13.11.2008

Lavendon up 36%

Lavendon Europe’s largest aerial lift rental company has issued an interim statement for the 10 months to the end of October, showing revenues up 36 percent with a “good improvement in operating margins”.

In the UK, revenues increased by 26 percent, a good deal of which is due to the acquisition of The Platform Company, which was completed on 1st April. The company says that the rate of growth is now slowing as the year on year comparisons reflect the acquisitions completed in 2007.

Operating margins remain healthy, benefiting, it says, “from the increase in scale of the overall UK business and the integration activities undertaken in recent months”, culminating in the merger of The Platform Company and Nationwide Access earlier this month,

Revenues from Germany, in sterling terms, have increased by seven percent, but in Euros declined by five percent. However operating margins have continued to improve, as the Zooom and Gardemann businesses are integrated.

As might be expected the French and Belgian businesses posted the largest increase, growing by 327%, reflecting the acquisition of DK Rental at the end of last year. DK is also delivering significant improvements in margins.

The DK acquisition has also boosted revenues in Spain which are up 182 percent, with improved operating margins, in spite of the increasingly tough market conditions in Spain.

In the Middle East Rapid Access revenues increased 27 percent, with underlying rental revenues jumping 41 percent. – 2007 included a much higher level of new equipment sales - something that Rapid is moving away from. Margins remain at high levels according to the company.

Lavendon says that trading conditions across all of its European operations have become noticeably more difficult in recent weeks. However it says that it remains confident of delivering results in line with its forecasts for the current year.

Lavendon’s net debt is around £260 million, which it says is “well supported by strong operational cash flows, which have been further strengthened by the acquisition of The Platform Company.” In September, the company agreed a new five year £180 million banking facility, to replace loans which were due to expire in September 2009.

In addition to this new facility, Lavendon says that it has an availability of around £120 million in leasing and hire purchase facilities.

Outlook and capital expenditure

Given the uncertain economic outlook the company is revising its plans for 2009 to focus on cash generation and debt reduction, principally by a reduction in capital expenditure next year by £30 million, with most of the investment going into its Middle East operations and “other areas that offer attractive growth opportunities.”

Vertikal Comment

Lavendon looks well placed to weather –(or even thrive) the challenging market conditions of the next year or two, having stemmed any loss making businesses through good quality acquisitions. With its potential to generate significant cash and having access to credit, it has the possibility to take up any opportunities that are likely to come its way during the slow down.

The flip side of these acquisitions are its debt levels, it has been astute in its timing though in securing a new five year credit line well before its existing facility expired. When the recent bank crisis came along in September, Alan Merrell, the company’s finance director, would have had every reason to have felt smug.

When it comes to capital expenditure Lavendon is taking a more realistic and long term view than some of the other major rental companies. However its original capital expenditure plans were relatively low, as it worked on its plans to age its fleet. While a £30 million drop seems extreme, given that the company had planned to cut its capex to around £55 million this year.

If you tot up the full year spending of DK Rental, The Platform Company, Panther and Lavendon a £25 million spend is a massive reduction and will certainly help age its fleet, one of its stated aims. In our opinion it is too low for a company of this size that is looking to raise its quality standards and “invest in attractive growth opportunities”. It may well end up missing some opportunities.