By Beatrice Thomas
In an exclusive interview, Sheikh Ali bin Jassim bin Mohammed Al Thani, the chairman and managing director of shipping giant Milaha, says the firm’s diversification can win it new business all over the world.
After overseeing the biggest merger in shipping and logistics history in the Middle East and spearheading the new company, Milaha, to double both its revenue and net profit in just four years, Sheikh Ali bin Jassim bin Mohammad Al Thani could be forgiven for sitting back and reflecting on his many achievements.
But as the chairman and managing director looks out over the Arabian Gulf from the 36th floor of the Qatari company’s headquarters in Doha’s West Bay business district, the challenges of the past few years are clearly still an ongoing concern.
“The maritime business has been hit very, very badly. I have not seen in my life the hit that the maritime syndicate [received],” Sheikh Ali tells Arabian Business Qatar. “Some companies went bankrupt, some were asking for government support, some were asking for new capital and new shareholders, so the maritime business, what I have seen, it’s really bad.”
For Sheikh Ali, it has been, simply, one of the worst downturns in the global shipping industry with high global fuel prices and - in his view - over-zealous expansion by many global shipping companies that have driven down rates, contributing to a volatile and uncertain market.
However, it is also against this backdrop that Milaha appears to have thrived.
The result of a mega merger in 2010 of local business giants Qatar Navigation and Qatar Shipping, as well as Halul Offshore, which was jointly owned by both companies, Milaha’s success has been just as colossal.
In its 2013 full-year results it posted a net profit of QR950m ($260.88m), up 14 percent on the previous year and a 98 percent increase on its 2009 numbers. Its turnover, while down two percent in 2013, was still QR2.24bn ($615m) and up 104.12 percent on 2009.
Sheikh Ali, in Milaha’s 2013 annual report, credits the results to solidifying the company’s capital structure and reducing the cost of funding. However, he also notes that it has expanded and diversified its fleet, increased its real estate asset base and executed a post-merger transformation plan that has integrated and streamlined the organisation – all the while pursuing a Qatarisation agenda to boost local workforce capabilities.
It has enabled, he noted, the company to pay out dividends to its shareholders. It approved, and its shareholders accepted, a QR5 per share cash dividend for 2013 - from operating cash flows and investment income while still coping with “the volatility and cyclical nature of our core business, aggravated by one of the worst downturns in the shipping industry”.
“The restructure had to happen,” Sheikh Ali says. “There’s no logic that two companies that are playing under the same rules… are a competitor in the market. Qatar Shipping, they are shareholders in Nakilat, Qatar Navigation is a shareholder in Nakilat, they also shared in Halul 50-50. The big shareholder [the Qatar government] is the same. There is no reason to separate the two companies, this is the reason we went through with the merger.”
Milaha, which still trades under Qatar Navigation on the Qatar stock exchange, enabling it to retain its 57-year-old title as the country’s first publicly listed company (it is also Qatar’s first shipping agent), comprises five divisions.
These are: Milaha Maritime and Logistics, which manages Doha Port among its operations; Milaha Offshore; Milaha Gas & Petrochem, which includes a 30 percent share of LNG shipping company Nakilat; Milaha Trading, which covers maritime equipment sales and servicing; and Milaha Capital, which includes real estate assets and a 50 percent share of Qatar Quarries.
In 2013, while Milaha’s overall net profit grew by 14 percent (despite a 2 percent decrease in revenue) on the back of a stellar year in Qatar markets, the results were somewhat mixed for the company’s individual segments.
Among the biggest gains were in offshore marine services (revenue was up 8 percent and net profit 26 percent), which Milaha attributed to increased vessel hires and resolving Halul Offshore’s “operational issues” from 2012, as well as its capital segment where its trading portfolio outperformed even the strong Qatari stock exchange by 6.2 percent after the value of its listed equity portfolio increased by almost 30 percent to QR3.7bn ($1.02bn).
Conversely, maritime and logistics (revenue decreased 2 percent and net profit 10 percent) was affected by “asset impairment” and higher operating costs, and Milaha Trading, which saw profits down 14 percent on the back of a decline in vehicle service-related revenues and marine sales, took bigger hits.
Sheikh Ali says his short-term focus is currently on “containers, chemicals and gas” where he is expecting the biggest growth in the next few years.
In particular, he cites growing US demand for LNG transport services as key to that growth as that country rapidly expands its energy exporting capacity.
“[For] LNG, there could be a big demand, especially exporting gas from America to the Far East,” Sheikh Ali points out. “There is going to be a very big demand even in Europe after the Ukraine situation.”
While some analysts say the so-called shale gas revolution in the US is a threat to Qatar’s LNG industry, which unlike other oil-rich Gulf states, has its wealth tied to some 900 trillion cubic feet of natural gas reserves, Sheikh Ali, however, sees the situation as an opportunity.
“We are a shipping company – wherever gas is available we will go and offer our service to carry the gas from America to Dubai,” he says.
If the US increases its gas exports then Milaha will react accordingly, he says. “We wouldn’t care. We go to the customers and [say] we would like to ship the gas for them – whether in America or Australia or the US.”
Milaha’s transportation fleet comprises a total 20 tankers (four of which are through a 50 percent joint venture with Gulf LPG Transport Co and nine through various other JVs), as well as 35 vessels in its Halul Offshore fleet, with a further 14 under construction, of which eight will be delivered in 2014.
Sheikh Ali says it plans to “invest heavily” in the offshore businesses and has markets in sight including in West Africa, Europe, and far-east Asia.
