New Spice chief is seeking a recipe for stability

DULL but safe. That ought to be how Spice is perceived.

From pinpointing unbilled properties to installing water meters, the utilities support services firm is in the business of keeping the lights on, taps running and homes heated.

But its recent history has been anything but dull.

Bad news has dogged the Leeds-based company. In December, it took a 42.9m writedown on its loss-making gas arm, which provides registered social landlords with gas safety checks.

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In February, it announced the departure of founder and chief executive Simon Rigby. Soon after, new interim chief executive Martin Towers announced another profit warning, as bad weather and contract delays further eroded profitability.

All of this has had a devastating effect on Spice's share price. It touched a low of 27.5p late last month, a level not seen since late 2004.

From the high of 134.5p achieved in July 2007, that was an 80 per cent fall. For a company still delivering hefty underlying profitability, with significant exposure to the defensive utilities sector, its rating is deeply pessimistic.

Most people agree the root of Spice's problems was its previous refusal to veer from an acquisitive strategy. Mr Rigby led Spice on an acquisition spree that saw it vacuum up at least 35 businesses since 2001, including a 103m listed company.

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Debt had ballooned to 116.5m by last October, overshadowing the company's current market capitalisation of about 106m.

The City wanted a focus on cutting debt and organic growth, and had been calling for it for some time.

As he left Spice, Mr Rigby insisted he had been "content" with this strategy. But that was at odds with his intent just months earlier as he sealed another acquisition. "We have got capacity to make future acquisitions," he said at the time.

Mr Rigby's approach had increasingly alienated him among investors. Shareholders started selling the stock, and one major investor, Ignis, profited from a short position in Spice's shares.

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"He was an acquirer and probably wanted to refund the proceeds (of a business sale) in to acquiring again," said a source. "People started voting with their shares."

Analysts have welcomed the new strategy put in place by Mr Towers, the former Kelda finance director who stepped up from non-executive to steady the ship. One called him a "safe pair of hands".

He said the company's new focus is on organic growth, with a target of cutting net debt to two times underlying earnings. He has initiated a deep review, which is likely to cut costs.

The misfiring gas business could be sold or closed; the facilities management business is also deemed non-core; and Spice hopes to achieve 30m from the sale of its telecoms business.

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"It's all about moving forward and leaving the history behind," said Mr Towers. "We have come away from the acquisition-led strategy. These are very strong, good underlying businesses that we have."

Jane Sparrow, analyst at Royal Bank of Scotland, cited concerns about shrinking revenue and margin erosion as she issued a sell recommendation. She said while Mr Towers's aims are sensible, "executing them is unlikely to be straightforward".

An industry expert said Spice's share price reflects City fears that problems may arise from previous acquisitions.

"The risk is that other things are uncovered and whether there are further writedowns in terms of the goodwill of these businesses."

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But Spice insists it is moving forward. It has appointed Hawkpoint Partners as financial advisors to speed up the asset sales.

Some appear to be responding positively to the company's charm offensive. Analysts at Liberum Capital now view Spice as a speculative buy, and have set a 40p target price.

They think Spice's billing arm could benefit from expansion into the US or the UK telecoms and water sectors.

The Government's smart meter roll-out could also be a driver, as could increasing environmental legislation.

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Liberum believe "the opportunities have been forgotten" amid the hysteria of Mr Rigby's departure and the profit warnings.

Spice hopes more of its underlying strength shines through as it makes disposals and cuts debt. It knows time is of the essence.

How spice got its freedom

Spice was formed from a single contract of 3m a year in 1996.

Former chief executive Simon Rigby founded the group with a management buyout of The Freedom Group from Yorkshire Electricity. He changed its name to Spice and led it on the acquisition trail. The name Spice stands for Society, People, Innovation, Customers and Excellence.

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Spice was admitted to AIM in August 2004 and moved to the official list of the London Stock Exchange in July 2008. Since 2001, the company has announced about 35 acquisitions, at a maximum consideration of 300m.

Last year it achieved revenues of 386m and now employs around 4,500.

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