MPAY.L Regulatory News (MPAY)

7 Dec 2005 07:00

Autoclenz Holdings PLC 07 December 2005 Autoclenz Holdings plc ('the Company' ) Placing of 10,400,000 Ordinary Shares at 125p per share and admission to trading on AIM Autoclenz is the UK's leading outsourced car valeting and vehicle preparation services providers, and one of the leading specialist providers of rapid response deep cleaning and emergency decontamination services in the UK. KEY POINTS • The Company ('Autoclenz' or 'the Business') has been formed to acquire the entire issued share capital of Autoclenz Limited, from Yule Catto & Co. plc ('Yule Catto'), for £18 million, funded by a Placing of shares to raise £13 million and £5 million of bank debt. • Autoclenz was acquired by Yule Catto in 1990 and has been consistently profitable and cash generative. • The Directors believe that Autoclenz is the only outsourced market participant that offers nationwide 'bundled' car valeting and vehicle preparation services, and therefore competes primarily on the breadth and quality of its service provision and its nationwide capability, as well as the strength of its client relationships. • The car valeting and vehicle preparation business has a blue-chip client base and comprises some of the best known names in the UK new and used car distribution market, including prestige marques. • The Directors estimate that the total market for basic car valeting services in the UK was approximately £350 million in 2003, though this is still dominated by 'in-house' providers, providing valuable growth opportunities to Autoclenz as the trend towards outsourcing continues. • A specialist cleaning business ('REACT') is a growing element of the Business, whose clients are predominantly public sector, including the police force and prison service. • The Directors believe that separation of the Business from Yule Catto, together with Admission, will provide them with a more favourable environment in which to more fully evolve and implement the Business' strategic direction. • Following a period during which the Business has been successfully focused on enhancing the profitability, Autoclenz has now commenced implementation of a new strategy with a view to achieving sustainable growth in revenue, as well as profitability. The Directors believe that there is significant growth potential available by expanding the Business' brands nationally (in particular the Pinnacle and AC SMART brands) and by capturing new business as it continues to be outsourced. The Directors expect that, as the growth in public sector outsourcing continues, the REACT business will widen its national coverage and develop new markets. • The majority of the executive directors and senior management team have been with the Company for many years, in addition to which John Bell, the Company's non-executive Chairman, was part of the Yule Catto group when Autoclenz was acquired in 1990 and was instrumental in Autoclenz's integration into the Yule Catto group. • KBC Peel Hunt is acting as Nominated Adviser and Broker to Autoclenz John Bell, Chairman of Autoclenz, comments: 'I am delighted by the response of investors to our Placing. We believe that Autoclenz has a strong and unique position within the UK vehicle valeting market, with significant opportunities for further growth of both our core activities, our premium businesses and our specialist cleaning buisness, REACT.' 7 December 2005 ENQUIRIES: Autoclenz Holdings plc Tel: 08707 510410 Graeme Rummery, Managing Director Trevor Clingo, Finance Director KBC Peel Hunt Tel: 020 7418 8900 Julian Blunt Matt Goode College Hill Tel: 020 7457 2020 Gareth David Matthew Gregorowski PLACING STATISTICS Placing Price 125p Number of Existing Ordinary Shares 20 Number of Placing Shares 10,400,000 Number of Ordinary Shares in issue on Admission 10,400,020 Market capitalisation at the Placing Price £13 million Gross proceeds of the Placing receivable by the Company £13 million Net proceeds of the Placing receivable by the Company £12.5 million BACKGROUND The Company was recently incorporated for the purpose of acquiring the entire issued share capital of Autoclenz. Autoclenz is the UK's leading outsourced car valeting and vehicle preparation services provider, and one of the leading public sector specialist providers of rapid response deep cleaning and emergency decontamination services in the UK. The Acquisition Following a strategic review of its business, Yule Catto, a public limited company listed on the Official List has decided to dispose of the entire issued share capital of Autoclenz. Accordingly the Company has today acquired Autoclenz for a total consideration of £18 million. The Company has also raised £13 million via the Placing of 10.4 million new Ordinary Shares at a price of 125p per share. Autoclenz Overview The business of Autoclenz was acquired by Yule Catto from administrative receivers in 1990. Since then, Autoclenz has grown significantly and currently the Directors estimate the Company had an estimated 26 per cent. share of the UK outsourced car valeting market in the year to 31 December 2003. Autoclenz has introduced further offerings to its core business of car valeting, including motor trade repair services and the provision of temporary labour to other car valeting businesses. Autoclenz tailors its valeting service offering according to customer requirements and hence provides its services under different brand names. Autoclenz has also built up a specialist cleaning, decontamination and waste removal services business, primarily for public sector clients. Services Car Valeting and Vehicle Preparation Services Autoclenz is the leading participant in the UK outsourced car valeting market and provides its valeting services under two principal brands, Autoclenz and Pinnacle. It is the only nationwide outsourced provider of car valeting and vehicle preparation