12 October, 2009
SPEEDY HIRE PLC
First Half 2009/10 Trading Update
Speedy Hire Plc ('Speedy' or the 'Group'), the UK's largest provider of tools and equipment for hire, is releasing this trading update for the six months ended 30 September, 2009. The Group will announce its interim results on 25 November, 2009.
Trading
Whilst the trading environment within the construction sector remains challenging and confidence is fragile, the stability which we had suggested was becoming more evident in the early part of this financial year has carried through into September, albeit off a very low base. However, with the continued weakness of the private sector and cancellation of projects planned, e.g. Kingsnorth Power Station, there is little evidence that the seasonal pick-up in turnover typically associated with the late September/October period will follow traditional patterns.
Second quarter Group turnover (July-September) will be broadly in line with that recorded in the first quarter. Year on year turnover comparisons also show that percentage declines have remained relatively steady across the first and second quarters of 2009/10. As a consequence, first half turnover is expected to be approximately 29% below the prior year, which itself had been a period of strong growth (+22% to £256.2m).
Speedy continues to deepen its penetration of the major contractor market, as evidenced by recent new awards with Bovis Lend Lease at its Stratford City project and the on-site award at the Shard of Glass, with MACE in the City of London. These customers continue to benefit from strong Government, infrastructure and regulated industry spending. As a result, turnover from the top 50 UK contractors has proved more resilient than the wider market and now accounts for approximately 26% of Group turnover (vs. 21.5% a year ago).
Cost Management
At the time of the July 2009 AGM statement, the Board indicated that further management action would be required in order to meet the continuing challenges present in its markets. Further improvements and efficiencies have been identified within the business and additional cost reduction measures have been implemented. These measures are targeted to deliver a further c.£30m of savings in the current financial year, with approximately £5m benefitting the first half and £25m the second half. Second quarter trading and the benefits of these further actions to realign costs will offset the small first quarter EBITA (pre-exceptional) loss.
Following this action, employee headcount has fallen by 270 (6%) during the course of the financial year and 19 (5%) depots have been merged with other local sites. Additionally, savings have been driven through in central functions such as IT, marketing, transport and supply chain.
Exceptional costs associated with these latest actions are expected to total approximately £8m during the course of this financial year. Approximately 50% is a cash cost for 2009/10 and approximately £3m is anticipated to be recognised in the first half and £5m in the second. In addition, £2m of exceptional costs have also been recognised in the first half relating to cost savings initiated in 2008/09, programmes which have already delivered approximately £42m of annualised benefit.
Financial Position
Having anticipated the severity of the downturn earlier and more aggressively than its peers, management has now removed in excess of £70m of costs since August 2008. As a result, Speedy is well positioned to meet the challenges posed by an uncertain marketplace and the business is structured to operate at its previously industry leading margins and capital returns. Through a tight control over costs, prudent cash management and the receipt of the £100m net proceeds from the Group's rights issue announced in May, net debt at 30 September, 2009 has been reduced to approximately £135m, compared to £248m at the start of the financial year. We anticipate continued improvement in the Group's financial position over the remainder of the financial year, targeting net debt to be around £120m by year end, as Speedy uses its positive cash flow to reduce bank debt further. As anticipated, the interest margin on the Group's bank facility fell to 3% in July, with the result that the effective interest rate incurred during the first half, including commitment fees and hedge costs, is expected to be approximately 8%.
Strategic Developments
To build upon the strength of Speedy's brand and customer relationships and to provide new growth opportunities, two new business units are being rolled out. The objective is to create services which both complement and expand our existing business offerings and thereby facilitate the development of Speedy as the long term strategic partner of choice with its key customers.
