transportation equipment
|
|
|
3,751
|
|
|
|
4,203
|
|
|
4, 5 and 10
|
|
Other equipment
|
|
|
7,641
|
|
|
|
9,556
|
|
|
|
|
|
|
|
$
|
1,392,860
|
|
|
$
|
8,305,606
|
|
|
|
|
|
Land
|
|
|
1,184,427
|
|
|
|
1,060,661
|
|
|
|
|
|
Construction in progress
|
|
|
46,248
|
|
|
|
198,605
|
|
|
|
|
|
Total Property, Vessels and Equipment—net
|
|
$
|
2,623,535
|
|
|
$
|
9,564,872
|
|
|
|
|
|
On March 31, 2014, the Company, through its subsidiary IDN, entered into a “sale and leaseback” arrangement with UNIFIN Financiera, S.A.P.I. de C. V., SOFOM E.N.R. (“UNIFIN”) whereby IDN sold to UNIFIN the floating dry-dock “ARD-10”, the floating dry-dock “ABDF 2”, and the towing vessel “Catherine M” for an amount of approximately $55.6 million. At the same time, IDN and UNIFIN entered into an operating leasing arrangement for the three assets in order to maintain their ability to operate and generate income. The leasing arrangement will last four years with an option to extend. Under the arrangement, IDN is the lessee and UNIFIN is the lessor.
On May 14, 2014, the Company, through its subsidiary TMM, entered into a sale and leaseback arrangement with UNIFIN, whereby TMM sold to UNIFIN the seaboats “Isla Passavera” and “Margot Marianne” for approximately $22.7 million. At the same time, TMM and UNIFIN entered into an operating leasing arrangement for the two assets in order to maintain their ability to operate and generate income. The leasing arrangement will last four years with an option to extend. Under the arrangement, TMM is the lessee and UNIFIN is the lessor.
Since January 1, 2014, the Company has applied the revaluation model for its vessels in accordance with IAS 16 “Property, Plant and Equipment”. The revalued amounts for the majority of these vessels are determined at market values calculated by professional appraisers, with the values of certain other vessels determined using other valuation techniques. As a result, in December 2017 and 2016, the Company recognized a net revaluation surplus of vessels of $941.9 million and $207.7 million, respectively. Additionally, in December 2016, the Company recognized a net revaluation surplus of fixed assets of $217.0 million as follows: $160.8 million from land and $56.2 million from buildings and construction. See Notes 3.7 and 28 of the Audited Consolidated Financial Statements contained elsewhere herein.
As of December 31, 2017, five vessels have been pledged to secure our obligations under a financing arrangement with DVB Bank, B.V. Scheepswerf Damen Gorinchem and the capital lease with FTAI Subsea 88. In addition, two properties have been pledged to secure our obligations under our lines of credit from Banco Autofin.
ITEM 4A.
|
UNRESOLVED STAFF COMMENTS
|
None.
Grupo TMM, S.A.B. and Subsidiaries
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
Executive Overview
We generate our revenues and cash flows by providing our customers with value-added multimodal transportation and logistics services, such as warehousing, storage management, ports and terminals operations, cargo handling and logistics support. Our commercial and strategic alliances allow us to market a full range of services in the context of a total supply chain distribution process. Through such alliances, we have been able to benefit not only from synergies, but also from the operational expertise of our alliance partners, enhancing our own competitiveness.
Our operating results are generally affected by a variety of factors, including macroeconomic conditions, fluctuations in exchange rates, operating performance of our business units, changes in applicable regulations and fluctuations in oil prices. The effect of changes in these factors impacts our revenues and operating results.
Over the last few years, we have made and continue to make significant changes to our business, including:
|
§
|
Corporate restructuring to improve our debt profile
. In December 2017, we restructured our Maritime Operations to decrease our consolidated debt and improve our debt profile by transferring 85% of the shares of our wholly owned subsidiary, TMM DM, an owner and operator of supply vessels, tankers and tugboats, to the holders of certificates issued by TMM DM under our Trust Certificates Program. As a result of the transfer, we no longer exercise control over TMM DM and our financial statements no longer include TMM DM’s assets, liabilities, and income (loss). This should allow us to reduce our comprehensive financing cost by approximately 90%, improving our debt to capital ratio and providing us with greater free cash flow. Going forward, we will continue to operate TMM DM’s vessel fleet pursuant to a maritime services contract under which we will be paid a service fee based on the revenues generated by the vessels and their operating costs. The contract does not include a non-compete restriction, allowing us to continue our efforts to expand our existing fleet and develop new maritime business. See Item 4. “Information on the Company — Recent Developments – Spin-off of TMM DM.”
|
|
§
|
Expanding our Maritime Operations
: We have strengthened and streamlined our Maritime Operations in recent years, developing the business into our most profitable segment. We remain focused on expanding our Maritime Operations to add specialized vessels to our fleet in order to meet market requirements for new generation vessels with higher-rated and deeper-water capabilities as well as to strengthen our tugboat business following the entry of a new competitor at Manzanillo. In addition, we have continued our efforts to diversify our customer base in the product tankers and offshore vessels segments, as well as implemented a strategic cost reduction plan to offset some of the instability in the oil industry. See Item 4. “Information on the Company — Business Strategy – Expansion of our Maritime Operations.”
|
|
§
|
Developing our shipyard operations in the port of Tampico
: We continue to develop our shipyard operations in the port of Tampico, where we provide ship repair and drydock services to more than 30 vessels per year, of which approximately 42% have been vessels we operate, which has reduced our vessel maintenance and repair costs. In the long term, we expect to have the capacity to be able to build vessels at the shipyard, enabling us to compete to satisfy the expected demands of PEMEX and future customers for new offshore vessels. See Item 4. “Information on the Company — Business Strategy – Expansion of our Maritime Operations.”
|
|
§
|
Commencement of bulk carrier service
: In August 2017, we started to transport unpackaged commodities such as steel between South America, the Caribbean and Mexico in specialized ships called bulk carrier vessels. See Item 4. “Information on the Company — Recent Developments – Commencement of Bulk Carrier Service.”
|
Grupo TMM, S.A.B. and Subsidiaries
|
§
|
Developing a liquid oils terminal at the port of Tuxpan
: We continue developing storage and transportation infrastructure through our strategic partners, TransCanada and Sierra Oil & Gas, to serve the growing demand for refined products from Tuxpan to the central region of Mexico. The Mexican Energy Reforms include refined products liberalization, which should result in new mid-stream infrastructure to meet the demand for gasoline and diesel imports. The liquid oils terminal should help us capitalize on current and future demand for gasoline and diesel imports, which currently account for more than 55% of domestic consumption. See Item 4. “Information on the Company — Business Strategy – Expansion of our Ports and Terminals Operations.”
|
|
§
|
Developing other terminals
: We continue to own approximately 720 hectares in Tuxpan through our wholly owned subsidiary, Prestadora de Servicios MTR, S.A. de C.V., on which we are developing a citrus juice export terminal and an automobile terminal. We also own a plot of land in Huehuetoca in the State of Mexico on which we plan to develop a liquid oil terminal.
|
|
§
|
Reducing our corporate overhead
: Over the last few years, we have significantly reduced our operating costs by reducing our corporate executive headcount through the elimination of redundant functions and the transfer of certain employees to other business areas within the Company. For 2018, and as result of our corporate restructuring which took place in December 2017, we aim to optimize the size of our corporate staff as necessary to implement our business strategy.
|
|
§
|
Introducing cost-saving technology
: We have enhanced our technology and information systems through the incorporation of TMM Integral Solutions as our new platform that will allow us leverage our capabilities for controlling and improve our service offerings and increase the security of our information. See Item 4. “Information on the Company — Systems and Technology.”
|
|
§
|
Sale of certain subsidiaries
:
We have sold certain non-strategic subsidiaries in an effort to streamline our operations and reduce operating costs. During 2015, we sold various non-strategic subsidiaries, including Desarrollo Comercial Polo S.A.P.I. de C.V., Proserpec Servicios Administrativos S.A.P.I. de C.V., RRLC S.A.P.I. de C.V., Munray Services, S.A.P.I. de C.V., Nicte Inmobiliaria S.A.P.I. de C.V., Promotora Satuiza, S.A.P.I. de C.V. and Grupo Chant S.A.P.I. de C.V. to unrelated third parties for a total gain on sale of $185.3 million. During 2016 we did not sell any subsidiaries. During 2017, we sold various non-strategic subsidiaries, including Dibacar Servicios, S.A.P.I. de C.V., Darcot Services, S.A. de C.V., Logística Asociada a su Negocio, S.A. de C.V., STK Logistics, S.A. de C.V., Logística en Administración y Construcciones EDAC, S.A. de C.V. to unrelated third parties for a total loss on sale of $273.0 million.
|
|
§
|
Acquisition of TTM and termination of Convertible Debenture program
: On September 14, 2016, in connection with the corporate restructuring approved by the Company’s shareholders, the Company acquired 100% of the stock of TTM. The terms of the stock purchase agreement provided for the Company’s subsequent acquisition by, and merger into, TTM as approved at the August 31, 2016 Extraordinary Shareholders’ Meeting, subject to the condition precedent that the merger be declared effective by no later than April 14, 2017. Because that merger did not take effect, under the terms of the stock purchase agreement TTM became a wholly owned subsidiary of the Company effective September 14, 2016. Subsequently, on December 4, 2017, the Company and the holders agreed to terminate the Convertible Debenture program implemented in connection with the restructuring. Termination of the Convertible Debenture program extinguished any further liability of the Company in respect of the Convertible Debentures, and did not result in any gain or loss to the Company. See Item 4. “Information on the Company — Recent Developments — Corporate Restructuring, Issuance and Cancellation of Convertible Debentures” and “Information on the Company — Recent Developments — Acquisition of TTM.”
|
Operating Results
The following discussion should be read in conjunction with, and is qualified in its entirety by reference to our Financial Statements and the notes thereto appearing elsewhere in this Annual Report. Our Financial Statements have been prepared in accordance with IFRS, which differ in certain respects from U.S. GAAP.
