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

Hello, everyone, and welcome to the Milaha conference call. Please note that this call is being recorded. I'd now like to hand over to our moderator for today, Bobby Sarkar. The floor is yours.

Okay. Thank you, operator. Hi. This is Bobby Sarkar, Head of Research at QNB Financial Services. I want to welcome everyone to Milaha's Second Quarter and First Half 2024 Results Conference Call. So on this call from Milaha management, we have Akram Iswaisi, who is the Executive Vice President in Finance and Investments; and Sami Shtayyeh, who is the VP in Financial Planning and Analysis. So we will conduct this conference with management first reviewing the company's results followed by a Q&A. I would like to now turn the call over to Akram. Akram, please go ahead.

Thank you very much. Thank you, everyone, for joining Milaha's first half of 2024 earnings call and your interest in the company. I'll be starting with our consolidated financial results, and then we'll go through our various segments before turning it over to Sami to go over the outlook. Finally, as usual, we will end the call with questions and answers. The key highlights of our financial results. Milaha's operating revenues came in at QAR 1.4 billion for the 6 months ended June 30, 2024, compared with QAR 1.5 billion for the same period in 2023 for a decrease of 5%. Operating profit came in at QAR 316 million for the 6 months ended June 30, 2024, compared with QAR 344 million for the same period in 2024 for a decrease of 8%. Net profit for the same -- for the 6 months ended June 30, 2024, was QAR 628 million compared with QAR 648 million for the same period in 2023 for a decrease of 3%. And lastly, our earnings per share was QAR 0.55 for the 6 months ended June 30, 2024, compared with QAR 0.57 for the same period in 2023. Moving on to our various segments. Starting with Milaha Maritime & Logistics. Operating revenue from Milaha Maritime & Logistics decreased by QAR 41 million, going from QAR 435 million in the first half of '23 to QAR 394 million for the same period in 2024. QAR 48 million of the drop came from our freight logistics unit, which saw reduced volumes and warehouse utilization decrease versus the same period in 2023, which last year was quite high immediately following the World Cup. With respect to container shipping unit, similarly posted a drop versus 2023 despite an uptick in volume with revenue coming down QAR 15 million versus 2023, primarily due to reduced shipping rates out of India, partly offsetting the drops in freight logistics and container shipping was our shipyard, which posted a QAR 26 million increase in revenue coming from added project income and volumes. Moving on to operating expenses. They came down by QAR 38 million with reduced logistics volumes, lower container shipping pass-through expenses and a favorable reversal of bad debt provisions due to the successful recovery of outstanding debt, obviously, more than offsetting increased shipyard-related expenses tied to revenue growth. Nonoperating income decreased by QAR 30 million, and overall net profit dropped by QAR 33 million from QAR 17 million in the first half of 2023 to a negative QAR 60 million in 2024. Moving on to offshore. Operating revenue essentially remained flat versus the same period in 2023 coming at QAR 760 million, with increased chartering rates being offset by both planned and unplanned vessel maintenance, which obviously impacted our revenue. On the operating expense side, we saw a QAR 20 million year-over-year increase mainly coming from a nonrecurring favorable VAT provision reversal that was recorded last year and increase in expenses in our industrial logistics unit. Overall, net income dropped by QAR 25 million from QAR 141 million in the first half of '23 to QAR 116 million for the same period in '24. Now looking at gas and Petchem at the operating profit level, the gas and petchem had a slight dip in the first half of '24 versus '23, going from QAR 65 million in '23 to QAR 62 million in '24, but at the nonoperating level, income increased by QAR 35 million, with QAR 49 million increase coming from our associates, mainly Nakilat, which is more than offsetting a drop of QAR 8 million from results of joint arrangements, mainly from the VLGC JV. Net profit for the segment ended up QAR 32 million or 10% higher versus same period in 2023. In our Trading segment, reduced heavy equipment and bunker sales volumes and margins negatively impacted our results with the bottom line slipping from QAR 1 million in profit in the first half of '23 to a negative QAR 8 million in loss for the same period in 2024. And lastly, Milaha Capital, despite an 8% drop in revenue in the first half of '24 versus '23 led primarily by Qatar [ Quarry ] sales. Overall, net profit increased by QAR 50 million, driven by higher overall investment income. And that wraps up the segment, and I will now turn it over to Sami to discuss outlook for the rest of the year.

