Big game hunter

When Peter Backhouse was appointed CEO of contract hire specialist Fraikin in May 2010, he set out a clear vision of where he wanted the company to be. 18 months on he gives Steve Hobson a progress report.

Since his arrival at Fraikin after two years in charge of Bunzl Healthcare and 11 years at Ryder, CEO Peter Backhouse has repositioned the company from a straightforward contract hire and rental firm to a big game hunter, capable of taking on the biggest and most complex fleet management deals with large, high profile customers. This new, more ambitious attitude has borne fruit in two flagship contract wins with GEOAmey and Scottish Power – but will this focus on large fleets mean an end to Fraikin’s traditional contract hire and spot rental business?

“One of key things I put in place is that I wanted us to be a lot more focused and a lot more structured in the markets we are addressing,” Backhouse tells MT. “Therefore we have to build an organisation that is clearly able to service the bigger fleets. The smaller fleets will always be part of our portfolio but in terms of structure and emphasis I wanted to make sure the organisation was really focused on where we saw good quality growth.”

Although Backhouse came to Fraikin after the credit crunch of 2008 devastated the UK economy, he knows only too well the value of doing business with large, well-established organisations that are able to ride out the storms of recession.

“That is important, because businesses like ours sustain themselves with customers that are around for the long term,” he says. “We are making substantial capital investments in our products and services, so it is important those customers are able to stay the course on those contracts.

“The worst case scenario for us it that we make a big investment for a customer , then that customer goes into trauma two years down the line and suddenly we have the vehicles back. So we need to focus on quality organisations that have the critical size and a sustainable customer base so we can enjoy the full five, six or seven year term of the contract.”

Backhouse cites the recent win with GEOAmey (see Taking prisoners box) as the type of business he wants to see Fraikin having the ambition and ability to take on.

“The reason that the GEOAmey contract is so important is that sends a signal both externally and to the Fraikin organisation that the strategy is starting to work,” he says. “One of the big cultural changes for the organisation is understanding that we are not out to pick up anything we can get. We are out to pick the quality. As our group president says: ‘We are there for the cream’. It makes everyone wake up and say ‘That’s complex kit and a complex customer, it’s a demanding and highly intense service environment and we can do it’.

“That means building not only capability and competence but also confidence. Fraikin has been punching below its weight and now we need to start pushing our brand and punching our weight. To do that we have to have the confidence and confidence comes from winning. The ‘bid to bang’ time – the bid to go live period – on the Scottish Power contract was just three weeks. We signed the contract in the middle of January and were starting to go live in the second week of February.”

The Scottish Power contract involves taking on ownership and management of 2,800 vehicles from Scotland to Cheshire, ranging from vans to cranes and Hiabs. Although the utilities like Scottish Power are now privately rather than publicly owned, they retain many of the qualities in terms of size and longevity that Backhouse wants to see on Fraikin’s books.

The public sector in all its guises is a key target market for Fraikin, because despite the current crisis in government finances it ticks all of the boxes for Backhouse’s ideal customer.

“If the sovereign debt crisis translates into the government going bust we have bigger issues to deal with than vehicle investments,” he argues. “I think your bet is that the government will always retain a good and appropriate credit rating.

“Reduced public spending is one of the reasons why they are a prime target. If they have less to spend they need to start to become more efficient. One of the service propositions we have is we help them become more efficient. A few years ago it was all about ‘they have a massive fleet, let’s get in there and get all that fleet’. Now it’s about tuning the requirement so instead of making a £15 million investment and getting a big book of business we might make an £8 million investment and get a right sized business. We are then getting a long term customer – that is the key.

“That is a proposition our industry has talked about but never really taken to the customer because we have focused on vehicle numbers. We have to switch to the absolute value proposition and that is where we were clearly focused with the GEOAmey contract.”

While that contract is with a private sector prime contractor, Backhouse says that because the ultimate client is the Ministry of Justice it is in effect as safe as it if were in the public sector.

“We would count that as a secure contract in the sense that Amey and GEO are both very powerful businesses in their own rights so there is no credit issue,” he says. “It is a £27 million investment in very specialised equipment in a sector that is always going to need that equipment.”

Around 20% of Fraikin’s business is now in the public sector or, like the GEOAmey contract, underwritten by a public sector client and Backhouse wants to double this proportion. But this still means Fraikin’s core business will remain in the private sector.