Grupo TMM, S.A.B. and Subsidiaries
General
Set forth below is a summary of the results of operations:
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions of Pesos)
|
|
Consolidated Transportation Revenues
|
|
|
|
|
|
|
|
|
|
Maritime Operations
|
|
$
|
1,951.3
|
|
|
$
|
2,167.6
|
|
|
$
|
2,770.9
|
|
Ports and Terminals Operations
|
|
|
134.2
|
|
|
|
116.7
|
|
|
|
114.2
|
|
Logistics Operations
|
|
|
229.5
|
|
|
|
190.9
|
|
|
|
169.7
|
|
Warehousing Operations
|
|
|
149.9
|
|
|
|
126.1
|
|
|
|
133.1
|
|
Other business
|
|
|
|
|
|
|
46.2
|
|
|
|
74.0
|
|
Total
|
|
$
|
2,464.9
|
|
|
$
|
2,647.5
|
|
|
$
|
3,261.9
|
|
Income (Loss) on Transportation
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Maritime Operations
|
|
$
|
24.0
|
|
|
$
|
247.6
|
|
|
$
|
492.5
|
|
Ports and Terminals Operations
|
|
|
10.3
|
|
|
|
6.1
|
|
|
|
7.6
|
|
Logistics Operations
|
|
|
34.0
|
|
|
|
30.6
|
|
|
|
27.4
|
|
Warehousing Operations
|
|
|
(31.6
|
)
|
|
|
(44.6
|
)
|
|
|
(48.1
|
)
|
Shared corporate costs
|
|
|
(214.6
|
)
|
|
|
(201.8
|
)
|
|
|
(205.2
|
)
|
Total
|
|
$
|
(177.9
|
)
|
|
$
|
37.9
|
|
|
$
|
274.2
|
|
(1)
|
Income on Transportation includes loss on revaluation of vessels in 2017, 2016 and 2015 for $39.3 million, $16.2 million and $29.4 million respectively.
|
Fiscal Year ended December 31, 2017 Compared to Fiscal Year ended December 31, 2016
Revenues from operations for the year ended December 31, 2017 were $2,464.9 million compared to $2,647.5 million for the year ended December 31, 2016.
|
|
Consolidated Transportation Revenues
(in millions of Pesos)
Years Ended December 31,
|
|
|
|
2017
|
|
|
% of Net
Revenues
|
|
|
2016
|
|
|
% of Net
Revenues
|
|
|
Y2017 vs.
Y2016
% Change
|
|
Maritime Operations
|
|
$
|
1,951.3
|
|
|
|
79.2
|
%
|
|
$
|
2,167.6
|
|
|
|
81.9
|
%
|
|
|
(10.0
|
)%
|
Ports and Terminals Operations
|
|
|
134.2
|
|
|
|
5.4
|
%
|
|
|
116.7
|
|
|
|
4.4
|
%
|
|
|
15.0
|
%
|
Logistics Operations
|
|
|
229.5
|
|
|
|
9.3
|
%
|
|
|
190.9
|
|
|
|
7.2
|
%
|
|
|
20.2
|
%
|
Warehousing Operations
|
|
|
149.9
|
|
|
|
6.1
|
%
|
|
|
126.1
|
|
|
|
4.8
|
%
|
|
|
18.9
|
%
|
Other business
|
|
-
|
|
|
-
|
|
|
|
46.2
|
|
|
|
1.7
|
%
|
|
|
(100.0
|
)%
|
Total
|
|
$
|
2,464.9
|
|
|
|
100.0
|
%
|
|
$
|
2,647.5
|
|
|
|
100.0
|
%
|
|
|
(6.9
|
)%
|
Maritime Operations
Maritime Operations’ revenues decreased 10.0% to $1,951.3 million in 2017 compared to $2,167.6 million in 2016 and represented 79.2% of the total net income. This is mainly due to a decrease in revenues in our offshore vessels business of 15.5% attributable to reduced petroleum shipping activity in the Gulf of Mexico, the suspension and cancellation of a significant number of contracts by PEMEX and lower rates, as well as a decrease in income from tugboats of 16.1% due to the entry of Compañía Maritima Mexicana S.A. C.V. as a competitor in the port of Manzanillo beginning in April 2017.
Ports and Terminals Operations
Ports and Terminals Operations’ revenues increased 15.0% to $134.2 million for the year ended December 31, 2017 compared to $116.7 million for the year ended December 31, 2016, and accounted for 5.4% of total net revenues. This increase is mainly due to a increased volumes in our shipping agency business, which serviced a greater number of cruise ship calls in 2017.
Grupo TMM, S.A.B. and Subsidiaries
Logistics Operations
Logistics Operations’ revenues increased 20.2% to $229.5 million in 2017 compared to $190.9 million in 2016 and accounted for 9.3% of total net revenues. This increase was mainly due to higher revenues of $34.9 million in maintenance and repair operations.
Warehousing Operations
Warehousing Operations’ revenues increased 18.9% to $149.9 million in 2017 compared to $126.1 million in 2016 and accounted for 6.1% of total net revenues. This increase was mainly due to increased operations for key clients.
Income on Transportation
Income on transportation reflects revenues on transportation less operating costs and expenses. References to operating income in this Annual Report refer to income on transportation, plus/minus the effect of other income (expenses) as presented in the Financial Statements included elsewhere in this Annual Report.
Total costs and expenses for the year ended December 31, 2017 increased 1.3% to $2,642.9 million from $2,609.6 million for the year ended December 31, 2016. This increase was mainly attributable to an increase of 45.0%, or $98.6 million, in fuels, materials and accessories, which was partially offset by a decrease of 10.6%, or $68.1 million, in salaries, wages and employee benefits. Operating income increased 3,250.4% to $3,039.8 million for the year ended December 31, 2017 from an operating income of $90.7 million for the year ended December 31, 2016, primarily due to a gain of $3,458.5 million attributable to the loss of control over TMM DM.
The following table sets forth information concerning the Company’s operating income on transportation by business segment for the years ended December 31, 2017 and 2016, respectively.
|
|
Grupo TMM Operations
Income on Transportation
(1)(2)(3)
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Y2017 vs.
Y2016
%
Change
|
|
Maritime Operations
(3)
|
|
$
|
24.0
|
|
|
$
|
247.6
|
|
|
|
(90.3
|
)%
|
Ports and Terminals Operations
|
|
|
10.3
|
|
|
|
6.1
|
|
|
|
68.9
|
%
|
Logistics Operations
|
|
|
34.0
|
|
|
|
30.6
|
|
|
|
11.1
|
%
|
Warehousing Operations
|
|
|
(31.6
|
)
|
|
|
(44.6
|
)
|
|
|
(29.1
|
)%
|
Shared Corporate Costs
|
|
|
(214.6
|
)
|
|
|
(201.8
|
)
|
|
|
6.3
|
%
|
Total
|
|
$
|
(177.9
|
)
|
|
$
|
37.9
|
|
|
|
(569.4
|
)%
|
(1)
|
Income on Transportation reflects revenues on transportation less operating costs and expenses. References to “Operating Income” in this Annual Report refer to Income on Transportation, plus/minus the effect of “Other Income (Expense) – Net” as presented in the accompanying Audited Consolidated Financial Statements.
|
(2)
|
To better reflect Grupo TMM’s corporate costs, the Company modified the presentation of its corporate expenses as of December 31, 2017 and 2016, separating human resources and information technology costs to be allocated to each business unit in accordance with their use. Income on transportation includes the following allocated total administrative costs: In 2017: $15.5 million in Ports and Terminals Operations, $33.2 million in Maritime Operations and $205.6 million in shared corporate costs. Income on transportation includes the following allocated total administrative costs: In 2016: $18.4 million in Ports and Terminals Operations, $35.5 million in Maritime Operations and $194.2 million in shared corporate costs.
|
(3)
|
Income on Transportation includes loss on revaluation of vessels in 2017 and 2016 for $39.3 million and $16.2 million respectively.
|
Grupo TMM, S.A.B. and Subsidiaries
Maritime Operations
Maritime Operations’ operating income for the year ended December 31, 2017 decreased to $24.0 million compared with $247.6 million for the year ended December 31, 2016, after deducting $33.2 million of administrative costs in 2017 compared with $35.5 million in administrative costs by 2016. The decrease in operating income was mainly due to reduced revenues in the product tankers and chemical tankers segments, the dry-docking of two vessels, the effects of inclement weather in the Gulf of Mexico in 2017 which reduced the number of days of operation, and our strategy of seeking to reduce costs in light of reduced commercial activity in the sector.
