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January was tough for Stobart Group: it admitted that it couldn't make the Innovate Logistics business work and it had a boardroom battle that ended with a new person taking charge of Britain's biggest haulier By: Christopher Walton STOBART'S ACQUISITION of Innovate Logistics' chilled business from administration in July 2008 for £913,000 was a bold move. It gave Stobart a specialist transport operation, more than 1,300 employees and expectations of an additional £100m of revenue a year.
However, its 2009 annual report struck a more conciliatory note: "Full integration into the Eddie Stobart business resulted in the closure of two sites, resulting in more than 300 essential redundancies."
Then it all went quiet — until October 2012, when the Innovate name reared its head again. Stobart warned that it was still restructuring the Innovate operation four years later, and it was costing an expected £8.4m over the course of its financial year.
Enough was enough for Stobart, and at the end of January it made the shock announcement that it was pulling the plug on its chilled business altogether. It's a move that will see depots in Newark, Lincolnshire and Haywood, Lancashire close. CM understands that staff at both depots have been served with notice that they are at risk of redundancy. Officially, Stobart said there is no further update to its announcement on 17 January.
Uneconomical portfolio CM caught up with chief executive Andrew Tinkler on the day it withdrew from the chilled sector. Innovate opened the door to many customers for Stobart, and gave it a sizeable property portfolio, so it is hard to see the operator having any regrets over snapping up Innovate's assets. But Tinkler conceded that a downturn in volumes of palletised chilled goods made it uneconomical for Stobart Group to continue its chilled division as a viable, profitable business. He also said that the low price per pallet for chilled freight, as well as low volumes, forced the operator to run with part, not full, loads.
"There are other transport companics that have a chilled network. There is only room for so many people in the market," he said, admitting that its chilled commitments for customers would be filled by subcontractors. "Some of the fleet will be downsized and some will move into ambient where we do a lot of full-load trunking. There is less risk in that network," he added.
Four days later, it emerged that it wasn't the only business Stobart was looking to get out of. Having acquired Autologic in August 2012, it moved quickly to get some of the business off its books, disposing of vehicle after-sales division, Stobart Vehicle Services, to rival car transporter firm Paragon Group. As part of the deal, Paragon took on former Autologic sites in Corby, Portbury, Doncaster and five manufacturer locations and said it would be "welcoming 500 new staff".
On the same day the news broke of its withdrawal from the chilled business, Stobart Group — the parent entity of the Eddie Stobart transport and distribution business — issued a profit warning: performance would be below expectations. This did not impress investors and led to a remarkable sequence of events at the senior management of a company that is rarely out of the headlines.
Long-serving non-executive chairman Rodney Baker-Bates stepped down from the board of directors with immediate effect. He had been with the firm since 2007, the same year Stobart Group started trading on the Stock Exchange.
Non-executive director Derek Beever also stepped down.
Baker-Bates was replaced, with immediate effect, by Avril PalmerBaunack — formerly the boss of Autologic and deputy chief executive at Stobart Group until her promotion.
Tinkler is conciliatory in his only statement regarding Palmer-Baunack's new role: "To meet the challenges and opportunities in our strategy, the board believes it is appropriate that Stobart is headed by an executive chairman.
"In the relatively short time that she has been with the group, Avril has demonstrated to the board that she is the right person to carry out this demanding role. We look forward to supporting her leadership and I look forward to continuing to work with Avril to deliver the inherent value of our business."
Palmer-Baunack sold Autologic, a firm with a i114m turnover and a £3.3m pre-tax profit, to Stobart Group for £12.6m last year.
The next day, the Financial Times reported that fund management firm Invesco had been influential in Palmer-Baunack's promotion, with head of equity Neil Woodford personally backing it. Invesco owns 36.69% of all shares in Stobart Group — about £126m at the time of writing — but a spokeswoman for Invesco said: "This isn't something we wish to comment on."
Rationalisation Pressure like this from the City is something that will really put the spotlight on Stobart. Jonathan Jackson, head of equities at stockbrokers and advisors Killik & Co, tells CM that if Invesco had supported Palmer-Baunack's rise to the top at Stobart Group "it would address one of our main issues with the stock — that the portfolio is too widely spread".
He added: "I'm conscious that the prospect of a portfolio rationalisation is likely to have a beneficial effect on the share price." That means that Stobart could put some of its assets up for sale, including anything from under-performing parts of the transport business to London Southend airport and Carlisle Lake District airport.
"We are concerned about the broadening spread of the group, the ability to execute in a number of areas, and the level of financial gearing, all at a time of heightened macro-economic uncertainty," says Jackson. As a stock picker, he is advising those with the cash to reduce the number of shares they have in the business.
It is fair to say that the Stobart rumour mill has kicked into overdrive recently. Rarely does a day go past without CM receiving another unsubstantiated tip-off that the company is up to something. But at the end of February (the close of its financial year), it is likely to have transport and distribution operations generating an annual turnover in excess of £600m — when you combine Eddie Stobart and Autologic numbers. That is more than the combined turnover of Turners (Soham); Malcolm Group; Fowler-Welch and ECM (Vehicle Delivery Service).
So while the spotters' club has no reason to be worried, it's true that a very different Stobart Group could emerge this year. •