7th Dec 2005 07:01
Autoclenz Holdings PLC07 December 2005 Autoclenz Holdings plc("the Company" ) Placing of 10,400,000 Ordinary Shares at 125p per shareand admission to trading on AIM Autoclenz is the UK's leading outsourced car valeting and vehicle preparationservices providers, and one of the leading specialist providers of rapidresponse 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 thatAutoclenz has a strong and unique position within the UK vehicle valetingmarket, with significant opportunities for further growth of both our coreactivities, our premium businesses and our specialist cleaning buisness, REACT." 7 December 2005 ENQUIRIES: Autoclenz Holdings plc Tel: 08707 510410Graeme Rummery, Managing DirectorTrevor Clingo, Finance Director KBC Peel Hunt Tel: 020 7418 8900Julian BluntMatt Goode College Hill Tel: 020 7457 2020Gareth DavidMatthew Gregorowski PLACING STATISTICS Placing Price 125pNumber of Existing Ordinary Shares 20Number of Placing Shares 10,400,000Number of Ordinary Shares in issue on Admission 10,400,020Market capitalisation at the Placing Price £13 millionGross proceeds of the Placing receivable by the Company £13 millionNet proceeds of the Placing receivable by the Company £12.5 million BACKGROUND The Company was recently incorporated for the purpose of acquiring the entireissued share capital of Autoclenz. Autoclenz is the UK's leading outsourced carvaleting and vehicle preparation services provider, and one of the leadingpublic sector specialist providers of rapid response deep cleaning and emergencydecontamination services in the UK. The Acquisition Following a strategic review of its business, Yule Catto, a public limitedcompany listed on the Official List has decided to dispose of the entire issuedshare capital of Autoclenz. Accordingly the Company has today acquired Autoclenzfor a total consideration of £18 million. The Company has also raised £13million via the Placing of 10.4 million new Ordinary Shares at a price of 125pper share. Autoclenz Overview The business of Autoclenz was acquired by Yule Catto from administrativereceivers in 1990. Since then, Autoclenz has grown significantly and currentlythe Directors estimate the Company had an estimated 26 per cent. share of the UKoutsourced car valeting market in the year to 31 December 2003. Autoclenz hasintroduced further offerings to its core business of car valeting, includingmotor trade repair services and the provision of temporary labour to other carvaleting businesses. Autoclenz tailors its valeting service offering accordingto customer requirements and hence provides its services under different brandnames. Autoclenz has also built up a specialist cleaning, decontamination andwaste 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 marketand provides its valeting services under two principal brands, Autoclenz andPinnacle. It is the only nationwide outsourced provider of car valeting andvehicle preparation services, and typically manages between 1,000 and 1,250sub-contracted operators on a daily basis. Autoclenz currently carries out workon approximately 230 different client sites at any one time, with on-siteoperations supported by mobile teams across the UK. This breadth and scale ofoperations provides Autoclenz with a unique capability to respond rapidly to itsclients' requirements nationally. The operation of a flexible labour model,using sub-contracted operatives, enables the Business to redirect resources andcontrol staff costs in line with revenue generation. Autoclenz Under the main Autoclenz brand, the Business provides mainstream valetingservices to retail franchised car dealerships, car supermarkets and auctioncentres. It also provides valeting services to daily rental operators and theaccident vehicle replacement industry, as well as preparation and valetingservices to large volume preparation and refurbishment sites. Together, the corevaleting businesses accounted for 77.8 per cent. of sales in 2004. Key customersinclude 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. of2004 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 ofapproximately 19 fully trained Small to Medium Area Repair Technology ("SMART")repair technicians work throughout the UK, either at customers' premises oroperating as a mobile service covering dealerships within a specific geographiclocation. The AC SMART range of products and services seeks to add value forcustomers by offering a "one-stop shop" for a range of services related tovehicle preparation. The Directors believe that this acts as a strongdifferentiator for Autoclenz in the market place. Autoclenz is the only substantial car valeting operator to provide amulti-service offering to the UK outsourced sector, and the Directors believethat there is considerable potential to cross-sell its AC SMART services intoexisting valeting clients. AC SMART accounted for 3.1 per cent. of sales in2004. AC SMART acts for distributors of major car brands, such as InternationalMotor 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 customersflexibility in maintaining adequate staffing levels in the face of unpredictablevolume increases, unexpected fluctuations in demand for valeting, and staffabsences through holiday or illness. ALS provides trained subcontractors atshort notice on short, medium or long-term contracts covering a range of skillsincluding pre-delivery inspection ("PDI") technicians, service engineers, autoelectrical and electronics engineers and SMART repairers. ALS also allows Autoclenz to demonstrate the benefits of outsourcing tocustomers who previously retained car valeting and vehicle preparation servicesin-house, thereby positioning Autoclenz strongly to capture new business if itis subsequently outsourced. Since its launch, typically one