‘An analogue person in a digital age” has become a somewhat barbed put-down as software has colonised the earth over the past few decades. Well, Restore plc, the document management business in the unglamorous arena of paper records management, shredding and scanning, is reversing this conventional wisdom in the business sense under chief executive Charles Skinner in an eye-catching way.
Restore was nearly bust in 2009 when he joined, having diversified into areas such as insurance repairs and timber treatment, but its Aim-quoted stock market value has jumped from £2 million to £420m since then.
Its core business is records management, accounting for nearly half of group revenues and more than half of profits. The group has 15 million cardboard boxes in which it stores paper records of everything from legal and NHS documentation to accountancy paperwork at about 60 UK sites. Nine of them are in Scotland, including a major one in Livingston. A prestigious win north of the Border is the contract to operate Nucleus, the new archive for the Nuclear Decommissioning Authority at Wick, which will open on 14 February. For the first time, the archives of the whole UK civil nuclear industry will be held in a single place.
Sites also include a 65-acre underground facility outside Bath in Wiltshire that was one of the biggest munitions dumps in Europe. As well as modern purpose-built locations, Restore also uses massive aircraft shelters from the time of the Cold War. That is a lot of paper space.
Skinner has also rapidly expanded the document shredding operations of Restore to about 20 per cent of the business and document scanning to slightly more than 10 per cent. The step-change in scale has propelled the company to be the UK’s second biggest player in records management – and, crucially, three to four times bigger than the next biggest industry operator. It is also the second biggest UK operator in document shredding, and five to six times larger than the number three player.
Skinner has achieved this massive jump in scale largely through a string of acquisitions financed by a flurry of stock market capital-raisings.
He says: “Acquisitions are a key part of our growth. These markets have tremendous benefits of scale. If you have national coverage, with one IT system, you can juggle your space. I believe the consolidation of the sector will continue and we can benefit from it.” Two of the most recent “transformational” deals were Wincanton Records Management (for £60m in late 2015) and PHS Data Solutions (for £83m last August). Restore’s scanning business, particularly helpful for its work with the NHS where document duplication is often necessary, was significantly enhanced by the PHS acquisition, says Skinner.
The Aim market’s enthusiastic backing of the business shows that it clearly sees nothing anachronistic about its “analogue” profile. The company has tapped the market for more financial firepower eight times since October 2010, the first totalling £4m at 26p a share and the latest last year of £35.2m at 290p a share. Restore’s shares are currently trading at 395p.
Investors were happy when Skinner revealed the group’s interim pre-tax profits had jumped a further 35 per cent to £9.6m last September. Its annual results are due on 9 March, when further double-digit earnings progress is expected after a positive trading update last month.
Skinner said at that time: “The group… has an excellent platform for further profitable growth with strong visibility of earnings.”
Why was he attracted to the business, after taking a year out following 20 years in the services industry? “I could see records management was ready for the market and consolidation. I was right, it has increased in size tenfold.”
Apart from acquisitions, Skinner is also clear on the other main elements of Restore’s operational strategy. “We like a strong element of recurring revenues and definitely operational complexity because that is where our expertise is and allows good profit margins to be achieved,” he says. “There is a long-term commitment, with many customers happy to take 15 to 25-year leases.” Restore’s records management currently has a margin of 26 per cent, which many more glamorous businesses (hotels and premier spirits drinks are two that come to mind) would bite your arm off for.
Customers keep sending it more paper each year to store, about 6 per cent more on average. So much for “cloud” data storage and the “paperless office”.
Another of the company’s key strategies is to establish a similar channel to market, typically getting new business through customers’ facilities managers or IT managers.
“Switching suppliers (for document management or shredding) is neither desirable nor practical for customers,” Skinner says. “They just want the job sorted.”
In these times of cyber-hacking one would expect paper storage to have even more attraction, but Restore’s boss says he does not want to overdo that line as the business is successful even without such a cyber boost.
The one under-performing business continues to be the company’s toner cartridge recycling arm, which has been hit by the weakening global market for reselling empty cartridges. However, Skinner says that just as the company was “patient” in earlier, tougher days for the shredding and scanning activities, it is playing the long game on cartridges. “Lots of our businesses did not make money, but we have nurtured them,” he says. “It is a market we logically want to be in as it is a service which appeals to our customers.”
Another sideline business for Restore is disposing of companies’ IT assets, such as phones, computer terminals, screens etc, and it numbers household name carmakers, insurers and investment banks among its clients for this service.
“We have learnt the ropes of this business over the past three or four years and it fits well with our shredding operations,” Skinner adds. “Clients’ biggest concern is that the data on the IT equipment, such as hard disks, should be wiped, and that it is all disposed of in an environmentally responsible way.”
Operating capacity is one of the key dynamics of the document management industry, and often defines the difference between profitable and struggling players. Skinner says that typically the storage businesses he acquires are operating at a 65 per cent capacity. “We aim to take this up to the early 90 per cents,” he says. “That is an optimal level as it freaks our managers out otherwise. They think ‘what will we do if other stuff comes in?’”
Apart from reselling spent toner cartridges overseas, Restore is a resolutely UK-centric business and that’s the way it is likely to stay.
Skinner explains: “Business-to-business services does not travel well. We don’t have any intellectual property, we don’t have a brand. We don’t have a silver bullet. The key is understanding your market. If Restore went to Berlin we would not know how properties are managed, what the culture was.”
The boss also says that Britain’s austerity climate has not meant a fall-off in public services contracts, quite the opposite. “No, it has not. We say we are part of the solution on this one. When you are storing boxes nobody really wants to do it themselves. It is more expensive to have your own storage on site. We think that sector remains a big opportunity for us.”
Much has been made in the business world about the a sudden plunging macro-uncertainty, taking in the unexpected UK Brexit vote, the election of Donald Trump as US president and even a possible second Scottish indyref. However, Skinner has his wits collected on such fears, believing that the very basic nature of Restore’s business, as well as its scale and operating agility insulates it well.
He acknowledges a second Scottish referendum would be “unhelpful” for some of the group’s customers, but looking at the broader picture, he says: “I think we are acyclic (not forming part of cycles). If the economy turns down you cannot chuck out all your paperwork. You still have to shred stuff.”