Article date: 21 February 2002
Lex Service PLC, the motoring and vehicle solutions company,announces preliminary results for 2001 which demonstrate a year ofstrong growth and continued improvement in the quality ofearnings.
- Profit before goodwill amortisation, exceptional items and taxup 19% to £65.1 million.
- Earnings per share on this basis up 18% to 41.9p.
- Full year dividend increases by 4.8% to 22.0p per share.
- RAC Motoring Services contribution grew 50% to £39.0 millionincluding £9.8 million from RAC Auto Windscreens.
- Value of long term business increased by 9% to £2.7billion.
- Lex Service PLC proposes renaming as RAC plc.
Lex Service Chief Executive Andy Harrisonsaid:
"Lex has been transformed over recent years with the acquisition ofRAC and the divestment of our motor retailing activities. Thebenefits are clear, with a 19% growth in underlying profits, asubstantial improvement in the quality of our earnings and excitinggrowth prospects."
"Changing our name to RAC plc is the natural next step as we buildon the inherent strength of the RAC brand. Lex will remain animportant trading brand in the corporate vehicle market."
Lex Service will seek shareholder approval for the renaming at itsAnnual General Meeting on 25 April 2002 and, subject to approval,will become RAC plc in September 2002.
For more information contact:
Paul Hewitt, Finance Director, Lex Service PLC 01628 843703
Niall Addison, Finance & Investor Relations Manager, LexService PLC 07764 624701
Kate Holgate / Michael Webster, Brunswick Group 020 7404 5959
Lex Service PLC preliminary statement
A clear vision for growth
Through the acquisitions of RAC Motoring Services in 1999 and AutoWindscreens in 2001, and the exit from car retailing in 2000, Lexhas been transformed into a strong support services company withunique motoring and vehicle expertise and a clear vision for growthin the consumer and business markets. The progress achieved in 2001confirms the success of this strategy.
There are considerable opportunities for further growth. In theconsumer market RAC is continuing to grow its roadside business,with revenue up by 6% and customer numbers passing the two millionmilestone. In addition, revenue from non-roadside services grew ona like for like basis by 15% as the business continues to developits comprehensive range of motoring solutions. In the businessmarket Lex and RAC, benefiting from the growing trend towardsoutsourcing, won an unprecedented number of new contracts,increasing the revenue due from long term business by 9% to £2.7billion. Together, these developments have improved the visibilityand predictability of future revenue.
We are developing a strong platform from which to address thesegrowth opportunities:
- We intend to leverage the strength of the RAC brand byrenaming the company RAC plc, while continuing to build the Lexbrand in its corporate vehicle markets. The renaming will enhanceour ability to attract and retain talent by developing RAC'sstrengths as an employment brand.
- In 2001 we launched a programme called Growing StrongerTogether to realise profitably the links between RAC and Lex bypursuing joint growth opportunities and combining areas withsimilar skills and processes. This is reinforced by the neworganisational structure announced in January 2002.
- We will continue to develop our track record for serviceexcellence, demonstrated by customer retention and satisfactionrates and the record 22 service accolades we received in2001.
Profit before goodwill amortisation, exceptional items and tax grewby 19% to £65.1 million (2000 - £54.6 million before disposallosses of £12.9 million). Earnings per share on this basisincreased by 18% to 41.9p (2000 - 35.6p). The Board proposes afinal dividend of 13.2p (2000 - 12.6p), which together with theinterim dividend of 8.8p per share (2000 - 8.4p), increases thetotal dividend for 2001 by 4.8% to 22.0p per share (2000 - 21.0p).The dividend will be paid on 3 May 2002; the ex dividend date is 27February 2002 and the record date is 1 March 2002.
RAC Auto Windscreens' results were on track with a profitcontribution of £9.8 million following its acquisition on 30 March2001; net of interest the contribution was £5.3 million. This waspartially offset by an increased pension cost of £3 million in2001, which resulted from the erosion of our pension surplus due tothe poor performance of equity markets over the past three years.The pension scheme is fully funded, although with no surplusremaining, and there will be a further increase in pension costs of£6 million in 2002.
