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Financial Times - 24 Jul 06

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WELCOME BREAK ON TRACK FOR RETURN TO BLACK

Welcome Break, the UK's leading motorway service station chain, said it was on track to return to profit this year and hoped to draw a line under a disappointing spell for its owners Investcorp, the Bahrain-based investment group.

Rod McKie, chief executive, yesterday said his backers were beginning to see improved returns following a programme of heavy investment in modernising the company's nationwide chain of service stations.

The chief executive said turnover rose 4.2per cent to £616m last year as more than 80m customers were lured to the group's 24 outlets by "improved catering" and new coffee bars.

Welcome Break and its rivals Moto and Roadchef have been gradually increasing margins by introducing high street brands and restaurant franchises, despite regulatory restrictions to deter service station operators from competing with traditional retailers.

The three largest service station operators together control about 90 per cent of the market, which has seen retail sales rise 25 per cent in the past five years, according to Mintel, the market research firm.

Moto, the largest chain, was snapped up earlier this year by Macquarie, the Australian bank.  The heavily contested auction saw Compass, the world's largest caterer, sell the 43 service stations for about £600m, breaking the ceiling on valuations for the sector.

Welcome Break is understood to also be on the block, but has not yet received any offers high enough to tempt Investcorp.  The Bahrain-based investment group struggled to generate sufficient returns following a highly leveraged takeover in 1997 and has been forced to refinance its debt several times.

The company said that period of turbulence was now over and next year's earnings would not be hit by the large exceptional items seen in recent years due to costly refinancing packages.

The group will submit accounts to Companies House this week that will show pre-tax losses narrowed from £15m to £5m for the year to September 27 2005, while operating profits rose 22 per cent to £23.8m.

Mr. McKie said return on capital before exceptional items rose to 8.7 percent.