Qatar Navigation Q.P.S.C. (QNNS) Earnings Call Transcript & Summary

Please go ahead.

Hello, ladies and gentlemen. This is Zaid Al-Nafoosi from QNB Financial Services. I want to welcome everyone to Milaha Qatar Navigation 2019 Financial Results Conference Call. From the company, we have Mr. Akram Iswaisi. He's Executive Vice President, Finance and Investments. We also have on the call Mr. Sami Shtayyeh. He's the Vice President in Financial Planning and Analysis. We will start this conference call with brief comments on the company's performance, followed by the questions-and-answer session. I will now hand over the call to Mr. Iswaisi to get us started. Please go ahead, sir. Thank you.

Okay. Thank you very much. Thank you, everyone, for joining our call and your interest in Milaha. I will start off with our year-to-date financial results. Milaha's operating revenue came in at QAR 2.4 billion for the full year of 2019 compared to QAR 2.42 billion for 2018 for a slight decrease of under 1%. Operating profit came in at QAR 283 million for the full year of 2019 compared to QAR 401 million in 2018 for a decrease of 30%. Net profit for the full year of 2019 was QAR 547 million compared to QAR 516 million for 2018 for an increase of 6%. And lastly, our earnings per share increased to QAR 0.48, up from QAR 0.45 for the same period in 2018. Moving on, I will now get into some highlights in our business segments, starting with Maritime & Logistics. Top line grew 3%, with increases in our logistics and bulk units, offsetting decreases from our port and shipyard units. Logistics growth was driven by an increase in the full year average utilization in our warehouse operations, which should continue to grow and increase. Top line growth came from our bulk -- coming from our bulk unit was driven by an increase in chartering activities. Now on the Ports side, we saw a drop in ad hoc and ancillary services. And similarly, our shipyard posted lower revenues as they undergo large repairs and refurbishment at the facility, which impacted utilization. On the expense side, salaries and wages increased compared to last year, and this was mainly due to additional crewing for our offshore segment. Crewing operations falls under our ship management unit, which is part of this segment. We'll see a corresponding allocation outlined in our segment P&L that offsets most of this increase. The other increase worth mentioning falls under our operating supplies and expenses, and this is tied to the same units driving the revenue growth, logistics and bulk shipping. This expense grouping is a variable component correlated with revenue. Lastly, our nonoperating income grew by QAR 65 million, and this was a result of, number one, an increase of QAR 9 million from our share of QTerminals; QAR 43 million in lower impairments from our container and bulk shipping units; and a decrease of QAR 12 million in finance costs due to loan principal deductions. Moving on to Offshore. We continue to see clear operational strength with increases in utilization and operating profit margins. New vessels that came into operation during the second half of 2018, along with our liftboat working in Africa, helped to boost results at the operating profit level. Despite strong operations, the bottom line came in lower due to QAR 211 million in higher vessel impairments. We continue to see large profit gains in our Gas & Petrochem segment with 3 key drivers: number one, the QAR 140 million drop in vessel impairments compared to the same period last year; increased profits from our share of Nakilat's income, which came as a result of their strong performance; as well as our 6% increased stake in the company made during the first quarter of 2019; and lastly, stronger shipping rates, particularly in the VLGC sector, that helped multiyear highs. Now with respect to our Trading segment, decreases in sales volume of heavy equipment as well as bunker, along with decreases in margins, negatively impacted results in that segment. Moving on to capital. Lower investment and dividend income drove the decline in profits, and this was in large part attributable to us liquidating most of our held for trading portfolio and using those proceeds to increase our share in Nakilat. That had a negative impact on capital, with the positive impact being seen in our Gas & Petrochem segment. And with that, I will now turn it over to Sami to discuss the outlook for 2020.