The financial and operating results for 2001 reflect the businessgroupings which were in place throughout the year:
- RAC Motoring Services - Consumer Services and BusinessServices.
- Lex Business Services - Lex Vehicle Leasing, Lex Transfleet,Lex's mechanical handling activities and Lex Multipart
- Lex Vehicle Marketing - Hyundai, Isuzu Truck and LexCommercials
Continued growth in RAC
RAC Motoring Services contributed £39 million to profit in 2001(2000 - £26 million), including £9.8 million from RAC AutoWindscreens following its acquisition on 30 March.
RAC achieved continued growth in its individual customer base,finishing the year with
2.03 million members (2000 - 1.95 million). Retention ratesremained strong at 83% (2000 - 83%). Roadside revenues increased by6% to £249 million (2000 - £234 million) and revenue fromnon-roadside services grew by 15% on a like for like basis to £125million.
RAC is making good progress towards its goal of being the firstchoice provider of a comprehensive range of individual motoringsolutions, through growth in non-roadside services. BSM grewrevenue by 12% and profit by 49%; Legal Services grew revenue by44% and profit by 50%; and Financial Services reached the milestoneof £1 million profit and wrote loans to the value of £34 million.RAC continued to grow the number of new members acquired via theinternet: over 40,000 new members signed up online with RAC in2001, up from 13,000 in 2000, with a substantial saving inacquisition costs. In response to changing customer needs RAClaunched a number of innovative new products during the year,including RAC Routeminder, which provides travel information viaPCs or mobile telephones; and RAC Platinum, a premier motoringpackage incorporating added benefits such as European assistanceand travel insurance.
RAC Auto Windscreens made strong progress in 2001 with revenues andunderlying profits increasing, on a full year basis, by 7% and 22%respectively. The rebranding of the business as RAC AutoWindscreens is well underway.
RAC Business Services performed well in 2001 and won significantnew contracts, including Motability vehicle inspections; Consigniaaccident management; and fleet breakdown contracts withDaimlerChrysler Services and Lloyds TSB Autolease. BusinessServices' insurance claims handling division expanded into a newcall centre in Manchester to support the services it provides toCGNU's three million motor insurance customers and to accommodatefuture growth. By the end of 2002 RAC will handle over 550,000claims and over three million telephone calls on an outsourcedbasis for CGNU and other customers, a growth of 30% over2001.
RAC's quality of service was recognised by a series of prestigiousindustry awards in 2001, including being named top in all aspectsof the independent JD Power roadside recovery service survey, theFleet Excellence award for Top Recovery Services Provider and theFleet World Honours award for Service Excellence. This progresscontinued when RAC was voted Top Recovery Services Provider for thesecond year running and Top Accident Management operation in the2002 Fleet Excellence awards.
We have now delivered much of the £30 million profit improvementforecast at the time of the RAC acquisition, with a stronger thananticipated performance, particularly on revenues, from the coreRAC business activities. The performance of Lex Autocentres withinRAC has, however, been disappointing. Whilst the link with RAC hasdelivered extra revenue, this has been more than offset by anerosion in Autocentres' base business.
Our confidence in RAC's continued long term growth is reflected ina £10 million increase in our investment in infrastructure andsystems, bringing the total investment programme to £30 million.The related costs will moderate our growth in 2002 but theinvestment will deliver substantial efficiency gains and enhancedrevenue growth from 2003 onwards.
Lex Business Services
Lex Business Services, which delivers a broad range of co-ordinatedoutsourcing services to major public and corporate organisations,contributed £33.7 million in 2001 (2000 - £32.7 million) andreceived industry recognition for its service excellence through arecord number of service awards.
We are increasingly attracting customers who value our ability toprovide a broad range of co-ordinated services, such as theMinistry of Defence and CGNU, and won a record number ofoutsourcing contracts in 2001. The successful implementation of the£500 million Ministry of Defence 'White Fleet' contract, supportedby Lex Vehicle Leasing and Lex Transfleet, has further strengthenedour partnership with the armed forces. In May 2001 Lex won acontract with BAE Systems to provide fleet management, partssupport, mobile maintenance and workshop services, led by LexTransfleet with support from Lex Harvey. We continue to focus oncross-selling among our Lex-branded businesses, achieving £20million of additional revenue in 2001 (2000 - £12 million) withscope for further growth in 2002. The scale of the opportunity isdemonstrated by the fact that Lex provides services to 50% of theFTSE 350 companies and less than 10% of our business customers buymore than one service from us.
