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By Roger Trapp

By Roger Trapp

6 September 2000

The scrap metal industry may have the image of being populated by the Del Boys and Arthur Daleys of this world, but for Martin Hynes and his £40m Universal Salvage company, it is a serious business.

At its most basic level, the Bedfordshire-based Universal is a scrap-metal dealer, albeit a rather large one that last year had a turnover of nearly £90m. But Mr Hynes has seen the future, and that could be a great deal rosier when a European environmental directive comes into force in five years.

There may yet be truth in the old adage that where there's muck, or wrecked cars, there's brass, but he firmly believes the road to riches lies in focusing on the process rather than the end result. "I'm not convinced there's huge money to be made out of scrap," he says. "There's money to be made from managing it."

This belief appears to be largely based on the fact that Universal tried the straightforward, old-fashioned approach and nearly ended up in the scrapyard itself. Which is why Mr Hynes is now running the company.

In the mid to late 1990s, the market changed rapidly and Universal fell victim to circumstances which have driven many of the smaller players out of business in what is a highly fragmented industry.

First, the mix of vehicles shifted towards low-value wrecks to be stripped for parts. Since Universal had historically made its money from the disposal of repairable vehicles, this put pressure on its margins. Second, a drop in the demand for steel sent the price of scrap metal plummeting from about £40 a tonne to about £4 a tonne. At the same time, environmental legislation was being introduced, restricting what could be placed in landfill sites. The result, says Mr Hynes, is that yard proprietors used to paying a few pounds for even the worst wrecks, began to charge for disposing of vehicles. "This meant the 'end-of-life' vehicle was not an asset but a liability, and people started abandoning cars."

The result can be seen on roads and waste ground all over Britain and in much of continental Europe. Between eight and nine million cars reach the end of their useful lives in the European Union each year and 5 to 10 per cent of these are then abandoned.

All this conspired to drive out many of the "mom-and-pop" operations that characterised the industry. The more fortunate ones sold their urban properties to developers.

Universal, which says it is the largest operator with more than a quarter of the market, struggled to survive. In 1997, the company, which had floated on the stock market two years before, made two profits warnings and the managing director and finance director departed.

Part of the problem was that it, too, was a family business. Cliff Bassett, a former printer who founded it in 1968 after dabbling for years in repairing old Volkswagens, was still in charge and his son and daughter were in prominent positions. Mr Hynes says the company suffered from the classic problem of not having enough management to handle growth.

And Universal certainly grew. By the time the company floated in September 1995 it was handling 70,000 crash-damaged or stolen cars a year. Last year that figure was 140,000. Initially, the growth was reflected in the share price. The stock rose from the issue price of 149p, which valued the company at £40m, to 280p. But the profits warnings and management departures of 1997 sent it on a crash course that left it at a low of 43p in December 1998.

By that time, Mr Hynes was running the company. He had joined as finance director in November 1997 after a year at London Business School. Before that he had been in another "fixing" job, as finance director of the mini-conglomerate Walker Greenbank. Nine months after Mr Hynes came to Universal, he was made managing director when Mr Bassett stepped down as chairman and chief executive. He was named chief executive last December.

Mr Hynes credits Mr Bassett and his son, Stewart, with recognising the need for change and says he and the executives he has brought in have been "allowed to get on with it", though the family still owns 37 per cent of the shares. His first task was to beef up management and bring the company up to date. "We started modernising everything," he says. "There was just a handful of PCs."

But, as well as changing the running of the company, Mr Hynes also set about altering its business. And that realignment has put Universal in a position to take a lead in dealing with the environmental regulations starting to come in.

One of his first appointments was Barrie Hobbs as business development director. Mr Hobbs had spent 12 years running the insurance team at Autoglass, and the company has used his experience to change fundamentally the way in which it works with insurance companies.

Traditionally, companies such as Universal made their money by buying salvaging vehicles from insurance companies and selling them on either repaired or in second-hand parts. With the change in the market conditions exacerbating the risk this imposed, Universal has tried to reposition itself as a service provider.

As might be expected from a business school graduate, Mr Hynes sees himself as in the outsourcing business. The company has already pioneered an industry code of practice relating to the approximately 500,000 vehicles a year written off for salvage. This is based on a categorisation scheme dividing salvage vehicles into four types: those so badly damaged that there are no useable parts; those where the vehicle is sufficiently structurally damaged that it can only be used for parts; those where the repairs are assessed by the inspecting engineer as exceeding the pre-accident market value, and those where the cost of repair does not exceed the value and are therefore sold for salvage for a higher-than-standard sum.

Now, Mr Hynes is trying to streamline the process further by developing partnerships with insurance companies rather than dealing with them on a case-by-case basis. He says Universal's 200 acres of secure car parking on several sites around the country, combined with the company's 30-plus years of salvage and disposal through various types of auctions, puts it in a good position to run the whole process for the insurers. "The average claim costs about £600 to deal with," says Mr Hynes. "We say we can take a chunk of that away from you."

The new policy, allied with a greater focus on serving the buyers of the salvage vehicles - "the guys who are paying our salaries", as Mr Hynes puts it - already seems to be having an effect. The refocusing brought a small drop in sales last year, from £89.3m to £87.6m. But pre-tax profits shot up from just £210,000 to £5.5m.

Mr Hynes believes the company can do even better. And the City, which he describes as very supportive once the business is explained, seems to agree, with strong profits growth forecast in the coming years. A key component in future earnings will be the company's attempt to extend to motor manufacturers the sort of service it is offering larger insurers.

The "End of Life" directive introduced by the European Union and effective from January 2006 starts to deal with the growing problem of disposal of old cars by requiring that 85 per cent of a vehicle's weight is recycled or recovered. By 2015 the proportion rises to 95 per cent. The regulation is based on the "polluter pays" principle. Instead of making disposal the responsibility of the final owner, few of whom could handle that, the problem reverts to the manufacturer.

Mr Hynes says Universal has reached agreements with Rover, Vauxhall and other manufacturers. "The solution we are putting forward with manufacturers is that we'll take the problem off your hands."

The company has formed a division - Universal Environmental Services - aimed at dealing with what could be a huge headache for carmakers and providing all the assurances they need about safe and legal disposal and using the internet and related technology to disseminate information about what is going on. We're putting together a package," says Mr Hynes. "Manufacturers don't want to get into handling thousands of different small guys."

With the problem Europe-wide, the continent obviously beckons. But Mr Hynes is keen to sort out the domestic operation first. And, while the environmental legislation could be the boost that makes Universal worth much more than its current £90m-odd, he does not want to lose sight of basic facts of car-dealing life. "People are always going to have accidents or have their cars stolen and someone's got to handle it," he says. He means Universal Salvage.