“Public sector should start to occupy around 40% of our portfolio, whether that is local council, central government, NHS, MoD, MoJ or whatever,” he says. “We are not forgetting the commercial sector where there are very significant fleet users who historically have had the capability to self-fund their vehicles and are looking more for a maintenance package solution. We are seeing much more open-mindedness to contract hire, whereas previously those would have been closed doors because they would say ‘why do we want give you margin when we have our own capital funding’.”

As part of a well-funded, privately-owned French company, Fraikin in the UK has better access to finance than traditional lenders or many logistics firms.

“ The banks have changed and so has the focus of financial directors. They want more of a balanced capital portfolio and some of that they want to outsource and some they want to insource,” says Backhouse. “And some of that insourcing may be more focused on their own capital equipment such as plant or property. So if there is someone else who has a good capability to provide the asset funding and the maintenance, and can simplify the invoicing, stabilise the budget and help optimise the fleet, that is starting to become more attractive.”

And that approach is no longer limited own account operators where transport is secondary to the companies’ business.

“We have not traditionally been a large logistics company provider, but we are now starting to see some of the premium logistics organisations come to us for the full package,” says Backhouse. “One reason we have not been aggressive in the logistics sector is because transport is what they do, they have a fleet director, they have workshops and they had the capital capabilities to finance the fleet – and if they didn’t they went straight to the OEMs for a deal. The world has changed – all senior management are looking at where they create best value and what is core and non-core.

“A lot of logistics companies are now saying what is core is the contract to hold and move the product and what is secondary is how we do that and with what assets.”

This would imply that Fraikin is now only looking for in large public and private sector fleet business, and is no longer interested in smaller fleets.

“That is a debate we have constantly internally,” admits Backhouse. “For me one of the worries that we have is that is we forget about local customers around our branches we start to struggle with the long term sustainability of the branch. However a book of a high number of small customers is very demanding in terms of cost to service. A small number of big customers is easier to serve in terms of back office costs but if you lose one it is a big dent in the company. So we have to find a balance and we don’t have an absolute model at this point in time.

“We are not abandoning what we had and moving to a new market. It is a complementary strategy and we are starting to learn to address the bigger opportunities that in the past we have not been used to addressing.”

And what of the future for spot rental?

“Our rental fleet is now less than 1,000 vehicles. I think there is a place for short term rental but that is supporting our existing customers,” says Backhouse. “Longer term I don’t believe we will continue to have a short term rental portfolio that services non-contract hire customers. We will not be out hunting new pure rental customers.”

Box Taking prisoners

Fraikin CEO Peter Backhouse describes the contract to provide 401 custodial cell vehicles to GEO Amey PECS (GEOAmey) as a landmark deal for the company.

GEOAmey is a joint venture between the GEO Group, a global provider of correctional, detention and treatment services as well as secure transportation and Amey, a leading UK public services provider. In March 2011, GEOAmey was awarded three contracts by the Ministry of Justice in the UK for the provision of Prisoner Escort and Custody Services (PECS) for England and Wales with the exception of London and the East of England . Commencing the services on 29 August 2011, GEOAmey escort prisoners between courts and prisons, transfer prisoners between prisons and manage court custody suites and dock areas.

At the core of the contract was the design and build of 401 dedicated custodial cell vehicles. Based on Iveco and Renault chassis with bodies from Cartwright, the vehicles handle daily prisoner movements.

The contract is for an initial term of seven years and is the biggest single contract to be awarded in Fraikin's 33 year UK history, involving a £27 million capital investment by the company.

“The timeframe we had was very tight and from placing the order to going live was just 10 weeks,” says Backhouse. “These are complicated, multi-cell vehicles and we had a major challenge coordinating the supply chain. The way we all worked together – the customer, Fraikin and our suppliers – is a model that can be a template for the future.”

“The financial aspects were very simple. We started working with the customer early on in the bid process, which was critical. It was a Utopian project in that we had a relationship with GEOAmey right at the beginning and we had a unique understanding of their needs. They didn’t come to us with a spec and say ‘price it up.’ We designed it together and then went to the supply chain. It was a multi-region bid and there are two, four, six and ten cell vehicles for each region.

“In this case, because we knew each other from the beginning, we were able to commit to orders without contracts. Once the contract had been awarded to GEOAmey we knew there was no risk. In a meltdown situation where we had placed the orders and then GEOAmey changed their mind and went with a competitor, the orders would just switch to the competitor.

“That could have disadvantaged us in the negotiations when we had made a £27 million commitment, but we had trust that we both wanted this to work and would be reasonable around the final contract negotiations. The relationship we had meant that when we were finalising the contractual terms we had a very pragmatic and sensible process.”