of every fiveaccounts which have used ALS services has subsequently outsourced its valetingbusiness to Autoclenz. ALS accounted for less than 1 per cent. of turnover in2004. Specialised Cleaning, Decontamination and Waste Removal Services ("REACT") Autoclenz established REACT in 1991 to offer flexible rapid response specialistdecontamination services. The Police and the Prisons Service were among REACT'soriginal clients, although these accounted for less than one third of its salesin 2004. Core services provided to the Police and the Prisons Service includedecontamination work on motor vehicles and police and prison cells. REACT is alicensed waste carrier, which is fundamental to the business which it undertakesas it allows the Company to remove and transport certain items includingclinical waste, body parts and sharps. Compliance with the license requiresREACT to have a fully traceable system that certifies the point of the wastecollection 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, oftenfollowing serious incidents. Since its formation in 1991 REACT has grown itsrevenues and profits consistently and accounted for 5.8 per cent. of turnover in2004. 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 innew and used cars, each of which requires a car to be valeted. The Directorsestimate that the total market for basic car valeting services in the UK wasapproximately £350 million in 2004. The Directors estimate that the outsourced car valeting market representsapproximately one quarter of the total market, giving Autoclenz significantscope for growth as the trend towards outsourcing increases. In the mainhowever, car valeting services are still provided "in-house", accounting forapproximately three-quarters of the market. The Directors estimate thatAutoclenz accounts for approximately 26 per cent. of the UK outsourced marketand is accordingly the largest single participant. The franchised car dealerships sector is the largest consumer of outsourced carvaleting services. There are approximately 6,230 retail franchised cardealerships in the UK, of which 934 are prestige marque dealerships, equivalentto approximately 15 per cent. of the total market (Source: Auto Retail NetworkFranchising Report, 2005). Autoclenz provides services to approximately 230franchised dealerships in the UK, equivalent to just 3.8 per cent. of the total. Valeting and vehicle preparation services are also required in other smallersegments of the market, namely rental companies (comprising car rental providersboth at airport and city centre locations, and emergency accident marketcompanies), auction houses (comprising national as well as local operators) andvolume import and distribution sites owned by, for example, logistics suppliers,manufacturers and banks. Within the car dealership network, principal drivers for car valeting volumesinclude the level of new car registrations, the volume of used car sales, andthe volume of car servicing which itself is a function of the number of cars onthe road. The car valeting services market, in which Autoclenz operates, isgrowing ahead of these underlying drivers as dealers and other end userscontinue to outsource these activities. The Society of Motor Manufacturers and Traders Limited ("SMMT") represents theUK automotive industry, and records data on new registrations, used car salesand total cars on UK roads. Between 1999 and 2004, annual UK new carregistrations grew by an annual average compounded rate of 3.2 per cent. In thefirst six months of 2005, new car registrations have fallen in comparison withthe highest level of registrations in 2004, driven in part by the impact of aweaker economic environment and the closure of MG Rover's Longbridge plant. SMMTis 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 unitsin 2004, which represents over three times the number of new car registrationsand reflects an annual average compounded growth rate of 4.6 per cent. Of thisfigure, the Directors estimate that over 50 per cent. were transacted throughthe dealership market (comprising both franchised car dealerships andindependent used car outlets), with the remainder through the private-to-privatechannel. Within the independent used car network, one of the fastest growingsegments is the 'Car Supermarket' which offers significant potential for carvaleting services providers given the high volume of cars sold and further scopefor SMART services. Trading Record The financial information for the three years to 31 December 2004 and the 6months ended 30 June 2005 is as follows: 2002 Year ended 31 December 6 months (audited) ended 30 2003 2004 June (audited) (audited) 2005 (audited) £'000 £'000 £'000 £'000Turnover 20,282 23,658 24,341 12,346Operating profit 651 1,515 1,867 1,287Net cash inflow from operating activities 1,206 1,276 2,394 1,252Operating profit margin (%) 3.2 6.4 7.6 10.4 Autoclenz has focused its attentions in recent years on increasing its marginsand improved cost control following a period of strong sales growth during thelate 1990s, the success of which is reflected in the above operating profitmargin trend. Sales increased by 16.6% from 2002 to 2003 due to increased dailyrental valet business and the winning of a substantial contract with a prestigemotor manufacturer. The increase in sales of 2.9% from 2003 to 2004 was mainlydriven by the Pinnacle and REACT businesses, and the increased contributionsfrom 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. Whilstrevenues for the first half of the current year are 1.7% below the same periodlast year (reflecting some softening in the motor industry as well as a changein sales personnel during late 2004, the effect of which impacted the start ofthe 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 