Locally, it has just signed a two-year contract with Qatar Chemical and Petrochemical Marketing and Distribution Company (Muntajat) to transport petrochemicals exports from Qatar – “a very, very big contract for us” – while it is also waiting to hear on its tender bid to manage Doha’s new port, despite securing a three-year extension on the existing Doha Port management contract last year.
The only hindrance to its growth strategy, Sheikh Ali says, is high bunker fuel costs, which, according to industry analysts, have increased by an average 16 percent each year since 2005 – peaking at $638 per metric tonne on the benchmark Singapore 380 cst (centistokes, a measure of fuel viscosity) in January 2013. By comparison, prices in March 2014 have hovered at around $595, according to Bunkerworld, which, while high, signifies a downward trend.
Then there’s the other issue that Sheikh Ali believes will continue to dog the industry - lower shipping rates. While he attributes this squarely to an “over-ordering of vessels”, analysts suggest sluggish demand on key routes such as between Europe and Asia as well as a lack of desire for any consolidation by the family-run shipping empires and state-backed companies which dominate the sector has also been to blame. However, on the matter of over-supply, there is general agreement by commentators that the new vessels ordered prior to the 2008 financial crisis coming on stream coupled with a global downturn has led to an oversupply, at least in the container shipping industry, of an estimated at 10 percent above current demand levels.
It is, however, not all doom and gloom.
In March, Nakilat managing director Abdullah Fadhalah Al Sulaiti said the gas transport company is planning to expand to 58 its fleet of LNG carriers and raise its stake in Greece’s Maran Gas from 10 to 40 percent in a nod to the industry’s upturn.
“The LNG global market is at a promising phase, something that encourages Nakilat to look for investment opportunities outside Qatar in order to achieve more added value to the company and its shareholders,” he told the Qatar News Agency.
He went on to say that gas production and gas shipping are witnessing a significant growth, something which encouraged many gas production facilities to hire ships to transport gas to various points around the world.
Sheikh Ali agrees that the volatility of the sector will eventually level out, but not before more mergers take place between global shipping companies.
“It depends. Some of the sector has recovered, some of the sector is still getting worse. As Milaha we are going to focus in the future on the container business, in the chemicals and in the gas,” he says.
However, Milaha is also quietly bolstering its efforts in investments outside of the “uncertain” shipping trade, with Sheikh Ali revealing it has two mixed-use developments in the pipeline.
Both, he points out, are close to the Milaha Tower in West Bay, and both are mixed-use office and residential.
It also has plans for a new logistics base at Doha Port, which is part of a much wider strategy to invest more heavily in the supply chain industry.
According to Milaha’s 2013 annual report, it attributes the decline in its logistics business in Dubai as driven mainly by reduced market demand resulting from sanctions on both Iran and Syria.
However, Sheikh Ali says he does not believe the gradual relaxation of global trade sanctions on Iran will have any major effect on the business.
“Our business has really not been that affected, because we are not exporting anything,” he says.
However, he declines to comment on the impact on business from another diplomatic stand-off - that of the rift between Qatar and Saudi, the UAE, Bahrain over what is seen as Qatar’s support of the Muslim Brotherhood group. The issue reached a tipping point in March when Saudi, the UAE and Bahrain pulled their ambassadors out of Qatar.
“It is very, very sensitive,” is all that Sheikh Ali is prepared to say.
He says in 2014 Milaha is hoping to know the results of its bid for the management contract at the $1.6bn “New Doha Port”, north of Mesaieed, which is due to be commissioned in July 2015 with a capacity of two million TEU of volume per year in the first phase, ramping up to more than 12 million TEU by 2025.
The new port will include facilities for general cargo, offshore supply vessels, a vehicle terminal for the continuing importation of vehicles, and a large dock terminal.
Despite renewing its contract at Doha Port, which it manages on behalf of Qatar Ports Management Company (Mwani), in 2013, Milaha is not guaranteed to run the new facility, though Sheikh Ali believes it has done enough to be a strong contender.
Under its maritime and logistics division, port services saw total container throughout capacity increase by 37.78 percent to approximately 620,000 TEUs in 2013. Through its shipping agency about 60 percent of all vessels calling Qatari ports are handled by Milaha.
To undertake its plans, Milaha has initiated a long-term Qatarisation programme to attract, develop and retain local talent.
Sheikh Ali admits it still has some way to go to meet its target of 20 percent Qatarisation of non-production employees by the end of 2015, with its current rate of 14 percent impacted by issues similar to those plaguing nationalisation plans at other the GCC countries such as skilling up the local workforce and enticing it to work in the industry the biggest challenge.
“It is not easy. Not [just] us, even other countries, because it’s not like the banking sector or other sectors – the risk is very high, so lots of people, they try to avoid it,” he says.
“The only thing is we have to go and talk to people at university, talk to the people when they finish their high school to try and convince them, try to market it very, very heavily so they can come and work in the maritime business.”
As a result Milaha offers training programmes in an effort to entice Qataris into the industry, including an annual summer training and internship programme to provide high school students with practical work experience. For college and university students, this training can lead to a sponsorship opportunity to join Milaha as well as scholarships for nationals to study at local and overseas institutions. In 2012 and 2013 nine students were part of the sponsorship programme.
“Most of the companies in Doha are doing that. Some of them, it’s much easier, because some of them the risk is very low,” he says.
Sheikh Ali says he will be happy if the company achieves double-digit growth in 2014, but also has the future leadership of Milaha on his agenda.
“I would like to make sure one day before I leave this company to have the right people, so they can continue driving the company,” he says.
In the meantime, it’s full steam ahead.