Lex Service PLC announces strong profit growth and company to be renamed RAC plc

Lex Service PLC, the motoring and vehicle solutions company, announces preliminary results for 2001 which demonstrate a year of strong growth and continued improvement in the quality of earnings.

Results highlights

• Profit before goodwill amortisation, exceptional items and tax up 19% to Ł65.1 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 Ł39.0 million including Ł9.8 million from RAC Auto Windscreens.
• Value of long term business increased by 9% to Ł2.7 billion.
• Lex Service PLC proposes renaming as RAC plc.

Lex Service Chief Executive Andy Harrison said:

"Lex has been transformed over recent years with the acquisition of RAC and the divestment of our motor retailing activities. The benefits are clear, with a 19% growth in underlying profits, a substantial improvement in the quality of our earnings and exciting growth prospects."

"Changing our name to RAC plc is the natural next step as we build on the inherent strength of the RAC brand. Lex will remain an important trading brand in the corporate vehicle market."

Lex Service will seek shareholder approval for the renaming at its Annual 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, Lex Service PLC 07764 624701

Kate Holgate / Michael Webster, Brunswick Group 020 7404 5959

E-mail: racplc@rac.co.uk


Lex Service PLC preliminary statement

A clear vision for growth

Through the acquisitions of RAC Motoring Services in 1999 and Auto Windscreens in 2001, and the exit from car retailing in 2000, Lex has been transformed into a strong support services company with unique motoring and vehicle expertise and a clear vision for growth in the consumer and business markets. The progress achieved in 2001 confirms the success of this strategy.

There are considerable opportunities for further growth. In the consumer market RAC is continuing to grow its roadside business, with revenue up by 6% and customer numbers passing the two million milestone. In addition, revenue from non-roadside services grew on a like for like basis by 15% as the business continues to develop its comprehensive range of motoring solutions. In the business market Lex and RAC, benefiting from the growing trend towards outsourcing, won an unprecedented number of new contracts, increasing the revenue due from long term business by 9% to Ł2.7 billion. Together, these developments have improved the visibility and predictability of future revenue.

We are developing a strong platform from which to address these growth opportunities:

• We intend to leverage the strength of the RAC brand by renaming the company RAC plc, while continuing to build the Lex brand in its corporate vehicle markets. The renaming will enhance our ability to attract and retain talent by developing RAC's strengths as an employment brand.
• In 2001 we launched a programme called Growing Stronger Together to realise profitably the links between RAC and Lex by pursuing joint growth opportunities and combining areas with similar skills and processes. This is reinforced by the new organisational structure announced in January 2002.
• We will continue to develop our track record for service excellence, demonstrated by customer retention and satisfaction rates and the record 22 service accolades we received in 2001.

Operating performance

Profit before goodwill amortisation, exceptional items and tax grew by 19% to Ł65.1 million (2000 - Ł54.6 million before disposal losses of Ł12.9 million). Earnings per share on this basis increased by 18% to 41.9p (2000 - 35.6p). The Board proposes a final dividend of 13.2p (2000 - 12.6p), which together with the interim dividend of 8.8p per share (2000 - 8.4p), increases the total 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 27 February 2002 and the record date is 1 March 2002.

RAC Auto Windscreens' results were on track with a profit contribution of Ł9.8 million following its acquisition on 30 March 2001; net of interest the contribution was Ł5.3 million. This was partially offset by an increased pension cost of Ł3 million in 2001, which resulted from the erosion of our pension surplus due to the poor performance of equity markets over the past three years. The pension scheme is fully funded, although with no surplus remaining, and there will be a further increase in pension costs of Ł6 million in 2002.

The financial and operating results for 2001 reflect the business groupings which were in place throughout the year:

• RAC Motoring Services - Consumer Services and Business Services.
• Lex Business Services - Lex Vehicle Leasing, Lex Transfleet, Lex's mechanical handling activities and Lex Multipart
• Lex Vehicle Marketing - Hyundai, Isuzu Truck and Lex Commercials

Results for 2002 will be reported in line with the new organisational structure announced on 14 January 2002 (see notes to editors); the 2001 results will also be reported on a like for like basis.

