RAM Investment Group and the burgeoning market for digital outdoor adverting

After spending 20 years in the City advising smaller companies on doing deals and raising finance, Tim Baldwin took the plunge and set about building his own business. Just 18 months on, the chief executive of AIM listed Ram Investment Group RAM now oversees two specialist digital-out-of-home advertising businesses and has his sights set on turning a profit by the end of 2010.

Baldwin began building the group in May 2009 when he agreed a deal to buy half the shares in a business called TrainFX from stricken AIM outfit, Vision Media Group (he went on to snap up the balance of the stock in September 2010). Under its previous parent, TrainFX had developed the technology and systems for installing information screens into train carriages, providing operators with a way of communicating and advertising services to passengers. A contract with First Great Western was subsequently signed, installations are underway and the first systems are now in use. Baldwin followed the TrainFX deal with a tactical and highly serendipitous move in November 2009 to buy the operating parts of another distressed AIM company, Avanti Screenmedia Group. Not only did that give him access to Avanti's technology and out-of-home advertising network focused on shopping malls, it also strengthened the group's offering to advertisers and content providers.

Both businesses – TrainFX and RAM Vision – were brought together under Baldwin's AIM listed cash shell, RAM Investment Group and in the six months to June 30, delivered revenues of £0.6m and pre-tax losses of £1.4m. His focus is now on driving what were predominantly research and development businesses into profitable enterprises – and the industry statistics are firmly in his favour.

According to the latest figures from the Outdoor Advertising Association, outdoor revenues rose by 12.4% to £212.2m in the three months to September 2010. Among those ramping up their outdoor spend were retailers Marks amp; Spencer Group MKS and Hamp;M, car makers Vauxhall and Renault, food giants Kellogg's and Cadburys, finance groups Royal Bank Of Scotland Group Plc RBS and Nationwide and technology groups Samsung, and RIM. Overall the biggest outdoor advertiser was British Sky Broadcasting Group BSY, with expenditure of £11.1m in the quarter. Among the standout performances in the market, digital small formats in the retail and leisure environments saw revenues double year-on-year following sustained investment in the sector. The OAA reckons there are now approximately 3000 digital screens in five different environments: roadside, rail, retail, leisure and Underground. Overall, for the three quarters to date, the outdoor advertising medium was up 14.9% in 2010 – a performance which compares strongly against other media, TV included.

In an interview with Stockopedia, Tim Baldwin and communications director Mark Edmonds, talked about the coming together of RAM Investment Group and their plans for capitalising on the burgeoning market for digital-out-of-home advertising.

Tim, tell us about your background and what lead to the creation of RAM Investment Group?

Tim Baldwin: My background is financial, I was previously an investment analyst and a corporate broker with a number of different houses in the City. I've worked in the smaller companies arena for 20 years, essentially advising and assisting small companies on raising capital across a broad range of sectors. I left that environment about three or four years ago and set up a small corporate finance business looking at different opportunities. I stumbled into the world of digital-out-of-home and into a company called Vision Media Group that was in distress. I saw a business in VMG that I rather liked called TrainFX and thought more could be made of it if it was spun out. So when VMG got into trouble financially, I set up a company with two other parties to acquire TrainFX – and that's really the genesis of it. Along the path, just preceding the takeover of the shell company, I met Mark and we were talking about this proposition in TrainFX and he took a like to it. Mark comes from the media industry side of things and has worked with me as a COO of the business to bring this to account.

Mark Edmonds: My background is in broadcasting, I worked for 27 years in the BBC and when Tim presented the proposition to me I took one look at it and I said: ‘We've got to go for this'. To me it's the last sort of bastion of captive broadcasting that is out there in the market place.

What did you see in this sector and in these businesses that made you feel they had a bright future?

Mark Edmonds: Well the key consideration to me was the fact that you had a brand new platform that was opening up. You had a captive audience for around 40 minutes compared with the likes of the Underground, which is about three and half minutes. Because I was in broadcasting, I was on the transmission side, every six months there was a different wash within the group and I just got this feeling that the edge was turning to what I call more outdoor advertising. There was so much choice that was being presented to the customer indoors that they were switching off from advertising, they weren't really getting the information they wanted to at home and it just made sense that there was this new opportunity to create a profit centre outdoors that hadn't been exploited properly. Of course, TrainFX had all the regulations and the IP to deliver this profit centre to the trains. But one of the points was the fact that we needed to demonstrate that we could advertise on this new platform and hence we were very fortunate to be in the right place at the right time when Avanti Screenmedia Group went into administration. We bought the assets, we rebranded the company to RAM Vision and we now have over 46 shopping malls with which we are demonstrating that we can sell content and advertising.

