William Ransom boasts a rich heritage producing extracts from plants for use in foods, healthcare products and other items. The company has been operating in these areas for more than 150 years from its Hertfordshire headquarters. However, chairman and chief executive Tim Dye has instigated a series of changes over the past five years.
He reorganised the group’s portfolio of products, acquired niche brands from larger companies and refinanced the business. Much of this was funded by selling the company’s historic site in the centre of Hitchin and moving to new premises outside the town.
Ransom is now well positioned to take advantage of anticipated growth in demand for natural remedies, which have seen a dramatic resurgence in consumer interest during the last decade or so.

Strategy
Dye joined the group in late 1998, becoming chief executive the following year. At the time Ransom concentrated on its traditional business of producing a multitude of unbranded plant and herbal extracts for a variety of end-users. He saw an opportunity to build on this solid base and acquire consumer healthcare brands, which could command higher margins.
He realised that, with major pharmaceutical developers such as GlaxoSmithKline and food producers like Unilever now focused on global brands, products only known on a national level in the UK were of less interest for such companies. Dye wanted to snap up these unwanted assets at reasonable prices and use Ransom’s production expertise to make them in-house.
In October 2000, he recruited a team from the consumer side of GlaxoSmithKline to identify such products in the broad area of ‘natural healthcare’. The first purchase under this strategy was the Cariad brand of aromatherapy products, followed in January 2002 by the acquisition of four products from Swiss giant Roche for £6.75 million. These included muscular relief treatment Radian B and Metanium, which alleviates nappy rash.
The second major deal was the purchase of Health Perception (UK) last April for £7.83 million. Olympic gold-medal winning swimmer David Wilkie founded this business and built it up into the UK’s leading manufacturer of Glucosamine. This substance improves joint mobility and its popularity has helped the business experience rapid annual growth of over 20 per cent on average during the past five years.
This transformed the overall Ransom business. Sales in the six months to last September jumped 62 per cent to £10.89 million, principally because of the impact of the Health Perception acquisition, which exceeded initial expectations. This enabled profits before tax and amortisation to leap from £60,000 to £800,000 as gross margins improved from 26 per cent to 36 per cent. The group’s existing business saw like-for-like sales rise 6.4 per cent, helped by strong exports of Radian B and a good performance from Metanium.
However, Dye did point out that orders normally filled in the second half had been brought forward to the first half of the year. This was because the company was relocating its plant extract operations in December, effectively closing down production in this area for six weeks.
Ransom funded most of its acquisitions by two major share placings, raising £5.12 million at 50p a share in 2002 and £3.7 million at 42p at the time of the Health Perception deal last year. An additional £8.6 million was pulled in at the end of 2003 from the sale of its old headquarters in Hitchin for residential development.
The move to new premises on the outskirts of the town not only met some of the expenses of the Health Perception acquisition, but also prompted Dye to make further efficiencies in the business, principally by rationalising the selection of extracts Ransom traditionally made.
The group has moved away from producing extracts for use in toiletries, cosmetics and agricultural products, instead focusing on higher-margin healthcare, food and drink additives. These areas, which require closer inspection as they are within the food chain, are also growing revenues at a faster rate.
A knock-on effect of this process, which has seen the number of extracts made drop dramatically from 330 to 110, is to remove some production expenses from the business. This allowed Dye to reduce the number of employees from 190 to 140. In addition Ransom moved all its pharmaceutical production to the site in Essex, where the products acquired from Roche are already made. The group, which makes therapies under contract for other drug companies, has halved the number of items it makes in this area to 65.

Management
The Ransom board is reasonably small, with 41-year-old Dye occupying the positions of both chairman and chief executive. He started his career as a strategy consultant but set up and ran businesses involved in wireless technology and environmental management.
The only other executive on the board is finance director Robert Howard, 46, who assists Dye in forming the group’s strategic direction. He acted as a consultant to Ransom when the group acquired the Roche businesses.
Together with three non-executives, experienced managers of the various divisions within the group ably back up Dye and Howard. Former pharmacists Victor Evans and Keith Helliwell are responsible for production. They have been with the group for 17 years and 28 years respectively.
Stuart Stephen heads the growing consumer healthcare division. Previously, he worked for Peter Black Healthcare and Boots, where he set up the complementary medicines range for the FTSE 100 giant. In addition David Wilkie has agreed to stay with Health Perception, and not sell any Ransom shares, for two years after the acquisition.
Dye feels ‘the management team and infrastructure is in place to manage a significantly larger business.’

Prospects
The full associated benefits of the recent reorganisations will only become visible in the year to next March. Dye anticipates that it will allow the traditional business to grow again, by focusing on simpler product lines that are easier to make and in stronger demand.
His main focus, though, is to accelerate growth by finding more suitable acquisitions to complement the group’s burgeoning range of consumer products in the natural healthcare area. Dye maintains this is a fragmented market with many small private companies involved. Overall demand for natural products is growing by as much as five per cent annually, helped in part by an increasingly ‘grey’ population.
In addition he feels Ransom can compete with private equity buyers for such brands, either being divested by larger pharmaceutical players or else those being sold by under-capitalised private concerns. Dye can offer cash or debt for smaller acquisitions and place paper to meet the cost of larger deals. His aim is to grow the company into a group with annual revenues over £50 million.

Valuation
Ransom’s shares have drifted over the past year from a high of 55p to 47p. Investors have seen swathes of shares issued to pay for the spate of acquisitions over the past few years and are now taking stock.
Ransom is trying to export more of its products but has been hampered by adverse currency movements, with the weak dollar reducing the benefits of these developments. Trading in the second half of the year to March, which has just finished, will have been affected by the move out of Hitchin town centre, as well as difficulties at distributor Food Brokers.
This company, which distributed products accounting for around 15 per cent of Ransom’s sales, has gone into administration, owing Ransom £634,000 at the time. Dye says this should be recoverable. The situation forced him to take the sales function in-house – something that was already happening. ‘It has allowed us to accelerate this process,’ he argues.
House broker Numis forecasts pre-tax profits of £1 million this year, equating to earnings per share of 2.2p. This puts the shares on a prospective p/e ratio of 21.4. However, Numis thinks earnings could double over the coming year, as the full effects of the Health Perception acquisition and the Hitchin move are felt. That halves the rating to a very reasonable 10.7.
Throw in the prospects of further canny deals and Ransom seems to have the formula for medium-term growth in this expanding market.

Ransom(William) & Son	AIM	£6.54m	7.75p	0.00p
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