ANALYSIS: Aegean Stays Upbeat Despite Annual Loss

Friday March 9, 2018

Greek marine fuel trading company Aegean Marine Petroleum Network [NYSE: ANW] has been through a period of change as profitability has come under pressure and new faces have appeared around the boardroom table. And not just new faces, some old as well, as the company's most recent move -- the HEC acquisition -- brought back the company's founder, Dimitris Melissanidis, as a major shareholder.

But it is profitability that has been in marked decline and it was this that prompted changes at the top of the company.

Founded in 1995, the global marine fuel company was able to ride the wave of increasing global trade as China's entry into the World Trade Organisation and expanding economy boosted world trade.

Aegean listed on the New York Stock Exchange in 2006, a year after a number of Greek shipping firms had sought financial support from the US capital markets. And although the commodity 'super-cycle' came to an end in 2008-9, Aegean went from strength to strength.

Between 2007 and 2016, it increased the number of markets it served from six to 29 while sales volume rose from 3.4 million metric tonnes (mt) to 16.5 million mt, thereby pushing the company into the top spot globally for independent physical bunker supply.

The company's fortunes received a further, unforseen boost when the collapse of the major bunkering outfit, OW Bunker, in late 2014 created more room in the market for existing players.

Aegean scooped up ex-OW assets such as the Vopak bunker storage contract on the US West Coast and moved into new markets -- for example, Russia in early 2015, taking on a bunch of former OW traders.


However, a decade after it listed in New York, the company saw its profitability come under pressure. First quarter results, while showing revenue and sales growth, knocked 90% off profits.

That poor showing prompted root-and-branch change at board level. Out went Nikolas Tavlarios and in came Jonathan McIlroy who joined the company as president in July.

Director Peter Georgiopoulos was also voted out. Justin Yagerman joined the senior management team in October.

However, the changes failed to turn around poor profitability continuing in the second quarter with a loss posted in the third and fourth quarters.

Commenting the company's third quarter resutls, McIlroy said that the "oil markets and the marine fuel sector remain under great pressure with intense competition".

McIlroy repeated the mantra for the company's annual results which saw it make an overall loss although revenue was up over the previous year.

The upshot of weak profitability and tough trading conditions has been rationalisation of the company's operations. In an effort to trim operating costs, Aegean quit  the Singapore market while on the US West Coast, it moved to smaller storage facilities; and in Gibraltar fleet operations were reconfigured.


At the same time, the company has continued to build its global presence. At the tail end of last year, the company said it would be expanding its German operation with physical supply at the Kiel Canal. The company's most recent move was to acquire Hellenic Environmental Center (HEC), a marine services outfit based in Europe which deals with ships' oily waste.

That acquisition bought Melissanidis back into the fold as a major Aegean shareholder (he had been bought out in 2016) since he owns and controls the HEC group of companies.

The move adds another service arm to the Aegean mainstay of the physical delivery of bunker fuel to ships. HEC is seen as a high margin business by Aegean and is expected to contribute to the bottom line in the year ahead.

Looking further ahead, the company is expected to benefit from the changes wrought by the International Maritime Organisation's 0.5% sulfur cap which comes into force in 2020.

In December, Aegean got the thumbs up from its lenders when it agreed a three-year borrowing facility for $750 million with a nine-strong bank syndicate.

While the company has been seen to respond to the tough trading conditions and their impact on its bottom line, not all quarters have been satisfied with its performance.

A group of shareholders representing some 13% of company stock have been openly critical of the way the company has handled itself in the current market.

Calling itself the Committee for Aegean Accountability, the shareholder group is unhappy about the fall in the value of the company's stock. Aegean's share price was around $2.35 in early March compared to around $11 per share a year ago.

The committee has put forward a slate of four directors for election to the board at the next annual general meeting. These directors, the committee says, will help the company address a range of issues around strategy and corporate governance.

US-based analyst Ben Nolan has noted that the HEC acquisition may well frustrate the committee's attempt to promote change at the top of the company.

"Giving the founder 20 million shares [as part of the HEC deal]... enables the company to appoint 'friendly' board members who would not rock the boat," the analyst said in a note.