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EXECUTIVE REPORT


The worst is over, but.…


Catherine Stratton discusses the findings of her newly published Plant Hire Investment Report 2009/2010.


When the economy is booming, it is difficult to predict when it will end and there is a natural reluctance to do so, because it might be a self-fulfilling prophecy. Conversely, during a slump it is equally hard to know when recovery is truly underway and we are loath to put too much emphasis on returning growth in case there is another decline lurking around the corner. So much of the economic conditions in which we find ourselves are based on that intangible ‘confidence’ and it will surely take some time to repair the damage that the past two years have inflicted on the hire industry and many of its customers, especially those engaged in construction and related activities.


Or will it? There are signs that fragile confidence is gradually being restored, but there is little doubt that most plant, equipment and tool hire companies last year were faced with the worst conditions in living memory. The height of the construction boom in early 2008 left many hirers greatly ‘over-planted’ and dangerously over-indebted to an unsustainable degree. Some - in the main smaller companies - have collapsed.


The Plant Hire Investment Report focuses on the fortunes of the largest 75 companies across a broad spectrum of hire, encompassing everything from tools through to powered access, cranes and heavy earthmoving equipment. In examining the most recent available accounts for these companies, we became increasingly aware of the devastation caused by the plunge in demand from the second half of 2008 and throughout 2009.


Some of the key findings that are contained in an analysis of our statistical tables include:


1. The average fleet size (based on Gross Book Value of Plant)


fell by 3.4% to £92.6m; this seems a surprisingly modest decline, given the decline in demand, and we would anticipate seeing a further significant drop in next year’s Report. 2. Set against this 3.4% decline in fleet size, we find an almost


13% fall in annual revenues to an average of £55.3m; the discrepancy between the two percentage figures highlights the


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utilisation problems of the industry. Holding too large a plant fleet for current needs has, of course, implications for overhead costs including depreciation and interest payments. 3. The third table in our sequence examines Hire Revenues as a percentage of Gross Book Value of Plant; here we find that the median figure has, unsurprisingly, declined sharply from 58.4% to 52.6%. Many readers will be especially interested to know that tool hire companies continue to do well on this table; Brandon leads it with a figure of 136.3% and HSS is sixth with 109.2%. Among other noteworthy performances are those of Hire Station parent Vp, which is ninth (with 87.8%) and Speedy, which is third in terms of fleet size (after Ashtead and Aggreko) and achieves a creditable fourteenth position with 74.5%. 4. More than half the selected


companies saw their revenues decline over the previous year and there was a median decline in revenues of 3.4%. 5. The average trading profit of the 75 companies fell by 12% from the previous year to £17.33m and the average pre-tax profit was down by more than 20% to £3.73m. Seventeen companies recorded a loss before tax.


These are just some of the statistical findings of the Report. Of course, the figures used span a number of different accounting periods - from years ending October 2008 to April 2010 - and include


a number of unquoted companies with calendar 2008 accounts because their 2009 figures are not yet in the public domain. Thus, the impact of the downturn is not fully reflected in these tables.


Statistical evidence is, of course, by its very nature historical and the data available is constantly changing. The half year results of HSS, which we cover in this month’s City News (see page 9), were released just as The Report went to press. The company’s strong performance and other factors, such as the inevitably growing importance of repair and maintenance and small building works (such as extensions) at a time of suppressed demand for the construction industry, lead to the conclusion that tool and small plant may be ‘among the most resilient components of the hire market’ over the next year, which is likely to be another ‘challenging’ period.





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