08.08.2006

Hewden reports falling profits on flat revenues

Finning International has announced its second quarter and first half results today, both Finning UK and Hewden saw significant drops in revenues and profits when converted into Canadian dollars.

The dollar has strengthened by over 11 percent since last year.

When measured in sterling, the picture is not quite as gloomy, but all divisions of Finning UK saw falls in revenues, while Hewden's sales were marginally down on 2005 to around £145 million.

The poorer Hewden revenues were blamed on continued competitive pressures in the U.K. rental marketplace, lower sales of used equipment (Hewden held a major auction of used equipment on July 15th) and a restructuring of the sales force.

The restructuring was intended to improve the efficiency of the sales organisation, but has, the company says, had a short term negative effect on revenues. The restructuring was completed during the second quarter.

First half earnings, before interest and taxes, dropped by almost eight percent to around £8.4 million. The decrease is due, says the company, to lower recovery of consumables and fuel costs compared to the same period last year along with increased SG&A costs.

The increased costs are attributed to higher credit and collection costs, “primarily reflecting a continuing higher level of business failures being experienced in the U.K. construction industry. And higher employee costs due to inflation, partially offset by headcount reductions”.

The Finning overview adds:

”The U.K. market is extremely competitive, especially in the plant and tool hire businesses. This is clearly evident in Hewden's results where utilisation rates have declined. Efforts are underway to improve revenues and operational results”.

“Hewden continues to focus on various inter-related projects to improve financial performance and efficiencies in meeting the needs of a core customer base. These projects, in conjunction with Hewden's new information technology system, are expected to increase asset utilisation and reduce costs”.

“Project costs relating to these initiatives are expected to continue throughout 2006 and 2007. Progress on projects continued in the quarter, albeit slower in some areas, while focus was placed on Hewden's new information technology system which will simplify business processes and provide a lower cost per transaction”.

”In July 2006, to better serve its customers and improve returns, Hewden announced the restructuring of its Cranes business from a widespread rental depot approach, to one centred around three regions with management focus on each region".

"Projects such as this may result in a short term adverse impact on revenues as resources and management are deployed in the implementation of these initiatives to generate long-term benefits”.

Vertikal Comment

It is clear that Hewden is undergoing a good deal of restructuring, this at a time when the market has been a little more difficult than in the same period of 2005.

Making so many changes at the same time can prove difficult for any company, Finning UK and Hewden have been in a state of change for some two years now.

It will take a lot of energy and effort to complete the restructuring and start exploiting the benefits of its more joined up structure and sophisticated IT system.

With A-Plant, Speedy, HSS and others all pushing hard to win larger market shares of the UK equipment hire market, Hewden will have its hands full to regain some of the market share points it may have lost.