Article date: 23 July 2002
Lex Service PLC, the motoring and vehicle solutionscompany, announces the following results for the six months to 30June 2002:
- Before goodwill amortisation, exceptional items and tax of£33.2 million, up 6% from £31.4 million in the first half of2001.
- Sustained growth in RAC Consumer Services: like for likerevenue increased 8% at healthy margins.
- Significant new business wins, with new contracts worth alifetime revenue of £290 million won in the first half of2002.
- Underlying earnings per share increased to 20.9p (30 June 2001- 20.2p).
- Cash inflow of £40 million reduced net debt to £160million.
- Interim dividend of 9.2p per share, up 4.5% from 8.8p in2001.
- Continued steady growth expected.
Andy Harrison, Chief Executiveof Lex Service PLC, commented:
"We have delivered another robust performance, with a 6% growth inprofit backed up by strong cash flow. We see good opportunities forfuture growth using our unique motoring and vehicle managementexpertise, building upon the strength of the RAC brand anddeveloping our business outsourcing opportunities. "The companywill be renamed RAC plc in September and our aim is to be the firstchoice in motoring and vehicle solutions for consumers andbusinesses."
For more informationcontact:
Group Finance Director, Lex ServicePLC 07703 341 723
Group Finance & Investor Relations Manager 07764 624 701
Kate Holgate / MichaelWebster,
Brunswick Group 020 74045959
Interim results for the sixmonths to 30 June 2002
Lex Service will be renamed RAC plc on 2 September. Our aim is tobe the first choice provider of motoring and vehicle solutions forconsumers and businesses, building upon the strength of our brands,our unique range of motoring and vehicle expertise andcross-selling more services to our customers. We see substantialgrowth opportunities in consumer motoring services building uponthe strength of the RAC brand, and in business services using theLex and RAC brands. We shall continue to cross-sell more servicesto our 6.6 million individual customers and our 20,000 businesscustomers. In addition, we are tendering for an unprecedentednumber of large contracts which bring together our uniquecapabilities. The first six months of 2002 show good progresstowards these aims, with 8% like for like growth in RAC ConsumerServices and new contracts with lifetime revenues of £290million.
Profit before goodwill amortisation, exceptional items and tax grewby 6% to £33.2 million (first half 2001 - £31.4 million). This wasafter charging a £3.8 million increase in pension costs andincludes a full six month contribution from RAC Auto Windscreens.This business was acquired on 31 March 2001 and contributed, afterdeducting interest on its acquisition price, £4.0 million in thehalf year to 30 June 2002 (£2.7 million in the quarter to 30 June2001). Earnings per share on this basis grew by 3.5% to 20.9 pence(first half 2001 - 20.2 pence), with a tax charge increasing asexpected from 26% to 28%. Operating exceptional costs of £0.6million include RAC Auto Windscreens integration costs. Afterexceptional charges of £9.9 million, primarily incurred on the saleof the loss-making Lex Autocentres, of which £8.5 million was inrespect of goodwill previously written off, profit before tax was£20.0 million (first half 2001 - £43.4 million, including anexceptional profit of £16.3 million on the sale of our stake inSynnex). Earnings per share on this basis were 9.3 pence (firsthalf 2001 - 30.5 pence). As a result of our strong cash flow, netdebt reduced to £160 million from £200 million at the end of 2001.The Board has declared an interim dividend of 9.2 pence, anincrease of 4.5% on the 2001 interim dividend of 8.8 pence.
Our results for previous reporting periods have been reformatted tothe organisational structure we announced in January 2002 toprovide a like for like comparison of performance.
RAC Consumer Services sells a comprehensive range of motoringsolutions to individual customers, including financial, legal andtravel services, RAC Auto Windscreens and BSM driver tuition. Inthe first half of the year RAC Consumer Services sustained thegrowth trend established since RAC's acquisition by Lex in 1999.Revenue grew by 16% to £172.3 million and like for like revenuegrew 8%. Profit increased by 14% to £21.5 million. The individualmembership base continues to grow, with a 5% increase to 2.08million memberships at 30 June 2002 (30 June 2001 - 1.98 millionmemberships), covering three million people. This sustained growthin membership provides a strong platform for cross-selling the fullrange of RAC's services. Non-roadside services grew like for likerevenue by 24% on the first half 2001, excluding RAC AutoWindscreens, and we see significant potential for continuedgrowth.
Legal Services grew revenue by 27% and profit by 33% on the firsthalf of 2001. We now have over 1.8 million legal expenses insurancepolicyholders, primarily through partnerships with the majorinsurance companies. Legal claims handled increased by 61% to46,000 and personal injury claims handled grew by 17% to 7,000.Legal Services launched an accident solutions service, providing avariety of services to our members in the event of an accident,from recovery of the vehicle and legal advice to personal injurycases. We are widening our legal portfolio through newpartnerships, such as an accident management initiative with theAvon & Somerset police. This provides motorists withcomprehensive help and advice should they be involved in acollision, including details of RAC's free 24-hour 'collisionhelp-line'.
