Lavendon take £12 million charge and drop dividend

The Lavendon group, Europe’s largest access rental company and owner of Nationwide Access in the UK, Zooom in Germany, France, Spain and Austria and Rapid Access in the Middle East, has announced that it will not be paying a final dividend for 2004. It has also announced that it will be taking a £12 million charge for restructuring costs within its German and Austrian businesses.

The company also said that it expects its operating income before allowing for exceptional charges to be below its earlier forecasts. This due to a slower improvement in UK profitability than expected, while German revenues continued to decline.
However Lavendon expects to reduce the German cost base by £6.25 million by slashing its depot network from 48 to 24, with staff reductions of around 100 and a reduction in the fleet of 1,250 units. Around 400 units will be transferred to the UK, France and the Middle East while the balance will be sold in a controlled manner. While the depot and fleet reduction will potentially lead to a fall in revenues, the scale of the cost savings is such that the business is expected to boost profitability.

In the UK, revenues for the year to date are up of by two and a half percent on 2003, with the trend of the second quarter continuing, Lavendon said the return to revenue growth in its key UK market is a result of significant investment in sales, marketing and customer services, and the resultant cost of this investment has, until very recently, offset any benefit from the higher revenues. As a result the operating income in the UK will be similar to last year’s levels.

Activity levels in Germany remain weak, with euro revenues declining year to date by around nine percent compared with last year.
Zooom France has so far posted a revenue increase of three
percent, reversing last years modest decline, whilst revenues in Spain have fallen by five percent.

In the Middle East, Rapid Access, the company’s star performer in 2003, demand continues to be strong with revenues growing by 13 percent.

Net debt at the year-end is expected to be in the order of £91 million, a reduction of £18.5 million since year-end 2003.

In view of the impact of the exceptional charge on the Company's distributable reserves and the cash cost of the restructuring programme, the Board has decided that it would be inappropriate to recommend the payment of a final dividend for 2004.

Vertikal Comment:

In Germany, the reductions are depot and staff reductions are substantial, however the remaining network of 24 outlets and fleet size of around 2,600 will still provide a greater market coverage than any other individual competitor, while the drop in fleet size is significant enough to have an effect on overall German market utilisation. Long lead times on new equipment should help prevent competitors from attempting to expand into the void created by the reduction, and thus help improve overall market utilisation in Germany the net result of which could be an improvement/Increase in rental rates. If Lavendon can manage the restructuring process positively, maintaining overall service quality and employee morale, it could see a “triple-whammy” benefit of reduced costs with better utilisation and higher rates. The challenge will be to maintain service levels and an image of strength to prevent a feeding frenzy by the larger locally owned businesses that might scent the opportunity to push for a further reduction or complete exit by the group.


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