03.03.2010

Lavendon posts £48 million loss

International rental company the Lavendon Group has published its 2009 results which show revenues fell 13 percent to £226.9 million – (18 percent if currency gains are stripped out).

The company also took £61.6 million of exceptional costs including, higher amortisation costs, £52.3 million of restructuring costs and write downs (42.7 million of which was non-cash) which resulted in a loss for the year before tax of £47.8 million, compared to a profit last year of £22.5 million.

The company says that revenues and profitability fell in each of its markets except for the Middle East, but that it feels the worst is over and that its strong cash generation will lead to growth resuming in 2011.

Looking at the companies main markets

UK

In the UK revenues fell 23 percent to £106.4 million – (28 percent on a like for like basis as the Platform Company was only part of the group for three quarters of 2008 and EPL joined in mid 2009) while operating profits were halved to £12.4 million. The company says that it expects to benefit from Olympic construction work in 2010 and that it believes that it has gained market share during 2009 thanks to winning further supply agreements with major contractors.

Germany

In Germany Gardemann posted revenues of £52.2 million a fall of just five percent, although this reflects a stronger Euro, in local currency revenues fell 16 percent. Operating profits were down 52 percent to £3.6 million. The company says that it reduced costs during the year, including a 15 percent headcount reduction and the closure of some locations.

Belgium

DK Rental in Belgium saw revenues in local currency fall 24 percent but in Sterling terms the fall was just 14 percent to £14.4 million. Operating income was down 35 percent to £3.1 million.

France

In France DK’s revenues were down just six percent to £12.4 million, although in Euros the fall was closer to 16 percent. Operating income was £500,000 a fall of just over 40 percent on 2008.

Spain

The Spanish business, now carrying the Lavendon brand name, faced the toughest market of them all and revenues fell 47 percent in local currency and 33 percent in sterling to £9.4 million. Operating profits were £100,000 compared to £1.7 million in 2008.

Middle East

The Middle East was once again the shining star, in spite of challenging times in some of its markets. Revenues increased 39 percent to £32.1 million with operating profits up by more than 56 percent to £11.4 million.

This in spite of the tougher market in Dubai and a slower market in Saudi Arabia.
The Middle East fleet has grown to 1,600 units operating from six locations. The increase in fleet size was a result of shipments of equipment from the under-utilised European fleet.

The company spent just £12.9 million in 2009 on capital expenditure, including £3.9 million with the EPL acquisition, compared to £58.9 million in 2008. The group also disposed of 1,900 units along with other assets with a total value of £10.7 million.

In 2010 the company says that it will spend £10 million net of any disposals. Spending will be focussed on the Middle East fleet and niche or specialist equipment..

The average age of Lavendon’s fleet as of the end of December was 6.1 years. It claims that its maintenance and rebuild programme will allow it to continue to age it for some time, without materially impacting its revenue generating capability.

Net debt was cut by over 40 percent to £182.1 million, thanks largely to the share sale towards the end of the year which effectively converted a portion of its debt to equity.

Chief executive Kevin Appleton said: "Although 2009 has been an extremely challenging year, we achieved a performance in line with our expectations. With sharply declining revenues, we have mitigated the impact on underlying profitability by accelerating business integration and cost reduction measures.”

"Additionally, we have dramatically reduced our net debt levels through a combination of increased free cash generation and a successful £77 million equity raising at the end of 2009, and at the same time, revised banking covenants. We believe therefore that we are well placed to trade confidently through the remainder of the current downturn in our industry.”

"Whilst we do not anticipate any material recovery in our markets in 2010, we do believe that further significant deterioration is increasingly less likely and that we are well placed for profitable growth when the markets recover."

Vertikal Comment

All in all Lavendon has performed better than many might have expected and the headline loss suggest, given the state of some of the markets it operates in such as Spain, Dubai and the UK.

The fact that the company managed to keep all of its operations in positive territory at the operational level, is a vast improvement on earlier years, and is down to the larger and better managed businesses in each country, following the string of acquisitions that added DK and Gardemann in 2007.

However in spite of what the company says the overall fleet is older than is ideal and it will need to reduce it or at least holding at current levels. Disposals of older equipment will of course help but the company will need to start replacing a lot more equipment in 2011 if it is to avoid serious problems down the road.

The challenge now is to exploit its market position in countries where it has a strong position such as the UK and Germany and lead the market towards better yields through rate improvements, which will then fund future fleet renewal.

Expect 2010 to be marginally better than 2009 at the operational level, with some significant acquisition opportunities likely to arise as the upturn begins to kick in and some otherwise good competitors run out of cash.

Interesting times lie ahead,