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HSS Hire Group: Announcement of intention to float on the London Stock Exchange

16 January 2015

HSS Hire Group, a provider of tool and equipment hire and related services in the United Kingdom and Ireland, has announced its intention to proceed with an initial public offering (the "Offer" or "IPO")

The Company intends to apply for admission of the Shares to the premium listing segment of the Official List of the Financial Conduct Authority and to trading on the main market for listed securities of the London Stock Exchange (together "Admission"). The Offer will comprise an offer of Shares to institutional investors and an Intermediaries Offer to facilitate participation by retail investors.

In connection with the IPO, HSS also announces the appointment of Neil Sachdev as Deputy Independent Non-Executive Chairman, and Amanda Burton and Douglas Robertson as Independent Non-Executive Directors.  These individuals bring significant additional experience to the HSS Board.

The Directors believe that HSS is the second largest provider of tool and equipment hire and related services in the United Kingdom based on revenues and the second largest provider of temporary power generation in the United Kingdom based on fleet size. HSS is also the second largest provider of powered access equipment in the United Kingdom based on fleet size.

HSS has provided equipment hire services for more than 50 years, primarily focusing on the business to business market. Alongside traditional equipment hire, the Group offers a range of complementary, value-added services through its HSS OneCall, Reintec, TecServ and HSS Training businesses. The Group also offers specialist rental equipment under its ABird, Apex and UK Platforms brands.

As of 27 September 2014, HSS operates from over 265 locations, serviced by a delivery fleet of over 400 commercial vehicles and approximately 2,900 colleagues, through a well-established hub and spoke distribution network comprising a national distribution centre, 10 regional distribution centres, 25 local distribution centres and 230 trading locations, that aims to maximise equipment availability on an on-demand or next-day basis.

For the 52 week period ended 31 December 2011 to the 12 months ended 27 September 2014, Group revenue grew at a CAGR of 17% and adjusted EBITDA grew at a CAGR of 19%.  HSS’s market share in the UK increased from 3.6% to 4.7% over the same period.

BUSINESS HIGHLIGHTS
• A leading player in a growing market with attractive structural growth characteristics. The European Rental Association (“ERA”) estimates that total UK equipment hire market revenue will grow at a CAGR of 4.3% between 2014 and 2016. HSS is also well-placed to continue to benefit from structural growth resulting from the ongoing drive of larger businesses to outsource non-core activities.  In addition, HSS is targeting the c. 48% market share held by SME independents through the roll-out of its successful Local Format Branch onto trade parks nationwide.

• Distinctive and differentiated market position. HSS concentrates on the less cyclical “maintain” and “operate” segments of the tool and equipment hire market, in contrast to providing large plant and heavy machinery geared to construction activities in the “new build” segment. The “maintain” segment refers to customer activities such as refurbishments, improvements and repairs while the “operate” portion of the market includes facilities management, transportation and cleaning, among others.  The Directors believe that HSS’s combination of products and services helps to differentiate the Group from its competitors, embed the Group more deeply with its customers and establish a “one-stop-shop” capability that enables HSS to capture a greater share of its customers’ potential spending.

• HSS has been recognised as a market-leading brand for tool and equipment hire in the United Kingdom.  As of September 2014, the Group had a Net Promoter Score (NPS) of 33 as measured by TNS (based on 591 customer interviews conducted between July and August 2014).  The Directors believe the Group's NPS score is the market leading score amongst major United Kingdom tool and equipment hire providers.

• An integrated and scalable distribution network which centralises all hire stock on a single platform, with the efficient movement of equipment between branches creating a shared inventory that provides the Group with the ability to serve its customers “anytime, anywhere”.  This structure helps to maximise equipment availability and increase utilisation of the asset fleet, which is critical to delivering high return on assets. Over the course of 2010-2012, the Group implemented a sophisticated hub-and-spoke distribution network, as a result of which the Group’s range of tools and equipment can be made available to its customers at any branch generally within twenty-four hours of a customer placing an order. 

• Nationwide branch network with significant growth potential through a roll-out of Local Format Branches in new locations in the UK targeting the c. 48% of the market still held by independents. These branches combine a local presence with access to full HSS customer support and a wider range of tools and equipment for hire with greater availability than the Group’s smaller competitors.  As at 27 September 2014, HSS had opened 34 Local Format Branches and the Group plans to roll-out this format to grow its network from over 265 locations to over 500 locations across the UK and Ireland.

• Broad customer base that is well-diversified by service offering and end-markets with significant barriers to entry. HSS caters to a long-standing and well-diversified customer base, comprising over 35,000 “live” accounts ranging from large, blue-chip companies to smaller, local businesses across a range of sectors. Over 90% of the Group’s revenues in the 52 week period ended 28 December 2013 were generated from B2B customers including many of the UK’s largest supermarkets, airports and facilities management companies.  The Directors believe that the Group’s focus on the customer experience and relationship, rather than on single contracts, is a significant driver of growth.

• HSS has established a capital efficient business model which drives premium returns. The Group has a strong focus on optimising its deployment of capital, only entering market segments where it believes returns are sufficiently attractive. This focus on capital efficiency has enabled the Group to deliver industry-leading returns on assets, which have increased from 21% in the 52 week period ended 31 December 2011 to 26% in the 52 week period ended 27 September 2014.

