11.11.2008

Cramo up 23%

Cramo, the Finnish based international rental company has reported a relatively strong set of results to the end of September, but says that it is suspending all capital expenditure for 2009.

Revenues for the nine months were €436 million, an increase of 23.5 percent on the same period of 2007. Pre-tax profits also climbed by seven percent to €59 million.

While the third quarter was slower sales still increased by 21 percent to €156 million, but pre-tax profits slipped by around three percent to €24.5 million.

Cramo says that it saw revenue improvements across the board in all of its markets although a good deal of it can be attributed to acquisitions and new depot openings.

The company says that Sweden and Finland remained very strong in terms of profitability, as was Central Europe, while trading in the Baltic states, Denmark and Norway was harder.

Cramo also says that it has noted a marked slowdown since mid September in the markets in which it operates. As a result of this and the fact that it has a “modern fleet” it sees no need for new investments, and also cut maintenance capital expenditure to a minimum. In fact it says that it has “embarked on an ‘investment holiday’ for the balance of 2008 and total 2009.”

The company spent €169 million on new equipment during the first nine months of 2008.

In spite of this negativity the company says that the impact on demand for rental services will not be as severe as it feared. Due to harder trading conditions encouraging contractors to rent rather than buy.

It says: “In a cyclical downturn, rental services provide an attractive alternative to purchasing new equipment. With its relatively high utilisation rates, rental is
more cost-efficient compared to owned equipment. It also releases investment
funds for other usage.”

Cramo incorporated the following acquisitions during the first half:
April
-Techniline in the Czech Republic and Slovakia.
- Kranab in Sweden
- Hyrmaskiner i Bollnäs in Sweden,
- Pohjolan Teline Oy in Finland

May
- SIA Tapeks Noma in Latvia.
- Kranenentreprenören in Norway

June
- GMM Hyrservice in Sweden

Cramo operates through 298 locations – up from 263 in 2007 - in Finland, Sweden, Norway, Denmark, Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia and Russia.

Vertikal Comment

This is unquestionably a strong set of results from Cramo, thanks to a number of carefully picked acquisitions in key markets during the first half of the year. The company looks to be well placed to continue to do well during 2009, although its high leverage, is causing it to cut its expenditure in a bid to generate cash and reduce borrowings.

This is always an option for rental companies which soak up cash as they expand, taking an “investment holiday” will without question help generate a great deal of cash, but Cramo’s fleet is not young or homogenous enough to do this for too long.

Frequent acquisitions inevitably lead to a diverse rental fleet in terms of age, condition and brands. This does not lend itself to the company’s stated desire to optimise its fleet between locations. In spite of this suspending expenditure for 15 months is, of course, doable.

The danger when large rental companies take such a holiday is that the results can become intoxicating tempting managers to extend it, and very quickly the company can find that its fleet is old, it is loosing customers and staff and it has a ‘bubble’ in its fleet profile.

Cramo notes that during tough times opportunities exist to expand the rental market, particularly where a large number of contractors still purchase their own equipment. However if you then provide old equipment, or are short of the right machines, those contractors will soon revert to buying their own, particularly at a time when hard pressed manufacturers are keen to do deals.