RAC Financial Services increased profit substantially in the firsthalf of 2002. We continue to achieve strong growth in RAC loans. Wehave renegotiated our agreement with AXA to market RAC-brandedinsurance and financial services. RAC's share of the jointventure's profits will increase to 42% in 2003 and then to aneffective 80% in 2011.
BSM grew revenue by 17% and profit by 14%. New pupil numbers in thehalf year to 30 June 2002 grew by 6,000 to 73,000, while the numberof instructors grew by 10% to reach 2,354 at 30 June 2002. Inaddition to providing driving tuition to individuals, BSM alsoserves the business market, where advanced driver training isincreasingly in demand as emphasis grows on corporateresponsibility for health and safety issues. BSM was awarded a £12million contract to provide driver training services to theMinistry of Defence, adding to the broad range of services weprovide to the military.
On a like for like basis, revenue and profit from RAC AutoWindscreens in the first half of the year were down on theexceptional first half of 2001, when poor weather conditions led tounusually strong demand for windscreen replacements. Despite thisthe business is making a strong contribution, with pre-tax profitof £12.8 million for the year from 30 June 2001, which representsan 11% return on investment on the acquisition price of £112million. Lex Autocentres incurred a loss of £0.8 million before itssale in April 2002 (loss of £0.6 million in the first half of2001).
RAC Consumer Services continues to achieve high quality earningsbased on the strength of the RAC brand. Strong customer loyalty isdemonstrated by the continued increase in our membership renewalrates, which reached 83.3% in the first half 2002.
Future growth, both in RAC Consumer Services and RAC BusinessSolutions, will be significantly enhanced by the delivery of our£30 million investment in infrastructure. We have implemented a new£6 million automated patrol despatch system which will improveresponse times and increase efficiency. The changeover from theprevious system temporarily impacted on service levels during thetransition but this is now being resolved.
Our customer relationship management system will be implemented ona phased basis over the second half of the year. The system willdeliver annual savings in legacy system costs and marketing costsand will also yield considerable revenue benefits by supportingcross-selling. There is significant potential to grow thepercentage of members who buy more than one service from itscurrent level of 3.5%.
The implementation of these systems is expected to reduce profit by£4 million in 2002, with the majority of the impact arising in thesecond half of the year, before benefits start to flow through in2003.
Services to business customers are largely provided by RAC BusinessSolutions, Lex Vehicle Leasing and Lex Industrial Solutions. Lex'sshare of the revenue from these businesses was £269.5 million inthe first six months (first half 2001 - £264.8 million). The totalprofit from Business Services in the first half was £8.8 million,compared with £9.0 million in the first half 2001. There aresignificant opportunities for growth in corporate vehiclesolutions, mobile maintenance, claims handling and inventorymanagement, particularly in the defence, insurance and automotivesectors. For example, our two biggest customers, the Ministry ofDefence and Norwich Union, spend £50 million and £30 millionrespectively with us each year on a broad range of servicesinvolving BSM, RAC Business Solutions, Lex Vehicle Leasing, LexIndustrial Solutions and Manufacturer Support Services. In thefirst half of the year the Ministry of Defence increased theservices it buys from Lex with the BSM driver training contractmentioned earlier, and a new contract with Lex Multipart to providegeneral engineering hardware spares support, worth up to £35million in revenue over its seven year term.
We are tendering for a number of large multi-activity contracts,including bids with the Ministry of Defence for contracts tosupport construction vehicles and airfield vehicles, andopportunities in the insurance and automotive sectors. We accountfor these bids conservatively, writing off bid costs until we arenamed preferred bidder and the contract is almost certain. Anysuccess fees are spread over the life of the contract. Capitalisedbid costs at 30 June 2002 were £2.4 million, £1.9 million of whichwas incurred on contracts that have already been signed. Bid costsof £1.7 million were charged directly to profit in the first halfof the year.
RAC Business Solutions is a growing business which sells motoringand related business solutions to business customers and managescomplex outsourcing bids for large public and private sectororganisations. RAC Business Solutions grew revenue by 17% to £70.3million in the first half of the year (first half 2001 - £60.1million) and made a profit of £0.4 million (first half 2001 - lossof £0.7 million).
New business wins in the first half of 2002 further demonstrate thepotential for cross-selling services to major corporations in ourkey markets. RAC Business Solutions developed its partnership withVolkswagen Audi Group UK with a contract to provide a dedicatednational network of Audi UK roadside technicians; and a contract toprovide call centre support to Volkswagen's 265 retail units acrossthe UK, which will be managed from Volkswagen's premises.Other new business wins include a contract to provide vehicleinspections to Toyota, adding to the roadside assistance servicesRAC Business Solutions already provides to the motor manufacturer;and an insurance claims management contract with Lloyds TSB.
