Lavendon Group Results
Reproduced below is the full text of David Price's statement on Lavendon's interim results.
The first half of 2001 produced revenue growth for the Group of 39% to £39.7m (£28.6m).
Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 41% to £14.8m (£10.5m) before exceptional one-off costs of £0.6m. After exceptional costs, the increase was 35%.
The operating profit, before exceptional costs, increased to £5.5m (£4.4m). After exceptional costs, the operating profit was £4.9m (£4.4m). The slower rate of profit growth was a result of the increases to our cost base following the accelerated investment programme into fleet and depot infrastructure which has been undertaken over the past 18 months. This factor, combined with a slow-down in demand in our two main markets of Germany and the UK, was referred to in our June trading statement. The increased investment will however enable a return to stronger profits growth in future years as a result of the market leading position which has been created.
Profits before tax reduced to £2.5m (£2.9m), with earnings per share decreasing to 5.07p (6.95p).
The Group has adopted Financial Reporting Standard 18, ‘Accounting Policies’, in 2001 and the figures stated reflect amendments to prior years where required. Details of the necessary changes are given in note 3 to this statement.
The Directors are declaring an interim dividend, on an enlarged issued share capital, of 2.25p per ordinary share (2.05p), an increase of 10%. This will be paid on 1 November 2001 to shareholders on the register at 14 September 2001.
The final stage of our accelerated investment programme has been largely completed during the period under review with a further £63.6m (£51.3m) being invested in fixed assets, of which £60.4m (£49.6m) represented additions to the rental fleet. This will be funded by a combination of the continued strong net operating cash flows of the Group, which, despite the reduced level of profitability and exceptional costs, improved by 72% at the half year to £16.4m (£9.6m); the proceeds from the April Rights Issue which raised £28.3m net of expenses, and increased debt facilities.
The debt to equity ratio at the half year reduced to 73% (75%), with the interest cover reducing to 2.0 (2.9). The covenants which apply under our debt facilities continue to be met, and significant lines of credit remain available.
A step change in our fleet and infrastructure investment programme occurred in Europe between January 2000 and June 2001. During that period, the depot network was expanded from 66 to 104 depots and our powered access rental fleet was increased from 4,250 to 11,000 units, involving an investment of over £160 million. This investment programme has been supported by two fund raisings over this period.
This substantial and exceptional shift in the pace of growth was designed specifically to build market leading positions in the two main European markets for powered access rental, namely the UK and Germany. By so doing, the Group would be in pole position to attack the considerable market opportunity that will unfold over the next ten years across all of Europe. It is estimated that the USA has over seven times more powered access units per head of population than Europe. No-one doubts that similar levels of uptake will occur in Europe and that the prospects are therefore attractive. Lavendon is now better placed than ever to pursue that market opportunity with its product specialisation, market-leading position and strong cash flows. A good indication of the recent pace of change in Europe, and in particular, the Group’s ability to exploit it, is provided by the growth in our customer base. This has grown from 6,100 customers in 1997 to 23,000 customers in 2000, an increase of almost 300%.
Our principal UK operation, Nationwide Access, has continued to strengthen its market leading position during the first six months of 2001.
Despite slowing levels of demand from a number of market sectors; in particular manufacturing and telecommunications, the revenue growth remained robust at £20.8m (£14.9m), an increase of 40% over the same period last year, with the active customer base expanding by 23% to 8,194 customers. The present network of 50 depots is essentially complete and provides us with a full geographic coverage “nationwide”. The priority now is to increase the scale of each depot operation in order to secure further profitable growth. To assist in delivering this objective a number of depots were relocated to larger premises during the period and the fleet was increased from 5,050 units to 5,780 units.
The Group’s Skylift business, which operates the more specialised truck-mounted access platforms, has expanded its fleet to 149 rental units (138) during the period and has increased its revenues by 22% to £3.6m (£2.9m) when compared to the previous year.
Lavendon has had a presence in Germany for the past five years and during that time, helped by the accelerated growth programme of the last eighteen months, has achieved a clear market leadership position. Today, our network spans 44 depots, incorporating some 4,250 powered access rental units, and the company is more than double the size of its nearest competitor.
The revenues for the first half of the year grew by 38% to £12.6m (£9.1m), with the active customer base increased by 49% to 9,079 customers.
Given an industrial base of twice that of the UK, but with a powered access penetration level of only one third, we expect Germany to be the cornerstone of European powered access rental growth for the next three to five years.
With regard to the extent and timing of our increased investment into the German market, it is important to bear in mind that decisions concerning fleet and infrastructure spend levels are made some six to twelve months ahead of a new depot becoming operational. It takes a further two years on average for these new depots to establish themselves in their local markets and generate acceptable margins. By April of this year we were conscious of some slowing of demand in Germany and we reported this at the time of the AGM. Towards the end of June it became clear that the slowdown had become quite marked and was affecting a wide range of market sectors indicating possible widespread problems with the German economy. We reported this by means of a Trading Update at the time and stated that whilst we expected to deliver substantial revenue growth for the year, this would not be sufficient to cover the increase in our operating cost base.
Revenue growth at or near present levels, although less than originally anticipated, will clearly enable the fixed cost components of our depot infrastructure and fleet to be recovered over time. Furthermore, we have taken the decision to restrict the capital spend until utilisation levels dictate otherwise and hold the depot network at present numbers where necessary.
Rest of Europe
The French operation added a further two depots in the first six months of the year and now comprises a network of five depots, with a fleet of 350 powered access units. Whilst the French business is still incurring losses as it establishes itself, all indications are that the market for powered access will develop quickly and could provide a significant growth opportunity over the coming years.
During the period, we also opened our first facilities in Austria and Spain and are encouraged by the initial progress that has been made.
Our operations in this region have continued to develop in the period, with the fleet increasing to almost 300 rental units (200) based in Bahrain, Saudi Arabia and the United Arab Emirates. The region’s revenue has increased by 59% when compared to the previous year, partly due to the revenues being generated from our facilities in Bahrain and Saudi Arabia, which were opened in 2000. Prospects for this relatively small market remain encouraging, as the full potential for the use of powered access is realised.
The fundamental growth drivers for powered access versus traditional forms of access (scaffolding, towers and ladders), are compelling. Powered access is safer, cleaner, more efficient and above all, faster. It enables improved levels of productivity, leading to earlier project completion times and therefore substantial economic benefits. The shift from traditional access methods to powered access is further encouraged by increasingly stringent European Health and Safety Regulations.
Although the short term consequences of our accelerated investment in fleet and infrastructure have been adverse with respect to current profit levels, in the medium and longer term, as a result of the market leadership position that has been created as a consequence of that investment, the benefits to the Group will be considerable.
Trading since the half year is in line with our revised expectations.
4 September 2001
Lavendon Group's web site
Zooom in Europe
Nationwide Access in the UK