06.09.2005

Lavendon on the way back

The Lavendon group has confirmed its preliminary first half results issued in early July. As highlighted then, revenues fell by four percent, due to the sale of the Austrian business and the scaling back of the groups Zooom operation in Germany. see Lavendon revenues fall by 4% a signifiacnt reduction in the groups debt and a sharp improvement in profitabilty all indicate that the business is set to return to positive numbers.

Cash flow remains the strongest highlight at the group and has allowed the company to reduce its debt by over £25 million compared to this time last year. This has clearly been the boards focus as it also announced that it will not be declaring a dividend this year.

Revenues for Nationwide in the UK rose by two percent to £29.3 million, putting the UK operation on target to exceed £62 million for the year.

UK operating margins edged up from eight to 11 percent, providing an operating income of £3.2 million an improvement of 40 percent compared to the same period last year. After exceptional costs the improvement is over 265 percent.

The company says that “The UK powered access market has experienced a period of modest growth in the first half of this year, mainly driven by increased activity levels in the more price competitive sectors, particularly the commercial construction sector”.

Nationwide has focused on business areas where its market coverage offers a major advantage, such as large national accounts and as a result revenues from its top 50 customers grew by over 22 percent in the first half.

The downside of this growth has been a fall in revenue from local customers, partly due to lack of equipment and resource availability. The company says that it intends to “address” this in coming months.

Zooom Germany is now beginning to stabilise and while revenues fell by around 20 percent due to the large fleet reduction and depot closures, costs fell faster, reducing losses by almost 25% to (£2.45 million).Lavendon says that it is seeing stability in the German market and is now in a position to benefit from any improvements.

As reported earlier in July, Zooom France continues to expand and now runs a fleet of around 900 machines from nine depots. Sales climbed by 33 percent to over three million but costs also grew increasing losses to (£600,000) compared to £400,000 in 2004.

The second half though is expected to provide a correction as revenues continue to climb at a greater rate. The company now has a substantial presence in the French market and could exceed £7 million this year.

In Spain the company held revenues and losses at last years levels of £1.8 million with an operating loss of £100,000 in spite of the consolidation into a smaller operation.

The Middle East while still very strong, saw growth slow to only six percent and profits remain at last years levels. Some of this is due, says Lavendon to the weak dollar, which the local currencies tend to track.

This is chairman, David Prices last results announcement, he retires on September 24th. In his final outlook he said “"The Group's trading performance in the first half has shown an encouraging improvement over the same period last year. This has been achieved through revenue growth and operational efficiencies in the UK combined with the predicted benefits of the restructure of our German operation being secured.

"The Board is encouraged with the progress made in the first half of the year and looks forward to further improvements during the second half."

Vertikal Comment

Lavendon has done a great deal more to get itself into shape than the results might indicate. It is now well positioned to benefit from any improvements in the Euro zone economy, as well as continue to benefit from the Strong UK market.

The strongest growth over the next few years may well surprise everyone and be Germany.

An increasing number of international analysts now believe that German industry has reformed itself to a point where it is once again in a good competitive shape, and that after almost nine years of negative or slow growth is set to replace the UK as the strongest growing economy.

As a result many investment funds are looking for holdings in businesses that might gain from such activity.

In recent weeks Lavendon has been subject to a great deal of interest from funds looking to acquire significant stakes in the business, with Goldmann Sachs looking to buy a 10% stake and Cycladic Capital Management Limited seeking a 19 percent holding. Perversely Lavendon’s position in Germany might well be one of the major attractions to these investors?