Continued growth in RAC

RAC Motoring Services contributed Ł39 million to profit in 2001 (2000 - Ł26 million), including Ł9.8 million from RAC Auto Windscreens 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 rates remained strong at 83% (2000 - 83%). Roadside revenues increased by 6% to Ł249 million (2000 - Ł234 million) and revenue from non-roadside services grew by 15% on a like for like basis to Ł125 million.

RAC is making good progress towards its goal of being the first choice provider of a comprehensive range of individual motoring solutions, through growth in non-roadside services. BSM grew revenue by 12% and profit by 49%; Legal Services grew revenue by 44% and profit by 50%; and Financial Services reached the milestone of Ł1 million profit and wrote loans to the value of Ł34 million. RAC continued to grow the number of new members acquired via the internet: over 40,000 new members signed up online with RAC in 2001, up from 13,000 in 2000, with a substantial saving in acquisition costs. In response to changing customer needs RAC launched a number of innovative new products during the year, including RAC Routeminder, which provides travel information via PCs or mobile telephones; and RAC Platinum, a premier motoring package incorporating added benefits such as European assistance and travel insurance.

RAC Auto Windscreens made strong progress in 2001 with revenues and underlying profits increasing, on a full year basis, by 7% and 22% respectively. The rebranding of the business as RAC Auto Windscreens is well underway.

RAC Business Services performed well in 2001 and won significant new contracts, including Motability vehicle inspections; Consignia accident management; and fleet breakdown contracts with DaimlerChrysler Services and Lloyds TSB Autolease. Business Services' insurance claims handling division expanded into a new call centre in Manchester to support the services it provides to CGNU's three million motor insurance customers and to accommodate future growth. By the end of 2002 RAC will handle over 550,000 claims and over three million telephone calls on an outsourced basis for CGNU and other customers, a growth of 30% over 2001.

RAC's quality of service was recognised by a series of prestigious industry awards in 2001, including being named top in all aspects of the independent JD Power roadside recovery service survey, the Fleet Excellence award for Top Recovery Services Provider and the Fleet World Honours award for Service Excellence. This progress continued when RAC was voted Top Recovery Services Provider for the second year running and Top Accident Management operation in the 2002 Fleet Excellence awards.

We have now delivered much of the Ł30 million profit improvement forecast at the time of the RAC acquisition, with a stronger than anticipated performance, particularly on revenues, from the core RAC business activities. The performance of Lex Autocentres within RAC has, however, been disappointing. Whilst the link with RAC has delivered extra revenue, this has been more than offset by an erosion in Autocentres' base business.

Our confidence in RAC's continued long term growth is reflected in a Ł10 million increase in our investment in infrastructure and systems, bringing the total investment programme to Ł30 million. The related costs will moderate our growth in 2002 but the investment will deliver substantial efficiency gains and enhanced revenue growth from 2003 onwards.

Lex Business Services

Lex Business Services, which delivers a broad range of co-ordinated outsourcing services to major public and corporate organisations, contributed Ł33.7 million in 2001 (2000 - Ł32.7 million) and received industry recognition for its service excellence through a record number of service awards.

We are increasingly attracting customers who value our ability to provide a broad range of co-ordinated services, such as the Ministry of Defence and CGNU, and won a record number of outsourcing contracts in 2001. The successful implementation of the Ł500 million Ministry of Defence 'White Fleet' contract, supported by Lex Vehicle Leasing and Lex Transfleet, has further strengthened our partnership with the armed forces. In May 2001 Lex won a contract with BAE Systems to provide fleet management, parts support, mobile maintenance and workshop services, led by Lex Transfleet with support from Lex Harvey. We continue to focus on cross-selling among our Lex-branded businesses, achieving Ł20 million of additional revenue in 2001 (2000 - Ł12 million) with scope for further growth in 2002. The scale of the opportunity is demonstrated by the fact that Lex provides services to 50% of the FTSE 350 companies and less than 10% of our business customers buy more than one service from us.