Ports and Terminals Operations
Ports and Terminals Operations’ operating income for the year ended December 31, 2017 increased to $10.3 million compared to $6.1 million for the year ended December 31, 2016, after deducting $15.5 million of administrative costs in 2017 compared to $18.4 million of such costs in 2016. This increase is mainly due to higher volumes in the passengers and cruise segment at Acapulco and our shipping agency business.
Logistics Operations
Logistics Operations operating income for the year ended December 31, 2017 increased to $34.0 million, compared to $30.6 million for the year ended December 31, 2016. This increase was mainly attributable to improved performance in the maintenance and repair segment and at our intermodal terminal business.
Warehousing Operations
Warehousing Operations’ operating loss in the year ended December 31, 2017 decreased to $31.6 million, compared to $44.6 million for the year ended December 31, 2016. This decrease was primarily due to lower costs and expenses and an increase in revenues. Warehousing operations continued its trend of improving results throughout 2017 due to the Company’s cost optimization strategies and client diversification plan. The Company provides warehousing services mainly in the agro-industrial segment supported by FIRA (federal government trust funds for rural development), as well as warehousing services focused on other segments such as steel and fuels.
Net Financing Cost
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Y2017
vs.
Y2016
% Change
|
|
Interest income
|
|
$
|
24.8
|
|
|
$
|
24.7
|
|
|
|
0.4
|
%
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on trust certificates
|
|
$
|
942.3
|
|
|
$
|
684.8
|
|
|
|
37.6
|
%
|
Interest on other loans
|
|
|
97.6
|
|
|
|
98.6
|
|
|
|
(1.0
|
)%
|
Transaction cost of mandatorily convertible debentures into shares
|
|
|
87.5
|
|
|
|
-
|
|
|
|
100.0
|
%
|
Amortization of trust certificate placement expenses
|
|
|
75.2
|
|
|
|
76.2
|
|
|
|
(1.3
|
)%
|
Amortization of expenses associated with other loans
|
|
|
4.1
|
|
|
|
6.0
|
|
|
|
(31.7
|
)%
|
Other financial expenses
|
|
|
3.8
|
|
|
|
3.7
|
|
|
|
2.7
|
%
|
Subtotal
|
|
$
|
1,210.5
|
|
|
$
|
869.3
|
|
|
39.2%
|
|
Loss on exchange, net
|
|
$
|
7.8
|
|
|
$
|
21.3
|
|
|
|
(63.4
|
)%
|
Net financing cost
|
|
$
|
1,193.5
|
|
|
$
|
865.9
|
|
|
|
37.8
|
%
|
Net financing cost recognized during the year ended December 31, 2017 was a $1,193.5 million debit compared to a $865.9 million debit incurred during the year ended December 31, 2016. The net financing cost in 2017 included a net exchange loss of $7.8 million and in 2016 included a net exchange loss of $21.3 million as a result of fluctuations in the relative value of the Peso against the Dollar. Interest expense increased $256.5 million in 2017, mainly due to an increase in variable interest rates. Interest payments on our trust certificates are due semi-annually in May and November. In 2017, we paid approximately $337.5 million of interest on our trust certificates.
Grupo TMM, S.A.B. and Subsidiaries
Other Income – Net
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Y2017
vs.
Y2016
% Change
|
|
Other income – net
|
|
$
|
3,217.7
|
|
|
$
|
52.8
|
|
|
|
5,994.1
|
%
|
Other income – net for the year ended December 31, 2017 was $3,217.7 million, including $3,458.5 million of gain from the loss of control of TMM DM, which was partially offset by a loss of $273.0 million from loss of sale of subsidiaries and a loss of $24.6 million attributable to cancellation of projects. Other income – net for the year ended December 31, 2016 was $52.8 million, including $56.5 from the sale of fixed assets and $2.1 million of cancellation provision, which was partially offset by a loss of $6.2 million attributable to cancellation of projects.
(Provision) Benefit from Income Taxes
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Y2017
vs.
Y2016
% Change
|
|
Provision (Benefit) expenses from income taxes
|
|
$
|
516.7
|
|
|
$
|
(268.6
|
)
|
|
|
(292.4
|
)
|
In the year ended December 31, 2017, following a thorough evaluation of our current business and future prospects, we made a business decision to cancel our deferred tax asset, which is mainly originated by tax loss carryforwards, because we are unlikely to generate sufficient future taxable income to justify retaining the asset. The cancellation of the tax loss carryforwards reduced our fourth-quarter and full-year 2017 net income by $513.7 million.
In the year ended December 31, 2016, the benefit is from deferred tax assets which are recognized to the extent that it is probable that future taxable profit against which temporary differences can be utilized will be available.
Non-controlling Interest
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Y2017
vs.
Y2016
% Change
|
|
Non-controlling interest
|
|
$
|
2.0
|
|
|
$
|
1.4
|
|
|
|
42.9
|
%
|
Non-controlling interest income increased to $2.0 million for the year ended December 31, 2017, from $1.4 million for the year ended December 31, 2016. The increase is largely attributable to an increase in income at the company that runs our Acapulco operations, in which we have a non-controlling interest.
Grupo TMM, S.A.B. and Subsidiaries
Net (Loss) for the year attributable to stockholders of Grupo TMM
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
Y2017
vs.
Y2016
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) for the year attributable to stockholders of Grupo TMM
|
|
$
|
1,327.6
|
|
|
$
|
(508.0
|
)
|
|
|
(361.3
|
)%
|
In the year ended December 31, 2017, we recognized net income of $1,327.6 million, or $13.0 per Share. In the year ended December 31, 2016, we recognized a net loss of $508.0 million, or $5.0 per Share.
Fiscal Year ended December 31, 2016 Compared to Fiscal Year ended December 31, 2015
Revenues from operations for the year ended December 31, 2016 were $2,647.5 million compared to $3,261.9 million for the year ended December 31, 2015.
|
|
Consolidated Transportation Revenues
(in millions of Pesos)
Years Ended December 31,
|
|
|
|
2016
|
|
|
% of Net
Revenues
|
|
|
2015
|
|
|
% of Net
Revenues
|
|
|
Y2016 vs.
Y2015
% Change
|
|
Maritime Operations
|
|
$
|
2,167.6
|
|
|
|
81.9
|
%
|
|
$
|
2,770.9
|
|
|
|
84.9
|
%
|
|
|
(21.8
|
)%
|
Ports and Terminals Operations
|
|
|
116.7
|
|
|
|
4.4
|
%
|
|
|
114.2
|
|
|
|
3.5
|
%
|
|
|
2.2
|
%
|
Logistics Operations
|
|
|
190.9
|
|
|
|
7.2
|
%
|
|
|
169.7
|
|
|
|
5.2
|
%
|
|
|
12.5
|
%
|
Warehousing Operations
|
|
|
126.1
|
|
|
|
4.8
|
%
|
|
|
133.1
|
|
|
|
4.1
|
%
|
|
|
(5.3
|
)%
|
Other business
(*)
|
|
|
46.2
|
|
|
|
1.7
|
%
|
|
|
74.0
|
|
|
|
2.3
|
%
|
|
|
(37.6
|
)%
|
Total
|
|
$
|
2,647.5
|
|
|
|
100.0
|
%
|
|
$
|
3,261.9
|
|
|
|
100.0
|
%
|
|
|
(18.8
|
)%
|
(*)
|
Represents certain new businesses which are in development.
|
Maritime Operations
Maritime Operations’ revenues decreased 21.8% to $2,167.6 million in 2016 compared to $2,770.9 million in 2015 and represented 81.9% of the total net income. This is mainly due to a decrease in revenues in our offshore vessels business of 42.5% derived from reduced petroleum shipping activity in the Gulf of Mexico, as well as a decrease in income from the shipyard of 10%, due partly to the suspension and cancellation of a significant number of contracts by PEMEX and lower rates, which resulted in the companies not seeking repairs. This was partially offset by higher income in our chemical tankers business of 29.5% due to an increase in shipping volumes and a greater number of trips made during 2016 following the entrance of a third chemical tanker ship, as well as a growth in revenues in our tugboat business of 22.3% due to higher rates and a higher number of calls at the LNG terminal.