services, and typically manages between 1,000 and 1,250 sub-contracted operators on a daily basis. Autoclenz currently carries out work on approximately 230 different client sites at any one time, with on-site operations supported by mobile teams across the UK. This breadth and scale of operations provides Autoclenz with a unique capability to respond rapidly to its clients' requirements nationally. The operation of a flexible labour model, using sub-contracted operatives, enables the Business to redirect resources and control staff costs in line with revenue generation. Autoclenz Under the main Autoclenz brand, the Business provides mainstream valeting services to retail franchised car dealerships, car supermarkets and auction centres. It also provides valeting services to daily rental operators and the accident vehicle replacement industry, as well as preparation and valeting services to large volume preparation and refurbishment sites. Together, the core valeting businesses accounted for 77.8 per cent. of sales in 2004. Key customers include Autologic, Avis, British Car Auctions, CD Bramall, National Car Rental, Inchcape and Pendragon. Pinnacle Pinnacle is a specialist valeting operation for prestige marque dealerships, such as Audi, BMW, Jaguar and Mercedes. Pinnacle accounted for 13.2 per cent. of 2004 sales. SMART Repair Services ('AC SMART') Autoclenz launched its AC SMART range of products and services in 2002, comprising bodywork, windscreen, and upholstery repairs. A dedicated team of approximately 19 fully trained Small to Medium Area Repair Technology ('SMART') repair technicians work throughout the UK, either at customers' premises or operating as a mobile service covering dealerships within a specific geographic location. The AC SMART range of products and services seeks to add value for customers by offering a 'one-stop shop' for a range of services related to vehicle preparation. The Directors believe that this acts as a strong differentiator for Autoclenz in the market place. Autoclenz is the only substantial car valeting operator to provide a multi-service offering to the UK outsourced sector, and the Directors believe that there is considerable potential to cross-sell its AC SMART services into existing valeting clients. AC SMART accounted for 3.1 per cent. of sales in 2004. AC SMART acts for distributors of major car brands, such as International Motor Holdings and Sandicliffe Motor Group, as well as lease disposal companies, such as Black Horse Motors. Additional Labour Supply ('ALS') ALS was established by Autoclenz in late 2004 with a view to offering customers flexibility in maintaining adequate staffing levels in the face of unpredictable volume increases, unexpected fluctuations in demand for valeting, and staff absences through holiday or illness. ALS provides trained subcontractors at short notice on short, medium or long-term contracts covering a range of skills including pre-delivery inspection ('PDI') technicians, service engineers, auto electrical and electronics engineers and SMART repairers. ALS also allows Autoclenz to demonstrate the benefits of outsourcing to customers who previously retained car valeting and vehicle preparation services in-house, thereby positioning Autoclenz strongly to capture new business if it is subsequently outsourced. Since its launch, typically one of every five accounts which have used ALS services has subsequently outsourced its valeting business to Autoclenz. ALS accounted for less than 1 per cent. of turnover in 2004. Specialised Cleaning, Decontamination and Waste Removal Services ('REACT') Autoclenz established REACT in 1991 to offer flexible rapid response specialist decontamination services. The Police and the Prisons Service were among REACT's original clients, although these accounted for less than one third of its sales in 2004. Core services provided to the Police and the Prisons Service include decontamination work on motor vehicles and police and prison cells. REACT is a licensed waste carrier, which is fundamental to the business which it undertakes as it allows the Company to remove and transport certain items including clinical waste, body parts and sharps. Compliance with the license requires REACT to have a fully traceable system that certifies the point of the waste collection and disposal, date and time. As REACT's customer base has expanded, so has the scope of its service offering, which now includes clearing and cleaning void properties, fire/flood clearance, graffiti removal, sharps removal (for example hypodermic needles) and disposal, railway track decontamination, and motorway/highway road decontamination, often following serious incidents. Since its formation in 1991 REACT has grown its revenues and profits consistently and accounted for 5.8 per cent. of turnover in 2004. REACT provides over half of its business to the public sector. Car Valeting Services Markets The UK car valeting market is principally driven by car transactions, both in new and used cars, each of which requires a car to be valeted. The Directors estimate that the total market for basic car valeting services in the UK was approximately £350 million in 2004. The Directors estimate that the outsourced car valeting market represents approximately one quarter of the total market, giving Autoclenz significant scope for growth as the trend towards outsourcing increases. In the main however, car valeting services are still provided 'in-house', accounting for approximately three-quarters of the market. The Directors estimate that Autoclenz accounts for approximately 26 per cent. of the UK outsourced market and is accordingly the largest single participant. The franchised car dealerships sector is the largest consumer of outsourced car valeting services. There are approximately 6,230 retail franchised car dealerships in the UK, of which 934 are prestige marque