02.05.2019

Higher revenues - lower profits at Cramo

Finnish international rental group Cramo has reported strong first quarter sales growth, but lower profits.

The company is in a state of flux as it absorbs its modular space acquisition of NMG and prepares to demerge that part of the business. Total revenues were 14.4 percent higher at €200.6 million, of which equipment rental was €147.9 million, up 3.2 percent on the year.

Revenues were three percent lower in Scandinavia at €89.2 million, a little higher in Finland – 2.1 percent higher at €33 million and significantly higher in the German based Central European operation – up 36 percent to €25.5 million, thanks mostly to the KBS Logistik acquisition in January 2018. All three rental divisions reported lower operating profits. Group pre-tax profits plummeted 25 percent to €13.8 million, due to a steep rise in write downs/write offs and a substantial increase in interest costs. Capital expenditure on the fleet was 7.5 percent lower at €32.7 million.

Chief executive Leif Gustafsson said: “Cramo’s first quarter performance was mixed. The Equipment Rental division fell short of expectations as lower than expected organic sales growth impacted on the profitability. The Modular Space division’s sales continued according to expectations, but profitability for the first quarter was negatively affected by the integration of the NMG. The group’s organic sales growth was 2.4 percent, supported by both business divisions.”

“On 18 February, Cramo announced that the board of directors has approved a demerger plan concerning the spin-off of the Modular Space business into a new listed company. Actions related to the partial demerger are ongoing and the listing is expected to take place no later than in the third quarter of 2019.”

“The Equipment Rental division’s sales growth was 5.8 percent in local currencies, supported by KBS acquisition. However, organic sales growth of 1.3 percent did not meet our expectations although sales increased compared to the previous year in almost all countries. Especially many Eastern European countries and Norway continued to improve sales and profitability was supported by good demand. However, in Sweden, sales were negatively affected by the ending of large projects and delays in new projects. We are constantly following the market conditions in all countries in order to adapt to changes in demand. In order to secure the profitability going forward, in Sweden, we are optimising the fleet mix within the regions and improving our sales efficiency. In Finland and Germany, we are currently executing transformation programmes, including various operative performance improvement actions. Positive results are expected to be seen gradually from the second quarter onwards.”

“The rental market outlook varies between the countries, with slowing growth in Sweden, and a stable market in Finland, Norway, Germany and Austria. In the Eastern European countries, including the Czech Republic and Slovakia, favourable market conditions are expected to continue. The outlook for the Modular Space market remains strong.
Cramo’s purpose is to drive the sharing economy. We believe digitalisation is one of the most important enablers of more efficient and accessible sharing. On 18 February, we launched a new digital solution for smarter rental including an easy-to-access web portal and two mobile apps, which make it easier for our customers to rent and manage their equipment digitally and manage returns of equipment. In order to offer the easiest possible access to shared resources, we will continue to invest in digitalisation also in the future.”

Vertikal Comment

There is a good deal going on at Cramo at the moment, as it looks to demerge the cabin rental/modular space business while absorbing the NMG operations. The rental business performance appears sluggish, thanks mostly to the slower Swedish market. It is encouraging to see the improvement in the Central European operation which has grown out of the acquisition of Theisen Baumaschinen in 2011. The operation has now grown to revenues of over €100 million a year but has consistently failed to make a decent return.

Hopefully the demerger and focus on a three division equipment rental business will prove highly positive? The rental business must surely be an interesting acquisition target for a company such as America’s United Rentals or even France’s Loxam?
Interesting times.