26.10.2018

Mixed quarter for Cramo

Finnish international rental company Cramo has posted a positive third quarter, but sales in the Nordic region were lower.

Beginning with the nine months to the end of September, total revenues increased 5.5 percent to €562.2 million, thanks mostly to Germany, central and eastern Europe and the modular space division. Pre-tax profits were five percent higher at €80.3 million. Capital expenditure for the nine months was €157.3 million, almost five percent higher than for the same period last year.

Moving on to the third quarter total revenues were €197.9 million, 3.1 percent up on the same quarter last year. Pre-tax profits however slipped three percent to €35.9 million. Scandinavian rental declined 6.7 percent, although operating profit improved by almost six percent.

Finland and eastern European rental revenues were two percent lower, but operating profits declined 30 percent, due to lower revenues in Finland couple with lower price levels with “fierce competition”. The profit decline was partly offset by strong improvement in Poland and Lithuania and an improvement in Estonia.

Germany and central Europe saw a 53.5 percent increase in third quarter revenues, thanks almost entirely to the acquisition of KBS Infracouple. Profitability jumped 67.6 percent, due to strong improvements across the region as well as a positive contribution from the acquisition.

Chief executive Leif Gustafsson said: “During the first three quarters of 2018, Cramo’s organic sales grew by 7.7 percent and comparable EBITA increased by 9.1 percent. The group’s profitability also continued to improve compared to the previous year. The market environment remained good for both of our business divisions.”

“The Equipment Rental division’s third quarter was mixed. Scandinavia and several eastern European and central European countries continued performing well. The slowdown of residential construction growth in the Stockholm area had no material impact on third quarter sales in Sweden, which increased by 3.2 percent in local currency. Norway continued to improve sales and profitability supported by good market demand. Sales declined particularly in Finland, which negatively impacted the profitability of the Finland and Eastern Europe segment. Actions to change the current direction have been executed and positive effects are expected to follow starting from the first quarter of 2019. We will also continue our performance improvement actions in Germany.”

“I am particularly satisfied with the performance of the Modular Space division as good improvement continued during the third quarter both in terms of sales and profitability. Germany in particular contributed positively as the firm actions taken to increase the operational effectiveness are showing results.”

"After the reporting period, the Swedish Competition Authority approved Cramo’s acquisition of the Swedish based Nordic Modular Group Holding. After the acquisition, Modular Space is growing more than 60 percent in sales and it will expand into long term rental business with in house manufacturing. As previously announced, Cramo has assessed strategic alternatives for its Modular Space business. The objective of the assessment is to maximise long term shareholder value for Cramo’s shareholders. An outcome is likely to result in a separation of the Equipment Rental and Modular Space business divisions, which may include a demerger and separate listing of Cramo Adapteo during 2019.”

Vertikal Comment

Not a bad overall performance from Cramo, although there are a few areas where the company will be concerned. The company is still struggling with its German business, although it is at least profitable, and the Finnish declines appear to be on the high side, even after allowing for the tougher market conditions.

How the company reacts to the increased competition will be critical, for example any retrenchment edicts handed down from head office when, the difficulties might be short term, or require a more thoughtful change in strategy, could exasperate the situation. It will be interesting to see how the Finnish operation of fellow Finnish international rental group Ramirent has fared during the quarter.

On a more positive note it looks as though the company’s Polish and Czech operations are both on a positive upward trend.