12.08.2008

Finning up 3%

Finning the CAT distributor and owner of Hewden in the UK, has reported first half revenues of just under c$3 billion ($2.8 billion) an increase of three percent. Results were negatively hit this year by an 8.7 percent strengthening of the Canadian dollar against Sterling as well as its strength against the US dollar.

Pre tax profits for the group were down over five percent on last year to c$138 million, due to overseas income translating into fewer Canadian dollars and restructuring charges in both Canada and the UK.

In the UK Finning ‘dealer sales’ were up 19 percent in sterling terms, largely driven by higher sales of power and energy products. The higher sales at Finning were offset by a poor performance from Hewden, which dragged UK revenue growth down to 13 percent in Sterling terms.

The Finning group in the UK, which includes the dealership and Hewden, had revenues in Canadian Dollars of c$672 million which equates to £332 million at current exchange rates.

Hewden first half revenues are reported as c$189.5 million (down from c$227.1 million in 2007) at current exchange rates this equates to £93.7 million which would suggest a fall in local currency terms, compared to the same period last year, of around nine percent.

Hewden’s ongoing weakness was blamed on poor utilisation of the fleet rather than rates. Finning says that the importance of its UK rental operation has been reduced, to the point where it is less than a third of the business today.

It says that due to the disappointing results it has already initiated three initiatives to rectify the situation.

1)Changes in the senior management team, with Doug Sprout now heading up the Hewden operation.
2)The closure of Hewden’s Tannochside’s head office with Hewden administrative functions being transferred to Finning UK’s HQ in Cannock.
3)Extracting further benefits from the company’s new IT system through better asset/fleet management.

Finning said that it is also looking at cutting the number of depots at Hewden, possibly loosing up to 25 locations by year end and will look at a further “rationalisation of the fleet”. It says that Finning’s used equipment sales manager is working with Hewden to dispose of equipment that is not achieving minimum utilisation levels.

Finning UK profitability was a highlight, with an increase of 34.8 percent (50.4 percent without the currency loss) in Earnings Before Interest and Tax. However a good deal of this relates to one off capital gains on the sales of Hewden properties. Without this the increase was 11.4 percent.

In terms of outlook for the second half and next year, Finning says that it is very positive with a backlog for new equipment of c$ 1.7 billion.

In the UK it says that residential construction represents around 25 percent of Hewden’s revenues and that all other areas are looking positive, including mining, energy, infrastructure and the Olympics. All of which present an encouraging outlook in spite of negative news on the general economy.

Vertikal Comment

Finning has been whining about Hewden almost since we began reporting on its results, or so it seems. Through boom times and down times Hewden always seems to fail to meet expectations.

As a result Hewden is constantly subjected to ‘initiatives’ from fleet rationalisations, to management changes, to new IT systems and back room mergers. The problem with such constant restructurings, which are highlighted at quarterly runs under the microscope, is that it can be hard for local staff to settle down and focus on the job at hand.

One cannot help but get the feeling that Finning’s heart is not really in the ‘rent to rent business and that given a free hand it would exit the business so that it could focus on its core distribution business.

It is not alone in this, several large CAT dealers who felt press-ganged into getting into the rental business as part of the CAT Rental store idea, have found that day to day rental is a different business from what they are used to and understand.

PON found this when it purchased Cramo to run alongside its CAT dealerships in Scandinavia, while other CAT dealers such as Bergerat Monnoyeur in France and McCormick Macnaughton in Ireland, to name just two, have never seemed comfortable or particularly happy with being in the rental market although they still have significant rental businesses.

The notion that running a bug construction equipment distribution business alongside a major European rental company makes good sense and helps control the channel to market is flawed.

The skill sets are quite different, the modern rental company requires a different type of management style, which is far more immediate than that required in manufacturing or distribution.

As the French say ‘Chaqun a son metier’ - perhaps Finning should consider setting Hewden free?