dealerships, equivalent to approximately 15 per cent. of the total market (Source: Auto Retail Network Franchising Report, 2005). Autoclenz provides services to approximately 230 franchised dealerships in the UK, equivalent to just 3.8 per cent. of the total. Valeting and vehicle preparation services are also required in other smaller segments of the market, namely rental companies (comprising car rental providers both at airport and city centre locations, and emergency accident market companies), auction houses (comprising national as well as local operators) and volume import and distribution sites owned by, for example, logistics suppliers, manufacturers and banks. Within the car dealership network, principal drivers for car valeting volumes include the level of new car registrations, the volume of used car sales, and the volume of car servicing which itself is a function of the number of cars on the road. The car valeting services market, in which Autoclenz operates, is growing ahead of these underlying drivers as dealers and other end users continue to outsource these activities. The Society of Motor Manufacturers and Traders Limited ('SMMT') represents the UK automotive industry, and records data on new registrations, used car sales and total cars on UK roads. Between 1999 and 2004, annual UK new car registrations grew by an annual average compounded rate of 3.2 per cent. In the first six months of 2005, new car registrations have fallen in comparison with the highest level of registrations in 2004, driven in part by the impact of a weaker economic environment and the closure of MG Rover's Longbridge plant. SMMT is forecasting 2005 total new car registrations at 2.45 million units. The volume of used car sales in the UK, according to SMMT, was 7.7 million units in 2004, which represents over three times the number of new car registrations and reflects an annual average compounded growth rate of 4.6 per cent. Of this figure, the Directors estimate that over 50 per cent. were transacted through the dealership market (comprising both franchised car dealerships and independent used car outlets), with the remainder through the private-to-private channel. Within the independent used car network, one of the fastest growing segments is the 'Car Supermarket' which offers significant potential for car valeting services providers given the high volume of cars sold and further scope for SMART services. Trading Record The financial information for the three years to 31 December 2004 and the 6 months ended 30 June 2005 is as follows: 2002 Year ended 31December 6 months (audited) ended 30 2003 2004 June (audited) (audited) 2005 (audited) £'000 £'000 £'000 £'000 Turnover 20,282 23,658 24,341 12,346 Operating profit 651 1,515 1,867 1,287 Net cash inflow from operating activities 1,206 1,276 2,394 1,252 Operating profit margin (%) 3.2 6.4 7.6 10.4 Autoclenz has focused its attentions in recent years on increasing its margins and improved cost control following a period of strong sales growth during the late 1990s, the success of which is reflected in the above operating profit margin trend. Sales increased by 16.6% from 2002 to 2003 due to increased daily rental valet business and the winning of a substantial contract with a prestige motor manufacturer. The increase in sales of 2.9% from 2003 to 2004 was mainly driven by the Pinnacle and REACT businesses, and the increased contributions from these have driven margin improvements. Autoclenz's net cash inflow from operating activities has increased by 98.5% from 2002 to 2004 reflecting the strong cash generation of the Business. Whilst revenues for the first half of the current year are 1.7% below the same period last year (reflecting some softening in the motor industry as well as a change in sales personnel during late 2004, the effect of which impacted the start of the current year), operating margins and cashflow have continued to be strong. Current Trading and Prospects Since 30 June 2005 the Business has continued to trade in line with the Directors' expectations. Notwithstanding recent evidence of relatively poor levels of new car registrations during September 2005 the Directors believe that the spread of the Business' customer base does not leave the Company particularly exposed to any one individual market segment. Whilst the Company will be exposed to overall levels of economic activity, which will clearly influence the motor industry more generally, the Directors do not believe that new car registration volumes are a significant factor in isolation. The Directors believe that Autoclenz is well placed to benefit from the expected increase in outsourcing of non-core services, both in the car valeting and specialist cleaning sectors, as well as the Company's strategy to drive sales and margins through the expansion of, in particular, the AC SMART, Pinnacle and REACT businesses. The Directors believe that the Company's profitability will be enhanced by increasing levels of work undertaken on behalf of local authority customers by the REACT business, the contractual basis for which is different to that for car valeting customers. Accordingly the Directors are confident as to the Company's prospects for the remainder of the current financial year and beyond. Strategy The Directors believe that Autoclenz is the only market participant that offers nationwide 'bundled' car valeting and vehicle preparation services, and therefore competes primarily on the breadth and quality of its service provision and its nationwide capability, as well as the strength of its client relationships. Building such a network to meet the needs of clients that operate on a national basis represents a significant investment by, and a significant competitive advantage for, Autoclenz. Following a period during which the Business has been successfully focused on enhancing profitability, Autoclenz has now