Interbulk – a leader in intermodal transport

InterBulk Group is an AIM-quoted logistics business. It specialises in intermodal transport of dry and liquid bulk materials, primarily for the chemical and food industries. Although it only joined the junior market at the very end of 2004, it has acquired a couple of relatively mature operating businesses whose combined turnover is £250m.

Intermodal transport is where the same container is used to move goods by different methods (i.e. road, rail or sea) over the course of a single journey. It’s usually more cost-efficient as it eliminates the need to pack and unpack materials en route which saves on fuel and labour costs. The containers are also secure and weatherproof.

In the chemical industry, from which InterBulk gets most of its revenues, there is a trend towards intermodal transport and away from methods such as packages for dry materials and drums for liquids. However, intermodal still only accounts for a small percentage of movements worldwide, so there is still ample room for long-term growth.

InterBulk currently has around 7,500 liquid bulk containers, which the company estimates makes it the world’s third largest intermodal operator. ISO tanks are used for transporting hazardous liquid materials while Flexi Tanks are for non-hazardous items.

On the dry bulk side, for items such as powders and granules, InterBulk has some 12,500 containers, making it Europe’s largest operator in this segment. These are either Flexiliners, which use what is known as a ‘Bag in Box’ technology, or InterBulk’s own patented design called an ISO-Veyor, which can load and unload dry bulk materials without the need to tip the container.

When InterBulk joined AIM it was just a cash shell. Its first acquisition was in March 2005 when it took a 15% stake in InBulk Technologies for £1.5m. This company owned the rights to two types of ISO-Veyor design.

In February 2006 InterBulk moved into the liquid bulk business with the acquisition of UTT for £46.2m. It also bought the remainder of InBulk for up to £8.5m. UTT was formed in the 1980s and is based in Rotterdam. The company’s MD, Koert van Missen, became the chief executive of InterBulk which is a position he still holds. The purchase of UTT was funded by taking on £38m of debt and a placing at 20p per share which raised £14.5m.

Just over a year later, in March 2007, a dry bulk specialist called UBC was added to the group. This acquisition cost £79.5m, of which £28m came from a further placing at 20p per share and the remainder from more debt. UBC is headquarted in Hull. The acquisition announcements for both this business and UTT are worth reviewing for more detailed information on their history and operations.

While UBC’s customers are predominantly European, UTT is more of a global business. Since the two were combined, the provision of a wider range of services has allowed InterBulk to benefit from cross selling and it has also opened operations in both China and Russia.

In the year to September 2008, InterBulk recorded a 12% increase in turnover from £224m to £250m. For the same period, operating profits rose 26% from £12m to £15.1m. Both the dry and liquid parts of the business saw margin growth and revenues for the two parts of the business were roughly equal.

Europe still accounts for the vast majority of revenues at 86%, with the Americas adding 8% with Asia contributing the remaining 6%.

Profit before tax for this period came in at just £0.7m, thanks to interest costs and a £3.5m non-cash charge. The group’s net debt rose to £104m at the end of September 2008 with positive operating cash flow being offset by the weakness of the pound against the euro.

Most of the company debt, £82.4m to be precise, is owed to HBOS and the terms of this loan have recently been renegotiated which could see the interest rate margin increase by up to 100 basis points. However, InterBulk only has to repay £16m of this by March 2013 which doesn’t look particularly onerous. The rest of InterBulk’s debt is primarily lease finance for its containers.

The company’s share price has been in steady decline since the purchase of UBC and even touched 2p before Christmas. Since then it has rallied slightly with two directors making fairly substantial additions to their holdings.

Bill Thompson bought 0.45m shares at 2.25p, which increased his holding to 4.45m shares or 1.5% of the company. Thompson was chairman of InterBulk until December but is now an executive director with a specific focus on building up the group’s Chinese activities.

Non-executive director Jim McColl bought 5.8m shares at 2.3p and 2.75p, increasing his holding to 16.7m shares (5.5% of the company). McColl is most famous for his ownership of Clyde Blowers, which is one of the largest private businesses in Scotland and bought a division of Textron in a $1bn deal last September.

Despite the directors’ optimism, 2009 is going to be a tough year. International trade has been severely curtailed in recent months and InterBulk said there was a notable reduction in volumes from early November.

Although some growth should come through from its new markets in China, Asia and Eastern Europe, this probably won’t be enough to offset a decline in Europe and the Americas. InterBulk’s business does have a high element of variable costs,  for example through renting a proportion of its containers and being able to return 10%-15% in case of a downturn in demand. This should help it weather the current downturn and build on its position once the recovery begins.