The owner of Delo Group: “We will fight for the controlling interest in “Transcontainer”
Sergey Shishkarev is talking about his old and reacquired port terminals and how to make a family business sustainable.
Business of Delo Group of Sergey Shishkarev has been concentrated in Novorossiysk for many years. They own a container and grain terminal in the Port of Novorossiysk. Last year the Group reached a Federal level by buying a stake of Global Ports, which is the largest container port operator in Russia with assets in Northwestern and Far Eastern basins, for $250 mln. According to Shishkarev, the main job now is to bring the new asset to the same efficiency as the business in Novorossiysk.
Shishkarev’s appetite for new projects has not run out: he feels challenged to fight for the controlling interest in “Transcontainer” put up for auction by RZD.In addition, he invests almost $200 million into his terminals in Novorossiysk and plans to develop railway transportations.
— Delo Group closed the deal on purchase of the stake in Global Ports a year ago. What has changed for you personally because of that deal? Are you feeling like being in another league?
— Obviously, for us it is going up to a new, federal level. Now “Delo” is present in three basins - Baltics, the Black Sea, and Far East. We are the only company with entering points in all the corners of this “golden” triangle, as we call it. More than 30% of container throughput in our country belong to our terminals.
My personal time has been redirected. There is no need to guard “DeloPorts”: there is a well-established team with proved effectiveness. Instead, Global Ports terminals still require a lot of attention. I spend two thirds of my time on Global Ports.
— Recently Global Ports and Dutch Royal Vopak sold their container terminal VEOS in Estonia. Why?
— In the present reality, in current political and economic processes, development of this asset is futile. We got a fair price and the buyer is acceptable for us. It is better than to see stagnation of this asset. Moreover, country leaders set a task to reduce the transit of Russian goods through the Baltics and to direct the flows to the Russian ports. Otherwise we would hinder ourselves. It is not quite right.
— Global Ports has two more terminals in Finland. Will you sell them, too? Especially since they achieved only 107 000 TEU in 2018, which is 7% of company turnover.
— There is no question of selling them. The market is growing, and it isa steady average marginal business. I would like these assets to prove theirefficiency.
— What are you changing in the work of Global Ports?
What we change the building-up of business-processes, look for standardization of works and increase in service level at the terminals. We would like to work out some standard operating procedures and common high standards of services for customers of Global Ports, because they are our main value.DeloPorts terminals in Novorossiysk are our terminal of choice because of fast unloading of containers, modern IT-system and additional services. Its share in transshipment in the Black sea basin is growing steadily, even though its service cost is higher than average in the market. Global Ports operation should be built up accordingly. It includes further strengthening of Global Ports management, which has been already supported by appointment of a new CEO taken from the Delo Group – Vladimir Bychkov.
We try to improve the work of the Board of Directors. We would like to get a quality and productive discussion. In addition, we are establishing a Strategy Committee in the Board. The main thing Management and the Board of Directors is working on now is the implementation of development strategy which has changed fundamentally with our arrival.
We have some new investment projects, which would allow filling the temporarily underutilized terminal facilities and at the moment increasing our profitability and EBITDA. We started coal handling in Ust-Luga terminal in small volumes - 1-1,5 million tons. However, Ust-Luga has a very good potential.
— Why the strategy of development is changing and what is the new one like?
It is still improving. It is the question of different goal setting and priorities. The colleagues who I have known for 25 years already and who are good friends of mine (Nikita Mishin, Konstantin Nikolaev and Andrey Filatov, owners of N-Trans group, from which Delo Group bought the stake of Global Ports. – Vedomosti), successfully achieved the goals they had set for themselves. They brought the asset to market, achieved a certain EBITDA and good capitalization and successfully placed shares on London stock exchange.
We are engaged with the asset operationally. So, our approach to work is a bit different, largely due to those skills which were acquired by the management of the holding through long years of work in Novorossiysk.
— Do you plan to increase container facilities of Global Ports?
— Not in any nearest future. Surplus of Global Ports terminals made from 40 to 80% in 2018. Therefore, we plan to increase the indexes by tuning our business processes, as I have mentioned above. For example, the container terminal in Novorossiysk is utilized by 83%, as for comparison.
— What was the resource for purchase of the stock in Global Ports? At that moment, its market price made around €250 million.
The stock of shares was bought for the market price with a small market bonus. We had planned this bonus in advance, that is why we managed to win from other candidates. The money for the purchase was loaned. “DeloPorts” attracted it at the expense of issue of corporate exchange bonds and a loan from Sovcombank.
Shareholders (Data of the Company for March, 2019): Delo Group of Sergey Shishkarev (30.75%), Moller-Maersk A/S (30.75%), previous owners of National Container Company llibrintio Establishment and Polozio Enterprises (9% each). The rest is in free circulation.
