03.05.2013

Cramo slides into the red

Finnish international rental company Cramo has posted a grim looking set of numbers for the first quarter with revenues falling by over seven percent, causing last year’s modest profit to flip into a small pre-tax loss this time round.

Total revenues were €148.5 million, 7.2 percent lower than a year ago – (9.3% in local currencies), while last year’s pre-tax profit of €2.4 million was converted into a loss of €2.3 million this year.

The revenue and profit falls occurred in every region except Norway which achieved a 10 percent growth rate but with lower profits. The largest decline was in the company’s home market of Finland where revenues fell 21 percent – although the business managed to maintain the same profitability ratios.

The Central Europe operation – the old Theisen Baumaschinen business acquired in 2011 and largely located in Germany, plus Switzerland and Austria clearly continues to give problems. Last year the increased losses were apparently due to the extreme cold weather, and that is also part of the reason for the continuing slide this year.

Capital expenditure excluding acquisitions was €15 million, compared to €24.3 million in the first quarter of 2012.

The company statement said that its markets are too unpredictable at the moment and as a result is not updating its full year predictions either way.

Chief executive Vesa Koivula said: “Our top-line development did not meet our expectations. Although our performance varies by country, a 7.2 percent decline in sales puts a pressure on the organisation. Therefore the management initiated a programme to better align our cost structure with the market conditions. As a result, we managed to keep our comparable EBITA margin almost intact.”

“One of the most significant events during the first months of the year was the launch of Fortrent, our joint venture with Ramirent in Russia and Ukraine. By combining the resources of two companies with extensive experience of operating in Russia, we now have achieved a better leverage and an opportunity to gain a leading position in equipment rental in the growing Russian market.”

“The partnership with Ramirent increases the growth opportunities for Fortrent while balancing the risks involved. There is a good market for rental business in Russia. During the period, we completed acquisitions in Norway when we bought the businesses of rental companies Lambertsson and Kranpunkten. In these transactions the companies outsourced their rental fleet and personnel to Cramo. Cramo also concluded a long-term delivery contract with the Peab Group in Norway. This strengthens both the cooperation between Cramo and Peab and our position in the growing Norwegian rental market. The integration of operations has proceeded well.”

“As we expected, the first quarter was financially difficult for Cramo. We may be experiencing the low point of the business cycle in our main markets, and during the quarter there were also non-recurring expenses resulting from corporate reorganisations.”

“Our result was affected by the long winter season which postponed the start of numerous construction projects. The demand for equipment rental is expected to pick up in the spring. With few exceptions, we see no growth in construction or equipment rental in 2013, as in the economy in general. This emphasises the significance of improving operational efficiency. We also continue to develop our sales and customer service. The effect of cost savings and other efficiency measures are already materialising. This forms a solid foundation for better profitability in the challenging operating environment of 2013.”

Vertikal Comment

This is not a good result from Cramo, the company appears to be on a downward slide, a key comparative will be the Ramirent numbers which will be released shortly. The businesses are similar in many ways – both with a Finnish base and active in the Nordic and central European markets. If Rami posts similar declines it will certainly vindicate Cramo’s position – on the other had if its fortunes are brighter……

Cramo appears to spend way too much time in its reports pouring over third party reports and predictions of construction activity in each of its markets, rather than focusing on what it is doing or might do. The Thiesen acquisition was possibly the start of the current slide? We said at the time that Germany is always a tough place for interlopers – the market has a way of preventing foreign owned companies from doing well - while locally owned businesses prosper.

Hopefully all the reorganisations going on will transform Cramo’s results, it is after all still a great company, and one of the largest equipment rental businesses in Europe, possibly number three now after Loxam and Ramirent. The future is not looking too bright though.