It’s only a matter of weeks since GNE Group announced it had completed the sale of its fuel retailing subsidiary, Petrol Express.
But GNE isn’t a company to rest on its laurels - it’s already back on the acquisition trail and says it’s got £50m to invest in its business. It wants to spend this predominantly on building up another petrol retailing network.The listed company got rid of its entire petrol retailing operation when it completed the sale of Petrol Express in October.
Petrol Express, which was number six in Forecourt Trader’s 2008 Top 50 Indies list, had 63 UK filling stations and was sold for £51.6m to Murco Petroleum.
GNE chief executive officer, Dennis Woods, revealed that the sale was prompted by an offer that was simply too good to refuse - even though the company wasn’t really ready to sell.
He explained: "Initially we didn’t want to sell. We didn’t think it was the right time because we thought there was still a lot we could do with the company. But we are listed on the London Stock Exchange and had received offers from three different bidders. The best price was such that we just had to offer it to our shareholders - and recommend it.
"Last year we lifted the profile of the company, by buying Bond Hamill, and it got people to notice us and they came knocking on our door. That triggered it all really." Today GNE has no operational forecourt businesses, although it does own five closed sites - two of these are being redeveloped for flats or retail units, and the other three are being developed for alternative use, pending planning permission.
As part of the sale these were moved into a property development section of GNE called TRS Developments. GNE also still has its fuel card business, including Fuel Up Ltd, and is looking to get into the oil distribution business. It also wants to start growing the petrol retailing side of the business again.
Woods said: "We have cash in the bank - a good chunk is being paid as dividends to shareholders but that still leaves us with a good sum of money."
The new petrol retailing side of the business could end up being much bigger than the old Petrol Express. The company thought it could have run double the amount of sites it had, which would have been at least 120 sites. Woods added: "We have the structure to cope with that number."
However, GNE is not prepared to pay over the odds for sites. Woods said: "Borrowing isn’t easy at the moment, but we have funds we can utilise. I suppose it’s more difficult if you’re a business with five or six sites looking to buy another two or three sites."
Despite fuel sales being down at least 10% in general compared to last year, Woods thinks the petrol retailing sector is still a great business opportunity. He expects the market to see "tougher times" in the new year, but thinks volumes will pick up again.
The company is looking for sites it can manage and develop, with opportunities to expand and grow. "It doesn’t matter if it’s a knock- down-rebuild or if it’s expanding the existing facilities, each site has its own individual characteristics and needs."
Looking to the future, GNE wants to continue with convenience stores on sites. Woods said: "The old image of the petrol station has gone, it’s now acceptable to the public to buy food in a petrol station. The business model is working but you have to be prepared to invest a lot of money in a site. Then you need to promote it and bring people in. And you have to do the research before you do it."
GNE has already had a few businesses pushed its way but has been too busy with the disposal of Petrol Express. In addition, the company had to let most of its Petrol Express managers go. Murco’s business model meant Petrol Express senior management was no longer needed, including operations director Ron Haacke.
Woods said: "They all knew they would lose their jobs but they all got fair treatment. Each of the Petrol Express managers was given the option of running their own business." He added that the door was open for any to return to GNE once it starts growing its petrol retailing business again.
Over at Murco, the company has started the process of integrating the 62 operating sites (one was non-operational). Jeremy Clarke, Murco’s marketing manager, said the company is also committed to expanding the Murco brand. Of the operating Petrol Express sites it bought, eight are BP, two Esso and the remaining 52 are Texaco branded. The idea is to turn them into Murco-branded sites when the contracts expire - this will take between two and four years, with the majority ending their contracts in two years. But Clarke said: "Each deal will be evaluated on its own merits. We’re committed to the Murco brand. You cannot expand in this marketplace and buy groups which are free of tie - things aren’t as clear cut as that. We will evaluate every deal as and when it expires. But we’d be silly to say we didn’t want to develop the Murco brand."
