Rentokil Initial acquires Target Express to create leading overnight parcel delivery business
Rentokil Initial plc today announces that it has, through a subsidiary, made an offer to the shareholders of Target Express Holdings Limited (“Target Express”) to acquire the entire issued share capital of Target Express on a cash and debt-free basis for a cash consideration of GBP210 million, to be satisfied from existing resources. This offer is unconditional and acceptances have been received in respect of 90% of the share capital with the balance expected no later than the end of the year.
Target Express provides a full range of premium parcel delivery services for customers throughout the UK, with its main focus on overnight timed deliveries. It operates from 39 branches with a main hub in Coventry. Revenue has grown strongly in the business under the new management team that took charge in 2002. Turnover and operating profit (before amortisation and exceptional items) of Target Express for the year to 30 April 2006 were GBP146.1 million and GBP17.3 million respectively.
City Link, Rentokil Initial’s existing parcel delivery business, also focuses on the UK overnight timed delivery market and had network turnover of GBP240 million in 2005. City Link has seen parcel volumes and revenue grow faster than the market every year for the last decade. In October 2005, the company announced its intention to buy back and integrate the City Link franchises and now owns 80% of the network (56 franchises); a further 13 franchises will be repurchased during 2007 in order to complete the buy back programme. City Link’s management team has been highly successful in integrating these operations into its existing network.
Target Express and City Link are highly complementary businesses with similar operating models and both have a strong culture based on customer service and operational excellence. Both businesses have outstanding management teams which are well attuned to the requirements of their market. Bringing them together will create a leading overnight parcels operator able to meet the increased demands of current and prospective customers in a dynamic marketplace. The integrated business will provide a wider range of services including same day deliveries, overseas deliveries, international mail and fulfilment. Customer handling processes including track and trace will also be enhanced.
Through these enhancements to customer service and product offerings, the integrated business is expected to continue to grow parcel volumes and revenues at an above-market rate. In addition, City Link management believes that synergies at an annual run rate of at least GBP10 million will be achieved by the end of 2008. These synergies will be realised through operational integration and investment in IT, resulting in improved network efficiencies and back office support functions. The integration cost of this investment is expected to be GBP12 million, most of which will be incurred in 2007 and 2008. In forming these views, management has taken into account advice received from Deloitte & Touche LLP which has performed an independent review of the benefits case for Rentokil Initial.
The combined business will handle some 340,000 parcels per day. Operational integration of the businesses will commence in mid-2007 following investment in an integrated IT platform. In the meantime, both businesses will continue to operate as normal.
Doug Flynn, Chief Executive Officer of Rentokil Initial plc, said: “Both City Link and Target Express deliver high quality customer service and outstanding reliability. Together, they will create a leader in the premium overnight parcels market, able to meet the future needs of customers and develop new products and services.
“In the past year, we have made great progress along the path of transforming City Link into a fully integrated parcels delivery service through the buy back of the franchise businesses; today’s announcement is a logical next step in the development of the business. This acquisition is consistent with our strategy of creating value for our shareholders by focussing Rentokil Initial on businesses with strong market positions which offer the prospect of sustainable, profitable growth.”
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Notes to Editors
Target Express
• Turnover and operating profit of Target Express for the year to 30 April 2006 were GBP146.1 million and GBP17.3 million respectively. The cash and debt-free net assets (excluding goodwill of GBP37.5 million) at 30 April 2006 were GBP4.0 million. The book value of the gross assets the subject of this transaction is GBP73.1 million, including goodwill. Note: Target Express figures are prepared under UK GAAP. Operating profit is stated before goodwill amortisation and exceptional costs.
• Target Express was previously acquired in February 2000 by its management with backing from 3i plc and other investors.
• Executive directors Petar Cvetkovic and Keith Broom of Target Express will remain in the business post completion.
City Link
• City Link’s network turnover in 2005 was GBP240 million. Revenue of the business was GBP126 million and operating profit was GBP29 million. In the third quarter of 2006, its organic revenue growth was 7.6% and revenue grew by 65% including acquisitions.
• City Link currently operates a national network through 69 branches of which 13 are still managed by franchisees. It is intended to complete the buy back of these remaining franchises during 2007.
Rentokil Initial
Rentokil Initial is one of the largest business services companies in the world, operating in all the major economies of Europe, North America, Asia Pacific and Africa. The company has some 70,000 employees providing a range of support services in over 40 countries where the ‘Rentokil’ and ‘Initial’ brands have come to represent innovation, deep expertise and consistent quality of service. Services include textiles and washroom services, pest control, tropical plants, electronic security, parcels delivery and facilities services.
For further information, please contact:
Rentokil Initial plc
Malcolm Padley,
Corporate Communications
020 7866 3027/ 07788 978 199
Lisa Williams,
Investor Relations
020 7866 3028/07980 895 419
Brunswick Group
Kate Holgate
020 7404 5959/07974 982402
Jon Rhodes
020 7404 5959/07834 502361
A conference call for investors and analysts will be held today at 9:30am. The dial-in numbers for this call are:
• +44 (0) 20 7365 1854 (UK)
• +33 (0) 1 70 99 42 67 (France)
A recording will be available on replay for the next three weeks. The access numbers for this service are:
• +44 (0) 20 7806 1970 (UK)
• +33 (0) 1 71 23 02 48 (France)
• +1 718 354 1112 (US)
• +852 3002 1607 (Hong Kong)
The PIN for all replay numbers is 7805044#.
This announcement contains statements that are, or may be, forward-looking regarding the group’s financial position and results, business strategy, plans and objectives. Such statements involve risk and uncertainty because they relate to future events and circumstances and there are accordingly a number of factors which might cause actual results and performance to differ materially from those expressed or implied by such statements.
