EXECUTIVE REPORT
Still struggling to make sound recovery
Catherine Stratton highlights some of the conclusions of her newly published Plant Hire Investment Report 2010/2011.
The latest Plant Hire investment Report was written against the backdrop of sluggish growth in the UK economy in general and, specifically, a construction market still coming to terms with a precipitous fall in its workload over the past three years and the growing realisation that the savage cuts in Government capital expenditure will outweigh any increase in investment by the private sector.
Given these negative factors, it is heartening to see that many of the major hirers - including tool hirers - have been able to make positive progress over the past year with signs of a recovery, albeit in many cases a subdued one, in revenues and profits. The big question is whether this will be sustained, as even the most optimistic forecasters see economic growth continuing at a very slow rate for the rest of the year.
In the brief period since the Report was published in early August, we have seen further problems developing in the Euro-zone and in the US, as well as our own civil disturbances. For further comments on the state of the economy and what it means for the hire industry, please go back to Forum.
Low level of acquisitions and mergers
The UK hire industry has shown a surprising degree of resilience in the aftermath of the
recession.Yes, there have been a number of casualties, but these have been mostly comparatively small players. Several major companies have successfully re-financed; hearsay suggests that some private companies have re-negotiated HP and leasing deals, so that they have been given payment holidays or their payment terms have been extended. This could, of course, mean they are merely postponing their difficulties, particularly if the economy takes another dive. Perhaps one of the most surprising aspects of UK hire post-recession has been the low level of acquisitions and mergers. The rapid decline in activity might have
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been expected to promote consolidation, but much of the initial ‘consolidation’ has taken an internal form, with companies such as Speedy, Hewden and A-Plant pruning their depot networks - in some cases savagely.
Much of the acquisition activity has been undertaken by private equity (the most recent significant examples being Wolseley’s sale of Brandon to Rutland Partners and Finning’s disposal of Hewden to Sun European Partners) but this has not, so far, promoted any consolidation of the market.
If consolidation is to come and, given the continuing low levels of demand, it looks almost inevitable, it would seem probable that private equity firms, especially those who have already got an interest in the industry, may be best positioned to take the initiative.
The Report notes that the hire industry in mainland Europe is currently experiencing a wave of acquisition activity, with companies such as Loxam (not only the largest company in France,
but also in Europe), Cramo and Ramirent (both Finnish) and Boels, the leading company in the Netherlands, all making acquisitions, mainly outside their own national borders.
Of course, the big difference between the rental/hire markets in the UK and in the rest of Europe is that ours is exceptionally mature with a high level of penetration into the entire plant provision market, whereas the European market (like the US) is a young one, which has developed strongly within the last 20 or so years. Thus, one would expect a high level of acquisition activity in current conditions.
The Plant Hire Investment Report, however, remains focused almost entirely on the performance of the UK hire market. As has been customary, the Report examines the financial performances of the
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