04.03.2003

UK shines for Lavendon as overall profits fall

Lavendon Group has reported a 4 per cent increase in operating profits for its UK business for 2002, despite an overall drop in its profit performance.

Following the release of the group’s 2003 preliminary results, a 12 per cent increase in its UK sales revenues was reported to £60.7 million for 2002, compared to £54.3 million in 2001. This was helped along by the expansion of the group’s active UK customer base which last year increased by 6 per cent to 14,367. Its UK operating profits, before exceptional costs, also showed a 6 per cent increase to £13.3 million, compared £12.5 million 12 months earlier. The group’s operating margins, before exceptional costs, reduced to 22 per cent, compared with 23 per cent in 2001, while after exceptional costs, operating profits increased by 4 per cent to £12.4 million. Its operating margins were reduced to 21 per cent from 22 per cent over the corresponding periods.

Lavendon says that the strategy for its UK business will now centre around two key areas. Fleet utilisation will be driven harder by rolling out customer development programmes to a wider customer base, while further operational improvement will be secured by the group’s key performance indicator reporting systems aimed at improving margins and customer service benefits.

In order to support the strategy to increase utilisation levels, the group said that it will not be adding to its UK rental fleet in 2003 because it believes that its growth objectives for the period can be achieved through its existing fleet and network. The group also said that it remains encouraged by the continued growth of powered access generally in the UK in spite of considerable current weakness in the manufacturing sector, one of its major markets.

Total turnover for the group from its UK, Germany, Spain, France, Austria and Middle East businesses increased by 14 per cent in 2002 to £103 million, compared with £90.1 million 2001, while the total number of active customers jumped from 30,000 to 34,500 during this time. Operating profits before exceptional items declined to £12 million from £14.9 million during the two corresponding periods. Lavendon said that exceptional items totalled £1.2 million in 2002, compared to £0.6 million in 2001, largely due restructuring costs in Germany. Profits before tax and after exceptional costs fell to £4.8 million in 2002, compared with £9.3 million 12 months earlier.

The group said that it was disappointed with the 2 per cent revenue increase recorded in Germany for 2002, which was insufficient to cover its increased cost base and resulted in a £1.9 million operating loss for the year, compared with an operating profit of £2.4 million 12 months earlier. The group blames a 7 per cent softening in Germany’s hire rates last year, caused by “excess capacity chasing insufficient total demand growth”.

In France, the company reported revenue growth of a whopping 68 per cent to £3.7 million for 2002, compared with £2.2 million in 2001, following an increase in its rental fleet in the region from 425 to 653 units over the two corresponding periods.

The group’s Spanish rental fleet was also given a boost to 494 units by the end of 2002 contributing to an increase in the year’s revenues to £2.9 million. Revenues in Austria increased to £1.2 million from £0.3 million, while those in the Middle East increased by 29 per cent to £4 million, compared with £3.1 million 12 months earlier.

Commenting on the results, Lavendon’s executive chairman, David Price, said: “The last 12 months have been a period of consolidation for the group following the major fleet investment programme that occurred during 2000 and 2001. Management focus during the year centred mainly on Germany, where economic conditions remain weak and results were very disappointing, with a trading loss for the year being incurred for the first time since the business was established in 1996. Trading in the UK, Spain and the Middle East was good, whilst France made some encouraging progress during the second half of the year.

“We remain convinced that the long term case for powered access rental in Europe is compelling. With an estimated demand rate of over 400 per cent in the last 10 years, this relatively young industry is widely expected to return this trend once the existing combination of a slowing economic environment, aggrevated by a short-term over supply of powered access equipment, is resolved.

“We believe the years 2001 to 2003 will represent a period of relatively slow evolution in demand for powered access and our operating strategy has been flexed to deal with this. The phase of accelerated capital investment to key European markets is now at an end.

“Trading so far this year has continued the pattern of 2002, with subdued demand in Germany and a generally satisfactory start elsewhere. Overall, we are broadly in line with our expectations and remain cautious while the general atmosphere of uncertainty prevails. We have, nevertheless, a good business model and a market with good medium/long term prospects which we believe will enable us to weather the present conditions and emerge in good shape”.