29.08.2008

Lavendon up 40%

Lavendon, the world’s largest specialist powered access rental company, has released its first half results which show strong increases in both revenues and profitability.

Revenues were £116.4 million – 40 percent up on the same period last year, while pre tax profits rose by 43 percent to £11.9 million. The business also generated considerable cash in spite of its higher gearing - cash flow was £33.5 million 38 percent up on 2007.

The acquisitions of DK Rental and The Platform Company has also allowed, or encouraged, the company to cut its capital investment on new equipment this year by £20.0 million. It spent £39.2 million on its rental fleet and infrastructure in the first half of the year, with just £14.0 million now planned for the second half.

The UK market remains strong according to Lavendon with revenues up 32 percent to £62 million and operating profits up 38% to £10.2 million.

German revenues declined by five percent in Euro terms following the merger of Zooom and Gardemann, but translated into growth in sterling terms thanks to the stronger Euro.

In Spain the difficult market has hit business, and the company has pulled out of the Galicia region, cutting back to four locations and shipping surplus equipment to other parts of the group. In spite if this the addition of DK Rental boosted revenues by 169 percent to £7 million while adding a £ million in operating profits to £1.4 million

In the Middle East the company’s revenues grew by 14 percent to £9 million which includes new equipment sales which the company is moving away from. Pure rental revenues were up 33 percent while operating profits jumped 30 percent to £3 million.

Outlook

Apart from the challenging Spanish market the group says that it sees little sign that its main markets are over-supplied with equipment. It also says that the reaction of most manufacturers to economic uncertainty with capacity reductions should keep supply and demand in balance with underlying market penetration of powered access helping offset any further economic slow down.

Lavendon chairman John Gordon said: "The Group has continued to make good progress in the first half, strengthening revenues, profits and operating margins. The acquisition of The Platform Company has strengthened our UK market position and is performing well as part of the Group. Our UK operations have experienced solid demand in the year so far, and our focus for the year is to continue to drive the cost and revenue synergies from our acquired businesses.”

"In our international markets, with the exception of Spain, we are seeing no marked change in demand levels, and there is currently little sign that our main markets are materially over-supplied with equipment. However we will continue to concentrate on the areas which we can influence; ensuring that integration cost synergies are maximised and operations are made more efficient in that process, whilst controlling and focusing our capital expenditure on our expanding Middle East business and other areas which offer the greatest growth opportunities.”

"Following the acquisition of The Platform Company we have been able to reduce our capital expenditure programme for the year by £20m and we remain comfortable with our levels of debt. The Group continues to trade in line with our expectations and looks forward to reporting further progress in the coming months."

Vertikal Comment

There is not a great deal to add about these results, they speak for themselves. This is clearly a very solid first half performance from the company, although as yet it only includes two months or so contribution from The Platform Company.

The second half is likely to be even better than the first half thanks to weaker sterling to the euro and a full first half contribution from The Platform Company.

Lavendon’s challenge will be to keep the spirit of its acquired business both in the UK and in Spain, Belgium and France. The biggest challenge will be the UK, where the merging of its regional business into Panther without loosing their unique local ‘flavour’ will be a challenge. The same applies to the merging of the two national companies into Nationwide Platforms, always a difficult exercise.

All in all the results show that the stock market has over reacted – as usual – to all the negative economic coverage in the mass media and that the Lavendon share price now looks like a bargain.

In the longer term it remains to be seen if Lavendon’s policy of running an older fleet will prove to be more profitable rather than more costly.