Plenty in the tank

Q
Why did you choose to invest in the tank storage industry, a sector historically dominated by major oil companies?

BC: The energy sector and, in particular, the oil and gas industry is a sector we have done a lot of research on over the past few years. Through these, we have acquired the conviction that this industry, and especially tank storage, is currently facing several structural issues.

The first one, and the most obvious, is the price environment and the new ‘low for longer’ paradigm, which is putting stock price and the balance sheet of the integrated oil companies under pressure.

The second one, that is possibly less evident, is that downstream and midstream infrastructures are ageing and tend to suffer from a decreasing profitability due to a lasting and ancient lack of investments.

And the third one, stemming from the current changes of the developed countries’ energy policies, is the increasing regulatory requirements that lead them to drive industrial transformations.

Faced with these major challenges, some energy companies have decided to divest their assets in order to strengthen their balance sheets. At InfraVia, we believed early on that this trend could unlock interesting investment opportunities and that, with the right partners and within the right environment, we could create value for these assets.

Q
Precisely what is the story beyond Alkion Terminals and the partnership between InfraVia and Coloured Finches?

BC: Our plan for Alkion is a poster child of our broader buy-and-build strategy which consists of integrating singular assets within an industrial platform and creating value over the long term.

At InfraVia, we have the expertise to source these types of opportunities, have the capital available to grow the platform from the inside out as well as design the appropriate capital and transaction structures for these projects.

On the other hand, our partner Coloured Finches brings to Alkion its unique knowledge and experience in the energy markets and the tank storage industry as Rutger and his partners are former chief executives of the downstream oil industry. We therefore complement each other and they are the best allies we could find for the sake of the development of our common asset.

RVT: As Bruno says, at Coloured Finches we are experienced players in the downstream energy sectors. As an example, I have been personally working for more than 25 years in the tank storage industry that I now know quite well. We also bring to the table senior relationships with strategic players and traders across Europe. We consider that this brings to Alkion a solid and international expertise in management and operations of terminals, which is fundamental to deliver our platform’s business plan. While InfraVia brings more the financing expertise, we bring the industrial component. So, this is quite complementary.

Q
What is your strategy for Alkion?

BC: We are very ambitious for Alkion, as it fits perfectly with our DNA and the core values we all share at InfraVia: look deeply into a sector and find out fundamental and structural trends that offer interesting investment opportunities. For Alkion, our strategy is to follow our conviction and build a strong portfolio of European mid-sized terminals. We are aiming to acquire singular assets, possibly at a complexity discount, and then do the hard work of integrating them in the Alkion platform so that we could have, at exit, a diversified and de-risked infrastructure business.

RVT: I can certainly echo that with an additional emphasis on the quality of the networks within the regional downstream supply chains as well as very strong focus on health and safety, entrepreneurship and operational and top-line improvements.

Q
How do you plan to create value with Alkion Terminals?

RVT: Our conviction is that we will extract additional value through efficiency improvements and synergies across the supply chain. We are currently achieving it by getting actively involved in the daily management of Alkion and hence the growth of its business. Our course of action is to move forward on the activation of four value-creation levers.

The first one is to drive a continuous upgrade and optimisation of platform terminals. For that, especially, our strong expertise, particularly around capex management or revenue enhancements (in particular across products) will be very helpful. The second one is to invest in people, systems or processes to build a fully functional standalone platform. The third one is to drive a continuous and solid engagement with customers.

Last but not least is to optimise Alkion’s capital structure and its financing strategy thanks to the full support and involvement of InfraVia.

Q
On the revenue side, what is your read of the fuel and petrochemicals market?

RVT: The situation of the fuel and petrochemical markets is much more balanced than one can think. Of course, we currently observe a declining demand for gasoline and falling industrial and residential gasoil volumes, due to global mega-trends on fossil energy. However, we also have positive indicators, such as the continuous growth of middle distillates and biofuels. Actually, European fuel demand remains stable, despite the environmental regulation objectives recently rolled out by several developed countries.

Most important is that the imbalance between supply and demand is still increasing, and this trend provides interesting investment opportunities in the sector. We observe this phenomenon on the petrochemical market, too – a market in which export and import flows are significant and demand is growing, driven by GDP growth. Finally, the tank storage industry for petrochemicals is very stable as it is quite a sticky business thanks to its key location in the customers’ supply chain.

Q
How do you plan to generate stable cashflows in such a cyclical sector?

RVT: The oil market is indeed very cyclical, but the tank storage industry is not. Terminals are actually central and strategic hubs in the overall supply chain, especially for local fuel downstream markets. Therefore, they benefit from a quasi-monopolistic position. In this market, the switching costs are so high that the client stickiness is therefore very high, too.

Finally, one structural and distinctive feature of this industry is that it can enjoy a diversified portfolio of clients and products that balances the potential cyclical effects of the oil market.
Q
What have you achieved with Alkion Terminals since 2016?

BC: I think we can be very satisfied with our year-one track record and all we have accomplished with Rutger, Coloured Finches and Alkion’s teams. In fact, within a year, we moved from one terminal to 10 (across five countries) and from a capacity of 80,000 cbm to 1.3 million cbm, which is by all standards a significant leap forward.

RVT: In parallel, we believe that we have managed to integrate each of these acquisitions seamlessly with no disturbances to operations or clients’ services, which is also fundamental. I suppose that we have also managed to launch a new brand from scratch and develop its visibility and reputation in the market. We also drove a significant upgrade of our performance across the portfolio and engaged with the terminal stakeholders (clients, employees, port authorities, etc.) on an accelerated but smooth basis.

Q
What are your medium and long-term perspectives for Alkion?

BC: In the mid-term, we will focus on the development of the platform through bolt-on acquisitions and organic growth. Firstly, originate deals on assets in complementary locations to develop and strengthen the network. Secondly, to continue the optimisation of the operations. Thirdly, will be to prepare its transition into a standalone infrastructure company, with a diversified portfolio of clients and products and its own operating model, resources and processes.

RVT: We will focus on optimising the business plan and performance improvement plans, and we will seek to unlock synergies across the network to generate value. Our long-term objective is to build a leading industrial platform that provides high-quality services for customers across Europe. Health and safety and engagement with our customers are our priorities at the operational level as they will drive value creation over the long term. ?