commenced implementation of a new strategy with a view to achieving sustainable growth in higher margin operations. The Directors believe that there is significant growth potential available by expanding the Business' brands nationally and by capturing new business as it continues to be outsourced. The new strategy to achieve this is based upon: • Geographic expansion: The Directors have identified a number of clear expansion opportunities involving the spread of the Pinnacle, AC SMART and Ready to Rent businesses in particular to other geographic locations. • Cross-selling: Given its unique scale and breadth of service offering, the Directors believe that there is considerable further potential to cross-sell its services into existing clients and to drive new business, for example AC SMART's services to existing core car valeting customers. • Clear delineation of the individual brands within the Business with dedicated ownership at budgeting and operational levels. This has involved, and continues to involve, a restructuring of the Business' sales force, though no exceptional costs are expected to be incurred in doing so. • Use of Information Technology: The Business operates a proprietary database of new business opportunities to direct and manage its sales force, in addition to which Autoclenz has also invested significantly in information technology to assist in enhancing customer service levels. The improvement in customer service levels has resulted in a reduction in business churn and the Directors believe that there is scope to reduce this still further. REACT's strategy is to solidify its position as a 'first call' service company for specialist decontamination activities. REACT provides over half of its business to the public sector. As the growth in public sector outsourcing continues, the Directors intend to widen REACT's national coverage and develop new markets by recruiting specialists to negotiate and gain new business in specific niche market areas. The Directors believe that the opportunity exists to accelerate growth in REACT, through a more rapid roll-out. Should opportunities arise the Directors would consider acquisitions as a means of developing REACT. Likewise, the Directors would consider adding complementary skill-sets to REACT's business by recruiting teams of suitably qualified personnel. Whilst the Business' historic ownership by the Yule Catto group has engendered sound business practices and financial controls, the Directors believe that separation of the Business from Yule Catto group, together with Admission to AIM, will provide them with a more favourable environment in which to more fully evolve and implement the Company's strategic direction. DIRECTORS AND SENIOR MANAGEMENT John Bell, 61 (Non-executive Chairman) John joined Yule Catto in 1982 and was a director of several of Yule Catto's subsidiaries until his retirement in 2004. In 1990 he was appointed Chief Executive of Consumer Chemicals Division (which coincided with the acquisition of Autoclenz) and as Executive Chairman of Autoclenz he supported the management in the integration of the Business into the Yule Catto group. Grahame Rummery, 57 (Chief Executive) Grahame has been Managing Director of Autoclenz since June 1990, and has led the Business to its current performance levels. His career started with Arrow Chemicals in 1978, undertaking various roles culminating in his promotion to sales director, following the acquisition of Arrow Chemicals by Yule Catto in 1984. Grahame joined Autoclenz as Managing Director following its acquisition by Yule Catto in 1990. He has overseen the growth of the Business from sales of £4.2 million in 1990 to £24.3 million in 2004, and has been instrumental in developing the Business from a pure car valeting company into the more broadly based service business it is today. Trevor Clingo ACMA, 44 (Finance Director) Trevor is a chartered management accountant with over 15 years experience in senior finance roles. Trevor joined Autoclenz as Finance Director in May 2004 and previously spent a large proportion of his career in a variety of senior positions at Christian Salvesen plc. From 1998 to 2004 Trevor was Finance Director of Salvesen Food and Consumer UK, the largest division, measured by both turnover (£300 million) and profit. In this position, he was fundamental to the strategic development of the division and directly responsible for delivering cost savings and improved efficiency across 57 sites. Michael Stone FCA, 53 (Non-Executive Director) Michael is a chartered accountant and former partner of Ernst & Young LLP (' Ernst & Young'). He joined Ernst & Young in London in 1976 and qualified in December 1979. In 1981 he was seconded to the Department of Trade & Industry for two years before re-joining the firm and becoming a partner in 1987. Shortly after admission to the Ernst & Young partnership, in London, he began to specialise in Corporate Finance work. Michael has extensive experience of working with both quoted and private businesses, and since leaving Ernst & Young in April 2002 has operated as a consultant and non-executive director. In addition to the Directors, Autoclenz has a very experienced senior management team, each of which has had at least sixteen years' service with either Autoclenz or other Yule Catto group companies. The Business currently employs 165 people and manages between 1,000 and 1,250 sub-contracted operators on a daily basis. DIVIDEND POLICY The Company intends to pay a progressive dividend and will adopt a policy having regard to market yields, though always subject to the availability of cash and dividend capacity. In the absence of unforeseen circumstances the Directors expect that the first dividend will be payable in respect of the half year period to 30 June 2006. This information is provided by RNS The company news service from the London Stock Exchange