Capitalization (LSE) is $458.5 mln.
Financial metrics (IFRS, 2018):
Revenues - $343.6 mln.,
Net loss - $58,3 mln.,
Operating performance (2018):
Container transshipment - 1.35 mln TEU.
— Are there any other assets you are interested in? And if there are, do you have enough resources to purchase them?
— Delo Group has kept a comfortable loan load as evidenced by positive dynamics of ratings of DeloPorts. We have stated our intention to take part in a competition or auction for majority stake of “Transcontainer” (which belongs to Russian railways – “Vedomosti”), and we confirm our interest. We will fight for this asset as we see great prospects in arrangement of multimodal transportation using our terminals in three basins.
— The marker price of majority stake of “Transcontainer” is about RUB 38 bln. or EUR 500 mln. In addition, it may increase at auction.
We are considering an option to go to the auction in a consortium with a bank or fund. We can’t manage such purchase just on our own.
— There are many applicants for “Transcontainer”.
— We will in any case develop rail transportation of containers and warehouse service in Ruscon (100% belongs to Delo Group. – “Vedomosti”), and also the competence of multimodal operator, especially since there arefew friendly companiesin the North-West and Far East.
There is now a huge gap as Transcontainer with its 27 000 platforms controls nearly 60% of the fleet, all the rest major market players own 4000 - 5000 platforms and less.
If we are not champions, not co-owners of Transcontainer, we will create a prizewinner company that will be among the top five. Now Ruscon possesses 650 platforms and 500 more are leased. The goal is to increase the total number of platforms to 5000. Ruscon has a network of container terminals in Novorossiysk and Central Region of Russia. The strategy of its development aims at expanding the company’s presence in regions of export origin and places of processing of import cargo flows, including Western and Eastern Siberia, and at creation of a well-developed transportation network, which would connect import, export and inner cargo flows for reduction and elimination of empty runs. This approach minimizes losses that all participants in the logistic chain have to bear and makes the service more competitive and affordable in comparison with, for instance, auto transportation.
One of the most important investment areas of Ruscon is the development of digital information services, data processing tools and company management procedures. It is not a tribute to fashion for us but a critical factor ensuring competitiveness.
— Unlike Global Ports, your container terminal in Novorossiysk is expanding. With the launch of the berth No. 38 its capacity will grow from 400 000 to 700 000 TEU. How fast can you load the berth?
The berth itself as a construction is already built; it remains only to install the equipment. Just on April 18 a carrier ship arrived from Shanghai on the roadstead of the port of Novorossiysk and delivered nine port cranes for the berth. Among them, there are three cranes of the largest class, STS that a Chinese company ZPMC manufactured especially for our berth. Total amount of the contract with ZPMC exceeded $25 mln, and the total project of the berth No. 38 will cost over $120 mln.
This is a unique project, the first berth in Russia which will be able to handle container ships with a capacity of 10 000 containers. These are ocean-going vessels and they will arrive directly to us without reloading to feeder vessels in Greece, Italy or Turkey.In 2015 during a meeting headed by Vladimir Putin, I promised to build such berth within three years. Project development took one year. Construction started from 2016.
We set a task to load the terminal in three, at most four years. However, this growth has not been calculated fully so far. Containerization of the country is not growing by 20% per year, and the population will not suddenly start consuming much more goods. Certainly, we can handle larger vessels.Probably, we can provide for utilization due to redistribution of cargo flows from North-West basin, where cargo comes with reloading in Europe – in Hamburg, Bremen, or Antwerp.
— How much cheaper for the shipper will it be to use the ship with ten thousand containers capacity?
— Berth No. 38 will allow avoiding unloading from the ocean vessels somewhere in Turkey and loading of containers on feeder vessels, so consignors will be able to avoid two additional operations, which saves $300-400 per each TEU. It is a serious economy. Still we have to understand that a big part of container cargo comes directly from Europe or Israel in smaller vessels, so they will not save anything with ocean service. But we have another important advantage: we unload vessels faster than our competitors by 25%. Our tugs work day and night. Turnover of the fleet is very important.
— According to information of Global Ports, Russia is far behind on containerization. We have 35 TEU of goods per person per year, and average amount is 104 TEU in the world, 133 TEU in Europe and 138 TEU in the USA. Why is that bad?
It means that we are technologically slow in logistics. A box has not been created out of nothing. Container is a very convenient thing; it is an ultimate packing for a fast and safe transportation of cargo, for fast loading and unloading. Moreover, transportation of any type of cargo in containers is much safer for the environment than bulk transportations. Containers keep developing all the time: now we have tank-containers (they have aт inbuilt cistern for transportation of liquids), there flap-covered containers for grain transportations. The bulk, of course, has always been cheaper, but only if the transportation from port to port is required. If we calculate all logistics cost and if there is auto or rail transportation in chain, if we take into consideration ecology and cargo safety, then containers are much more effective.
