Back Nov 25, 2011

M.L. Chandchutha Chandratat, the chief executive of Thailand's largest dry bulk carrier, envisions a more integrated energy, transport and logistics group. TTA's energy and infrastructure operations will carry equal weight to the group's transport business at the end of its five-year plan in 2014.


Thoresen Thai Agencies Plc (TTA) is a strategic investment holding company with three primary business groups transport, energy and infrastructure. TTA and its subsidiaries have engaged in shipping-related services since 1904, drybulk shipping since 1985 and offshore oil and gas services since 1995. In 2009,the group added fertiliser production,coal mining and end-to-end coal logistics to its business portfolio. TTA intends to achieve balanced and consistent growth across all three business groups by seeking and evaluating strategic opportunities that meet or exceed its targeted longterm returns on capital. CEO M.L.Chandchutha Chandratat discusses the company's strategy and outlook.

What is TTA's business model?

Over the past two years, TTA has repositioned itself into a business group focused on transport, energy and infrastructure investments. TTA continually focuses on key strategy,people and financing decisions across the group, while day-to-day operations are managed independently within each business unit. Some centralisation of support services has begun in areas such as IT, certain procurement items and insurance, among others. These moves are part of a five-year strategic plan that began in 2009 to diversify TTA's income streams due to an anticipated period of extended weakness in the dry-bulk shipping markets.

Please provide more details about each of the three groups.

Group Infrastructure is primarily comprised of coal logistics and distribution in Thailand ad fertiliser production and distribution and logistics in Vietnam. Group Transport includes the traditional dry-bulk shipping business as well as an inter-island oil and gas tanker business in the Philippines. Group Energy primarily comprises subsea engineering and offshore drilling services and coal mining in the Philippines and Indonesia. We expect to see greater synergies across each business group in the future. Today for example, we can already mine coal, transport it and distribute it within Thailand ad the region. Thus, we have effectively captured the entire industry chain.

What are TTA's holdings in these investments per each group?

The core holdings of Group Infrastructure are Unique Mining Services and Baconco Co Ltd, in which TTA holds 88.7% and 100%, respectively.The core holdings of Group Transport are Thoresen Shipping Singapore Pte Ltd and Petrolift Inc, of which TTA has 100% and 40%, respectively. The core holdings of Group Energy are Mermaid Maritime Plc and SKI Energy Resources Inc, of which TTA has 57.1% and 47.07%,respectively.

Given that TTA's financials have been decreasing over the past few years, what can investors expect going forward?

In 2009, we began a five-year plan,and we are now halfway through it. TTA's performance is still largely driven by the dry-bulk shipping business and Mermaid, as the other businesses are relatively small in comparison. For the dry-bulk business, freight rates were at historical highs in 2008. The Baltic Dry Index exceeded 11,000 points in 2008 but is now at only 1,800. At these levels,shipping is a break-even type of business,so we have sold all non-competitive vessels and will consider reinvesting in 12-24 months, by which time we expect this business to have a better outlook.For Mermaid, we experienced six quarters of losses following the BP spill in the Gulf of Mexico, during which the entire industry went through a particularly difficult time. However, the past two quarters have been profitable, as demand for offshore services improves.

For the coal mining business in the Philippines, mine site No.1 is producing around 10,000 tonnes per month and by March 2012 we expect to be producing double that. Out of a total of 12,000 hectares, we have explored fewer than 10% but have already found another two possible mine sites for which construction should be finished by 2014.We hope to mine at least one million tonnes per year out of the Philippines by 2015.

In Indonesia, we have 33,000 hectares in Central Kalimantan province and are in the final phase of exploration work.We estimate that 15-18 months of construction will be required to develop a mine site in Indonesia after all exploration has been completed. We hope to mine more than one million tonnes per year in Indonesia in the next few years. Unique Mining Services currently imports about 1.2 million tonnes of coal, but we believe it can manage up to 4 million tonnes per year without any additional investment.

The benefits of the investments we've made as part of the diversification programme won't be instant, but we believe strongly that within 12-18 months,the value of these businesses will become much more apparent. Overall, TTA is looking to become a more integrated energy, transport and logistics group another move that we believe will unlock value for our shareholders.

Will TTA look to invest in additional companies or industries?

No, we are fully focused on the investments and holdings that we have today and will look to invest in these businesses further instead of seeking new opportunities. We are bullish on the investments we've made across all three business groups.

What are the biggest risks facing your businesses today?

Market volatility, particularly in terms of freight rates, oil and gas prices and coal prices. Because of this volatility,most clients in any business are taking a shorter-term view with contracts.

This year there has been news about a shareholder group looking to force change upon management in TTA, what is the situation today?

As a responsible listed company that subscribes to the highest standards of corporate governance, we strive to be transparent and ethical in everything that we do. Following this, we are always happy to meet with any investors and encourage dialogue between the company and its shareholders. Today,the feedback we are getting from the vast majority of our shareholders is support for our strategy and a belief that the investments we have made as part of our five-year plan will begin to produce results.

Where do you expect to see TTA in five years from now?

In five years, we hope that TTA's earnings will be balanced across the three business groups and that our strategic plan delivers positive value for our shareholders. Over this period, the group's exposure to commodities, such as coal, will rise.

The Executive Q&A Series is presented by ShareInvestor, Asia's leading financial internet media and technology company and the largest investor relations network in the region, with more than 400 listed clients.This interview was conducted by Pon Van Compernolle, a vice-president of Merchant Partners. For more information, e-mail gancanapol@merchant.co.th or howard@shareinvestor.com or visit www.ThaiListedCompany.com


25 November 2011