Ports and Terminals Operations
Ports and Terminals Operations’ revenues increased 2.2% to $116.7 million for the year ended December 31, 2016 compared to $114.2 million for the year ended December 31, 2015, and accounted for 4.4% of total net revenues. This increase is mainly due to a increased volumes in our shipping agencies business which serviced a greater number of cruise ship calls in 2016. The increase was partially offset by decrease in volumes in the automotive segment in Acapulco (40,680 in 2016 vs 48,593 in 2015), which is a result of changes in the units exported to Asia, and by a reduction of revenue at Tuxpan due to lower volumes.
Grupo TMM, S.A.B. and Subsidiaries
Logistics Operations
Logistics Operations’ revenues increased 12.5% to $190.9 million in 2016 compared to $169.7 million in 2015 and accounted for 7.2% of total net revenues. This increase was mainly due to higher revenues of $12.1 million in maintenance and repair operations and $9.1 million at our intermodal terminal business.
Warehousing Operations
Warehousing operations’ revenues decreased 5.3% to $126.1 million in 2016 compared to $133.1 million in 2015 and accounted for 4.8% of total net revenues. This decrease was mainly due to lower revenues of $7.0 million from these operations.
Income on Transportation
Income on transportation reflects revenues on transportation less operating costs and expenses. References to operating income in this Annual Report refer to income on transportation, plus/minus the effect of other income (expenses) as presented in the Financial Statements included elsewhere in this Annual Report.
Total costs and expenses for the year ended December 31, 2016 decreased 12.7% to $2,609.6 million from $2,987.7 million for the year ended December 31, 2015. This decrease was mainly attributable to a decrease of 15.4%, or $113.3 million, in leases and other rents, a decrease of 7.6%, or $45.0 million, in contracted services, a decrease of 7.6%, or $18.1 million, in fuels, materials and accessories, a decrease of 8.2%, or $57.4 million, in salaries, wages and employee benefits, and a decrease of 17.5%, or $117.4 million, in depreciation, amortization and loss from revaluation of vessels. Operating income decreased 80.3% to $90.7 million for the year ended December 31, 2016 from an operating income of $461.2 million for the year ended December 31, 2015.
The following table sets forth information concerning the Company’s operating income on transportation by business segment for the years ended December 31, 2016 and 2015, respectively.
|
|
Grupo TMM Operations
Income on Transportation
(1)(2)(3)
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Y2016 vs.
Y2015
%
Change
|
|
Maritime Operations
(3)
|
|
$
|
247.6
|
|
|
$
|
492.5
|
|
|
|
(49.7
|
)%
|
Ports and Terminals Operations
|
|
|
6.1
|
|
|
|
7.6
|
|
|
|
(19.7
|
)%
|
Logistics Operations
|
|
|
30.6
|
|
|
|
27.4
|
|
|
|
11.7
|
%
|
Warehousing Operations
|
|
|
(44.6
|
)
|
|
|
(48.1
|
)
|
|
|
(7.3
|
)%
|
Shared Corporate Costs
|
|
|
(201.8
|
)
|
|
|
(205.2
|
)
|
|
|
(1.7
|
)%
|
Total
|
|
$
|
37.9
|
|
|
$
|
274.2
|
|
|
|
(86.2
|
)%
|
(1)
|
Operating results are reported as Transportation profit in the accompanying Audited Consolidated Financial Statements.
|
(2)
|
To better reflect Grupo TMM’s corporate costs, the Company modified the presentation of its corporate expenses as of December 31, 2016 and 2015, separating human resources and information technology costs to be allocated to each business unit in accordance with their use. Income on transportation includes the following allocated total administrative costs: In 2016: $18.4 million in Ports and Terminals Operations, $35.5 million in Maritime Operations and $194.2 million in shared corporate costs. Income on transportation includes the following allocated total administrative costs: In 2015: $15.4 million in Ports and Terminals Operations, $30.1 million in Maritime Operations and $199.1 million in shared corporate costs.
|
(3)
|
Income on Transportation includes loss on revaluation of vessels in 2016 and 2015 for $16.2 million and $29.4 million respectively.
|
Grupo TMM, S.A.B. and Subsidiaries
Maritime Operations
Maritime Operations’ operating income for the year ended December 31, 2016 decreased to $247.6 million compared with $492.5 million for the year ended December 31, 2015, after deducting $35.5 million of administrative costs in 2016 compared with $30.1 million in administrative costs by 2015. Operating costs decreased in 2016 by 15.4%, however, mainly due to a 32.1% reduction in tankers attributable to the chartering of the ship “Tajin”, and to the sale of the vessel “Palenque” in June 2015, as well as a decrease of 27.1% in our offshore vessels’ number of days in operation and a strategy of cost reduction implemented against the lower activity of the sector. Operating income was reduced by 31.1% in 2016 as a result of increased costs at our chemical tanker business attributable to the chartering of the vessel “Tradewind Union” at lower market prices, as well as a 20.9% increase in trailer port costs of service as a result of having three tugboats chartered and the February 2016 increase in consideration payable to the API resulting from an increase in its rates.
Ports and Terminals Operations
Ports and Terminals Operations’ operating income for the year ended December 31, 2016 decreased to $6.1 million compared to $7.6 million for the year ended December 31, 2015, after deducting $18.4 million of administrative costs in 2016 compared to $15.4 million of such costs in 2015. This decrease is mainly due to reduced volumes in the automotive segment at Acapulco (40,680 units in 2016 vs. 48,593 units in 2015), which is a result of a decrease in the number of units exported to Asia, and a reduction in revenue at Tuxpan due to lower volumes.
Logistics Operations
Logistics Operations operating income for the year ended December 31, 2016 increased to $30.6 million, compared to $27.4 million for the year ended December 31, 2015. This increase was mainly attributable to increased profit in the automotive business and an increase in the profit in Aguascalientes Terminal.
Warehousing Operations
Warehousing Operations’ operating loss in the year ended December 31, 2016 decreased to $44.6 million, compared to $48.1 million for the year ended December 31, 2015. This decrease was primarily due to the reduction in costs and expenses such as depreciation and amortization.
Net Financing Cost
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Y2016
vs.
Y2015
% Change
|
|
Interest income
|
|
$
|
24.7
|
|
|
$
|
21.4
|
|
|
|
15.4
|
%
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on trust certificates
|
|
$
|
684.8
|
|
|
$
|
618.8
|
|
|
|
10.7
|
%
|
Interest on other loans
|
|
|
98.6
|
|
|
|
95.7
|
|
|
|
3.0
|
%
|
Amortization of trust certificate placement expenses
|
|
|
76.2
|
|
|
|
75.2
|
|
|
|
1.3
|
%
|
Amortization of expenses associated with other loans
|
|
|
6.0
|
|
|
|
4.8
|
|
|
|
25.0
|
%
|
Other financial expenses
|
|
|
3.7
|
|
|
|
5.7
|
|
|
|
(35.1
|
)%
|
Subtotal
|
|
$
|
869.3
|
|
|
$
|
800.2
|
|
|
|
8.6
|
%
|
Gain (loss) on exchange, net
|
|
$
|
(21.3
|
)
|
|
$
|
15.7
|
|
|
|
(235.7
|
)%
|
Net financing cost
|
|
$
|
865.9
|
|
|
$
|
763.1
|
|
|
|
13.5
|
%
|
Net financing cost recognized during the year ended December 31, 2016 was a $865.9 million debit compared to a $763.1 million debit incurred during the year ended December 31, 2015. The net financing cost in 2016 included a net exchange loss of $21.3 million and in 2015 included a net exchange gain of $15.7 million as a result of fluctuations in the relative value of the Peso against the Dollar. Interest expense increased $68.9 million in 2016, mainly due to a increase in variable interest rates. Interest payments on our trust certificates are due semi-annually in May and November. In 2016, we paid approximately $729.0 million of interest on our trust certificates and a principal prepayment of $70.0 million.
Grupo TMM, S.A.B. and Subsidiaries
Other Income – Net
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Y2016
vs.
Y2015
% Change
|
|
Other income – net
|
|
$
|
52.8
|
|
|
$
|
187.0
|
|
|
|
(71.8
|
)%
|
Other income – net for the year ended December 31, 2016 was $52.8 million, including $56.5 from the sale of fixed assets and $2.1 million of cancellation provision, which was partially offset by a loss of $6.2 million attributable to cancellation of projects. Other income – net for the year ended December 31, 2015 was $187.0 million and included primarily $185.3 million of proceeds from the sale of subsidiaries, $4.9 million of loss on cancellation of construction in progress and $5.9 million of cancellation provision.
(Benefit) expenses from Income Taxes
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Y2016
vs.
Y2015
% Change
|
|
(Benefit) expenses from income taxes
|
|
$
|
(268.6
|
)
|
|
$
|
698.5
|
|
|
|
(138.5
|
)
|
In the year ended December 31, 2016, the benefit is from deferred tax assets which are recognized to the extent that it is probable that future taxable profit against which temporary differences can be utilized will be available.