The Petrol Express deal means Murco has 231 company-owned sites and 226 dealer sites. It has also bought the Petrol Express name. Clarke said: "It’s a good name, it’s pretty catchy and there may be some use for it in the future, so we’re happy to keep it."
Murco bought Petrol Express via a purpose-built investment vehicle called Leopard No 2 Investment Ltd. It also used a similar strategy when it recently bought seven sites in Scotland - under the name of Leopard No 1 Investment Ltd. Clarke said: "We’ve added 69 operational stations in the past two months. That’s significant, And we’ve had to change 62 direct managed stations to 62 commission-operated stations."
On the Petrol Express sites, there are three types of manager running them: those who are already working for Murco running sites; people from other operators who had applied to run a Murco site; and some ex-Petrol Express managers who have gone from being a directly paid manager to being one of Murco’s commission operators. In general, most managers run one site in Murco, although about 25% run a couple of sites.
Clarke says: "Petrol Express fits very nicely into our operating area, the locations are mostly in areas where we currently trade. We’re very comfortable about what we’re doing in the market."
On the shop side of the business, Murco has just over 150 Costcutter stores and its short term plans are to start to convert the Petrol Express shops. However, the Costcutter agreement expires next year, and Clarke said the two companies have a strong relationship but Murco will look for the best option when the deal ends. He added: "We will develop the shop facilities at the recently acquired sites like we did when we bought Fuelforce. Our shop turnovers have increased by nearly 50% over the past three years due to a shop development and off-licence strategy. We think that’s a pretty impressive strategy and we want to put that across the Petrol Express network. It’s worked for us pretty well so far." Excluding the Petrol Express acquisitions, Murco’s shop turnover now stands at about £70m.
As for future strategy, the immediate focus is on integrating the new sites. Clarke said: "We’ve taken on a number of area managers but we’ve got our own infrastructure and there’s a lot of difference in running under a commission-operated scheme. When you’re taking on a network you’re changing the culture of the way it’s run. We want to improve standards and develop the shops. We also want to invest in non-fuel income areas like valeting. Petrol Express ticked most of the boxes - the sites were in the right areas and given our infrastructure we have the ability to add on a number of sites to that without taking on the associated costs."
In the long term, Murco is still on the acquisition trail. And Clarke feels the company is well placed to supply fuel due to the 2007 acquisition of the Milford Haven refinery. He added: "Our refinery has given us a lot more availability of product around the country. We’re looking for high-volume sites, if you look at the sites we recently bought in Scotland, many of them sell in excess of 5mlpa with bunkering for the same amount.
"A combination of c-stores and non-fuel income is key, and we’re looking at other facilities like valeting. But fuel is also very important. We’ve made a success of what we did with Fuelforce, and we’re backed by a large corporation which can see the opportunity in the UK downstream market. The focus has been to grow our presence in the UK over the past three years. Dealers are very important to us and we’re determined to run a competitive and flexible deal."
=== Petrol express: a history ===
* 1997 - Petrol Express is set up by Rikki Hunt following a management buy-in of Thames Rico Service Stations.
* 1999 - 14 sites are bought from Shell for £2.3m.
* 2001 - GNE (formerly Middlesex Holdings Plc and Global Natural Energy Plc) buys a minority shareholding in Petrol Express from Alchemy.
* Rikki Hunt leaves to set up Fuelforce.
* 2002 - GNE acquires a majority stake in Petrol Express (GNE previously had 49.9%, with the remainder owned by an Eastern European investment fund backed by Russian investors). At about the same time Ron Haacke, who previously worked at Thames Rico, joins Petrol Express.
* The company also buys British Benzol Fuel Card.
* 2006 - GNE acquires remaining shares in Petrol Express.
* 2007 - Dennis Woods becomes chief executive. (Woods ran British Benzol for 30 years). Petrol Express buys eight Bond Hamill sites and two from Taurus Group.
* October 2008 - Murco buys Petrol Express for £51.66m.