Hello and welcome to the Milaha conference call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Bobby Sarkar to begin the conference. Bobby, over to you.
Thank you, Gavin. Hi. Hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I want to welcome everyone to Milaha's first quarter 2023 results conference call. On this call, we have Akram Iswaisi, who is the EVP of Finance Investments, and Sami Shtayyeh, who's the VP of Financial Planning and Analysis. We will conduct this conference with management first reviewing the company's results, followed by a Q&A. I would like to turn the call over now to Akram. Akram, please go ahead.
Okay. Thank you very much. Thank you everyone for joining Milaha's Q1 2023 earnings call and your interest in our company. Let me start by just saying that we had a very good Q1, especially when considering the steep decline in container shipping rates and the very difficult macro environment. However, we were able to remain focused on growing the business and focused on growing a profitable business and at the same time eliminate unneeded costs to improve our bottom line. We'll follow along the same lines as previous calls. I will 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 our outlook for the remainder of the year. As usual, we will end the call with Q&A.
The key highlights of our financial results, Milaha's operating revenues came in at QAR 766 million for first quarter 2023, compared with QAR 913 million for the same period in 2022, for a decrease of 16%. Operating profit came in at QAR 210 million for Q1 2023, compared with QAR 194 million for the same period in 2022, for an increase of 8%. Net profit for first quarter 2023 was QAR 363 million, compared with QAR 360 million for the same period in 2022, for an increase of 1%. Lastly, our Earnings per share remained flat at 0.32 for first quarter 2023 and for the same period in 2022.
Now moving on to our segments. Maritime and logistics. The big storyline in maritime logistics has to do with the decline in container shipping rates, which we benefited from for the past two years when they hit record highs. We essentially began to see rates plummet towards the end of last year, and that had a large negative impact on our container shipping segment. Of course, overall revenue dropped by 33% or QAR 120 million as a result. Expenses came down by QAR 57 million, with most of that tied to the drop in container shipping. Overall, we ended the year with net profit down QAR 64 million or 73% versus last year.
With respect to container, to offshore continued its growth trajectory, with operating revenue growing by 6% or QAR 19 million versus the same period in 2022. This was driven by increased utilization of key assets and additional diving-related projects, which more than offset a drop in third-party chartered in vessels income. Lower chartering in costs related to the drop in revenue and the one-off provision reversal drove a QAR 29 million decrease in expenses versus the same period in 2022. The net income result was year-over-year growth of QAR 53 million, or 627%. For Gas and Petrochem, we recorded an 8% increase in revenue, with our FSO that was employed mid-2022 offsetting lost revenue from our divestment last year from the last gas carrier.
That divestment similarly contributed to lowering our expenses, which came down by QAR 5 million. At the non-operating level, income decreased by QAR 18 million, mainly as a result of lower income from our associates. Net profit of the segment ended down QAR 8 million or 5% versus the same period last year. In our trading segment, we were able to reduce bottom line losses by QAR 5 million versus the same period in 2022 by selling more marine-related and heavy equipment and improving margins. Lastly, capital. On the investment side, revenue decreased by QAR 3 million, with lower dividends income offsetting higher fixed deposits and other income. In real estate, revenue remained flat with the same period last year.
On the expense side, we had QAR 16 million in lower bad debt provisions last year, all of which resulted in overall net profit growth of QAR 18 million or 17% versus the same period last year. That wraps up the segments, I will now turn it over to Sami to discuss our outlook for the rest of the year.
Thank you, Akram. Starting with maritime and logistics. On the container shipping side, Q1 reflected the large container shipping rate drop. We expect that to hold the rest of the year. In logistics, we expect a slowdown in the second quarter of the year, but expect an uptick during the second half of 2023.
In offshore on both the support vessels and services side, as well as the harbor side, we expect to see continued growth, particularly longer term, with all the expansion in Qatar's oil and gas industry. In Gas & Petrochem overall, we expect limited volatility due to the long-term nature of contracts we have in most business units. Our VLGC joint venture is the exception, where performance is difficult to predict due to volatile spot prices. In trading, we're gonna continue to work on profitable growth and margin improvement. Lastly, capital, our focus will continue to be on yield enhancement. With that, operator, we'll now open up for questions.
If you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. That is star one if you wish to ask a question. Your first question comes to line of Lee Beswick of QNB. Your line is open.
