28.08.2015

Profit boost for Lavendon

UK-based international rental group Lavendon has reported a strong rise in first half profits on stable revenues.

Total revenues for the six months were £119.1 million, just over one percent up on this time last year. The modest increase is mostly due to the weaker Euro exchange rates converting to Sterling. Pre-tax profits for the period however jumped 27 percent to £10.8 million.

In the UK rental revenues declined two percent – in spite of the company managing a two percent rental rate rise over the period. Higher sales of used equipment and services helped increase revenues by just under one percent. Operating income however jumped 18 percent to £8.8 million.

In the Middle East total revenues increased 20 percent to £27.35 million with an operating profit of £8.29 million, up 22 percent on this time last year. A good deal of this growth came from exchange rate gains. Without this, rental revenues were eight percent higher.

German revenues were flat over the six months although improved two percent in the second quarter due to higher volumes offset by a three percent fall in rates. However when converted to Sterling revenues declined nine percent to £17.7 million, while operating profits dropped 44 percent to £507,000.

Revenues in France rose sharply in local currency thanks to a strong improvement in rental rates on higher volumes. When converted to Sterling however they were barely one percent higher than last year at £10.58 million. In spite of the adverse exchange rates operating income increased 15 percent to £1.21 million.

Finally the Belgian business continued to struggle declining 14 percent to £5.2 million, with profits more than halving to £500,000.

Capital expenditure for the half year increased 83 percent to £39.1 million, while the company sold off around £4.5 million worth of used equipment. The company now plans to spend £75 million for the full year, following the decision to pull £20 million from next year’s capex budget into 2015.

Chief executive Don Kenny said: "I am pleased with the group's performance in the first half of the year, where we delivered growth in revenues, profitability, margins and return on capital employed. The interim dividend increase of 21 percent reflects this good performance and the Board's confidence in the Group's long term future."

“We are allocating an additional £20 million of capital in 2015, increasing the level of fleet investment in the Middle East, UK and France to add capacity in support of our growth plans. Our strong financial position enables us to accelerate our investment plans in response to customer demand and we will continue to use our operational flexibility to build momentum and scale going forward."

“Trading since the half year has remained in line with our expectations and, whilst mindful of the re-emergence of some uncertainty in the economic outlook, the board remains confident that the group is well positioned to deliver its expectations for 2015 and continue to create substantial shareholder value over the medium term."

Vertikal Comment

As we already stated in the review of the company’s half year trading statement, the progress the business has made is more significant that the numbers might indicate. The UK is holding its own and is in the process of changing its market position slightly to carve out a share of market that is best suited to what it does well, rather than try to go head to head in all sectors and levels of what is a very diverse market.

In the Middle East it continues to thrive and appears well placed to continue even with some emerging economic issues caused by the low oil price. The exceptional performance in France also continues and the company really looks to be on a roll.

The two big challenges though are in Germany – the group’s third largest business – and Belgium. While the talk is all about systems, metrics and a new management team there is an underlying challenge to create a team culture that will allow the businesses to compete effectively with well-run, well-funded locally-owned operations - something both had when they were originally acquired.

Apart from this the business is clearly in great shape and well placed for several years of strong growth. The decision to step up and bring forward the acquisition of new machines to renew and expand the fleet is an excellent (and necessary) one and will almost certainly pay dividends over the next few years.