theDirectors' expectations. Notwithstanding recent evidence of relatively poorlevels of new car registrations during September 2005 the Directors believe thatthe spread of the Business' customer base does not leave the Companyparticularly exposed to any one individual market segment. Whilst the Companywill be exposed to overall levels of economic activity, which will clearlyinfluence the motor industry more generally, the Directors do not believe thatnew car registration volumes are a significant factor in isolation. The Directors believe that Autoclenz is well placed to benefit from the expectedincrease in outsourcing of non-core services, both in the car valeting andspecialist cleaning sectors, as well as the Company's strategy to drive salesand margins through the expansion of, in particular, the AC SMART, Pinnacle andREACT businesses. The Directors believe that the Company's profitability will beenhanced by increasing levels of work undertaken on behalf of local authoritycustomers by the REACT business, the contractual basis for which is different tothat for car valeting customers. Accordingly the Directors are confident as tothe Company's prospects for the remainder of the current financial year andbeyond. Strategy The Directors believe that Autoclenz is the only market participant that offersnationwide "bundled" car valeting and vehicle preparation services, andtherefore competes primarily on the breadth and quality of its service provisionand its nationwide capability, as well as the strength of its clientrelationships. Building such a network to meet the needs of clients that operateon a national basis represents a significant investment by, and a significantcompetitive advantage for, Autoclenz. Following a period during which the Business has been successfully focused onenhancing profitability, Autoclenz has now commenced implementation of a newstrategy with a view to achieving sustainable growth in higher marginoperations. The Directors believe that there is significant growth potentialavailable by expanding the Business' brands nationally and by capturing newbusiness as it continues to be outsourced. The new strategy to achieve this isbased 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 companyfor specialist decontamination activities. REACT provides over half of itsbusiness to the public sector. As the growth in public sector outsourcingcontinues, the Directors intend to widen REACT's national coverage and developnew markets by recruiting specialists to negotiate and gain new business inspecific 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 wouldconsider acquisitions as a means of developing REACT. Likewise, the Directorswould consider adding complementary skill-sets to REACT's business by recruitingteams of suitably qualified personnel. Whilst the Business' historic ownership by the Yule Catto group has engenderedsound business practices and financial controls, the Directors believe thatseparation of the Business from Yule Catto group, together with Admission toAIM, will provide them with a more favourable environment in which to more fullyevolve 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'ssubsidiaries until his retirement in 2004. In 1990 he was appointed ChiefExecutive of Consumer Chemicals Division (which coincided with the acquisitionof Autoclenz) and as Executive Chairman of Autoclenz he supported the managementin 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 theBusiness to its current performance levels. His career started with ArrowChemicals in 1978, undertaking various roles culminating in his promotion tosales director, following the acquisition of Arrow Chemicals by Yule Catto in1984. Grahame joined Autoclenz as Managing Director following its acquisition byYule 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 indeveloping the Business from a pure car valeting company into the more broadlybased service business it is today. Trevor Clingo ACMA, 44 (Finance Director) Trevor is a chartered management accountant with over 15 years experience insenior finance roles. Trevor joined Autoclenz as Finance Director in May 2004and previously spent a large proportion of his career in a variety of seniorpositions at Christian Salvesen plc. From 1998 to 2004 Trevor was FinanceDirector of Salvesen Food and Consumer UK, the largest division, measured byboth turnover (£300 million) and profit. In this position, he was fundamental tothe strategic development of the division and directly responsible fordelivering 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 inDecember 1979. In 1981 he was seconded to the Department of Trade & Industry fortwo years before re-joining the firm and becoming a partner in 1987. Shortlyafter admission to the Ernst & Young partnership, in London, he began tospecialise in Corporate Finance work. Michael has extensive experience ofworking with both quoted and private businesses, and since leaving Ernst & Youngin April 2002 has operated as a consultant and non-executive director. In addition to the Directors, Autoclenz has a very experienced senior managementteam, each of which has had at least sixteen years' service with eitherAutoclenz or other Yule Catto group companies. The Business currently employs165 people and manages between 1,000 and 1,250 sub-contracted operators on adaily basis. DIVIDEND POLICY The Company intends to pay a progressive dividend and will adopt a policy havingregard to market yields, though always subject to the availability of cash anddividend capacity. In the absence of unforeseen circumstances the Directorsexpect that the first dividend will be payable in respect of the half yearperiod to 30 June 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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