Hi. Yes, thanks for the presentation. Just a question on balance sheets and dividends as well. The balance sheet is now extremely strong and is probably, I think now it's probably fair to label it inefficient. You're carrying net cash of QAR 700 million. There's absolutely no need for you to do that at all. The question sort of turns to the dividend and the payout ratio. The payout ratio is simply too low. You know, you should double it minimum. You used to carry a payout ratio of 50%-60%. I don't know why that changed. It's now down at 40%. The question is why? What are you doing with the money? Because otherwise you're just collecting cash on a balance sheet for no reason.
You got too much capital. Unless there's some massive growth out there, which you're going to tell me about, your payout ratio is frighteningly low, and very inefficient.
Okay. Yeah, thank you very much for that question. Now, some of that cash that you are seeing is cash that is parked for redeployment because as I've mentioned in previous calls, we are basically we've liquidated certain positions and put some of that cash in deposits and we're transitioning. We have a new strategy for the investment portfolio. That cash is essentially majority of it has to do with the investment portfolio. That's one thing. The second thing is, you've noticed, you know, that as an organization we have been working on, you know, building up some of the core activities like offshore. You've seen a significant improvement in the offshore operating activities.
There's a significant number of contracts that we have in the pipeline right now that we're looking at. These require significant CapEx commitment. There is a significant growth plan on the offshore side. I've also mentioned, and these are, again, these are, you know, capital-intensive investments. You know, we are looking at acquiring more assets to be able to satisfy the local demand, which is substantial. At the same time, I've mentioned on previous calls that we are looking to invest, again in new segments like FSOs, FPSOs and shuttle tankers. Again, these are large CapEx investments. Now, that cash, as I mentioned, is earmarked for the investment portfolio as well as to support some of these new investment programs in our core business.
Okay. Can you talk about if these, some of this cash is earmarked for future CapEx, what the return on capital and return on equity you're going to generate out of these businesses? I would suggest once again, you still, how much are you gonna spend on CapEx, I suppose is the question, but this company has consistently generated single-digit returns. You've never pushed it into the double-digits, ever. What kind of returns are you gonna generate off this CapEx investment?
Honestly, we don't provide guidance on that kind of return, but we are looking at double-digit return. If you look at the offshore business in general, it has changed significantly. It's Halul or offshore for the first time in a long time, it's actually quite profitable and much more efficient. And the oil and gas market is hot and robust right now. Again, our returns in that we're targeting in that segment are double-digit returns.
Just in that segment. The other segments, it's less than double digits, as it always is.
Well,
There's always a segment doing well, there's always a segment doing badly. how do you generate-.
That is the nature of business you invest in. When you invest in tanker business and container shipping, that is the nature of the business. This is across, you know, if you look at the major liners, they've struggled to make money for a long, long time. The past two to three years is when those main liners and container shipping companies started making money. If you look at container shipping and the tanker business in general, it is a cyclical business. If you look at logistics business, it is a thin margin business. The cyclicality is basically part of shipping and logistics. In the portfolio
I completely agree.
Okay. The portfolio that we've got is a sustainable portfolio, and this is why we have been able to consistently pay dividends. You look at container shipping the past two years, we've done exceptionally well because the market has done exceptionally well. Container shipping in the first quarter hasn't done well. However, we are looking to grow that business. This is the right time to start acquiring more tonnage. We do have plans to expand our network. Again, if you look at our business, it is a portfolio of different businesses that complement each other. Again, container shipping, tankers and shipping in general, you know, these are cyclical segments.
Yes, I completely accept that. That is, that is 100% true. It's still the fact that if I look at the last 10 years of navigation and you have your peak ROE, return on equity, is eight, suggests that you have an issue with the way that the capital is deployed. Maybe that is too much, you know, in my opinion, and I may be wrong, but you may have a different opinion. It certainly seems that there's too much capital in the business and therefore actually running down the capital and running the business with a lower level of capital relative to what you're generating.
Part of the way to do that is through increased dividends, is actually what the business needs to generate a decent return, because a peak ROE of 8% is pretty low.
If you see our story this quarter, it's quite promising. If you see some of the segments which have struggled for a while are actually beginning to deliver better results and better performance. You know, we are optimistic about the future. There's a strong plan to have to grow the business. Again, you have to rejuvenate the fleet. You know, as an asset-heavy company, we have to continue to invest in assets, and this is where our revenue is gonna come from. Fundamentally, we are aligned on the fact that the business needs to grow, and you're beginning to see some of that in Q1, where we're beginning to turn some of these businesses around. We have, for example, trading is beginning to become profitable.