Lagging behind Europe arose for objective reasons. Russia is a raw-material country whereas Europe is mostly busy with export and import of finished products, and containers are more convenient for it. However, now people are used to shipping even fertilizers and timber in containers. We were the first to bring a container in Port of Novorossiysk in 1996 or 1997.
— Grain terminal “DeloPorts” in Novorossiysk is the only one out of three major deep-water grain terminals, which is privately owned. NKHP is controlled by state United Grain Company and VTB. Novorossiysk Commercial Sea Port is controlled by state “Transneft”. It would be logical if NCSP sold NZT to you and not to VTB Bank. Did they offer it to you?
— Neither did they offer, nor did we. I assume that the issue was resolved in very high offices and I was not awaited to the negotiations.
— Would you have been interested?
— Certainly, we would. The agreement held in privacy setting. However, if there had been a public competition, we would definitely take part in it as we consider, that we manage this area the best.
— And who did VTB buy Novorossiysk Grain Terminal for? For itself or for the benefit of someone not yet named?
As far as I know, VTB will control it itself. They involved people not from space and they understand what grain export is. Novorossiysk grain terminal is still an attractive asset and VTB will be able to do it even more effective and more interesting for investors, I am sure.
— President of Transneft Nikolay Tokarev not long before the purchase of Novorossiysk Grain Terminal had announced that there had been an idea to create some united grain operator in the South. Hardly anyone could have understood what he had meant. Do you know what he had spoken about?
— I am not familiar with this idea. Anyway, it does not seem realistic to me overall. Then a state monopoly needs to be established on grain export. Such a statement is very unlikely to be agreed by the Federal Antimonopoly Service as well as grain exporters who benefit from competitiveness in this area.
The field is interested not in the export control but in absence of unscrupulous exporters who worsen the reputation of Russia in the world market. There are two hundred of grain exporters in Russia and I did not believe it when I heard. Where are they? Who are these people? Such an exporter sold or bought something once, reimbursed VAT with violations and after that Tax Inspection inspects everyone and refuses to refund. Or they may import something infected in Bangladesh and then the whole of Russia is not allowed to supply anything to Bangladesh.
— Are you planning to expand your grain terminal?
— After the launch of berth No. 38 in June we want to take part in the investment program related to extension of berth No. 40а by 200 m and dredging. Investments will make around $60 million. We will be able to receive at the same time two bulk carriers Panamax and even two PostPanamax with the capacity up to 80 000 tons. Neighboring grain terminals don’t have such abilities.
In 2018 we handled 4,8 million tons while the project capacity of our grain terminal makes3,5 million tons p.a. After extension of the berth its project capacity will reach 5 million; if everything goes well including weather and successful harvest, we will be able to handle 8-9 million tons starting from 2021.
— It means, that your terminal will be major grain terminal in the country.
— If the other terminals do not develop then yes. However, same Novorossiysk Grain Terminal is doing to develop.
The owner (Data of the company for December 31, 2018) is Sergey Shishkarev (100%).
Financial metrics (IFRS, 2018):
RUB 11.9 bln. of revenues,
RUB 6,1 bln. of net profit,
Operating performance (2018):
Cargo transshipment is 8.7 mln tons including grain transshipment 4,8 mln tons and container transshipment 333 000 TEU.
— The development of deep-water port Taman is being discussed for more than 10 years in various configurations. Future capacity is named as millions of tons of different cargo and hundreds of billions of rubles of state and private investment. Is that project necessary at all?
— I saw many different plans for Taman including grain, fertilizers, coal, containers, and oil products. The answer is simple – first we need to understand the cargo base.
Four years ago I was speaking at a meeting in Novorossiysk headed by Mr. Putin. We had a big discussion on Taman, and I suggested using a simple formula - take or pay. First cargo owners have to come and engage into a long-time shipment of a certain amount of cargo.
When we talk about a container terminal for million TEU or grain terminal for 20 million tons, I have question. For which type of cargo do we plan it? Even in last record year with 40 million tons of export almost all the grain was shipped. Do we know exporters, who have some grain left due to the lack of facilities? Now, our demand and supply are balanced.
And how can we return investments in this terminal without cargo? Moreover, if wecompete on price, then the investments will also not be returned, but the amount of taxable base will decrease due to reduced profitability. And these are only private interests when a private person takes a risk of their investments and want to do exercises in grains and containers, why not? And who can ensure the effectiveness of investments to the State? When it is asked to build the infrastructure for RUB 100-200 bln.? Build roads, make communication tools, railways, cars, electricity same as wave fencing and dredging. It is (Taman port. – Vedomosti) quite shallow now. So, a huge amount of money and resource will be needed for dredging.