The key here is that we have created a real time broadcasting platform in the space of less than a year and a half, which has got, at this particular point, over 750m footfall, or eyeballs, whichever way you want to treat them. So that's the consideration here – within that short space of time we've got a complete broadcasting platform with which we can sell our advertising and deliver content in real time – and that's the key. A lot of these broadcasting platforms won't do it in real time, we can.

How have the advertisers and agencies responded to this?

Mark Edmonds: In some respects this platform is still in its infancy. I always find, in terms of the advertising agencies, it's not slow coming forward it just takes time to turn around. I think now all the advertising agencies are recognising that their direct copy through the big brands doesn't need to be reformatted to get out onto our estate – and that's the key. If the likes of Guinness are spending £10m on an advert the last thing they want to do is reformat their copy to go onto a Digital 6 sheet [a portrait style advertising board], they want that copy to go directly onto a landscape screen, which is how it was meant to be delivered. So that's the opportunity, the fact that we've now got an estate that can deliver a big brand advertising, direct copy, without reformatting and in full HD.

Tell me about your relationship with shopping centre operators. Is this outdoor advertising platform something they understand?

Tim Baldwin: They understand they need it and they are desperate for partners that they can trust to deliver a service. Historically, with the early incumbents to this sector (and there were a few) it was a classic case of a number of small companies entering this space as early adopters and a lot of them failed expectations in regard to their property partners. Because a number of those have fallen by the wayside it has left, in a way, RAM Vision to be one of the largest independent companies in this space - outside of the gorillas. You have got Clear Channel CCO and JCDecaux in shopping centres with Digital 6 Sheets but not in our particular space. The Digital 6 Sheet in shopping centres looks like a poster but it's digitised so it revolves.

Mark Edmonds: The difference with the Clear Channel and JCDecaux proposition is they tend to be portrait deliverables, where as we're landscape. You can understand the reformatting issue when I say that if you've got television copy and you try and stick it on a portrait screen, it just doesn't work.

How has the economic downturn affected you and the wider sector?

Tim Baldwin: You have got to look at it in two different components really because of what we are today. The advertising sector as a whole obviously took a big downturn in 2008/9 and has done a bit of a V curve, I would suggest, through 2009/10. In other words there's evidence that we're almost back to where we were pre-recession conditions. You then need to break it down to what's happened in the digital-out-of-home market within the advertising sector and the evidence there is that when the overall advertising market was down roughly 20% in the recession, the digital out-of-home market was actually flat, so it didn't decrease. For the second quarter of this year revenues appear to have been up 17.8% in the outdoor area. In other words, even in the recessionary conditions the market was flat and now we're seeing a resumption in this particular sector of the advertising market, taking market share off an overall advertising sector, which is itself recovering.

Turning to TrainFX, what is the market environment like in that area of the business?

Tim Baldwin: The TrainFX business has the opportunity to create a similar type of advertising network on the trains but in addition it has developed a suite of products to retrofit on older style trains to enhance their passenger information systems and security systems. Ironically, the opportunity probably increases for us with less money available from the government to increase new rolling stock. Older rolling stock is our perfect market because we have a suite of products to retrofit, to lift the existing rolling stock to more modern environments. So we're actually a beneficiary, to some extent, on a scale back of new rolling stock being introduced. Technologically we have products which are now absolutely essential for the train operating companies to conform with EU regulation, which came in during September last year.

Mark Edmonds: That regulation is called the European Union PRM, People with Reduced Mobility, and it falls under what's called the TSI, Technical Specification for Interoperability. It is legislation for greater access to passenger information on trains – that's simply it and it all has to be done and dusted by 2020. So if you can imagine the amount of rolling stock that exists on our railways and a lot of it is so old, and because there's no new capital there, all this has to be retrofitted. Again, it comes down to this real time deliverable. At the moment, if you were to get on a commuter train into London you will see, especially on the overground, this ticker tape style deliverable that says ‘Your next stop will be…' and that will be it. Our piece of kit, when it goes in, is deliverable on a real time scenario, so we can get real messaging across. We can get the same sort of ‘Your next stop is…' but we can also put commands in from central source to say that there has been an incident on the line 10 miles ahead, you're going to be waiting there for 10 minutes. It also allows the train operating companies to actually talk directly to their customers. So there could be a certain amount of airtime on there that could say ‘There are two for one tickets between the hours of x and x'. So it's a passenger information service first and foremost, but if it's scoped and cleverly managed by the train operating companies, they have got a way of selling advertising, their own internal advertising, to their customers.