You know, offshore again, you know, multiple earnings calls I've heard comments about offshore. We said, "Listen, give us some time. We'll show you what we can deliver." We've been able to do that. I know for a fact that there's a large CapEx program coming up. We are confident that we will continue to deliver shareholder value. Milaha is a stable company. We've been able to weather the storm through the various cycles.
Okay. I await the 10% or more our return on equity, for four straight quarters in a row.
We'll put it as a target.
Your next question comes from Mustafa Amer from Al Rayan Investment . Your line is open.
Gentlemen, thank you for the presentation. Just wondering on the share of associates in JV. Nakilat, contribution should have ideally gone up. Where is that reduction coming from year-over-year and quarter-on-quarter?
It's just an accounting adjustment.
Sorry?
An accounting adjustment.
for Nakilat?
Yes.
All right. Okay. Could you elaborate on that? I'm not sure 'cause,
I mean, at year-end, there are, you know, we close the books sometimes based on estimates due to timing, some adjustments are immaterial. If it's immaterial, we close the books to be able to meet the deadlines. It's simply an accounting adjustment.
Right. All right. Thank you.
Your next question comes from Mikhail Fuleihan of CBFS. Your line is open.
Yes. Hi. good afternoon, gentlemen. Akram, Sami. Thanks for the presentation. Well, you did mention in your previous answers that, you know, you are looking in terms of better, performance, and especially first quarter was a quite, you know, in a good measure, a wonderful performance. I slightly like to differ on this. Actually, on your revenues, I know overall that's come down, and largely on your, you name it, your bunker sales have come down. Your, you know, Qatar Quarries, revenues have come down. As you mentioned rightly, and container shipping has come down.
What is more important is, you know, somehow you've been managed to do on your operating profit better margins because of, you know, other operating expenses and operating, well, I mean, so many other operating expenses which have come down quite significantly as compared to the overall revenues. Wanted to understand what makes you think that, you know, second quarter, third quarter is gonna be looking much better? Thank you.
Thank you for the question. I agree with you. Revenue has come down, but our big focus right now is on profitable growth. We've had contracts in the past that had slim margins. You know, what we've done is really focus on, number one, for example, in some of the business segments, increasing uptime. Increasing uptime, again, results in, you know, additional bottom line contributions, pure profit. Reducing penalties in our operations wherever possible. Again, we need to grow, but we need profitable growth. Growth for the hell of growth doesn't make sense if you're not able to generate margin. This is very much what we're focused on. We could add another QAR 500 million top line at 2%, you know, net profit, but that doesn't move much on the bottom line.
A big focus of this company now is improving margins, which are key to our bottom line contribution and effectively, you know, liquidity as well. This is what you're seeing right now is our efforts to continue to squeeze more out of our existing contracts and to be able to grow the business profitably. Now, add to that, there's a significant amount of activity, and you guys are in the market and you know that, in the oil and gas sector. We have a pipeline of projects and opportunities in Qatar that we're looking at. And, you know, we're all quite optimistic that we can continue to deliver for the rest of the year.
Well, partly to a certain extent, one can understand in terms of, you know, you're looking at oil and gas, which is very robust right now. My understanding is, you know, let us assume you're offshore, for example, your operating expenses overall has come, reduced quite considerably as against your run rate in the past. Similarly, that goes for, you know, to a certain extent in your Gas and Petrochem business also. I just wanted to know whether will that be maintained in the sense that most likely your revenues could be flat for second quarter, but margins also, whatever you're seeing in the first quarter will be maintained overall? Okay.
Listen, again, what you're asking is, are we gonna be able to maintain those margins? I'm comfortable to say that we will. You know, we have a pipeline. I have visibility on the pipeline of work that's coming up. This business right now is much more sustainable, than, say, container shipping, which the past couple of years was an anomaly, if you will, not only for us, but global container shipping companies as well. If you look at the offshore business and what we have right now and some of the other segments, we have a much more sustainable, revenue base, that we can build upon for the rest of the year.
Okay. Thanks. Thanks a lot. Appreciate it.
Reminder, if you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. Your next question comes from Mustafa Amer from Al Rayan Investment. Your line is open.
Hi, Akram. This is Akber. just wanted to follow up on on offshore. You obviously it's been a great start to the year, and you said you're optimistic in terms of pipeline. How, I mean, where do you see this business in sort of 12, 24 months from now and relative to the current level of revenues or profits? Thanks.
