Target Express acquisition and Electronic Security strategic review
Acquisition of Target Express
Q.
You've made two announcements today: the acquisition of Target Express and a strategic review of the Electronic Security business. If we look at Target Express first, what's the rationale behind that deal?
A.
We've announced that we're going to buy Target Express for some £210m. It's a highly complementary business with our own business, City Link, in the next day express parcel delivery business.
Our City Link business has continued to take market share every year for the last decade and Target Express has got a similar high growth profile. Between the two of them they add up to putting us in a close second position behind DHL.
Q.
What sort of scale does that give you?
A.
First of all, let's think in terms of market size. This is the next day express parcel delivery business and that's about £2.8 billion in the UK. Our share of that will be about 15 per cent. And in physical terms that will represent 340,000 parcels in a night and, at peak times, around Christmas, that rises to around half a million parcels a night.
Q.
And you mentioned there that they're complementary. In what ways do you see them being complementary?
A.
They both have similar operational characteristics in terms of the way in which they operate. They have a similar culture towards customer service. And, as I said earlier, they've both got very good growth profiles. I think the management teams are complementary; they both have strong management teams. So the issues of integration are relatively straightforward, though they're always there. But we're clear as to how we're going to deal with it.
Q.
And what are the first priorities?
A.
I think the priorities are firstly, to bed the organisations, the people, down straightaway. The key issues after that are the IT systems. We need to be on one network so we can track and trace the parcels.
There are some changes to be made operationally with the two businesses. Both of them operate what is described as "hub and spoke" operations and to continue with that we have to make a few operational changes to bring them in line with each other. But that's about it. So by the middle of next year, we will be in a position to integrate these two businesses.
Q.
You've announced the deal will create synergies of £10m by the end of 2008. Where are you going to find those?
A.
There are three key areas: operational integration; the trunking efficiencies by putting the trunking together; and, finally, back office synergies between the two businesses. In addition to that, these two businesses, as far as I can tell, have the highest growth rates in the entire sector. We believe we can continue to drive organic growth through putting these two businesses together.
Q.
And will this have any impact on the buying in of the City Link franchises?
A.
Not at all. That's continuing on track. We would certainly aim to get that completed swiftly and right now my expectation is that by the summer of 2007 that would be pretty much done.
Q.
And you've got this integration process to go through. Are you concerned that that might have any impact on customer service?
A.
Well, we've always got to be mindful of that. But the fact of the matter is these two businesses have customer service at the heart of their organisations' cultures. We have demonstrated that we can continue to grow while we've been carrying out the integration of franchisees. This is a bigger task but we are well focused on it. I am convinced that we can continue to grow while we put these two companies together. Strategic review of Electronic Security
Q.
What is the thinking behind the review of the Electronic Security business?
A.
We have a very good business in our Electronic Security business. It's very well managed and it's doing fine within its marketplace.
But the fact of the matter is there are some big players in electronic security and there are a lot of very small players and few in the middle. We have been exploring options out there to undertake a transformational deal for our Electronic Security business. Right now we haven't cracked it. So I think that it is time for us to explore what the options are. And I guess, by going public, we'll see what this flushes out.
Q.
So does this mean you're trying to sell that business?
A.
It is a possibility that that would be the outcome, because, quite frankly, we need to determine how we're going to best extract value out of this business for our shareholders. And we need to think about what the right way forward for this business is.
Q.
And when will we know more about this review?
A.
Well, there isn't a strict timetable for this. But we will certainly give an update to our shareholders in our February full year results. Strategic rationale
Q.
How do today's announcements fit into your overall strategy?
A.
The fact is we have said all along we believe that building leading market positions will be the best way to enhance our shareholder value and that's precisely what we're trying to do. We are very open to the ways in which we can create value for shareholders. And we will pursue those but a key part is leading market positions.
Q.
So what does that mean as we look out into 2007?
A.
Well, to look ahead, let's go back for a moment. First of all, we've invested in Pest Control, we've invested in our City Link business and we've invested in Asia Pacific. We've done that in each case to build on strong market positions in each of those areas. We've also had a number of businesses where we've had profit improvement programmes running; we're making pretty good progress against those. We've got quite a few new people in businesses around the world. And we are now starting to work to improve our admin and back office processes and to take costs out of our businesses through that.
So, to an extent, next year is going to be a continuum of what we've already been doing. But a big part, such as the announcements today, is about looking at our portfolio and seeing how we add value by developing stronger market positions and making sure that with the assets we hold, we are the best holder of those assets.