Thank you, Akram. Starting with Maritime & Logistics. On the container shipping side, we expect rigs to continue being under pressure due to depressed global demand and expected new vessel capacity coming online, but we are optimistic that our new China services, which began in May will provide some uplift. In freight logistics, the environment is still quite challenging and expected to remain so. Our focus continues to be on boosting sales efforts and improving operating efficiencies. In offshore on the support vessels and services side, we expect to see continued growth, particularly longer term with all the expansion work in Qatar's oil and gas industry. For harbor operations, we expect stable revenue throughout the year, given that most of the vessels are on long-term contracts. Similarly, for industrial logistics, fairly stable as well due to long-term contracts. In Gas and Petrochem overall, we expect limited volatility due to the long-term nature of contracts we have in most business units. Our VLGC JV is the exception where performance is difficult to predict due to volatile spot prices. In Trading, we'll continue to focus on profitable growth and margin improvement; and lastly, capital where we will continue to focus on providing stable results and yield enhancement. And with that, operator, we'll now open the call up to questions and answers.

[Operator Instructions] Our first question comes from Rob Skepper from Ashmore.

A few bits and pieces from me, if I may. Just on container shipping. So you mentioned there're some new China routes potentially offsetting some of the weakness like is that -- are you still seeing rates dropping like and will those new routes, do you think that will provide like a bottom for the earnings in container shipping or like we should still expect like sequentially weaker results from the container business?

If you look at -- I mean, just directionally, rates are much more robust this quarter, and they will continue to be robust. Not expecting significant increases, but the rates are much stronger now. And if you look at, for example, Maritime & Logistics as a segment, and you compare the results from Q1 to Q2, the losses have been diminishing. And so the trajectory is positive, and we're optimistic about the second half of the year.

Got it. And then just on freight and logistics. Yes, I mean, obviously, it's a little bit tricky domestically at the moment. But in terms of like at the end of the tunnel there, like what are you kind of looking out for like when can that improve to your [ minds ]?

I can tell you that -- and obviously, we're constrained by local market dynamics. But what we are doing is, we're working on turning this business around from looking at our operating expenses and trying to rightsize the balance sheet as well as the P&L. And so this is an exercise that we have begun looking at our top line, looking at our customer base, looking at our strategic direction, looking at our sales force, looking at segments where we should be focusing more than others and even potentially looking at saying, you know what some clients are not profitable, we shouldn't be in that segment or dealing with these clients. And so the top line, I mean, at the end of the day, if you look at how do you generate revenue top line, you acquire more clients, you sell more services to existing clients. And then you look at your pricing and then whether you're leaving money on the table. So from a big picture perspective, this is sort of what we're looking at within logistics and saying, how can we grow the top line and what new segments and services can we offer. Should we be a niche provider focusing on specific segments, given who we are using our balance sheet, our strength, our ability to deploy capital. And at the same time, looking at our expense side and seeing ways we can optimize that. So this is an exercise that we've undertaken and it's ongoing. Domestically, we're constrained by local dynamics, but we are looking at how to optimize the business domestically. And we also have our Dubai operation that we're also looking to optimize as well. And so between Qatar and the UAE, there is potential for us to turn that business.

And kind of when do you expect to start to see the fruits of those endeavors?

Well, I mean, we have begun. So success is about -- we were springing along a lot of smaller successes, not going to be a shock and awe. So we have -- the exercise has already started a couple of months ago. And so as the results come up, we begin executing and making changes. It will have to be -- and again, it takes time for the results of these initiatives to materialize. So I think the Q1 and Q2 of next year, we should potentially see some improvement in the numbers.

Great. Just jumping to offshore. So I think on the first quarter conference call, you kind of mentioned kind of various kind of contracts that you kind of might be working on at the moment. Is there kind of any update for the market on those?

Well, I mean, if you look at offshore, the offshore market overall, two things. Multiple things are working for us. Rates have gone up. So we're sitting in a very, very robust market. So -- and we are riding that cycle, that wave, if you will. Secondly, demand is very robust, whether it's in Qatar or the region. And so we have been winning business. And so some of that business, we will begin executing or delivering the end of Q3 and Q4, we will begin now because there is a lead time where we win business, we have to mobilize, we have to hire staff, we have to acquire vessels. There's still a bit of a lead time, but offshore is on an upward trajectory. Our numbers this quarter were impacted by planned and unplanned maintenance. And so -- but the trajectory is positive. At the moment, we can't disclose anything yet until we are able to obtain approval from our clients, but we're hoping the next few months, we'll be able to disclose something to the market.

