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Profit improvement driven by management of margins and variable cost model
InterBulk has reported its unaudited interim results for the six months ended 31 March 2015, showing a revenue declined of 11.0% to £115.0 million, mainly due to the impact of destocking in the chemical industry caused by the drop in the oil price.
Despite the 11.0% decline in revenue compared to the first half of last year, the Group's operating profit (before intangible amortisation and exceptional items) for the six months to 31 March 2015 of £4.6 million was ahead of the first half of last year by 33.0%. This profit improvement was driven by active management of margins and the benefit of a variable cost model as the Company responded to market volume declines. With a stable interest expense, profit before tax (before exceptional items) of £1.7 million was also significantly ahead of last year's comparative period.
The chemical customer base and the supply chains which the Company serve have been impacted by the sharp drop in the oil price. While this improves the competitiveness of the European chemical industry, and should, if sustained, stimulate economic growth, it has in the short term created uncertainty and volatility, and caused a period of destocking in the chemical supply chain as product prices fall globally, which has reduced the level of transportation activity across most regions during this period. The sharp appreciation of the US Dollar and weakening of the Euro have added a further dimension to the development of intra-regional trade flows, and have also impacted sterling reported results.
The last six months has seen a high level of tender activity across the business. Overall the outcome is pleasing as strong customer relationships and cost competitive offering have resulted in retention of all key accounts in the period. However, following the high level of new investment, especially in the tankcontainer fleets by competitors and lease companies, there remains an overcapacity of equipment in the market which puts pressure on rates. The outsourced business model, which has a high degree of variable costs, enables the Company to adapt its cost base in line with demand, and it continues to use its procurement skills to increase efficiency in this area. In addition, efforts continue in stream-lining the organisation especially in Europe. The team has responded well to this challenge and has secured a more cost effective structure for the future, without impacting operational capabilities.
In the Liquid Bulk division (tankcontainers), activity has reduced in both the intra-European and global businesses, with the exception of Asia, compared with the first half of last year. Temporary plant shut-downs in Europe in reaction to destocking have contributed to this, but there has been a return to more normal production levels, and activity in March responded accordingly. Chemical sector growth is expected to increase outside Europe, which is consistent with the Company’s strategic focus in the Americas and Asia. The overall result for Liquid Bulk division when compared with the first half of last year was a reduction in revenue of 11.0% but an unchanged operating profit (before exceptional items) of £3.5 million, primarily due to improvements in margin from active management of procurement costs and business selection. In the current volatile market, a variable cost model and business selection become increasingly important. As a result of the lower activity levels, especially in the first quarter of the current financial year, utilisation of the fleet of 11,100 tankcontainers was reduced. Improved utilisation in the second half of the current year is an important focus for the team.
The recovery of profitability in the European based Dry Bulk division was a key objective for 2015. Tough market conditions have remained in place within the Polymer sector and there has been a further reduction in activity levels. However, despite this lower revenue, the divisional operating profit (before exceptional items) increased to £1.1 million as a result of the steps taken to slim down the organisation and sustainably reduce costs. During the period a number of large tendering processes have been concluded by customers and the Company has been able to maintain its position in key accounts. The on-site terminals operations overall have performed strongly in the first half of the year with high activity on the UK site and a solid performance from the two sites in Russia after the most recent Russian site become fully operational in late summer last year. The Company did not win the extension of an on-site contract in Austria which it had operated for over 10 years. The Dry Bulk activities in South East Asia, which still represent only a relatively small element of revenue, have performed ahead of expectations in the six months to 31 March 2015, reporting a sustainable operating profit in the period following a period of investment to establish the network and customer base.
Over the last six months, the Company has reorganised its senior management team across the three regions which include greater physical presence of the senior team in the Americas and Asia. The positive experience and results achieved through the reorganisation of the European Dry Bulk structure means that the Company is also in the process of greater centralisation of the short-sea intra-European Liquid Bulk customer service and operations to the UK which will bring a lower cost base and also improved control. The Company expanded its Asia network with the support of Sinotrans and now has its own representation in Japan, Singapore and Malaysia. Further investment is expected to be made in South East and North East Asia in the next six months.
Among the core strategic elements for the Group, are aims to grow its business in Asia through a strong development of the Sinotrans & InterBulk Alliance (SIA); expand liquid bulk European operations especially in higher margin specialised product/tankcontainer business; develop liquid bulk deep-sea operations in the growth regions of China, the Middle East, Russia and Asia; and integrate with customers by offering innovative supply chain and 3rd party fleet management solutions using high performance IT tools.
Looking ahead, the global chemical industry remains on a path to long term growth and intermodal logistics solutions is expected to play an important part in supporting this growth. InterBulk’s efforts to reduce its own cost base and retain a variable cost model puts the Group in a strong position.
While external market demands and specific fleet balance between regions remain volatile, especially in Europe, in these challenging market conditions the Company expects to deliver continued improvement in operating results in the second half of the year.