Essential Fleet Services: ‘We want the scale to operate nationally’

Ed Hummel explains his consistently profitable fleet management and contract hire company’s plans to grow its fleet from 3,500 to 6,000 and double its council contracts from 40 to 80.

An injection of new cash, plus the involvement of one of the fleet sector’s most successful entrepreneurs, have seen van and truck fleet management and funding specialist Essential Fleet Services set an ambitious three-year plan to almost double the size of its business.

Andrew Cope, the man who co-founded Zenith, then led the management buyout (MBO) of FMG, before switching his attention to Essential Fleet Services, took the chairman’s role last July, alongside new chief executive Ray O’Toole.

The move coincided with private equity firm Endless’s investment in Essential as part of an MBO, a month before it sold its share in FMG (August 2015). Endless has a 75% stake in the business, with the management board holding the balance.

Following his appointment, Cope moved quickly to bolster the management team, bringing on board Ed Hummel, the former Glass’s managing director and Honda fleet director, in October as commercial director.

The new ownership will bring about a period of stability for the company after a relatively tumultuous history. The original business was founded as Translinc in 1998 and acquired by May Gurney in 2011, which itself was bought by Kier in 2013 and renamed Kier Fleet and Passenger Services.

Despite that, or perhaps because of it, the company has remained virtually the same size for the past decade.

Hummel says one of Essential’s biggest strengths has been customer loyalty, which has resulted in a consistent level of profitability, even during the last recession. The challenge now, he adds, will be to continue that retention while the business goes through the process of winning new customers.

“Our fleet size is currently 3,500 vehicles – 2,500 vans and 1,000 heavies,” Hummel says. “We have a three-year plan to go to 4,000 vans and 2,000 HGVs – 6,000 vehicles in total.”

The figures are based on market knowledge. While Essential has a 1% total market share, it manages 10% of the public sector’s 26,000 vehicles on outsourced maintenance, accounting for 80% of its business.

It has contracts with 40 councils, supplying gritters, sweepers and bin lorries, among other vehicles. However, there are around 350 councils running 79,000 vehicles in the UK; Essential is looking to double its council contracts to 80, taking its share of the sector to 20%. Growth will come through organic means and via acquisition of smaller rivals.

“One thing that was attractive to Endless about this market is that it’s very fragmented,” explains Hummel. “There are lots of small, privately-run contractors which are not very profitable . We want to buy out some of these to give us scale to operate on a national level.”

Essential’s main footprint is in the south-east, east of England and north-west; it wants to build coverage in the south-west, midlands and north-east.

“Some of our conversations are far advanced; we will see some this year,” Hummel adds.

One of Essential’s key differentiators is its network of 18 service depots which offer overnight servicing where needed to minimise downtime, although most run a 5am-9pm double-shift. It enables the company to handle all service, maintenance and repair requirements, which means it’s in greater control of compliance, quality and cost – the primary levers when negotiating contracts.

“Vehicles arrive at the right time for on-time, on-budget maintenance,” Hummel adds. “We have a track record of delivering safety and compliance.”

In the weeks that followed Endless’s purchase of Kier’s Fleet and Passenger Services division, the firm had a big decision to make. Wrapped up in the deal was not just the specialist fleet management operation; passenger services included drivers in minibuses doing school and community runs.

Endless decided to withdraw from passenger services, not something to be taken lightly, as it accounted for £5.5 million of Essential’s £43m turnover. Headcount subsequently reduced from more than 470 to around 150 (most have been transferred to new supplier or council contracts outside of Essential) and it has freed up a huge amount of management time.

“This will allow us to focus on our core proposition of providing contract hire, maintenance, fleet management and spot hire of specialist commercial vehicles to our customers,” Hummel says.

His responsibility is organic growth, an area where the opportunities are expanding due to Government austerity measures.

“We are seeing through Government austerity a trend for councils to outsource their workshops,” he says. “Around a third have outsourced already; therefore two-thirds are still in-house.

“We are having conversations about taking on this work – it’s a big opportunity. They can unlock savings because we have standard job times, procedures and workshop KPIs. And we share our expertise from working with other councils.”

Hummel believes councils can save “huge sums” in areas where Essential already operates a workshop by closing and selling their own facility.

Elsewhere, he proposes taking on the council’s workshop by either leasing the premises or buying it outright. Essential could then offer sell and leaseback on the fleet or funding for replacement vehicles.

“Our experience suggests it’s a market that really wants us to help,” Hummel says.

He already has a route to that market through an exclusive arrangement with Kier to supply vehicles for all its highways and utilities business for the next five years. The contract hire with maintenance contract is for all 3.5-tonnes-plus assets and is currently worth 320 vehicles.

Hummel explains: “We support their contracts when they are pitching for business with councils.”

The Essential Fleet Services strategy is firmly centred on specialist vehicles, which means it will target light commercial vehicles only when they can potentially unlock the heavy vehicles.

However, it recognises that some organisations have requirements for all types and size of vehicle, from cars to bin lorries, which is why it is in talks with a number of FN50 leasing companies about offereing them a white label proposition for their customers’ specialist assets.

“We could work together when they are pitching for business. They are open to those conversations,” Hummel says.

He also wants to “grow significantly” the spot hire side of the business, recognising a clear market opportunity for the short-term hire of specialist vehicles and equipment.

Essential has around 200 vehicles on hire at any one time, primarily via third parties rather than its own fleet. It wants to bring this service in-house to reduce cost and improve flexibility and efficiency, which most likely means an acquisition to buy-in the expertise. The business will be run via Fleet On Demand’s software.

“Spot hire is an obvious bolt-on to our contract hire and maintenance business and there is not much competition,” Hummel says. “It is a real opportunity to add value for existing customers.”

While Essential’s three-year strategy largely centres on the public sector, Hummel also has a list of around 50 private sector companies in utilities, road, rail and grounds maintenance which he is planning to target. The public-private ratio could ultimately swing slightly towards private, with Hummel forecasting a 70:30 split by 2019.

Arguably the biggest challenge to Essential’s growth aspirations is people: by its own admission, the sector in which it operates is “not as glamorous as others”, Hummel says.

“It can be hard to attract staff but we need more talented people as we grow – and we have a plan to get them.”

That plan consists of apprenticeship schemes and employing a local workforce. It has time on its side; the workshops still have spare capacity of around 65% on average.

Hummel adds: “We have the backing of Endless for our three-year strategy; we are confident we have the business plan to achieve it.”

Telematics usage ‘essential’

Essential Fleet Services is looking to build on a free telematics service it offers customers via Omnia.

The system includes driver behaviour, live mileage logging and location services with fuel tracking to prevent fraud.

Ed Hummel says telematics in its business is “essential, because the assets are serious bits of kit that are run for seven or eight years”.

He adds: “Time usage is critical information as is proactive maintenance. But we still need to get more councils to wake up to the telematics opportunities; the intelligence on vehicle usage and uptime is invaluable.

“We have even helped some councils to root out fraud on their fuel cards.”