07.11.2008

Ramirent up 17%

Ramirent, the Finnish based international rental company has posted nine month revenues of €530 million, an increase of almost 17 percent, meanwhile profits slipped while pre tax profits dipped 18 percent to $83 million. The third quarter sales growth was slower but still increased by 13 percent but profits dropped 32 percent.

Revenues increased in all of Ramirent’s markets ranging from just over two percent in Denmark to an impressive 72 percent in Central Europe.

The company says that profitability was hit by a tougher business environment in Norway, Denmark, the Baltic states and Hungary where lower capacity utilisation and a more challenging pricing environment, combined with increased fixed costs. The company also incurred costs associated with expanding the depot network and entering new markets.

It says that “cost reductions have been initiated to adapt to the changes in the market situation”. It is also “optimising” its fleet in each country and relocating excess capacity.

Capital expenditure during the first nine months was €204 million almost 10 percent up on the same period in 2007, but rental equipment purchases were just €169million if this, almost 10 percent lower than last year.

Chief executive Kario Kallio commenting on the results said:
“The global financial crisis and the economic slowdown continued to weaken the rental market in most of our countries during the third quarter. Overall, the level of investments in new construction and industrial projects is decreasing rapidly while the level of renovation activities is more stable. During the third quarter our net sales were still growing by 13 percent, but the operating profit decreased by 11 percent due to weaker market conditions.

“In the Nordic countries, our business operations in Finland and Sweden continued on a high level, while in Norway our operations weakened further due to the slowdown in the construction market. In Denmark, construction activities continued to decline, affecting our operations negatively.”

“In Europe East, strong growth continued in Russia and Ukraine, while our business volumes and operating profits decreased in all Baltic countries compared to previous year. In Europe Central, strong growth continued in Poland, Czech Republic and Slovakia, while our Hungarian operations continued on a low level due to weak market conditions.”

“Due to the rapid deceleration of the market, our margins and profitability declined. We will reinforce the actions to adjust our business operations to the new market situation. We will intensify the process of re-allocating excess fleet capacity to markets facing more favourable conditions.”

“We are prepared to weather this downturn with our strong balance sheet and solid cash generation. For the full-year 2008, we expect net sales growth to continue, but the profit before taxes and earnings per share to be clearly below 2007 levels.”

Vertikal Comment

Ramirent’s policy of diversifying geographically looks like it is paying off, even in these more difficult times. Its core markets of Sweden and Finland, continue to do very well and have even grown strongly in the third quarter as has its operations in Central Europe.

It now has the ability to move equipment between many of these locations and thus cut its capital spending without depriving growth areas of additional equipment. Although moving machines between some locations can be fraught with challenges if there is not a common standard of specification and maintenance throughout the group.

Rami has opened 62 new locations this year and seen its payroll grow substantially in every region. Adding almost 700 people, an increase of almost 30 percent. This along with the higher leverage it has incurred will put a brake on its profitability for a while.

In January Magnus Rosen takes over at the helm, and will most likely have to cut some of the overhead that has been added this year. How these cutbacks are done and how the company reacts in terms of fleet replacement will be critical to its future growth.

The company has had a remarkable run over the past few years and is still in very good shape and poised to become Europe’s largest equipment rental company. Ideally it needs to hold a steady course and not overreact to what in most of its markets is likely to be a temporary and relatively modest slow down.

The key is to do what it has always done and keep as much of an eye on the markets and its customers as it does on trying to keep its investors/analysts happy. In this environment the latter may prove to be too difficult, so focusing the other way while working on debt reduction might be the best bet.