International Asset Services
In July 2009, Speedy signed a Memorandum of Understanding with Al Futtaim Carillion ('AFC'), Carillion's joint venture in the Middle East. The aim is to establish an industry-leading 'Full Outsource' model which will involve Speedy providing, in addition to its traditional hire offering, complementary services in areas such as asset management, site support services and logistics control. Speedy has already transferred personnel and equipment from the UK to the region. To develop this initiative further, initial capex of approximately £3.5m will be invested in new fleet during the course of the second half of 2009/10 to support specific AFC requirements. We are confident that this targeted, client driven approach will provide an excellent platform for growth as we extend this fuller outsourcing initiative to other selected customers across the Middle East and elsewhere.
Branded & Advisory Services
During the period, Patrick Rawnsley, formerly Speedy's Group Company Secretary, was appointed Head of Branded & Advisory Services. This new division aims to leverage the Speedy brand by building broader and deeper relationships with the Group's customers. It will do so by providing consultancy and training services based on Speedy's core brand values of safety, skills, compliance and innovation, thereby better positioning Speedy within the asset management cycle of its major customers. The range of services will initially be offered to the UK construction market, but over time will be expanded to other sectors and geographies, thereby assisting in Speedy's goal of being recognised as an international services provider.
Segmental Reporting
From September 2009, Speedy's ten UK regional and product-based businesses were merged into one trading entity, Speedy Asset Services Limited. This is part of the Group's drive to make Speedy easier to trade with for its customers and also enhances the efficiencies that can be achieved from the Group's new centralised shared service centre, which came into operation during the course of the Summer. As a consequence of this move, and following the introduction of IFRS8, the Group's segmental reporting will henceforth be split as follows: UK & Ireland Asset Services and International & Advisory (combining International Asset Services and Branded & Advisory Services). Turnover from the latter segment is expected to be approximately £1m for the first half of 2009/10 and to end the financial year at an annualised revenue run-rate of c.£10m. The component businesses will be reported separately once they become more significant.
Outlook
The Board believes that at current internal levels of forecast revenues, which are below its previous expectations, EBITA (pre-exceptionals) would be broadly in line with its expectations because of the aggressive and pre-emptive approach taken to its cost base by management. But with no sign of improvement in private sector spending and increased sensitivity around the sustainability of Government spending, there is still significant uncertainty in the current outlook for construction and, whilst trading in recent months has begun to stabilise, risks to the Group's revenue forecasts remain on the downside in the short term.
Having now extracted in excess of £70m of costs since August 2008 (when management predicted a more severe downturn than many of its peers suggested and took earlier appropriate action), the Board considers that it would be inappropriate to reduce the Group's operational footprint any further as this would begin to impair customer service, the provision of which has been the bedrock of establishing Speedy as the UK market leader. As a consequence, any further deterioration in the Group's revenue forecasts is unlikely to be offset significantly by additional cost reductions.
With its strong balance sheet, improved cost structure and market leading position in the UK, which it has continued to strengthen (particularly with the major contractors), the business is well placed to benefit from market recovery that will occur. This market and financial strength, together with the new growth opportunities available from the recently launched Middle East operation and the Branded & Advisory Services business, provides confidence in a strong future for the Group.
These initiatives, together with the step-up of activity from the Group's on-site facility at the Olympic Park and the benefits that should be realised from recently awarded new contracts at Stratford City, in the water sector and in support of other UK infrastructure projects, demonstrate a confident and positive response to what remains an extremely challenging trading environment.
Enquiries:
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Speedy Hire Plc |
Tel: +44(0) 1942 720 000 |
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Steven Corcoran, Chief Executive |
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Justin Read, Group Finance Director |
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Hudson Sandler Nick Lyon / Wendy Baker |
Tel: +44(0) 207 796 4133 |
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There will be a conference call for analysts at 7.45am this morning. For conference call details please contact Hudson Sandler on 020 7796 4133.
The information in this release is based on management information.
This report includes statements that are forward looking in nature. Forward looking statements involve known and unknown risks, assumptions, uncertainties and other factors which may cause the actual results, performance or achievements of the Group to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Except as required by the Listing Rules and applicable law, the Company undertakes no obligation to update, revise or change any forward looking statements to reflect events or developments occurring after the date of this report.