26.08.2015

HSS cuts forecasts as losses increase

UK general rental company HSS has posted its first half numbers with both higher revenues and losses, following what it describes as softer trading in August and an unpredictable first half.

Revenues in the first half increased over 12 percent to £146.4 million – most of which was down to organic growth, including contributions from 27 new locations opened in the period. Pre-tax losses increased substantially from £8.9 million last year to £15.7 million this year due to high debt and financing costs. The company went public at the start of the year.

Full year revenue growth is now expected to range from eight to 11 percent, with profits will fall below current market expectations. Utilisation for ‘core and specialist’ equipment which includes access improved from 69 percent last year to 73 percent this year. However the company says that full year capital expenditure will fall below last year’s levels.

Chief executive Chris Davies said: ““Our results for the first half are in line with our update at the end of June, with revenue growth of 12 percent and further gains in market share. However, as others have reported, trading continues to be unpredictable, and after a reasonable July, we have seen softer market conditions in August. This is obviously disappointing. As a result we are cautious on the outlook for the balance of the year and now expect full year earnings to be below current market expectations”.

“Notwithstanding this, we are confident that our strategy is continuing to underpin our market share progress. We are seeing strong growth in the specialist businesses as a result of our investment. We are building our Key Accounts pipeline and our roll-out of local branches is progressing to plan with 50 openings this year. We are making good progress in our plans to open a new National Distribution Centre in the first half of 2016, which will further increase availability for customers. This will also enable us to fully exploit our market-leading online proposition. Furthermore, this development will allow our existing hub and spoke network to concentrate exclusively on customer deliveries and collections, enhancing service levels".

“Despite the softer August we remain confident in the medium and long term growth prospects for the business”.

Vertikal Comment

While these numbers will disappoint, some they are not far off what the company said it would do, although to issue a profit warning in June and then a further one in August will not have gone down well in the ‘City’ especially given the current market volatility.

The company is certainly expanding rapidly and doing a lot of things right, the key challenge though will be to bring in the substantial costs savings it has promised without damaging customer service and employee morale. While at the same time generating solid new business from the new store openings.
It is a bit of a gamble but in spite of current market nervousness it is making the bet at a good time in the long term economic cycle.

It will be interesting to see what sort of forecast the company gives later in the year for 2016 and much will depend on progress - or not - at competitors such as Speedy and A Plant.