Lex Vehicle Leasing, our joint venture with Halifax plc, grewpre-disposal profit by 15% with our half share worth £17.1 millionin 2001 (2000 - £14.9 million). Following disposal losses of £12.9million in 2000 as a result of falling used car prices, Lex made a£45 million provision to reflect its half share of expected futurelosses. The used car market stabilised faster than expected in 2001and disposal losses for the year were absorbed within theprovision. The Board is confident that the remaining provision willbe adequate to cover expected future losses. Lex Vehicle Leasingcontinues to focus on high quality new business and grew thecontract hire fleet by 3% to 93,700 in 2001 as a result of a numberof new contracts, including the Ministry of Defence White Fleet,Taylor Woodrow and TDG. The business developed its range ofservices with the launch of a fleet evaluation software calledViewPoint, which enables businesses to understand the impact ontheir fleets of the April 2002 company car tax reforms. Lex VehicleLeasing won a series of service awards, including the FleetExcellence Awards for Best Contract Hire Company and Best OverallService Provider.
Lex Transfleet, our commercial vehicle contract hire and fleetmanagement business which is a joint venture with Lombard, madestrong progress with profit growth of 71% and an increase in itsmanaged fleet to 26,000 vehicles (2000 - 17,000). The business isfocusing future growth around its fleet management capabilities.Lex Transfleet won the Institute of Transport Management award forVan Rental Company of the Year in both 2001 and 2002.
Lex Fleet Software, which trades under the Tranman name, continuedto grow new business, turnover and profit in 2001, and was highlycommended for the Fleet Excellence Fleet Software award. Thebusiness expanded its product range with the acquisition ofServitor, a generic asset management product.
Lex Multipart, our inventory management business, contributed £13.6million in 2001 (2000 - £13.6 million). The business is structuredin three parts, each providing dedicated service to its key marketsector. Lex Auto Logistics, which provides automotive partssupport, made good progress, reducing its cost base and growing newbusiness, including a new five year aftermarket parts supportcontract with Fleetguard, part of Cummins Engines. Negotiations arecontinuing with Paccar to renew the DAF contract which expires inJune 2003. Lex Multipart Defence, which provides parts support forthe Challenger 2 tank in partnership with Vickers Defence Systems,has delivered significant efficiency gains to the Ministry ofDefence and now operates a warehouse within the military base atBicester, further strengthening its relationship with the MoD. Setagainst this progress was a disappointing performance fromMultipart Universal which distributes all-makes parts forcommercial vehicles; action has been taken to reduce the cost baseto improve future performance. Lex Multipart won the East MidlandsBusiness News Award for Services to the Automotive andManufacturing Industry in 2001 and was a regional winner in theTrade Partners UK Languages for Export Award 2001.
Lex's mechanical handling businesses were restructured during 2001,exiting the unprofitable distribution activities amid continueddifficult market conditions. UK contract hire and maintenancemargins fell as older contracts were renewed at today's lowerprices; together with restructuring costs this reduced thebusiness's contribution to £1.3 million (2000 - £2.9 million). Wehave reduced the cost base by £1 million, together with an emphasison the quality of new business to ensure the profitability offuture contracts. For the longer term we will develop our strongnational mobile maintenance capability for a broad range ofindustrial equipment, which we view as an important part of ourbusiness solutions portfolio.
Vehicle Marketing contributed £6.2 million in 2001 (2000 - £6.0million).
Hyundai maintained its overall registrations at 27,800 (2000 -27,200) and market share at 1.10% (2000 - 1.18%), with increaseddealer registrations offset by the withdrawal from daily rentalcontracts. Four new models were launched successfully during 2001 -the Elantra and Sonata saloons, Santa Fe sports utility vehicle andMatrix mini-multi-purpose vehicle - establishing Hyundai as acompetitor in all major market sectors. This was followed inJanuary 2002 by the launch of the new Hyundai Coupe to criticalacclaim from the motoring press. The strength of Hyundai's customerservice was recognised when its Customer Support team was awardedthe 2001 National Customer Service Award for Best ComplaintsHandling Team by the Institute of Customer Service.
