08.03.2005

Lavendon results confirm downbeat forecasts

Lavendon published its preliminary results today and they look quite similar to the gloomy trading statement published in early December, when the company announced that it was taking a substantial write off and woudl not be paying a dividend.

The write off of exceptional costs that the company finally came in at £14.5 million, up from the the £12 million anticipated in December. A portion of this was linked to additional write downs on the book value of the Austrian fleet, that business was sold in February following an approach from competitor, Felbermayr.

On the positive side Nationwide Access in the UK saw a return to growth in the second half of the year continue through December and it finished the year up four percent on 2003.

Extra costs in the UK including a new IT system knocked operating income back by almost £ two million, with exceptional costs further eroding UK profitability by 40 percent to £5.3 million. The company is confident, however that the Nationwide business is set to resume positive growth and profit in 2005.

The company has also begun to spend on its UK fleet again in order to benefit from the strong UK market.

In Germany revenues dropped almost 10 percent to £28.3million with a loss of £3.4 million plus £ four million of exceptional costs. The restructuring was due to include the Austrian operation but as reported above, the company elected to accept an offer for the Austrian business of £2.65 million in cash, although this did entail a £1.9 million write down in fleet asset values.

Zooom France made modest gains, growing revenues by six percent and reducing its loss from £700,000 to £600,000. The market in France continues to improve with substantial consolidation in 2004 promising potential gains in utilisation and rate levels throughout 2005.

Spain disappointed, its previous growth came to a halt with revenues dropping back slightly resulting in a break even situation compared to a £200,000 profit in 2003. Lavendon is concerned that the rapid growth of recent years is turning into a mild downturn with rates and utilisation suffering. Its strategy is to concentrate on the markets such as Madrid where it has a strong presence and back off any plans to roll out national coverage at this time.

The Middle East continues to be the shining beacon in terms of growth statistics, revenues climbed a further nine percent with profits rising by 12 percent to £2.7 million. This in spite of some large contract postponements. Prospects in the region remain very strong and Rapid Access the groups local business is well placed to take advantage of future growth arising out of possible peace progress in several markets.

In spite of a very poor year in 2004, the group continued to generate cash thanks to minimal capital expenditure, this allowed the groups net debt to be reduced over the 12 months by £20.4 million to £89 million.

Vertikal Comment

Lavendon are well placed in the UK and the Middle East with an exceptionally strong market position. Long lead times on new equipment is helping encourage smaller companies to follow the larger groups and increase prices rather than add more capacity.

in the UK Nationwides new customer focused software could help the company obtain maximum benefit from its size and depot network by providing hire desk staff with more information than is usual in the access rental market, being more akin to the car rental or tool rental market.

The "systemisation" of the rental desk is a step change for the access industry, which while clearly the way the market will eventually go, the question is the timing it might be too early?. A key element in this will be the Nationwide staff and how well and how positively they adopt and use their new tools.

In Germany the company needs to turn around two years or so of decline and apparent retreat, IF it can convince the local competitors that it will not be pushed back accross the channel, and then use its market leadership to help improve the rates and utilisation, the German business could bounce back much more positively than the group has predicted. CEO Kevin Appleton is currently basing himself in Germany and taking personal responsibility for turning Zooom Germany around.

We predict significantly stronger results from the group in 2005 with full benefits flowing through in 2006.