Lex Vehicle Leasing, our joint venture with Halifax plc, grew pre-disposal profit by 15% with our half share worth Ł17.1 million in 2001 (2000 - Ł14.9 million). Following disposal losses of Ł12.9 million in 2000 as a result of falling used car prices, Lex made a Ł45 million provision to reflect its half share of expected future losses. The used car market stabilised faster than expected in 2001 and disposal losses for the year were absorbed within the provision. The Board is confident that the remaining provision will be adequate to cover expected future losses. Lex Vehicle Leasing continues to focus on high quality new business and grew the contract hire fleet by 3% to 93,700 in 2001 as a result of a number of new contracts, including the Ministry of Defence White Fleet, Taylor Woodrow and TDG. The business developed its range of services with the launch of a fleet evaluation software called ViewPoint, which enables businesses to understand the impact on their fleets of the April 2002 company car tax reforms. Lex Vehicle Leasing won a series of service awards, including the Fleet Excellence Awards for Best Contract Hire Company and Best Overall Service Provider.

Lex Transfleet, our commercial vehicle contract hire and fleet management business which is a joint venture with Lombard, made strong progress with profit growth of 71% and an increase in its managed fleet to 26,000 vehicles (2000 - 17,000). The business is focusing future growth around its fleet management capabilities. Lex Transfleet won the Institute of Transport Management award for Van Rental Company of the Year in both 2001 and 2002.

Lex Fleet Software, which trades under the Tranman name, continued to grow new business, turnover and profit in 2001, and was highly commended for the Fleet Excellence Fleet Software award. The business expanded its product range with the acquisition of Servitor, a generic asset management product.

Lex Multipart, our inventory management business, contributed Ł13.6 million in 2001 (2000 - Ł13.6 million). The business is structured in three parts, each providing dedicated service to its key market sector. Lex Auto Logistics, which provides automotive parts support, made good progress, reducing its cost base and growing new business, including a new five year aftermarket parts support contract with Fleetguard, part of Cummins Engines. Negotiations are continuing with Paccar to renew the DAF contract which expires in June 2003. Lex Multipart Defence, which provides parts support for the Challenger 2 tank in partnership with Vickers Defence Systems, has delivered significant efficiency gains to the Ministry of Defence and now operates a warehouse within the military base at Bicester, further strengthening its relationship with the MoD. Set against this progress was a disappointing performance from Multipart Universal which distributes all-makes parts for commercial vehicles; action has been taken to reduce the cost base to improve future performance. Lex Multipart won the East Midlands Business News Award for Services to the Automotive and Manufacturing Industry in 2001 and was a regional winner in the Trade Partners UK Languages for Export Award 2001.

Lex's mechanical handling businesses were restructured during 2001, exiting the unprofitable distribution activities amid continued difficult market conditions. UK contract hire and maintenance margins fell as older contracts were renewed at today's lower prices; together with restructuring costs this reduced the business's contribution to Ł1.3 million (2000 - Ł2.9 million). We have reduced the cost base by Ł1 million, together with an emphasis on the quality of new business to ensure the profitability of future contracts. For the longer term we will develop our strong national mobile maintenance capability for a broad range of industrial equipment, which we view as an important part of our business solutions portfolio.

Vehicle Marketing

Vehicle Marketing contributed Ł6.2 million in 2001 (2000 - Ł6.0 million).