Lex Commercials, our network of commercial vehicle dealerships,continued to grow profit and reduce capital employed as it has doneconsistently for the past three years. The business grew sales ofnew trucks and increased its local retail market share. Quality ofservice was reflected by the fact that Lex Commercials held sevenof the top 10 DAFaid service league positions, including firstplace throughout 2001.
Our Isuzu Truck importership made a loss during the year because ofthe movement of the yen against sterling. The competitive positionhas been restored for 2002. Isuzu Truck was named a best practiceorganisation for both leadership and customer service by theDepartment of Trade and Industry in 2001.
Financial results for 2001
Profit before goodwill amortisation, exceptional items and tax grewby 19% to £65.1 million (2000 - £54.6 million before residual valuelosses of £12.9 million). Earnings per share on this basisincreased by 18% to 41.9p (2000 - 35.6p).
Operating exceptional profits of £1.8 million are after one-offintegration costs of £5 million in respect of RAC and RAC AutoWindscreens. A gain of £6.8 million was made on the release of theprovision set up against the litigation involving RAC when it wasacquired by Lex. Exceptional profits of £9.3 million reflect the£25.3 million gain made on the disposal of our remaining holding inSynnex, a Taiwanese electronic components distributor, offset bynet losses incurred on the disposal of businesses, primarily withinMechanical Handling, of which £6.8 million related to goodwillpreviously written off.
Goodwill amortisation of £13.9 million includes, in addition to anormal charge of £6.3 million, £7.6 million which has been writtenoff in respect of Lex Manutention and Kellett.
After goodwill amortisation and exceptional items, profit beforetax was £62.3 million (2000 - loss before tax of £17.5 million),with earnings per share on this basis of 39.5p (2000 - loss pershare of 9.5p).
The group tax rate on underlying profit was 26% (2000 - 26%) whichis expected to rise to 31% over the next three years.
Net debt excluding asset finance increased during the year by £94million to £197 million, primarily as a result of the acquisitionof RAC Auto Windscreens and our investment in RAC's systems andinfrastructure. This was partly offset by the sale of our remainingstake in Synnex for £46 million.
Our interest cover remains healthy at 7.4 times.
In December 2001 Deputy Chairman Victor Benjamin retired from theBoard as a non-executive director. During his 30 years on the Boardhe made a very significant contribution to the company'sdeliberations and provided a strong and independent view to theBoard. We thank him for his service and wish him well in thefuture. We also thank Graeme Potts, Managing Director of RACMotoring Services, who has stepped down from the Board.
We welcome Peter Long, Chief Executive of First Choice Holidaysplc, who was appointed to the Board as a non-executive director inFebruary 2001; and Dianne Thompson, Chief Executive of CamelotGroup plc, who joined the Board as a non-executive director inFebruary 2002.
An outlook of continued growth
The company has now been repositioned as a strong and uniquesupport services business based on motoring and vehicle solutions,with a clear vision for growth in consumer and business services.The strong performance in 2001, together with the increasedinvestment in RAC and the development of our brand strategy, augurswell for long term growth. Our momentum has continued into theearly weeks of 2002 and the business is performing in line withexpectations.
Notes to editors - Lex Service provides motoring andvehicle solutions to individual and business customers through fiveinter-related divisions:
- RAC Consumer Services sells a comprehensiverange of motoring solutions to individual customers, includingfinancial, legal and travel services, RAC Auto Windscreens andBSM.
- RAC Business Solutions sells motoring andrelated business solutions to business customers and managescomplex outsourcing bids for large public and private sectororganisations.
- Lex Vehicle Leasing is the UK's leading carand van contract hire company, providing solutions for fleets ofall sizes together with personal leasing and employee carownership schemes.
- Lex Industrial Solutions includes mechanicalhandling, fleet management and commercial vehicle contract hire,where there is significant commonality of customers andoperations.
- Lex Manufacturer Support Services provideoutsourced marketing and inventory management services, primarilyto vehicle manufacturers.