In the year ended December 31, 2015, following a thorough evaluation of our current business and future prospects, we made a business decision to cancel our deferred tax asset, which is mainly originated by tax loss carryforwards, because we are unlikely to generate sufficient future taxable income to justify retaining the asset. The cancellation of the tax loss carryforwards reduced our fourth-quarter and full-year 2015 net income by $695.2 million.
Non-controlling Interest
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Y2016
vs.
Y2015
% Change
|
|
Non-controlling interest
|
|
$
|
1.4
|
|
|
$
|
(2.3
|
)
|
|
|
(160.9
|
)%
|
Non-controlling interest increased to $1.4 million for the year ended December 31, 2016, from $(2.3) million for the year ended December 31, 2015. The increase is largely attributable to a decrease in income at the company that runs our Acapulco operations, in which we have a non-controlling interest.
Grupo TMM, S.A.B. and Subsidiaries
Net (Loss) for the year attributable to stockholders of Grupo TMM
|
|
(in millions of Pesos)
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Y2016
vs.
Y2015
% Change
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) for the year attributable to stockholders of Grupo TMM
|
|
$
|
(508.0
|
)
|
|
$
|
(1,016.6
|
)
|
|
|
(50.0
|
)%
|
In the year ended December 31, 2016, we recognized a net loss of $508.0 million, or $5.0 per Share. In the year ended December 31, 2015, we recognized a net loss of $1,016.6 million, or $9.9 per Share.
Critical Accounting Policies
Our Financial Statements have been prepared in accordance with the IFRS as issued by the IASB.
We have identified certain key accounting policies on which our financial condition and results of operations are dependent. These key accounting policies most often involve complex matters, may be based on estimates and involve a significant amount of judgment. In the opinion of our management, our critical accounting policies under IFRS are those related to revenue recognition, translation to a foreign currency, valuation of property and vessels, deferred income taxes, labor obligations and impairment of long-lived assets. For a full description of all of our accounting policies, see Note 3 to the accompanying Audited Consolidated Financial Statements contained elsewhere herein.
Revenue Recognition.
The Company recognizes its revenues at the time at which the risks and benefits are transferred to the customer. In particular, revenues for vessels leased are recognized on a monthly basis according to the number of days elapsed and during the term of the corresponding contract, and in the case of revenue from voyages, when their duration is longer than two months, revenue is recognized proportionally as a shipment moves from origin to destination. Revenue from other services, including warehousing, are recognized when services are rendered. The costs and expenses for maritime, as well as those related to other logistics operations, are recognized in operations when the services are rendered, materials are consumed or as incurred.
Translation of Foreign Currency
. For the years ended December 31, 2017, 2016, 2015, 2014 and 2013, the Company’s functional and reporting currency is the Mexican peso. Foreign currency transactions entered into by a Company subsidiary are translated into the functional currency of the subsidiary, using the spot exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the measurement of monetary items denominated in foreign currency at year-end exchange rates are recognized in profit or loss.
Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.
In our consolidated financial statements, all the assets, liabilities, and operations of our subsidiaries that operate in a functional currency other than the Mexican peso are converted to pesos on consolidation.
Valuation of Land, Buildings and Vessels
. The value of land and buildings used in the Company’s operations are determined by external professional appraisers every three years, and in some cases earlier if market factors indicate a significant change in the fair value of the property. The latest revaluation of the Company’s land and buildings took place in December 2013. The value of the Company’s vessels are generally determined using market values calculated by external professional appraisers, although certain vessels may be valued using other valuation techniques. Restatements of vessel values are conducted when the market values are found to differ significantly from their carrying value. The latest revaluation of the Company’s vessels took place as of December 31, 2016.
Grupo TMM, S.A.B. and Subsidiaries
The Company began applying the revaluation model for vessels discussed above beginning January 1, 2014. Prior to that, the Company used the cost model to value its vessels. Management considers that the change to the revaluation model provides more reliable, relevant information about the values of its vessels and related transactions, as it allows the company to consider changes in circumstances that are likely to have a significant effect on a vessel’s value, including (i) changes in the price of oil and the demand for oil transportation vessels; and (ii) changes related to the recent Mexican Energy Reforms.
Any revaluation surplus derived from the valuation of land, buildings or vessels is recognized in our consolidated financial statements as part of “Other comprehensive income items” and forms part of “other capital components” in stockholders’ investment. A revaluation surplus is credited in income up to an amount equivalent to any revaluation write-down or impairment loss previously recognized income. Any excess is recognized in “Other comprehensive income items” and in stockholders’ investment in the item “Revaluation surplus”. Revaluation write-downs or impairment losses are recognized in “Other comprehensive income items” up to the amount previously recognized on that asset in stockholders’ investment in the item of “Revaluation surplus”. Any remaining decrease is recognized in income for the year. Any remaining balance of the revaluation surplus in stockholders’ investment at the time the Company disposes of the asset that gave rise to the surplus is reclassified to retained earnings. Moreover, any remaining balance of the revaluation surplus in stockholders’ investment may not be distributed to stockholders.
The Company recognizes the depreciation of land, buildings and vessels using the straight line method to write down the carrying value of the asset less its estimated residual value. As no finite useful life for land can be determined, the related carrying amounts are not depreciated.
Deferred Income Taxes.
We apply the provisions of IAS 12, “Income Taxes.” The guidance under IFRS establishes that the recognition of net operating loss carryforwards should be based on the likelihood that such tax credits will be effectively used to offset future tax liabilities. In making such an evaluation we have to exercise significant judgment in estimating the level of future taxable income that we will generate and our projections take into consideration certain assumptions, some of which are under our control and others, which are not. Key assumptions include inflation rates, currency fluctuations and future revenue growth. If our assumptions are not accurate, the amount of tax credits we have recognized could be significantly impacted.
Labor obligations
. Seniority premiums, to which employees are entitled after 15 years of service and after having retired at the age of 60, and retirement plan benefits obligations, are expensed in the years in which the services are rendered. Other compensation based on length of service to which employees may be entitled in the case of retirement and also dismissals of personnel aged 55 and over, in accordance with the Federal Labor Law, are provided for based on an actuarial computation, in accordance with IAS 19 “Employee Benefits.”
Impairment of Long-Lived Assets.
We review the carrying value of intangible assets and long-lived assets annually, and impairments are recognized whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount, which is the higher of an asset’s net selling price and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable discounted cash flows.
Measurement of the impairment loss is based on the fair value of the asset which is determined based on management estimates and assumptions and by making use of available market data, evaluated in accordance with IAS 36. In evaluating the carrying value and useful lives of long-lived assets, we review indicators of potential impairment, such as the present value of discounted projected operating cash flows generated for the useful service life of the asset, asset sale and purchase values, business plans and overall market conditions. In determining the value in use, we estimate expected future cash flows from each cash-generated unit and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to our latest approved budget, adjusted as necessary to exclude the effects of future reorganizations and asset enhancements. Discount factors are determined individually for each cash-generating unit and reflect current market assessments of the time value of money and asset-specific risk factors.
Grupo TMM, S.A.B. and Subsidiaries
In assessing impairment, we determine the recoverable value for each asset or cash-generating unit based on the expected future cash flows and determine an adequate interest rate to use in calculating the present value of these cash flows. The uncertainty in the estimate is related to our assumptions regarding our future operating results and our determination of a suitable discount rate. Although we believe that the assumptions we incorporate into our calculations are reasonable and appropriate, such assumptions are unavoidably subjective.
Financial instruments.
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled or expires. Financial assets and financial liabilities are measured initially at fair value adjusted by transactions costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially at fair value. Financial assets and financial liabilities are measured subsequently as described below.
Financial assets
For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition:
|
§
|
financial assets at fair value through profit or loss
|
|
§
|
held-to-maturity investments
|
|
§
|
available-for-sale financial assets.
|
The category determines subsequent measurement and whether any resulting income and expense is recognized in profit or loss or in other comprehensive income. All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below. All income and expenses relating to financial assets that are recognized in profit or loss are presented within “finance costs,” “finance income” or “other financial items,” except for impairment of trade receivables which is presented within “other expenses.”
Financial liabilities
The Company’s financial liabilities include borrowings, trade and other financial liabilities are measured subsequently at amortized cost using the effective interest method, except for financial liabilities held for trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains or losses recognized in profit or loss.
Compound financial instruments.
The Company evaluates the issue of a non-derivative financial instrument to determine if it contains liability and equity components. These components are classified separately as financial liabilities or equity instruments at the time they are initially recognized, in conformity with the economic essence of the contractual agreement and with the definitions of financial liability and equity instrument. The Company evaluates those conditions and identifies the financial liability component when there is a contractual agreement to deliver cash or another financial asset and an equity instrument component when the holder is entitled to convert it into a pre-established number of common shares of the Company. The initial measurement of a compound financial instrument is distributed among its liability and equity components. The residual amount that is obtained after deducting the amount that has been determined separately for the liability component is allocated to the equity component from the overall fair value of the instrument. Losses or gains may not emerge in the initial recognition process of the components of the instrument. The transaction costs of an equity transaction will be treated as a deduction thereof for accounting purposes. The liability component will be considered as transaction costs, in terms of the recognition of financial liabilities. Interest relative to a component that is a financial liability will be recognized in income for the period. The equity instrument component are allocated directly to equity.