The same is about containers. There is a unique berth constructed in Novorossiysk from the point of depths and equipment and we provide a quick a high-quality handling. However, even we do not have clear idea about how the market will grow, and which cargo will fill our modern and technological terminal.
— There was some information earlier about a conflict between DeloPorts shareholders. Three or four years ago, you redeemed 10% of company shares from your nephew Timofey Telyatnik. You had some mutual claims and you filed lawsuits against each other on dozens of millions of Euro. How did the story end?
— The conflict is resolved. The process ended up in July 2018 with signing an agreement on settlement of the dispute and waiver of mutual claims.
So, as you see out of the conversation, principles of teamwork are paramount the same as trust to each other. When any problems between the team members arise (family relationship is out of our attention in this case), misunderstanding or breach of trust, I try to solve it as soon as possible, and usually I am personally involved in the process. In this case, the situation of misunderstanding dragged on and turned into a conflict that resulted in legal litigation and was posted on pages of several media. I repeat, that the conflict is over.
— In three callings in a row you were a deputy of the State Duma in Krasnodar region. However, in election of 2012 you could not enter the State Duma in the lists of United Russia party. Why?
— I decided to return to business, and it was an objective necessity. Now you can see the results of my comeback.
— Is there any political ambition left?
— Senior comrades and classic of the genre taught me never to say never. It is the first point. The other truth is if the motherland says, “you have to”, a komsomol can’t refuse. Anyway, now I am really involved in everything I do in business and what I am able to do. I can’t even imagine how to combine it with my work in parliament.
My political past allows me to live calmly. I have nothing to be ashamed of. My public reception army second convening was recognized as the best in the South Federal District. I engaged a whole staff of assistants and lawyers on my own money, I helped a lot of people, some of them with surgeries and cure. In my opinion, the third convening was the most effective, when I was a chairperson of committee on transport. I have done many good for the field, especially for proper evaluation of spending of budget funds. I stopped everything I considered wrong and helped everything I considered prospective.
— In 2015 you became the President of Handball Federation of Russia, despite the fact that earlier you supported football and maintained football club “Chernomorets” of Novorossiysk, then there were children football schools. Why suddenly did you choose handball?
— I was offered by president assistant Igor Evgenievich Levitin, an old friend of mine, who is also responsible for sport. The chairperson of the Board of Trustees, Dmitry Rogozin, who is the master of sports in handball and also an old friend of mine, persuaded me, too. Rogozin was persuading actively as he was very worried about this kind of sport.
— You were asked to head the federation meaning that you will support it financially. How much have you already spent on handball?
— The first two years the federation was funded only by me. Anyway, combined teams are funded by the Ministry of Sport with our support, of course. Now there are sponsors appeared and the share of Delo Group in federation budget reduces. For the present moment personally, I invested in handball nearly $20 mln.
At the beginning I thought that that it would be a kind of facultative. But the in a half a year I grasped it, lighted up and fell in love with handball. It is a very dynamic sport undervalued in Russia. It is extremely popular in European countries. It is No. 2 in France, No. 2 in all Scandinavian countries. Within the last World Championship, the matches were visited by more than 1 mln people. And these are indoor halls, not stadiums.
We recover the popularity of handball in Russia. Female team became an Olympic champion in Rio and won silver medals of European championship in 2018. At the final match of the Cup in Rostov on Don all tickets were sold out and it was impossible to get one. They were resold. And now Rostov is playing in “the final of four“ of the Championship. Handball came back to federal media and on television.
— Your company was established 26 years ago. Will your children continue this business? Do you attract them to the business?
— My sons are 20, 18 and 17 years old. They are interested in it and want to do it. They are still studying, and we talk a lot about business, they ask questions, I answer. They are not quite ready yet and probably they are worried about the scale of business.
It is a great dream of every father when their children continue their business. But I don’t want to overload them or to impose something on them. I want to excite them. Boys are well-educated and ambitious. I really cultivate friendship among them. I also have a daughter, she is 13 years old, and she is a charming participant of our family meetings devoted to business. And sort of questions she asks! She is a very intelligent girl!
The problem of children in rich families is well-known. Thus, I am very strict to their expenses. I am going to study the experience of creating, rise and ruin of family business. There is some sad statistics that only 5% of family business live longer than the third generation of owners. When grandchildren of the creator come to power, the family enlarges, the interests are more and more different, and conflicts arise. But one of the survivors is an American company Cargill, our long-time partner, it is nearly 200 years old. The other positive example is our Global Ports partner APMT, a part of Moller-Maersk holding, a family company with rich history.
I believe that with modern opportunities my children will have even broader prospects for self-realization and that they will set their own way of life. Even if they will work out of Delo group, I am sure that they will not disgrace the family name and reputation and they will become worthy people, who I will always be proud of.