In the wake of the debt settlement at Zim Integrated Shipping Services Ltd., "Globes" analyzes the prosperous private shipping businesses of Idan and Eyal Ofer.
The private shipping business of the Ofer family was divided after the death of Sammy Ofer in 2011. Eyal, the older brother, managed the company's cruise and hotel operations from London and Monaco. Idan, the younger brother, received Israel Corporation (TASE: ILCO), a 9.7% stake in Mizrahi Tefahot Bank (TASE:MZTF), and XT Shipping (formerly Ofer Shipping), through XT Group Ltd. (formerly Ofer Holdings Ltd.), which is jointly owned with chairman Udi Angel, as well as the company's operations in Singapore.
Ironically, there are no official records for the businesses of Idan Ofer's private company in Israel.
The headquarters of the Ofer's British operations is at 1 Hanover Street in London. Online pictures show a stately building at the corner of Regent Street, close to Oxford Circus. In 2010, a floor in the building was leased for £700 per square meter. According to trade publications, Zodiac Maritime Agencies Ltd. has the largest British flagged fleet, with 150-160 ships. The company's website lists 104 ships, including container and general cargo carriers, as well as oil, natural gas, and chemicals tankers. Zodiac's ships are leased to shipping countries around the world, including four container ships leased to Israel Corp. subsidiary Zim.
Zodiac proudly offers a full-service package to anyone seeking to hire it. "Committed to customer service and industry standard compliance in practice, not just on paper," it says on its homepage.
Zodiac may be the Ofer family's oldest and best known shipping company in the UK, but it is not the only one. Meticulous information collated by high-tech entrepreneur Dror Dvir indicates that the family has established more than 300 companies in the UK in recent years. Most of these companies owned no more than one ship and most of them have been closed. Currently, about 200 shipping companies operate in the UK, controlled by Liberian-registered companies First Maritime and Oceana.
To analyze the Ofer family's business activity in the UK, the companies' annual financial statements were examined, as they appear in the public record, in contrast to the practice in Israel.
High profits, near-zero taxes
The picture that emerges from the analysis of the financial statements of Eyal Ofer's private companies is the opposite of the situation at Zim. The Ofer family's British companies generate regular and stable profits, almost all of which are distributed as handsome dividends, in part because of the negligible taxes paid to Her Majesty's government.
The British office of the Ofer family may have heard about the global credit crunch, but it was no more than a whisper. The tsunami that drove Zim aground caused no more than a ripple beneath the hulls at Zodiac and its sister companies. The operating profits of the Ofer family's British shipping companies were $100-150 million a year over the past decade. The companies' aggregate operating profits peaked at $234 million in 2007 and $231 million in 2008. Altogether, the British shipping companies generated an operating profit of just over $1.5 billion in 2003-12, and the operating profit margin was 39%.
In addition to the high operating profit margin, the companies paid a tax rate of 0.49% of their profit. The Ofer family's tax planners enabled the companies to pay a zero companies tax rate in the UK, and the family's individual income tax rate paid in the UK is derived from the amount of cargo carried by the ships. Under these conditions, it is no wonder that the companies' controlling shareholders have pocketed $1.1 billion in dividends in the past decade.
The companies' directors have also been handsomely compensated. For example, Zodiac's four directors received about $1 million each in the past two years. The Ofer family's directors are businessmen, some of them simultaneously serve on the boards of 200 companies, but the fact that the address of almost all of the companies is in the same building and that they conduct the same business makes it easier for the directors to do their job.
There has been a generational change at the Ofer family's companies. Eyal Ofer's sons, Daniel and David, have taken up directorships, succeeding longstanding directors, such as Captain Rami Zinger and Amnon Leon.
As for Zim, in its previous debt settlement in 2009, the Ofer family made the gesture of cutting leasing fees for the sinking shipper by 35%, compared with a 23.9% reduction for other shipping companies. Zim saved $150 million from this reduction through 2013. The present debt settlement mentions a further $300 million write-off on Zim's huge debt. A media report claims that Idan Ofer recently said that the bulk of Zim's leasing debt, $300 million, was owed to his company, whereas the debt to his brother's company, Zodiac, was just $40 million.
Published by Globes [online], Israel business news - www.globes-online.com - on February 2, 2014
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