Part two: “two tribes” what exactly was the game-changing event?

We made the editor’s email in Fuel OIL News (FON): “Quick to speculate as to the implications of such an acquisition by a ‘superpower’ was Chris Pomfret of Community Buying unLimited”. Thank you for the reference, Jane Hughes, but here’s the thing, I wasn’t basing my piece on speculation, I just pieced together the very clear evidence. Likewise, my non-speculation is not about that one takeover specifically, because that was not in itself the game-changing event. Let me explain with another question:

Why would a Fortune 500 company – a giant of corporate America – choose to buy Linton Fuel OILs? As much as I would love it to be true, I am guessing it wasn’t just so they could meet the Queen: “Royal warrant holder, Linton Fuel OILs, recently took part in the Coronation Festival at Buckingham Palace..the World Fuel Services management team attended an evening gala” (as reported in FON). Now I know we are talking about uber-wealthy Americans, and we know what they think about our royal family, but this is a business that has become what it has become almost certainly not by making too many decisions based on emotion. So whilst I have zero doubt the idea of a Royal Warrant is one that would appeal to Michael J Kaspar in many ways, I think we can look for other reasons, like the real estate maybe? I am not sure it is generally known what was paid, but what I do have on pretty good authority is the deal didn’t include the freehold to some extremely desirable bank of the River Thames real estate owned by Lintons. Which means, still looking for a reason, isn’t it as simple as World Fuel Services seeing just what taking over an OIL supplier in the UK actually entailed, what the challenges would be, what the pitfalls may be to look out for if, for example, they were considering something much larger. Of course, I may be wrong on chronology, because I am not sure exactly when the rumours began that they were in the market for the major acquisition they completed last week, but which ever began first, the same reason for buying a much smaller supplier still applies. The major point is that they were honing their skills, two acquisitions have been made and so a second superpower has entered the fray – that might seem like the game-changing event explained in full, but not quite. 

Why would World Fuel Services set sail and head so far downstream?  As I said I just followed the trail and put the pieces together. Again reported previously in FON, Craig Roberts, managing director of inland distribution at World Fuel Services (Europe) said “As the oil majors move more upstream, opportunities are opening up downstream for new refiners and suppliers like ourselves”. Now my guess is that most people who read that would not have thought those “opportunities” meant right down into the business of getting 500 litres of Kerosene into Mrs Miggins’ old metal OIL tank, but that is clearly exactly what was implied. He went on to add: “we would obviously like an increasing number of companies to use our services in the future”. Obviously the easiest way to get the largest remaining OIL supplier, still available to takeover, to use their services was to take it over! Finally, when FON invited him to comment on the future of the Heating OIL industry he said: “continued consolidation is to be expected in both supply and distribution. Competition will remain strong but concentrated in fewer hands as smaller distributors find it increasingly difficult to survive”. Is anybody else getting that Craig was giving us a road map as to what World Fuel Services was about to do: why are any of us surprised? Their plan is very, very clear isn’t it?

What are the actual aspirations of World Fuel Services in the UK market?  They have just spent £117 million. However, it is rather more apt to state that in dollars, because this business just went international. So they paid $191 million. In a near $40bn turnover business, that may well be a fairly insignificant amount, but seriously for this company it is not.  This is a company that doesn’t do showy and it doesn’t do frivolous. This is a company that doesn’t appear to take wrong turns. So what are they up to? No need to speculate, they have stated their intention just as clearly as the road map above: “Combined with our existing land business in the United Kingdom, this transaction will further solidify Watson’s position as one of the largest distributors of ground-based fuels in the United Kingdom and will provide a platform for further growth in the ground fuels space in the United Kingdom”, direct from Michael J Kaspar, President and Chief Executive of World Fuel Services. There it is then, how much clearer statement could we ask for: “a platform for further growth”. If that is said out loud what is already occurring that we don’t yet know? The UK heating OIL market is rapidly changing I said it in the first Two Tribes, by 2020 it will not look anything like it does now. However, did I say just the UK? Get this, the above quote doesn’t end where I cut it off, Mr Kaspar completed the sentence with: “and elsewhere in Europe.” These are truly interesting times.

What have DCC been doing whilst this game-changing was going on? Remember superpower one with their incredible growth since listing in Dublin in 1994, with revenues having grown from €200m to €10.7bn in the year to the end of March 2012, and now operating across 13 European countries: you think they have been sat watching and waiting? Oh no they have been very, very busy. DCC doesn’t do sitting and watching does it? Just in case you missed it not only have they been busy, they have also been extremely clever. October last year DCC made their own major development. They killed off the brand under which they had grown their UK based Heating OIL empire. 

GB OILs is dead, long live Certas Energy. This is a piece of genius. Corporate genius that is. With a brand change has come a culture change. If you didn’t know – where have you been – and if you haven’t bothered to take a look then I suggest you do so now: Firstly, you will see a completely different type of an animal – this is the site of a huge corporation not an OIL supplier. Of single most importance everything you have wanted to know about what GB OILs actually did to get to where they got to is running along the bottom of every page. Just go and take a look. There is so much more than just that, but that alone is such a huge leap from the opaque nature in which many have said they have grown their business, and that absolutely includes me, into an age of transparency. With it comes a clear insight into what DCC, under the rebranding of Certas Energy, is doing. I completely get it. I didn’t, but I do now, and it is seriously clever. They are ready for battle, because: “When two tribes go to war, one gets all and two can’t score”. 

That is it…the mighty have readied themselves as we move from an era of hegemony to one where dominance is once again to be battled over. That is the game-changing event. So if they have readied themselves and you are in the business of supplying OIL, then you might want to be thinking that you should too.

What type of a company could possibly grow quicker than Apple?  If you have any doubt about what I am saying then google which company just squeezed out Apple as the fastest growing company in the Fortune 500 over the last ten years. I will give you one guess. They have achieved annual growth at a rate of 39.8%. That is almost unfathomable growth and they beat about the sexiest business, with the most desired products, on planet earth.

Just what is the future of heating OIL?  I stated before that I have zero doubt who will win and I am even more convinced now. One thing for sure is Jane Hughes sees it right: “An interesting and exciting future” she called it. But more to the point, what do you think?