Okay. And is that -- will that be kind of disclosed as and when whatever the [indiscernible] kind of lapses and you're able to speak? Or like is it -- we wait for kind of the next quarterly call?

We'll open by the next quarterly call that we would have something that we can share. But again, we're bound by most of our contracts, there's a confidentiality agreement, we're bound by that. And so we need clearance from our clients to be able to disclose of that.

Next question comes from Nikhil Phutane from CBFS.

This is regarding, again, which you mentioned about container maritime. And you did mention that you are -- you've added up some new vessels. So I just wanted to inquire new vessels, I believe, 2, has been started contributing in second quarter results or will be contributing going forward?

The [indiscernible] that we mention about new vessels. I mean, we continue to charter new vessels as we expand our network. And so we are chartering in vessels and as they come up. Some of them are short term, some of them are 6 months, 1 year. So as we continue to expand our network, we do use short-term charters to test the network and then when the time is right for the market, and we do buy assets. So today, any new service that we get into, if we don't have the capacity, then we charter-in vessels. So it's difficult to answer that question for you because vessels are mobilized on different services as part of our network.

Okay. Regarding other things, I mean, given the fact that over the last couple of years, your disposal of property versus equipment had been a huge increase, I mean, say, in 2020-'21, and -- but of course, of late, we are seeing quarterly some gains coming through in terms of your disposal maybe, salvage value and other things. Do we see a similar trend continuing going forward?

I'm sorry, disposal of what?

Yes. I mean we are seeing some gains which you are getting through your assets, your property vessels equipments through your balance sheet and your profit and loss statement flowing through. So I wanted to understand whether will that continue going forward?

Well, I mean, the gains on our P&L are immaterial. So we buy and sell vessels. It's part of our normal operating business and shipping, this is expected. And so when we need to upsize or upgrade our vessels, that's going to be part of what we do. So the amount at the end of the day is, quite frankly, immaterial. . I mean, if you're talking about what we have on our P&L a gain on disposal vessels, 2024, year-to-date, it was QAR 9 million versus QAR 4 million last year. So part of operating a shipping company or offshore companies that you're going to buy and sell vessels. You upsize, you buy newer ones. And so it's very difficult to give you a direction of what's going to happen. But at the end of the day, we will buy vessels, and we will sell vessels. But again, the gain is immaterial at the end of the day.

Okay. I mean the idea was basically your impairment of vessels, which took place heavily way back in 2020-'21. I mean that we don't see anything coming up maybe in the coming quarters, right? That's what you're pointing out.

Are you talking about impairments?

Yes, impairments which you had earlier from that maybe salvage value -- some kind of difference.

No. I mean, again, as I mentioned last quarter, there are no impairments. We don't have anything to -- we've been conservative, and we don't have any impairments right now they're aware of. We have to go through an accounting exercise every year if the vessel cannot be deployed and has no alternative uses and then potentially would have to take impairment or sell it in the market. So that happens as part of a periodic exercise that we undertake that's also reviewed by our auditors. Right now, we have no impairments on site.

Okay. Okay. Lastly, on your shipyard business. I mean, we see a good positive change during the quarter, Q-on-Q, of course, I mean, not comparing with 2023. So can you just give some color on it? I mean, in terms of how -- what we can see going forward, second half?

Well, I mean we've got some special projects that we are doing in the shipyard. The shipyard has been undergoing from major changes, system improvements, upgrading of staff and a big focus on growing the top line. So we are undertaking special short-term projects as well. So part of the pickup is short-term projects that we have undertaken on the marines line.

Our next question comes from [ Marc coombes ] from TFI.

I wondered if the management and the Board considered the introduction of an interim dividend this year in line with your largest shareholding, which I'm sure you'll enjoy the dividend of in the next quarter? And if not, like just a question is sort of understanding potentially why not?

I can tell you that the -- there will be a discussion about this. But at the moment, it's -- I cannot really provide any feedback or an opinion on that. But this is something that we will look at as a management and potentially as a Board. It's on our radar screen, let's put it that way.

All right. As of right now, we don't have any pending questions of [indiscernible] attendees. I'd now like to hand back over to the moderator of the final remarks.

Okay. So if we don't have any further questions, we can end the call for today. I want to thank Akram and Sami for taking the time to answer our questions, and we will pick this up next quarter. Thank you very much guys.

Thank you very much. Appreciate it, everyone.

Thank you for attending today's call. You may now disconnect.