Companies: CHLD   

Bullish markets, blue chip clients, and buoyant cashflows underpin investment prospects at restructured Chloride, the ‘pure’ power protection counter that has just delivered record annual sales and profits.

London-headquartered Chloride offers ‘mission-critical advice’ and uninterruptible power supply (UPS) systems and power conditioners, as well as general service and maintenance packages, to clients in the financial, telecommunications, health and oil and gas sectors. Customers include such luminaries as Goldman Sachs, Philips, Vodafone and an array of NHS Trusts. They are all apparently enamoured with Chloride’s ‘total solutions’ approach, which is backed up by a remote monitoring
and diagnostics system known as LIFE.net.

Management duo Keith Hodgkinson (chief executive) and Neil Warner (finance director) have focused Chloride purely on this industry, a strategy that paid dividends in the year to March 2006. Profit before tax sparked 55 per cent higher to £15.6 million, on sales lifted 18 per cent to £179.2 million, allowing dividends to be lifted 22 per cent to 2.25p.

‘It was the best year so far under the current management team,’ enthused Warner, who attributes the performance to the effect of operational gearing kicking through following a strong rise in sales. The recent restructuring, which included exits from loss-making telecoms businesses and German manufacturing, as well as a reduction in middle-management numbers were also responsible.

Sales growth was excellent, with Chloride driving a double-digit organic surge in both product and service sales, ‘demonstrating the continuing success of our total solutions approach.’ The top-line jump actually reflected above-average sales growth in all geographic territories. In Europe, Chloride’s biggest market, sales rose 16 per cent, with good performances driven from the UK, Turkey, Spain and Eastern Europe. ‘In addition, some of our smaller businesses in the Americas, Africa, the Middle East and the Far East performed strongly.’

Of course, Chloride benefited from April 2005 acquisition Harath, which has cemented its position as the leading UK integrated power protection service provider, as well as its investment in DB Power Electronics in the fast-growing Indian market, where many clients now have a presence.

‘We paid £10 million for Harath and we’ve really ploughed ahead with its integration,’ remarks Warner, adding that ‘we have an option to buy DB, and we’ll look to buy the entire company at some stage.’ As a result of the DB alliance, Chloride’s UPS systems were selected by IBM India for data centres in four Indian cities.

Further growth will come from either acquisitions that provide ‘infills’ in specific geographic areas or from buying companies that will ‘expand the envelope in critical power services’.

Although the power protection market itself remains buoyant, pricing is competitive, which makes the improvement in operating margins from 7.4 per cent to 9.8 per cent an impressive feat. Cost savings and rising service revenues were the main reasons behind this hike although Chloride was actually able to put prices up ‘on the basis that we offer a premium solution’.

The global UPS products market grew ahead of industry expectations last year on burgeoning demand for secure power in data and call centres, with customers forced to splash out on extra capacity. The re-emergence of this part of the market nudged Chloride’s orders and sales higher, especially in the financial services, telecoms and IT sectors. Analysts believe Chloride’s markets will continue to grow on the back of this UPS resurgence, as businesses and governments increasingly rely on secure power.

Chloride now has a recent record of beating forecasts and looks well positioned for growth – both organically and through acquisitions – in resurgent markets. For March 2007, investors might expect profits of £18.1 million from £192.7 million sales, giving earnings of 5.4p, with upgrades likely, and a palatable forward multiple of 18.8.

Chloride Group	LSE	£354.71m	136.00p	-7.75p
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