Lex Vehicle Leasing, our joint venture with HBOS plc, generatedrevenue of £95.2 million (Lex's half share) in the first half of2002 (first half 2001 - £95.0 million). Our half share of profitincreased by 9% to £8.2 million (first half 2001 - £7.5 million).We have consciously focused on increasing the quality of ourbusiness, which caused a marginal reduction in the fleet size to91,800 (30 June 2001 - 92,100).
Disposal losses on company cars reaching the end of their contractsduring the first half were comfortably absorbed within the £45million provision Lex made at the end of 2000. Used car pricesremain within the conservative projections made at the time of theprovision and we remain confident that the provision will besufficient to meet future disposal losses. New contracts are pricedon the assumption of a continued decline in used car prices.
Lex Industrial Solutions includes the hire, maintenance and fleetmanagement of a range of commercial vehicles, mechanical handlingand other industrial equipment. It brings together activities withsimilar types of customer and operations and has core capabilitiesin mobile maintenance and commercial vehicle solutions whichunderpin a number of significant business services growthopportunities.
Lex Industrial Solutions contributed £0.2 million in the first halfof 2002 (first half 2001 - £2.2 million) on revenue of £104.0million (first half 2001 - £109.7 million). The business absorbed alarge share of the increase in pension costs due to its high numberof long serving employees, and also incurred restructuring costs inthe first half of the year.
Our mechanical handling business is being restructured to becomemore customer-oriented and cost-efficient, and is focusing for thefuture on the opportunities to develop its national mobilemaintenance capabilities. Costs were incurred in improvingoperational efficiency, through better utilisation of the lifttruck fleet. Given the level of change in the business, we do notexpect a significant profit recovery until 2004.
Lex Transfleet, which is a joint venture with Lombard, maintainedthe strong growth levels established in 2001 and grew the fleetunder management by 1,000 to 27,000. Major contract wins include afive year contract to provide 400 commercial vehicles to theNational Blood Authority and the renewal of a significant contractwith Dumfries and Galloway Regional Council. Prospects forcontinued growth remain good as Lex Transfleet has a strongbusiness development pipeline.
Manufacturer Support Services provide outsourced marketing andinventory management services, primarily to vehicle manufacturers.These businesses achieved profit of £10.6 million in the first halfof 2002 (first half 2001 - £10.9 million) and generated revenue of£301.0 million (first half 2001 - £291.0 million). Lex Multipartwon significant new contracts in the first half of the year, with acombined lifetime revenue of £215 million. These include a 10 yearcontract to provide a range of aftermarket parts support servicesto Dennis Eagle, with lifetime revenues of up to £120 million; afive year contract to support Fleetguard, a world leader infiltration and exhaust systems for heavy-duty diesel engineapplications; a five year contract with Valtra Tractors; and thecontract to provide general engineering parts support to theMinistry of Defence.
Negotiations continue with Paccar over the possible extension ofLex Multipart's contract to distribute DAF parts. The business hastwo Paccar contracts: one providing parts support to Leylandvehicles until 2013, and the DAF contract which expires in June2003. In 2001 Lex Multipart earned £10 million profit from thePaccar contracts. Irrespective of the DAF contract renewal therewill be no financial impact until 2005. Thereafter there will be adecline in margin. Lex Multipart is successfully building newbusiness, as demonstrated by the new contracts won in the firsthalf, and is pursuing several further opportunities in the defenceand insurance sectors.
Hyundai grew registrations by 10% to 15,021 in the first half ofthe year (first half 2001 - 13,656) and maintained market share at1.1%. Hyundai now has a strong product line-up across all sectorsof the market and launched the new Coupe in the first quarter,which is a key profit generator for the business. Parts sales, astable and predictable source of profit, are increasing as therelatively new Hyundai brand becomes more established in the UKmarket.
We are pleased to announce the appointment of Alan Bowkett asnon-executive Chairman from 1 January 2003, succeeding Sir TrevorChinn who retires at the end of 2002. Further details can be foundin the separate statement being issued today. In April 2002 BillCockburn stood down as a non-executive director. We thank Bill forhis significant contribution over the past nine years. We welcomeDianne Thomson, Chief Executive of Camelot plc, and John Poulter,Chairman of Spectris plc, who joined the Board as non-executivedirectors in February and April respectively.
The renaming of the company to RAC plc is another milestone in thetransformation which has taken place over the past three years. Thebenefits of these changes are evident in our robust first halfperformance. The considerable opportunities to win new business andcross-sell our services should enable us to continue to deliversteady growth for the future.
Profit and loss account, balancesheet, cash flow and notes to follow.