• An experienced Board and long-standing executive team, supported by high quality operational management. HSS’s senior management team has strong asset rental and retail credentials and a track record of delivering organic growth, with revenues increasing from £177.0 million for the 52 week period ended 31 December 2011 to £271.6 million for the twelve months ended 27 September 2014.

CLEAR STRATEGY FOR GROWTH
The Group's strategy is to build on and leverage its existing leading market position in the UK tool and equipment rental market by:
• Developing and enhancing the HSS hub-and-spoke distribution network to further improve availability to customers and return on assets
• Targeting growth in local markets in both the UK and Ireland through a national roll-out of the successful Local Format Branch model, which was first introduced in 2012
• Cross-selling its “total equipment management” proposition to mature key account relationships
• Continuing to complement and accelerate the Group’s growth through selective bolt on acquisitions. 
Full details on HSS’s strategic growth plans are provided on page 11 of this announcement.
Chris Davies, Chief Executive Officer of HSS, said:
“HSS has outperformed the UK tool and equipment hire market in recent years by offering its customers a powerful combination of safety, value, availability and support, delivered by c. 2,900 well-trained and motivated colleagues with a passion for delivering outstanding service.  By focusing on the more attractive and less cyclical “maintain” and “operate” segments of the market and building a sophisticated distribution network that has enabled a step change in availability and utilisation, we have established a track record of delivering industry leading growth and returns on assets. 
“Having built a well-differentiated market position and a scalable business model underpinned by capital efficiency, we have an exciting opportunity ahead of us as we implement our growth plans.  A public listing will put the business on the best footing to maximise our potential as the recovery in our markets gains momentum, enabling us to scale our model faster and accelerate our growth.”
Alan Peterson, Non-Executive Chairman of HSS, commenting on the new Board appointments, said:
“I am delighted to welcome Neil, Amanda and Douglas to the Board.  Their combined experience and expertise will be invaluable to HSS in the next phase of its growth as a public company and the Group’s ability to attract Non-Executives of such high calibre underlines the strength of the business and its prospects.”         
                                                                                                                                                                                                                                   
DETAILS OF THE OFFER
• The Offer will comprise an offer of Shares to certain institutional investors in the United Kingdom and elsewhere outside the United States, and in the United States only to Qualified Institutional Buyers, and an Intermediaries Offer to investors in the UK, the Channel Islands and the Isle of Man.

• The offer will comprise (i) an issue of New Shares by the Company and (ii) an offer of Existing Shares by funds managed by Exponent ("Exponent Shareholders"), co-investor Standard Life and certain directors and members of the senior management of the Company and other individuals (together the "Selling Shareholders"). 

• The sell-down by the Selling Shareholders will provide such Selling Shareholders with a partial realisation of their investment in the Group.

• In addition, the Company intends to apply the entire primary proceeds of c. £103 million to reduce its current leverage and provide greater capacity for additional capital expenditure to drive future growth in the business, and for the payment of transaction fees;

• Each of the Company, its directors and members of its senior management, Exponent Shareholders, and certain other Selling Shareholders will agree to customary lock-up arrangements in respect of their holdings of Shares for specified periods of time following Admission.

• Immediately following completion of the Offer, it is expected that the Company will have a free float of at least 25% of the issued share capital of the Company.

• The Exponent Shareholders are expected to remain the Group’s largest shareholders following completion of the Offer.

• It is intended that an over-allotment option of up to 15% of the total offer size will be made available by the Exponent Shareholders and Standard Life.

• It is expected that Admission will take place in February 2015 and that, following Admission, the Company will be eligible for inclusion in the FTSE UK indices.

• In relation to the Offer and Admission, J.P. Morgan Securities plc, which conducts its UK investment banking activities as J.P. Morgan Cazenove (“J.P. Morgan Cazenove”), is acting as Global Co-ordinator, Joint Bookrunner and Sponsor. Numis Securities Limited ("Numis") is acting as Joint Bookrunner and Joh. Berenberg, Gossler & Co. KG, London Branch (“Berenberg”) is acting as Co-Lead Manager.

ENQUIRIES
HSS Hire Group (12/01/15) +44 (0) 20 7638 9571
Chris Davies, Chief Executive Officer Thereafter: + 44 (0) 208 897 8566
Steve Trowbridge, Chief Financial Officer 

Global Co-ordinator, Joint Bookrunner and Sponsor
J.P. Morgan Cazenove +44 (0) 20 7742 4000
Robert Constant 
Greg Chamberlain 
James Taylor 

Joint Bookrunner
Numis Securities +44 (0) 20 7260 1000
Alex Ham 
Chris Wilkinson 
Stuart Skinner 

Co-lead Manager
Berenberg +44 (0) 20 3207 7800
Oliver Diehl 
Georg Bucher 
Martin Kochhan 

Financial Public Relations
Citigate Dewe Rogerson +44 (0) 20 7638 9571
Simon Rigby 
Kevin Smith 
Jos Bieneman 

Intermediaries Offer
Solid Solutions Associates +44 (0) 20 7549 1613
Nigel Morris intermediaries@solid-solutions.co.uk
Graham Webb 


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