Thank you, Akram. I'll start with our outlook for Maritime & Logistics. For the rest of the year, we expect volumes to remain stable at Hamad Port and hence, our QTerminal's share of profit to remain fairly steady. We expect warehouse utilization to increase. And lastly, on the container shipping side, in a break from recent past, we believe margins will slightly improve due to vessel network changes and cost optimizations underway. In Offshore, we expect utilization to remain strong. The fundamentals are there for a continuation of strong operating performance. In Gas & Petrochem, our VLGCs performed very well in 2019 with rates much higher than what we've witnessed in recent years. It's difficult to predict rates for the full year of 2020, but we're cautiously optimistic. Nakilat also performed very well in 2019. And with our additional 6% stake, we further boosted profits. We expect stable growth from them as well into 2020. With regards to the wholly owned LNG carriers, since these are our long-term charter, there should be very limited volatility to earnings on this front. With regards to our tankers, charter rates have been higher overall, but nonetheless, volatile over the months. We're cautiously optimistic on the rest of the year. And lastly, our gas carrier, she's on a long-term charter until mid-2020. With regards to Trading, we expect modest growth based on our sales pipeline and some internal initiatives. And lastly, with capital, we've completed the new villa compound and should have civil defense approval very soon. Our marketing efforts continue on multiple fronts, and we're optimistic about the project. With that, operator, we'll now open it up for questions.

[Operator Instructions] We will take our first question from Shabbir Kagalwala from Al Rayan Investment.

My question is on basically, the strategic -- is more of a strategic in the sense that if we look at the P&L, it shows that the JV profits and the profits from -- I'm talking about Slide #2. The JV profit and share of result of -- associate and share of results of JV, it is QAR 600 million. So the 2 investments are doing well. And if you look at the bottom line, which is like now QAR 546 million. So net-net, we lost like QAR 55 million. So the core business, which you -- that Milaha is operating is at the moment done negative for the first time in many years. So I want to understand that what is the strategy in turning around the business, which is the core business that you're operating.

Hi, Shabbir. Thanks for the question. This is Sami here. It's a good question. And I think the short answer is really has to do with the impairments. The impairments hit operations directly. Had that not been the case, then obviously, the number would not have been the QAR 547 million that we posted. It would have been higher by QAR 272 million. Nonetheless, we don't shy away from the share of results from associates and joint arrangements are -- make up a significant portion of Milaha's income. As you know, we actually increased those numbers, one, when we increased -- or when we took a share in QTerminals, and two, when we increased the share in Nakilat. So those are continually going to be part of Milaha's DNA going forward as well.

And let me add also, I mean, if you -- I'm sure you're aware of this, but part of our dividend income and trading income that was booked in 2018, in 2019, it was reclassified from operating revenue to, let's say, nonoperating profit. So below the line, so that is a change compared to last year. And as Sami alluded to, our port operation historically used to be 100% booked to the top line. Now it's booked as a joint arrangement. Now on top of that, the fact is we've been making investments in the warehouse operations. We've been making investments in assets and building a portfolio of services, and these investments are going to pay off over a couple of years. So some of the investments we made in 2019 will pay off in the future. And so that's sort of the change in operations, but your question is a valid question. I hope that answers.

[Operator Instructions]

I would like to ask a question, if you don't mind. It's in regards of the coronavirus. How did that import -- how did that impact your business, if any?

Okay. That's a difficult question to answer. I'm going to be frank with you, we haven't had an impact from corona. But obviously, as a shipping and logistics outfit, health and safety is paramount for us in the way we run our business. So we have -- we are taking this seriously and we do, as a company, we have a risk management plan and a business continuity plan, and that has been updated to address the coronavirus issue. But at this point, we haven't been impacted by it.

[Operator Instructions] It appears there are no further questions over the phone at this time. I would like to turn the conference back to Zaid Al-Nafoosi for any additional or closing remarks.

Thank you, Diana. Well, I would like to thank everyone for participating on this call. Please don't hesitate to contact us at QNB FS or Milaha Qatar Navigation's team if you have any further questions. Thank you very much again. Have a nice weekend, and you may disconnect the call now. Thank you.

Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.