Source: Retail Decisions
Retail Decisions (ReD), the fuel card operator and a world leader in card fraud prevention and payment processing, today announces the proposed acquisition of Fuelserv for £21.5 million in cash from DHL Distribution (part of Deutsche Post Group).
ReD also announces a Placing with institutional and certain other investors to raise approximately £13.3 million net of expenses (together with an Open Offer to Qualifying Shareholders of a further £5.1 million assuming it is taken up in full). The Group also proposes a share consolidation.Have a transforming impact on the financial position of the GroupProvide ReD's entry into the UK & European fuel card markets for the first timeBuild profitability on the Group's extensive Australian fuel card experienceProvide cross-selling opportunities of related services into Fuelserv's customer base - as successfully achieved at ReD AustraliaExtend the Group's exposure to areas of the payments process that provide greater value and attract greater revenue streamsBe earnings enhancing in 2006
Fuelserv is the UK’s second largest operator, by fuel volume, in the independent fuel card and ‘bunkering’ sector with around 6,300 live customer accounts as at the end of 2004 and with more than 65,000 live fuel cards in issue as at 8 September 2005. Due to its size, the acquisition is a Class 1 transaction for ReD as defined by the UK Listing Authority, requiring shareholder approval at an EGM to be held on Friday 4 November 2005.
ReD already has an established and highly successful fuel card operation in Australia, which in the first half of 2005 accounted for approximately 90% of the Group’s operating profits and 50% of its revenues. The Fuelserv acquisition will have a transforming impact on the financial position of the Group and should enable ReD to continue to build the Group’s profitability. The Acquisition will also provide critical mass in a sector of the market that has high barriers to entry and can realistically only be accessed through acquisition.
Highlights – the Directors believe the Fuelserv acquisition will:
Fuelserv is considered to be a non-core asset of Deutsche Post, hence the decision for its disposal. ReD's Board believes the Acquisition provides a good opportunity to expand ReD's card issuing capability into Europe and create significant value. ReD's proven ability in the fuel card industry has been demonstrated by ReD's successful Australian fuel card operation. ReD's aim is to replicate its successful Australian model in the UK and across Europe by applying its skills to Fuelserv, including placing greater focus on client retention and by extending the products and services offered.
ReD's existing fuel cards have clear advantages for the owners of fleets, by helping them keep their vehicles on the road. ReD's fuel cards have a wide network of accepting merchants and provide vital information that simplifies the management of vehicle fleets. These cards also offer non-fuel services through affinity partners, such as breakdown cover, vehicle rental and hotel accommodation.
ReD's current senior management, including Chief Executive Carl Clump, have over 80 years experience of the fuel card arena, extending back to well before they joined ReD.
Fuelserv is the UK's second largest operator in the independent fuel card and 'bunkering' sector by fuel volume with 65,000 cards in issue and around 6,300 live customer accounts and the end of 2004. Fuelserv is focussed on the HGV and LCV (Light Commercial Vehicle) markets in the UK, Ireland and mainland Europe.
Fuelserv’s audited accounts for the year ended 31 December 2004 show that the company generating total operating profit of £3.8 million on turnover of £140.2 million and that at 31 December 2004 it had net assets of £11.7 million.
Fuelserv's customers include a number of 'blue chip' clients, many of which are longstanding. Clients include DHL, Norfolk Line, DFDS and P&O Ferry Masters among others. As part of this transaction, Fuelserv is also entering into a four-year fuel management agreement with DHL, under which it will guarantee, subject to certain limited exceptions, to purchase 70 million litres of diesel from Fuelserv each year.
The acquisition of Fuelserv is intended to take advantage of the expected continued growth in demand for road transport and the associated demand for fuel cards as a method of payment. In the UK the level of HGV road transport has increased by approximately 17 per cent. In the 10 years to 2003 and the corresponding level of LCV road transport has increased by approximately 39 per cent. in the same period.
To finance the acquisition, ReD has conditionally raised £15.6 million gross by way of the Placing. In addition, in order to give Qualifying Shareholders the opportunity to purchase further shares in ReD the Company is making an Open Offer. If taken up in full the Open Offer will raise a further £5.1 million for the Company. ReD has also entered into new debt facilities comprising £18 million in total. The Company will use the New Debt Facility and the net funds raised from shareholders to finance the acquisition, to provide working capital and to fund ReD's continuing growth strategy. The basis of the Open Offer is 1 New Ordinary Share for each 12 Existing Ordinary Shares currently
owned. All the Directors have confirmed their intention to take up their entitlement under the Open Offer in full.
It is also proposed to use the opportunity of the EGM to approve a Share Capital Consolidation. It is currently proposed this would take place on or around 28 November 2005 on the basis of one Consolidated Share for every five Ordinary Shares owned. ReD's share price has been historically volatile and this initiative should reduce this effect and in the Directors' opinion consequently make ReD's shares more attractive to longer term investors.
Commenting Carl Clump, Chief Executive of ReD, said: "The Fuelserv acquisition is in a sector that we know very well and where we have demonstrated a great track record. It is also a space that plays to our managerial strengths. We have searched for a long time to find a corporate card issuing business which will allow us to build on our current success in Australia. Fuelserv enables us to progress into Europe along the payment value chain to the most valuable area, namely card issuing activities."