Grupo TMM, S.A.B. and Subsidiaries
Derivative financial instruments
A specific accounting treatment is required for derivatives designated as hedging instruments in cash flow hedge relationships. To qualify for hedge accounting, the hedging relationship must meet several strict conditions with respect to documentation, probability of occurrence of the hedged transaction and hedge effectiveness. All other derivative financial instruments are accounted for at fair value through profit or loss. All derivative financial instruments used for hedge accounting are recognized initially at fair value and reported subsequently at fair value in the statement of financial position. To the extent that the hedge is effective, changes in the fair value of derivatives designated as hedging instruments in cash flow hedges are recognized in other comprehensive income and included within the cash flow hedge reserve in equity. Any ineffectiveness in the hedge relationship is recognized immediately in profit or loss. If a forecast transaction is no longer expected to occur or if the hedging instrument becomes ineffective, any related gain or loss recognized in other comprehensive income is transferred immediately to profit or loss.
Fair value measurement for non-financial assets
The non-financial assets and liabilities measured at fair value in the statement of financial position are grouped into three levels of fair value hierarchy. The three levels are defined based on the observability of relevant data for the measuring, as follows:
|
§
|
Level 1: quoted prices (without adjustment) in active markets for identical assets and liabilities;
|
|
§
|
Level 2: data other than the quoted prices included in Level 1 that are observable for the asset and liability, either directly or indirectly;
|
|
§
|
Level 3: non-observable data for the asset or liability.
|
The fair value for the Company’s principal vessels and properties is estimated based on appraisals prepared by independent naval engineers specializing in sea vessels and artifacts, and also independent, qualified real estate appraisers. The important information and assumptions are prepared in close collaboration with management.
The fair values for tanker and specialized vessels are estimated based on revenue that capitalizes the estimated revenue cash flows from the leasing of vessels net of operating costs projected, using an appropriate discount rate that reflects the required performance for similar assets. Cash flows are calculated based on the average of international charter rates and operating costs (including maintenance), and also the historical utilization level.
Discontinued operations
Results for discontinued operations
A discontinued operation is a component of the entity that has been disposed of, or has been classified as held for sale, and:
|
§
|
Represents a significant separate line of business or a geographic area of operations;
|
|
§
|
Is part of a specific coordinated plan to dispose of a significant separate line of business; or
|
|
§
|
Is a subsidiary acquired solely for the purpose of sale.
|
The gains or losses on discontinued operations, including components of gains or losses from previous years are reported as a single amount on the consolidated statement of operations. This amount, which includes the gains or losses after taxes for discontinued operations and the gains or losses after taxes resulting from measuring and disposing of assets classified as held for sale, are discussed in more detail in Note 20 to the accompanying Audited Consolidated Financial Statements contained elsewhere herein.
Grupo TMM, S.A.B. and Subsidiaries
The disclosures for discontinued operations in the previous year are related to all the operations that have been discontinued as of the close date for the last period reported.
Recent Accounting Pronouncements IFRS
New and revised standards that are effective for annual periods beginning on or after 1 January 2017
The Company has not adopted any new standards or amendments that have a significant impact on the Company’s results or financial position.
Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by Grupo TMM
At the date of authorisation of these financial statements, certain new standards, and amendments to existing standards have been published by the International Accounting Standard Board (IASB) that are not yet effective, and have not been adopted early by the Company. Information on those expected to be relevant to our consolidated financial statements is provided below.
Management anticipates that all relevant pronouncements will be adopted in the Company’s accounting policies for the first period beginning after the effective date of the pronouncement. New standards, interpretations and amendments not either adopted or listed below are not expected to have a material impact on our consolidated financial statements.
IFRS 9 ‘Financial Instruments’
The IASB recently released IFRS 9 “Financial Instruments” (2014), representing the completion of its project to replace IAS 39 “Financial Instruments: Recognition and Measurement”. The new standard introduces extensive changes to IAS 39’s guidance on the classification and measurement of financial assets and introduces a new ‘expected credit loss’ model for the impairment of financial assets. IFRS 9 also provides new guidance on the application of hedge accounting.
Management has evaluated the impact of these changes and concluded that they will be immaterial, since the designation of financial asset and liability instruments that they hold will not change, as they are currently in the category of amortized cost. Moreover, the business model for financial assets is estimated to correspond to assets held for contractual cash flows receivable and, therefore, the same designation of amortized cost is applied. Finally, on the “expected credit loss” model, based on prior experience of losses incurred and the characteristics and conditions of its financial assets, it is estimated that there will be no relevant impact on the recognition of losses.
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 “Revenue”, IAS 11 “Construction Contracts” and several revenue-related Interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities.
IFRS 15 will go into effect for annual periods beginning on or after January 1, 2018. Management has evaluated the impact of IFRS 15, and concluded that the effects will be immaterial, since the characteristics of its sources of revenues that do not contemplate complex issues like those described above. Moreover, the application of the new control model and the five-step approach for the revenue recognition is estimated to be largely consistent with the current revenue recognition process of the Company.
IFRS 16 “Leases”
Grupo TMM, S.A.B. and Subsidiaries
IFRS 16 requires lessees to record the right to use an asset “on its balance sheet” and a liability for the lease. However, this standard provides exceptions on that accounting for short-term leases and assets for immaterial amounts. It further modifies the definition of lease and sets forth the requirements on other issues such as elements that form part of the lease, variable payments, and option of periods. Moreover, it modifies the journal entry of leaseback sales contracts and adds new disclosure requirements.
IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Management is currently in the process of evaluation the impact of IFRS l6, but still does not have quantitive information of that evaluation and of the possible effects on the consolidated financial statements.
Liquidity and Capital Resources
Our business is capital intensive and requires ongoing expenditures for, among other things, improvements to ports and terminals, infrastructure and technology, capital expenditures for vessels and other equipment, leases and repair of equipment and maintenance of our vessels. Our principal sources of liquidity consist of cash flows from operations, existing cash balances, sales of assets and debt financing.
Grupo TMM is primarily a holding company and conducts the majority of its operations, and holds a substantial portion of its operating assets through numerous direct and indirect subsidiaries. As a result, it relies on income from dividends and fees related to administrative services provided from its operating subsidiaries for its operating income, including the funds necessary to service its indebtedness.
In addition, the Company notes that its financial statements present its debt obligations on a consolidated basis; however 88.8% of the Company’s debt is held directly by its subsidiaries, each of which services its own debt out of its operating income. Management believes that these factors will enable the Company to remain current in its debt repayments notwithstanding the Mexican Law restriction on the distribution of profits by subsidiaries described below.
As of December 31, 2017, the respective debt obligations of each of the Company’s subsidiaries were as follows:
|
|
(in millions of Pesos)
|
|
|
|
|
|
TMM Parcel Tankers, S.A. de C.V.
|
|
$
|
283.0
|
|
Transportación Maritima Mexicana, S.A. de C.V.
|
|
|
430.6
|
|
Grupo TMM, S.A.B.
|
|
|
100.8
|
|
Almacenadora de Deposito Moderno, S.A. de C.V.
|
|
|
8.8
|
|
TMM Logistics, S.A de C.V.
|
|
|
75.5
|
|
Total
|
|
$
|
898.7
|
|
Under Mexican law, dividends from our subsidiaries, including a pro rata share of the available proceeds of our joint ventures, may be distributed only when the shareholders of such companies have approved the corresponding financial information, and none of our subsidiaries or joint venture companies can distribute dividends to us until losses incurred by such subsidiary have been recouped. In addition, at least 5% of profits must be separated to create a reserve
(fondo de reserva)
until such reserve is equal to 20% of the aggregate value of such subsidiary’s capital stock (as calculated based on the actual nominal subscription price received by such subsidiary for all issued shares that are outstanding at the time).
As of March 31, 2018, our total debt amounted $796.1 million of bank debt owed to several different banks and $94.8 million owed to non-institutional lenders; of this debt, $439.2 million is short-term debt, and $356.9 million is long-term debt. Under IFRS, transaction costs in connection with financings are required to be presented as part of debt.
As of December 31, 2017, our total debt amounted $898.6 million of bank debt owed to several different banks; and $100.0 million owed to non-institutional lenders; of this debt, $502.4 million was short-term debt, and $396.3 million was long-term debt.
Grupo TMM, S.A.B. and Subsidiaries
As of December 31, 2017 and March 31, 2018, we were in compliance with all of the restrictive covenants contained in our financing agreements.
Our total shareholders’ equity in 2017, including non-controlling interest in consolidated subsidiaries, was $2,229.1 million, resulting in a debt-to-equity ratio of 0.40.
