INTERVIEW: KPI OceanConnect CEO On a Difficult Post-Merger First Year

Søren Høll continued as CEO of the newly-merged KPI OceanConnect after its formation last year. Image Credit: KPI OceanConnect

_

• Sees profits and volumes rising over the next year
• Strongest growth in Asia
• Carried out first carbon offset deal a month ago
• Travel restrictions may be holding back M&A activity

KPI OceanConnect experienced something of a baptism of fire in its first year as a merged company. 

KPI Bridge Oil and OceanConnect Marine merged in July of last year, having announced the plan in February. Coming out of the highs of the IMO 2020 transition, the bunker industry then hit the COVID-19 crisis, the collapse of Ocean Bunkering Services and GP Global and ensuing tighter credit conditions.

But CEO Søren Høll is more than satisfied with the firm's performance in its first year in its new identity, he said in an interview with Ship & Bunker this week.

"My expectations have been fulfilled more than 100%, bearing in mind what we are up against with a pandemic, and the majority of employees working from home," he said.

"Everybody has done a terrific job here.

"We have already been able to reap some synergies by merging offices in London and Korea, and we have added a couple of new dots to our map."

Growing Market Share

This week the firm reported its volumes increased by 26.5% in the year to April 30, compared with the same period a year earlier.

"In the three major time zones -- the Americas, EMEA and Asia -- we have seen growth across all three," Høll said.

"If we should point out a particular area or region, then it's Asia. But the growth trend is clear in all three."

The shift of global bunker demand towards Asian ports has been a trend noted in the bunker market for several years now. Within Asia the company noted the strongest growth in Singapore, South Korea and China, Høll said.

The company also reported earnings before tax of $15.1 million in the 2020/21 financial year. That compares with pre-tax earnings of $28.5 million for KPI Bridge Oil alone in the previous year. The company cited one-off merger costs and the pandemic as the main reasons for the decline.

Neither company revealed the price paid by KPI Bridge Oil for OceanConnect, but Ship & Bunker sources at the time of the announcement suggested a price rumoured to be in the range of $7-10 million.

Room for Improvement

Høll expects to see improvements in both volumes and profits this year.

"I expect further growth in volume -- maybe not as much as the last year, but we are definitely in growth mode," he said.

"I would also say on the result that we expect growth this year."

That growth will be driven by customers seeking out higher-quality suppliers, he argues.

"I think there will be a higher degree of assessment of counterparties," Høll said.

"You will be rewarded for the value that you can add. The growth will come from the existing partners we have, plus we will actually expand our reach even further with the new offices we have added to our map."

Commodity Giants Join the Fray

But the company will now face tougher competition as it seeks to gain market share and increase margins. The biggest global commodity firms are increasingly muscling in on the bunker industry, with recent announcements of bunker businesses from Vitol and Hartree following earlier similar moves by Trafigura and Mercuria.

A range of smaller companies have also announced expansions or new supply operations this year.

"I've always had the view that competition is healthy, and I feel that we are in a very strong position in the value chain," Høll said.

"They will only ensure that we are kept on our toes. It will only be a benefit for our partners, and for the buyers, in the end."

Competition will also come in the job market for bunker traders.

"Competition for the most talented people will always be tough," Høll said.

"That's one reasons why I am very happy and pleased with the merger, because we added several very skilled people to our team, and have seen many promotions within our offices."

Decarbonisation Challenge

Both new entrants and established players in the bunker industry will increasingly have to take on the thorny issue of how to work with the decarbonisation of shipping. Several bunker companies have announced plans in this regard this year, setting up new LNG and biofuel supply operations or carbon offsetting.

"Our approach to decarbonisation towards 2030 and 2050 is to keep our eyes and ears open, be open-minded, and acknowledge that there is not one single pathway to this," Høll said.

"We haven't put our eyes on a fixed product, and we're working behind the scenes to ensure we're available to provide our customers with whatever fuel they need."

KPI OceanConnect carried out its first carbon offset deal with a customer about a month ago, Høll said.

"I think we are all exploring virgin land here; we have to gain knowledge and experience on this," he said.

"We also expect fossil fuels to stick around for a number of years."

Mergers and Acquisitions

The KPI OceanConnect merger was the first M&A activity in the new IMO 2020 era, and the new company has consistently shown appetite for further moves in this regard since then. But Høll suggested that the way COVID-19 has almost stopped international business travel may have stymied this activity.

"We are definitely interested in further acquisitions and consolidation," he said.

"But as I've said before, we are only at the stage where it's coffee talks, and I think as soon as we can meet up in person, then it will give us more opportunities to discuss more firm plans.

"I expect more will materialise within the next 18-24 months."