04.11.2016

Painful third quarter for Rami

Finnish international rental company Ramirent has reported a loss in the third quarter due to substantial write offs as previously advised.

Year to date revenues are 4.2 percent higher than this time last year, at €484.7 million, with Finland, and Sweden posting strong growth, with Denmark and Europe East marginally above last year’s levels while Norway and Europe East declined by 2.9 and 0.7 percent respectively. Pre-tax profits for the nine months fell 65 percent to €11.9 million, thanks largely to the third quarter write offs.

In the third quarter revenues were €169.2 million 2.5 percent up on the same period last year, with growth in Finland, Sweden, Norway and Europe East, offset by falls in Denmark and Europe East. The company also posted a pre-tax loss for the quarter of €2.3 million, compared to a profit last year of €17.7 million, mostly due to the write offs/write downs of €20.4 million, which included a €2.2 million re-assessment of scaffold contracts in Sweden.

Capital expenditure on machinery and equipment totalled €131.8 million – almost 45 percent higher than last year. With the company investing in fleet replacement and some growth. The company has said however that in 2017 it will “focus on improving efficiency” - raising utilisation ?- rather than adding more new equipment. Net debt at September was 24.7 percent higher at €357.3 million.

The new chief executive Tapio Kolunsarka said: “The profitability development of Ramirent has not reached its potential and in order to improve performance determined actions were initiated during the quarter, which affected the third quarter result through one-off write-downs and reorganisation costs. In the quarter, Ramirent group’s net sales in comparable exchange rates grew by 3.3 percent, but the group’s comparable EBITA declined to 13.1 percent of net sales and reported EBITA declined to 8.4 percent of net sales.”

“In recent years Ramirent has invested heavily in developing the One Ramirent platform by implementing a common ERP-platform, centralised hub-structure for fleet and focusing on growing the Solutions business both organically as well as through acquisitions in Sweden. This has resulted in adverse cost and gross margin development mainly due to weakened sales mix with lessened focus on the General Rental business.”

“Therefore our priority is now profitability. Our key actions include improving profitability of non-performing business units and areas, including refocusing the Temporary Space business in Norway, reorganising parts of the Solutions business in Sweden and also parts of Europe Central’s business. We will also start driving an improved sales mix through increased focus on core General Rental business and develop pricing further. At the same time, we will develop our business to be more agile and customer-focused. Overall we can improve productivity. We will reduce costs by rationalising IT development as well as external materials and services spend. After a year of higher investments, focus will also lie on increasing existing fleet productivity.”

“Finally I would like to emphasise, that in the long-term we see solid potential to improve profitability in all of Ramirent’s Segments by optimising the business platform and through the strong commitment of the people at Ramirent to serve our customers even better. Rental is a service business of the future and there are plenty of opportunities around us to develop our business further. However, in the near future, we stay focused on putting our basics systematically right and delivering improved profitability.”

Vertikal Comment

This was an interesting set of numbers from Ramirent, while group profitability was relatively poor and only half the level of its major competitor – Cramo – even before taking account of the write offs - some of it is due to catch up spending on fleet investment and poor performance in specific markets. Much of it though appears to have been laid at errors in the previous management, focusing too much on customised big project rental solutions, the implementation of overly sophisticated new ERP software and overly complex pricing structures. It also seems that the company had become too centralising.

While the new chief executive has voiced some opinions that suggest a lack of understanding of the day to day challenges of the rental business, much of what he has said makes good sense and the changes he is bringing in at a fairly rapid pace, should have a positive impact in 2017. Sadly Ramirent does not publish utilisation rates, rental rate comparisons or the average age of its fleet which would highlight the company’s position and potential.

We now expect the final quarter to be roughly similar to the fourth quarter 2014, but possibly not quite as profitable. If so the company will end the year with revenues of around € 625 million- slightly lower than the full year 2015 but with pre-tax profits coming in slightly up on the year.