On January 11, 2008, in order to refinance the acquisition of ADEMSA, Grupo TMM closed a financing agreement in the amount of US$8.5 million (approximately $175.6 million) with a term of seven years, at a fixed rate of 8.01% with semi-annual payments of principal starting on January 2010 and semi-annual interests payments. The Company refinanced the payment schedule extending the maturity of this line of credit to December 2019.
In November 2013, Grupo TMM (through its subsidiary Transportación Marítima Mexicana, S.A. de C.V.) obtained a line of credit in US dollars of up to US$10.8 million (approximately $223.2 million) to finance the acquisition of the vessel “Subsea 88” through a capital lease at a fixed rate with monthly principal and interest payments. See “—Capital Leases” below.
As of March 31, 2018, we had net working capital (current assets less current liabilities) of $309.2 million. We had net working capital of $270.0 million, $734.4 million, and $1,045.6 million as of December 31, 2017, December 31, 2016, and December 31, 2015, respectively. The increase in net working capital from December 31, 2017 to March 31, 2018 was primarily attributable to an increase in trade receivables from our sales. The decrease in net working capital from December 31, 2016 to December 31, 2017 was primarily attributable to the transfer of control over TMM DM. The decrease in net working capital from December 31, 2015 to December 31, 2016 was primarily attributable to a reduction in accounts receivable from factoring operations through the Nacional Financiera, S.N.C. supply chain program to reduce liquidity risk. Although we continue to look for ways to improve our debt profile in order to reduce our financing costs and improve the flows available for investment, Management believes that the Company’s financial resources, including the cash expected to be generated by our subsidiaries, is sufficient to meet our present liquidity and working capital needs.
Information on Cash Flows
Summary cash flow data for the years ended December 31, 2017, 2016 and 2015 is as follows:
|
|
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands of Pesos)
|
|
Operating activities
|
|
$
|
381,690
|
|
|
$
|
610,782
|
|
|
$
|
612,381
|
|
Investing activities
|
|
|
(218,508
|
)
|
|
|
(74,352
|
)
|
|
|
792,154
|
|
Financing activities
|
|
|
(581,738
|
)
|
|
|
(744,478
|
)
|
|
|
(1,165,762
|
)
|
Currency exchange effect on cash
|
|
|
(22,594
|
)
|
|
|
65,393
|
|
|
|
63,540
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(441,150
|
)
|
|
|
(142,655
|
)
|
|
|
302,313
|
|
Cash and cash equivalents at beginning of year
|
|
|
902,704
|
|
|
|
1,045,359
|
|
|
|
743,046
|
|
Cash and cash equivalents at end of year
|
|
$
|
461,554
|
|
|
$
|
902,704
|
|
|
$
|
1,045,359
|
|
For the year ended December 31, 2017, the Company’s consolidated cash position decreased by approximately $441.1 million from the year ended December 31, 2016, including a decrease of $212.3 million for cash and cash equivalents from loss of control of TMM DM. This decrease was mainly attributable to the loss of control of TMM DM, as well as continued low levels of activity in the oil industry during 2017. Our principal customer continued its reduced demand for our vessels services during the year and has continued to extend payment terms for those services.
For the year ended December 31, 2016, the Company’s consolidated cash position decreased by approximately $142.7 million from the year ended December 31, 2015. This decrease was mainly attributable to the downturn in the oil industry during 2016, which strongly affected all participants in this market. Our principal customer reduced demand for our vessels services by more than 50% during the year and has significantly delayed its payments for those services.
Grupo TMM, S.A.B. and Subsidiaries
For the year ended December 31, 2015, the Company’s consolidated cash position increased by approximately $302.3 million from the year ended December 31, 2014. This increase was mainly attributable to $790.9 million generated from the sale of Terminal Marítima de Tuxpan, which was partially offset by the payment of debt under the Trust Certificates Program and other loans amounting to $1,164.1 million.
Our Cash Flows from Operating Activities
Net cash flows provided by operating activities amounted to $381.7 million in the year ended December 31, 2017 compared to $610.8 million in the year ended December 31, 2016. This decrease was mainly attributable to the loss of control of TMM DM, as well as continued low levels of activity in the oil industry during 2017. Our principal customer continued its reduced demand for our vessels services during the year and has continued to extend payment terms for those services.
Net cash flows provided by operating activities amounted to $610.8 million in the year ended December 31, 2016 compared to $612.4 million in the year ended December 31, 2015. This decrease was mainly attributable to the downturn in the oil industry during 2016, which strongly affected all participants in this market. TMM’s principal customer reduced demand for our vessels services by more than 50% during the year and has significantly delayed its payments for those services.
The following table summarizes cash flows from operating activities for the periods indicated:
|
|
Years Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands of Pesos)
|
|
Income (Loss) before provision for income taxes
|
|
$
|
1,846,311
|
|
|
$
|
(775,179
|
)
|
|
$
|
(301,930
|
)
|
Gain from the loss of control of TMM DM
|
|
|
(3,458,467
|
)
|
|
|
-
|
|
|
|
-
|
|
Depreciation and amortization and other amortization
|
|
|
647,530
|
|
|
|
631,264
|
|
|
|
748,839
|
|
(Loss) gain on sale of fixed assets—net
|
|
|
(330
|
)
|
|
|
(56,491
|
)
|
|
|
26,131
|
|
Sale of subsidiaries
|
|
|
273,032
|
|
|
|
-
|
|
|
|
(171,505
|
)
|
Provision for interests on debt
|
|
|
1,039,856
|
|
|
|
783,458
|
|
|
|
714,520
|
|
(Gain) loss from exchange differences
|
|
|
(4,545
|
)
|
|
|
69,826
|
|
|
|
46,273
|
|
Total changes in operating assets and liabilities
|
|
38,303
|
|
|
|
(42,096
|
)
|
|
|
(449,947
|
)
|
Net cash provided by operating activities
|
|
$
|
381,690
|
|
|
$
|
610,782
|
|
|
$
|
612,381
|
|
Our Cash Flows from Investing Activities
Net cash provided by investing activities for the year ended December 31, 2017 was $218.5 million, which included $74.0 million generated from the sale of property, operating equipment and subsidiaries, which was partially offset by the use of $80.2 million for investments in projects and operating equipment and $212.3 million for cash and cash equivalents from the loss of control of TMM DM. Net cash provided by investing activities for the year ended December 31, 2016 was $74.4 million, which included $87.7 million generated from the sale of property and operating equipment, which was partially offset by the use of $162.1 million for investments in projects and operating equipment. Net cash provided by investing activities for the year ended December 31, 2015 was $792.2 million, which included $894.1 million generated from the sale of Terminal Marítima de Tuxpan, operating equipment and discontinued businesses, which was partially offset by the use of $101.9 million for the acquisition of vessels and operating equipment.
See “— Capital Expenditures and Divestitures” below for further details of capital expenditures and divestitures relating to the years ended December 31, 2017, 2016 and 2015, respectively.
Our Cash Flows from Financing Activities
For the year ended December 31, 2017, cash used by financing activities amounted to $581.7 million, which resulted primarily from the payment of debt under the Securitization Facility, our Trust Certificates Program and others loans.
Grupo TMM, S.A.B. and Subsidiaries
For the year ended December 31, 2016, cash used by financing activities amounted to $744.5 million, which resulted primarily from the payment of debt under the Securitization Facility, our Trust Certificates Program and others loans.
For the year ended December 31, 2015, cash used by financing activities amounted to $1,165.8 million, which resulted primarily from the payment of debt under the Securitization Facility, our Trust Certificates Program and others loans.
Business Plan
We are focused on improving all of our business segments through maintaining efficient and cost-effective operations and strengthening our balance sheet, allowing us to better develop and implement our projects. These projects seek to combine the elements that can enable us to capture the opportunities that the Mexican Energy Reforms are expected to generate, with the ultimate goal of creating value for our shareholders.
Maritime Operations
. We seek to capitalize on our steady and proven vessels management and operation expertise to increase our customer base and expand our services to deepwater operations and other maritime transportation segments such as bulk cargo vessels, taking advantage of the opportunities and new participants in the Mexican market.
Ports and Terminals Operations
. We intend to continue to take advantage of our unique experience, our strategically located assets and the existing investment opportunities in the midstream oil and gas sector, to develop liquids oil terminals that will help reduce the current gap in infrastructure and anticipate growing demand for gasoline and diesel imports, which currently account for more than 70% of Mexico’s domestic consumption. In this regard, we intend to keep moving forward with the development of storage and transportation infrastructure jointly with our strategic partners, TransCanada and Sierra Oil & Gas, to serve the growing demand for refined products from Tuxpan to the central region of Mexico. The port of Tuxpan is the main port of entry for hydrocarbon imports and the closest port to Mexico City and the central area of Mexico. As for our cruise ship terminal operations, we plan to develop a terminal in a Mexican Caribbean port, while at Acapulco we plan to continue collaborating with the respective authorities in order to increase cruise activity.