You know, from a, from a macro perspective, you know, we are optimistic in the offshore business for the next two to three years at minimum. You know, the, the dynamics of the offshore market is such that there is a, there is a demand that has not been met with the supply of vessels. If you look at the market, vessel prices have actually, in fact, gone up because demand far exceeds supply. You know, from our perspective, there are plenty of opportunities in the market for the next two to three years, and we're bullish on that. Demand far exceeds supply of vessels, and therefore rates have gone up.
Again, within that business, and we've mentioned that before, that we have been diversifying in the offshore business by beginning to offer services to complement our asset base. If you look at some of that margin contribution that you're seeing today, that also has to do with some of the projects that we are beginning to do and that we will continue to do for the next couple of years. Projects have been an add-on that we've added to our service offerings, and that they've been helping to enhance our margin on our bottom line.
Right. Do you have any... Thank you. Do you have any vessels at present which are not being used, which you expect to be deployed during the year or any assets in this business?
Well, honestly, we have a fleet of 44 assets, and we have some chartered in vessels as well. We have some that are being optimized. Again, technical requirements change, and so we have to do enhancements to the vessels. As I mentioned, earlier in the call, we are looking to expand our fleet, and as well as, rejuvenate our fleet. We are in the market looking at new tonnage, new assets to continue to satisfy the contracts we have in the pipeline.
Sure. Thank you for that. Essentially, where you are right now in terms of the first quarter is if and correct me if I'm wrong, that's a good quarterly run rate for the rest of the year because these are the assets that you have, and you don't really have too much more additional that you can deploy, not until you purchase something else. Is that correct?
We are chartering vessels as well. you know, last year we had close to 18-20 chartered in vessels that we use to do projects. For some projects that are short-term, for example, like I mentioned, services, we may charter in vessels for two to three months or six months to do the work. If the work becomes long-term, then we buy the vessels. it's a mix. Again, not having vessels for new contracts will not prohibit us from doing some of the work. Again, we have done that in the past. We've chartered in vessels to be able to do the work, and then we use that as a bridge to be able to then buy vessels and deploy them on a long-term basis. We do have...
You know, as mentioned earlier, we do have some vessels today that we're optimizing to be able to deploy on new contracts. There is a, you know, there's a backlog of assets that are available for us to deploy in contracts. Hopefully, that answers your questions.
Lastly, on pricing, in this space, if you have an asset which is being, which the customer is paying X amount for today, does that mean that in general, that that rate would be fixed for the duration of the contract, whether it's three months or two years, or are the prices reviewed more frequently?
No, they're not. I mean, if it's a two-year contract, then the rate is fixed for two years. If it's five years, then it's fixed for five years. It's not variable, it's fixed.
Okay, this business isn't going to see pricing increases, additional pricing increases this year. It's just gonna be whether you're able to lease additional assets.
Not necessarily. That's.
To cater to demand.
That depends on the contract maturity. If you have contracts maturing this year, when you renegotiate, you have that option to renegotiate with your customers. All right? You know, renegotiating rates takes into consideration, obviously, market conditions, but also duration of contract.
Great. Thanks, Akram. Appreciate the extra color.
Thank you.
Your next question comes from the line of Mikhail Fuleihan from CBFS. Your line is open.
Yeah. This is actually a question add on to the, you know, previous questions. Just wanted to understand in terms of when you mentioned, you know, price increase, can we have an idea in terms of the current contract size of your total contracts? What could be renegotiated, say, in your, you know?
Unfortunately, we can't provide that guidance.
Okay. Can you provide in terms of what could be the likely CapEx? What was, say, in 2022, what we could be likely seeing in 2023, including acquisitions, if any?
It depends on what we get awarded. It could be, you know, again, if you look at our vessels, it could be anywhere from $100 million-$200 million. Again, it depends on what we get awarded. We are, you know, we have a long pipeline of vessels. There are certain vessels that cost $40 million a pop. You know, if we're able to win some of these tenders, then we would might be commit to a higher CapEx amount. Again, can't give you a specific number, but it could be anywhere from $100 million-$200 million this year.
Okay. Lastly, on your investments, I mean, I believe that the first quarter normally is an aberration because of dividends. Am I right in that?
Yes, that's correct.
Okay. Thank you. Thank you.
If you do wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. There are no further questions at this time. I'd like to hand back to Bobby.
Okay. Thank you, Gavin. If there are no further questions, we can end the call for today. I wanna thank, Akram and Sami for taking the time to answer our questions. We will pick this up next quarter. Thanks, all.
Thank you.
Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.