Hyundai maintained its overall registrations at 27,800 (2000 - 27,200) and market share at 1.10% (2000 - 1.18%), with increased dealer registrations offset by the withdrawal from daily rental contracts. Four new models were launched successfully during 2001 - the Elantra and Sonata saloons, Santa Fe sports utility vehicle and Matrix mini-multi-purpose vehicle - establishing Hyundai as a competitor in all major market sectors. This was followed in January 2002 by the launch of the new Hyundai Coupe to critical acclaim from the motoring press. The strength of Hyundai's customer service was recognised when its Customer Support team was awarded the 2001 National Customer Service Award for Best Complaints Handling 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 done consistently for the past three years. The business grew sales of new trucks and increased its local retail market share. Quality of service was reflected by the fact that Lex Commercials held seven of the top 10 DAFaid service league positions, including first place throughout 2001.

Our Isuzu Truck importership made a loss during the year because of the movement of the yen against sterling. The competitive position has been restored for 2002. Isuzu Truck was named a best practice organisation for both leadership and customer service by the Department of Trade and Industry in 2001.

Financial results for 2001

Profit before goodwill amortisation, exceptional items and tax grew by 19% to Ł65.1 million (2000 - Ł54.6 million before residual value losses of Ł12.9 million). Earnings per share on this basis increased by 18% to 41.9p (2000 - 35.6p).

Operating exceptional profits of Ł1.8 million are after one-off integration costs of Ł5 million in respect of RAC and RAC Auto Windscreens. A gain of Ł6.8 million was made on the release of the provision set up against the litigation involving RAC when it was acquired by Lex. Exceptional profits of Ł9.3 million reflect the Ł25.3 million gain made on the disposal of our remaining holding in Synnex, a Taiwanese electronic components distributor, offset by net losses incurred on the disposal of businesses, primarily within Mechanical Handling, of which Ł6.8 million related to goodwill previously written off.

Goodwill amortisation of Ł13.9 million includes, in addition to a normal charge of Ł6.3 million, Ł7.6 million which has been written off in respect of Lex Manutention and Kellett.

After goodwill amortisation and exceptional items, profit before tax was Ł62.3 million (2000 - loss before tax of Ł17.5 million), with earnings per share on this basis of 39.5p (2000 - loss per share of 9.5p).

The group tax rate on underlying profit was 26% (2000 - 26%) which is expected to rise to 31% over the next three years.

Net debt excluding asset finance increased during the year by Ł94 million to Ł197 million, primarily as a result of the acquisition of RAC Auto Windscreens and our investment in RAC's systems and infrastructure. This was partly offset by the sale of our remaining stake in Synnex for Ł46 million.

Our interest cover remains healthy at 7.4 times.

Board appointments

In December 2001 Deputy Chairman Victor Benjamin retired from the Board as a non-executive director. During his 30 years on the Board he made a very significant contribution to the company's deliberations and provided a strong and independent view to the Board. We thank him for his service and wish him well in the future. We also thank Graeme Potts, Managing Director of RAC Motoring Services, who has stepped down from the Board.

We welcome Peter Long, Chief Executive of First Choice Holidays plc, who was appointed to the Board as a non-executive director in February 2001; and Dianne Thompson, Chief Executive of Camelot Group plc, who joined the Board as a non-executive director in February 2002.

An outlook of continued growth

The company has now been repositioned as a strong and unique support 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 increased investment in RAC and the development of our brand strategy, augurs well for long term growth. Our momentum has continued into the early weeks of 2002 and the business is performing in line with expectations.

Notes to editors - Lex Service provides motoring and vehicle solutions to individual and business customers through five inter-related divisions:

• RAC Consumer Services sells a comprehensive range of motoring solutions to individual customers, including financial, legal and travel services, RAC Auto Windscreens and BSM.
• RAC Business Solutions sells motoring and related business solutions to business customers and manages complex outsourcing bids for large public and private sector organisations.
• Lex Vehicle Leasing is the UK's leading car and van contract hire company, providing solutions for fleets of all sizes together with personal leasing and employee car ownership schemes.
• Lex Industrial Solutions includes mechanical handling, fleet management and commercial vehicle contract hire, where there is significant commonality of customers and operations.
• Lex Manufacturer Support Services provide outsourced marketing and inventory management services, primarily to vehicle manufacturers.