Topaz Energy and Marine Ltd, born out of an IPO in 1998, saw its profit and revenue increase by 61 per cent and 33 per cent respectively last year. And although this year would be a "challenging" one, the subsidiary of Oman-listed Renaissance Services SAOG is prepared to navigate the tough waters thanks to the strength of its marine division. Its vessel operation was responsible for 70 per cent of the profit last year and is expected to keep recording high profits this year despite low oil prices. Its engineering business although is showing signs of slowdown.
Fazel A Fazelbhoy, CEO of Topaz Energy and Marine, is pinning hope on the marine side because of the long-term nature of the contracts and on the order backlog as well as on the division's resilience to recession. The company is currently planning an acquisition in South East Asia and is beefing up its vessel portfolio. "Topaz (marine) serves a niche market that is resilient and resistant to market downturns. There is no other area that I would rather be in than where we are today," he told Emirates Business.
Most businesses peaked last year. Was it also your best year? And what are your expectations for this year?
Yes, last year was the best year we have had. We have doubled our turnover and tripled our bottom line from 2006 to 2008. We closed the year well ahead of our budgets, with our un-audited financials reflecting revenues in excess of $400 million (Dh1.4 billion) and net profits above $45m. In 2007, we had $300m revenues and $28m profits. Year 2009 is going to be challenging. I doubt we'll have this level of spectacular growth. But we expect there'll be growth and that we'd still be ahead of last year. We expect to meet our budget for the year as we have well over 70 per cent of our revenue expectations for 2009 in hand in the form of long-term contracts and order backlogs.
Topaz comprises of two divisions: Topaz Marine, which manages all the offshore vessel operations, and Topaz Engineering, which is engaged in oil and gas fabrication as well as ship repair. Which has been the most profitable division?
Topaz Marine is the most profitable. It represents roughly 40 per cent of revenues and 70 per cent of profits. Topaz Engineering has 60 per cent of revenues and 30 per cent of profits. The engineering business has high value in terms of turnover from construction projects and oil and gas fabrications but the margins are lower. The vessel business has a higher profitability but they have high asset values, while in the services businesses, you have less capital involved.
With oil price hovering around $40, it is expected that there will be lower oil and gas activities, especially in exploration. Do you expect to be adversely affected?
We are very fortunate, only about three per cent of our vessels are involved in the exploration activity. The rest of our vessels are deployed in field development or production. Exploration could be held back and it is the most vulnerable to drop in oil prices. On the other hand when you are already into developing a field, it's very unusual to abandon it because it'll cost you a lot of money. So developments in five to 10 per cent stage tend to continue. And production almost always continues. Even if the level of production drops due to Opec cuts, you cannot have just 85 per cent of our vessels. So we are essentially in a recession-resilient niche of the market, which is field development and field production. Therefore we don't expect to be very badly hit.
So the marine side is recession-resilient. But would that also apply to your engineering business?
Engineering is certainly more vulnerable. We are already seeing that the frequency of the order intake has slowed. We are about 15 per cent behind of what we would have thought in a normal order intake. However, this is not the best time to make that judgment because it is the start of the year and very often budgets are approved in January and February. In the ship repair side, business is less than what we would consider normal. This year's business is at last year's levels in absolute terms. But while repair and maintenance may slow down because the volume of vessels operating has come down and the rates have fallen; the parked or stationary vessels on the other hand would require more maintenance work. It used to be that you have 100 vessels in the anchorage in Fujairah. Now there are about 300 vessels. If we used to have eight jobs a month, it could now be 20 a month. So while one side of the business is affected the other side is gaining.
The marine business would then need to be stronger to offset the slowdown in the engineering side?
In these times we are pinning our confidence on the marine side because of the long-term nature of the contracts and on the order backlog that have given us consistency for the business.
What are your plans for growth in this business?
We want to be among the top five offshore supply vessel companies in the world in the next three to five years. Currently, we are in the top 10. There are two ways to do that, one is through organic growth – building up your own fleet and the other is through acquisitions. We are in discussions of acquiring a Singapore-based offshore marine services company this year. The size could be larger than Doha Marine Services acquisition.
Is it a good time to buy?
There is an interesting parallel. Six months ago asset prices were high but money was cheap, credit was available there's high liquidity. Today you tend to see assets to be low but cash is difficult to find, liquidity is hard to find and rates are high. If you bought six months or a year ago, even though the liquidity and credit was available, you will have a high asset in your books. Today, it may cost a lot of money to buy something but if the value is low it means it is a low asset value in your book and it can always be refinanced in one year or two years time. This is a very good opportunity to buy. But you have to strike the right mix between availability of credit and value of the asset.
Topaz will have 96 vessels by the end of 2010. Do you plan to order more vessels?
We will order more vessels as soon as we have a reason to. We have placed bids for some tenders and if we win, we would certainly place orders immediately. But we are not going to build in speculation. Our objective is to not risk our business in any way or to not stress our balance sheet in any way so our growth is only to the extent of which we can digest. The companies that grow fast are the ones that end up getting stressed. What we want is a sustainable growth.
PROFILE: Fazel A Fazelbhoy CEO, Topaz Energy and Marine Ltd
Fazelbhoy has been with the Topaz Group for the past nine years and took over as the CEO in January 2008. Prior to taking the helm at Topaz, he held the position of General Manager at Nico International, where he was instrumental in boosting the company from a 450 employee unit to a dynamic business employing more than 1,700 people, providing quality services to some of the most prominent global companies in the marine industry. Fazelbhoy's leadership led the turnaround of the business unit and transformed it into a strong close-knit team with potential for further growth.