15.08.2019

Cramo struggles

Cramo has followed a recent full year profit warning with disappointing half year results.

Total revenues for the six months were half a percent higher at €301.5 million, mainly thanks to last year’s acquisition of Germany’s KBS Infra, which boosted Cramo Central Europe revenues by more than 22 percent, helping offset a 7.8 percent fall at Cramo Scandinavia, the group’s largest operation by far. Cramo Finland & Eastern Europe was roughly flat, due to a weak performance in Finland offset by stronger sales in Poland, Lithuania and Estonia. Pre-tax profits for the six months dropped 34.5 percent to €18.9 million. Gross capital expenditure was cut by around 40 percent to €46.7 million, while net debt increased by just over three percent to €458 million.

In the second quarter revenues were almost two percent lower at €153.1 million, driven by similar causes to the half year numbers, but pre-tax profit dropped 45 percent to €10.5 million. At the end of the period Cramo demerged its modular space division to create Adapteo.

Chief executive Leif Gustafsson said: “Cramo’s second quarter was both successful and challenging. Cramo’s partial demerger was successfully completed on 30 June 2019 and the trading in Adapteo’s shares in the Main Market of Nasdaq Stockholm commenced on 1 July 2019. This was a historic milestone for Cramo; building the Modular Space business from the beginning to become a listed company. A new chapter for Cramo has started, with full commitment and enthusiasm, we will continue to develop Cramo into its full potential in the equipment rental industry. Cramo has a strong position in Europe, where we see interesting growth opportunities as well as good possibilities to develop our existing business.”

“Cramo’s second quarter performance in 2019 fell below expectations due to low profitability we also estimate that comparable EBITA for the full year 2019 to decrease from 2018. Despite the lower profitability, cash flow after investments for continuing operations is expected to be significantly higher in 2019 compared to 2018.”

“Sales in the second quarter for Cramo’s continuing operations were slightly lower compared to last year in comparable currencies. Sales development in the second quarter was modest in Sweden due to a decrease in and the timing of larger industrial projects. Additionally, quarterly sales in Sweden were negatively affected by the fact that there were two fewer business days during the second quarter compared to last year. Except for the larger industrial projects, the operational performance in Cramo’s business in Sweden remained stable at the 2018 level. In Norway, sales development was positive, driven by good demand and increased utilisation rates. In Finland, performance didn’t return to the expected level during the second quarter. In Central Europe, sales were higher compared to last year driven by industrial projects. Expansion investments and sales growth in KBS Infra are proceeding according to plans.”

“In order to right size the group’s cost structure upon demerger of Adapteo and to ensure profitability going forward, various performance improvement actions are being initiated and carried out. These include group structure optimisation, specific sales efforts, cost reductions as well as capital efficiency measures in all countries. The targeted run-rate savings of €10 to 12 million from above measures will be shown gradually from the fourth quarter of 2019, and in full effect for 2020.The estimated restructuring costs amount to €3 to 5 million and are fully recognised during the second half of 2019.”

“To capture the full potential of the focused equipment rental business, we will continue to work with the cost structure, invest in growth to increase our market share and optimise our profitability and cash generation. The new strategy is now finalised to ensure Cramo’s competitiveness in the long term.”

Vertikal Comment

All does not seem well at Cramo, the company has seen a number of management departures changes, restructuring and market pull outs in the past year or two, which has affected its profitability, but until now not had much of an impact on revenues. To be fair much of the slowdown is due to a weaker market in Sweden, which most, if not all, of the big rental companies have been facing. Cramo has not managed to offset this in other markets though, outside of making new acquisitions. It now faces a privately held Ramirent – now part of Loxam in all of the markets where it operates, and increased competition in the lucrative powered access market from medium size specialist companies – both locally owned and pan European – such as Riwal, Mateco and now Kiloutou.

It will be very interesting to see how the situation develops in the second half.