Logistics Operations
. As part of our commitment to ensure first-class maintenance and repair and increase our volume of operations, we plan to revamp our facilities and improve our processes. We are also looking to develop the automotive, steel and food logistics market in all areas with emphasis on “just-in-time” inventory planning, subassembly and management of cars and container yards through a partnership with an international technology operator.
Warehousing Operations
. We are working to improve our bonded warehousing services and to issue negotiable certificates of deposit to be issued for the agricultural and steel industries as well as import duties services.
Corporate Expenses
. As part of our continuous improvement plan, we aim to optimize the size of our corporate staff consistent with the implementation of the plans described above.
Our Ability to Continue as a Going Concern
Our Financial Statements for the year ended December 31, 2017 includes an explanatory note describing the existence of substantial doubt about our ability to continue as a “going concern.” Such note observes that (i) the continuation of the Company as an ongoing business depends on our compliance with our financial obligations on a regular basis, (ii) to be successful in our five-year growth plan and capitalize on the demand for services arising from the recent Mexican Energy Reforms and (iii) the Financial Statements do not include any adjustment over the assets or liabilities that could be necessary if the company is not able to continue as an ongoing business.
The maritime business has been improving in its performance in recent years, consolidating as our most profitable business despite the 2016 worldwide oil industry downturn, which has strongly affected all participants in this market. Nevertheless, we implemented a strategic plan in 2016 to offset some of the impact of the reduced revenues. The most relevant actions included a strategic reduction of costs and SG&A expenses and factoring operations through the Nacional Financiera, S.N.C. supply chain program to reduce liquidity risk as well as the effect of the new payment policies of the Company’s principal customers.
Grupo TMM, S.A.B. and Subsidiaries
Notwithstanding the issues noted above, we believe Mexican Energy Reforms has not only had a positive influence on the development of the oil and gas industry in Mexico, but has also helped the Company by allowing us to diversify our sources of income with new clients. Company management continues to work on the implementation of our business plan, which includes the above mention projects and their current status.
The successful implementation of these projects in the short and medium term will allow us to expand and diversify our customer portfolio, grow with high yield assets and operations, significantly improving our capital structure and generating increased value for our stockholders.
See Item 3. “Key Information – Risk Factors – Risks Relating to Our Business” relating to our financial condition in recent years and other factors which raise substantial doubt about our ability to continue as a going concern and could result in our dissolution under Mexican Corporate Law.
Capital Expenditures and Divestitures
The following tables set forth our principal capital expenditures and divestitures during the last three years:
Our Principal Capital Expenditures for the Last Three Years
(in millions of Pesos)
|
|
Years Ended December 31,
|
|
|
|
2017
(a)
|
|
|
2016
(b)
|
|
|
2015
(c)
|
|
Capital Expenditures by Segment:
Ports and Terminals Operations
|
|
$
|
9.0
|
|
|
$
|
1.1
|
|
|
$
|
3.4
|
|
Maritime Operations
|
|
|
64.1
|
|
|
|
160.7
|
|
|
|
78.5
|
|
Warehousing Operations
|
|
|
-
|
|
|
|
0.1
|
|
|
|
0.5
|
|
Corporate
|
|
7.1
|
|
|
0.2
|
|
|
20.0
|
|
Total
|
|
$
|
80.2
|
|
|
$
|
162.1
|
|
|
$
|
102.4
|
|
(a)
|
In 2017, capital expenditures included: (i) Ports and Terminals Operations: $9.0 million in acquisition and equipment improvements and construction in process for the expansion and maintenance of port and terminal facilities; (ii) Maritime Operations: $64.1 million in acquisition and equipment improvements; and (iii) Corporate: $7.1 million in fixed assets and other strategic corporate projects.
|
(b)
|
In 2016, capital expenditures included: (i) Ports and Terminals Operations: $1.0 million in acquisition and equipment improvements and $0.1 million in construction in process for the expansion and maintenance of port and terminal facilities; (ii) Maritime Operations: $10.8 million in acquisition and equipment improvements and $149.9 million in construction projects; and (iii) Corporate: $0.2 million in fixed assets and other strategic corporate projects.
|
(c)
|
In 2015, capital expenditures included: (i) Ports and Terminals Operations: $0.8 million in acquisition and equipment improvements and $2.6 million in construction in process for the expansion and maintenance of port and terminal facilities; (ii) Maritime Operations: $56.0 million in acquisition and equipment improvements and $22.5 million in construction projects; and (iii) Corporate: $20.0 million in fixed assets and other strategic corporate projects.
|
Our Principal Capital Divestitures for the Last Three Years
(in millions of Pesos)
|
|
Years Ended December 31,
|
|
|
|
2017
(a)
|
|
|
2016
(b)
|
|
|
2015
(c)
|
|
Capital Divestitures:
|
|
|
|
|
|
|
|
|
|
Sale of shares of subsidiaries
|
|
$
|
67.0
|
|
|
$
|
-
|
|
|
$
|
829.9
|
|
Other assets
|
|
7.1
|
|
|
87.7
|
|
|
64.6
|
|
Total
|
|
$
|
74.1
|
|
|
$
|
87.7
|
|
|
$
|
894.5
|
|
(a)
|
In 2017, capital divestitures included $7.1 million from the sale of a vessel (Rey de coliman).
|
(b)
|
In 2016, capital divestitures included $87.7 million from the sale of land.
|
(c)
|
In 2015, capital divestitures included $64.6 million from the sale of vessels and terminal equipment and completion of the sale of the Company’s subsidiary Terminal Marítima de Tuxpan, S.A. de C.V.(c)
|
Grupo TMM, S.A.B. and Subsidiaries
Capital Leases
As of December 31, 2017, the Company had one capital lease obligation.
In November 2013, Grupo TMM (through its subsidiary Transportación Marítima Mexicana, S.A. de C.V.) entered into an agreement with “FTAI Subsea 88 Ltd”, a subsidiary of Fortress, to obtain a line of credit for 10 years in US dollars of up to US$10.8 million (approximately $213.1 million) to finance the acquisition of the vessel “Subsea 88” through a capital lease, at a fixed rate of 15.9% per annum, with monthly principal and interest payments. As of December 31, 2017, the outstanding balance was US$9.2 million (approximately $182.4 million).
Transportation Equipment and Other Operating Leases
We lease transportation and container-handling equipment, our corporate office building and other assets under agreements which are classified as operating leases. The terms of these lease agreements vary from 1 to 15 years and contain standard provisions for these types of operating agreements.
Purchase of Two Parcel Tankers
On May 25, 2007 the Company purchased the M/T “Maya” and purchased the M/T “Olmeca” on June 19, 2007. We entered into a 10-year line of credit with DVB Bank SE (formerly DVB Bank AG) in an aggregate amount of US$52.5 million (approximately $1,036.1 million) to finance the acquisition of these parcel tankers. Principal and interest under this loan was payable on a monthly basis. Interest was payable at a weighted average rate of 7.61% per annum. On April 4, 2011, the Company entered into an agreement with the bank to restructure this loan through: (i) full prepayment of the junior loan tranche in an amount totaling US$6.5 million (approximately $128.3 million), including US$0.7 million (approximately $13.8 million) in breakage costs; (ii) drawing of a new tranche in the amount of US$4.0 million (approximately $78.9 million) with monthly interest payments and a balloon principal payment due upon maturity in June 2017; and (iii) opening of a bridge tranche with monthly drawings of up to US$3.5 million (approximately $69.1 million) over the next 24 months to reduce the principal payments due on the existing senior loan tranche. Both of the new tranches are at a variable rate of the AIR (Actual Interbank Rate) plus 400 basis points, and the Company will pay principal on the bridge tranche beginning in April 2013 on a quarterly basis until maturity in June 2017. As of May 31, 2011, the weighted average rate of interest on the restructured loan was 6.70% per annum. This agreement allows the Company to improve the amortization schedule of this loan facility and reduce the related financial expenses. In 2017, the Company and the bank agreed to restructure the payment schedule, extending the maturity for one more year to June 2018.
Purchase of One Tugboat
On November 11, 2016 the Company entered into a 6-year line of credit with B.V. Scheepswerf Damen Gorinchem (DAMEN) for an amount of EUR6.8 million (approximately $160.2 million) to finance the acquisition of the Tugboat “TMM Colima”. Principal and interest under this loan is payable on a semiannual basis. Interest is payable at a fixed rate of 7.00% per annum.
Acquisition of Transportation Units
On June 4, 2008, the Company, through its subsidiary Lacto Comercial Organizada, S.A. de C.V. (“Lacorsa”), entered into a loan facility in Mexican pesos with Daimler Financial Services Mexico, S. de R.L. de C.V. (formerly known as DC Automotriz Servicios, S. de R.L. de C.V.) (“Daimler”) for the acquisition of 31 transportation units for $19.8 million at a fixed rate of 12.85%. Principal was payable in 60 consecutive monthly payments plus accrued interest on the outstanding balance, maturing in June 2013.