What sort of relationship have you got with the train operating companies?

Mark Edmonds: With regards to tendering, of the last five tenders that went out in this particular space TrainFX won four of them. We had the right product and we had the right product on cost by the sound of things. With our first installation, for First Great Western, they didn't realise the sheer scope of what is available to them so I think they're very pleased with the product because of all this opportunity that they can use to get to their customer, which is what it's all about.

What sort of model do you use to sell these products to the train operators?

Mark Edmonds: It's a straight sale to the customer, to the train operating company.

Tim Baldwin: They're lumpy contract and they typically work on six to nine months, start to finish, completion. But the types of contracts we're looking at are £1m plus and they'll be for, effectively, doing a whole retrofit programme of a number of trains.

So how would a customer like First Great Western approach this sort of retrofit programme?

Mark Edmonds: As you can well imagine their programmes are based on when they can get hold of their fleet because they can't take all the fleet out at once. First Great Western has got 1000 carriages. It'll do 50 this year – and that's the basis for the way they plan their maintenance or refit. So it comes to pass, as we all know, that if you're putting in a source code and a backbone into a train on part of their fleet you'd like to think that they would keep some sort of uniformity throughout the rest of the fleet otherwise the carriages wouldn't be talking to each other. So if you win on one, the assumption is that you'll do the rest of their fleet because the idea is that it is a straight pollination from one carriage to another. If you actually win contracts with the major train operators you can then begin to try and piece together how big the opportunity is in this field.

In terms of the near to medium term, what are your expectations for these two businesses?

Tim Baldwin: If you look at TrainFX, its research and development started in the early 2000s in terms of designing product for the rail environment, which is a very tricky environment to work in because it works on totally different electricity aspects in terms of voltage and security and all the rest of it. So there has been quite a lot of prior investment, before we even got involved, in establishing the suite of products. We could see, when we bought the business, that they had got the first letter of intent from First Great Western but hadn't actually quite signed the contract. We acquired 50% of the business in May last year and took management control. In November last year they won the First Great Western contract. We followed up with four other contracts and now we're looking at a pipeline of potential orders of £78m. So you can see the scale. The company, in the final quarter of this year, should have gone into profitability and we're looking at a profitable business going forward into 2011 and then building up. There is a certain amount of operational gearing in this business in that the core technology team of eight people does not need to be scaled up to cope with much higher volumes of business and that's the principal overhead. We will require more contracting sub-assembly people, which are relatively low skilled, but that will be on an as-needs basis and the majority of the equipment is outsourced to major manufacturing companies for electronic component and/or engineering fabrication. The installation work is done by a partner company that is used to going on and off trains.

So the summary of where we are is that we've got a high margin product sales business with a big growth market, limited suppliers, worldwide potential and we've just kicked off. We appear to be entering the market at a time where regulation is forcing companies to do this type of work, as I say where there's limited suppliers, and where you have a very scalable business from a profitability point of view.

Do you see a lot of scope to roll this out in other countries?

Tim Baldwin: Yes because there's rolling stock all around the world obviously and we're already in negotiations with overseas distributors that want to introduce our product to those markets. One of the things that is worth mentioning is that there are such huge safety standards and barriers to entry, if you like, in entering this market from a third party point of view. In term of entering third party markets, there is also a knowledge in the railway industries of India or wherever it might be, that if a system has passed the scrutiny of the UK rail authorities then you're a long way down the curve. But the scale of the UK market alone is a very, very exciting prospect for our business. The scale of the worldwide market obviously is very, very substantial but we wouldn't be looking for global domination by putting manufacturing units in overseas territories. We'd be looking to partner with overseas distributors to take our software and technology and promote out from within those territories. We're very much a business which is based on a relatively smaller overhead and a contract-out type model.

The same thing always applies in RAM Vision where you've got a scalable business there. If you can imagine you've got an overhead that supports operating screens, creating digital media content, estate management and selling the advertising, you can scale that business quite substantially by adding new screens and new shopping centres without increasing your overhead much. So, again, we're at the threshold in that business of turning from what historically has been a loss making position into profit in 2011 and going forward. It is by virtue about scale and focus and the market coming towards us and, again, it's a high gross margin business.

Thank you for talking to Stockopedia.

Tim Baldwin: Thank you.

Stockopedia