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Tool Hire: Top Ten 2006 Tool hire outperforms the UK economy Catherine Stratton, author of the famous Plant Hire Investment Reports, compiles her exclusive New Year review of the UK’s Top Ten tool and equipment hirers. This is the fifth year that EHN has published its rankings of the UK’s ten largest tool hire operations. In terms of ‘pecking’ order, the changes since last year have been minor. Twelve months ago, optimism was the hallmark, almost without exception, of the ten companies, and, to a large extent, that has been justified. Now the tone is rather more studied; on the whole, companies are still forecasting growth but they are also aware of the increasing uncertainty surrounding the economy. Several major players, such as HSS and Hewden, are still in the midst of re-organisation; Hire Station has completed its re-organisation process and the recent interim results from parent company, Vp confirmed that the tool hirer is now back in profit. A-Plant has continued to expand its tool hire offerings into its plant depots and confidence there is being helped by the accelerating recovery of Ashtead after the completion of its re-financing; while GAP, the only family-owned business amongst the ten, has continued to expand its combined plant and tools offering so that it can now justifiably lay claim to ‘national’ coverage. After Brandon’s rapid expansion last year (the company achieved the highest turnover growth of the ten companies - see Table IA over), it appeared to falter a little in the first half of 2005, but its half year statement indicated that it was back on course in the second half. As last year, it is, however, Speedy which has continued to make the most impact in the market place, extending its leadership further with a 19% expansion in revenue, and reinforcing its previous messages to competitors that Steve Corcoran’s succession to John Brown as Chief Executive has been a ‘seamless’ one. Our survey of the Top Ten follows its usual format; the ten companies remain unchanged and fall into three categories: a)
Those
that
are
primarily
dedicated
to
tool
hire
and
closely
allied
operations:
Speedy,
HSS,
Hewden
Hire
Centres,
Brandon,
b) Tool hire operations owned by builders’ merchants: Hire Center, Jewson Hire Point and TP Hire. 25% of Hire Center outlets are ‘standalone’; all the businesses of the other two are located within builders’ merchant outlets. c) One company combines tool and plant operations from all its locations: GAP Group. THE SIZE OF THE TOOL HIRE INDUSTRY Each year we attempt to evaluate the size of the UK tool hire market in terms of annual revenue; at the same time we point out that such estimates are fraught with difficulty. The first problem is one of demarcation - where do you draw the line between ‘tools’ and ‘plant’? Almost all traditional tool hirers are widening their offering into compact plant and increasing their specialist products such as lifting and safety equipment. Secondly, although the ten companies featured here represent a relatively high proportion of the turnover of the tool hire industry, there is an enormous number of quality independent hirers catering for local trades people and the DIY market. Finally, as Speedy’s Steve Corcoran has pointed out in his Comment, there is tremendous potential for equipment hire to be extended to new users in a wide range of activities outside that of traditional construction. The disparity in size between the largest ten players and what we called ‘The Next Tier’ in our article last May is significant; only the specialist lifting company LGH had a turnover in excess of £20m. The next nine companies (i.e. numbers 12-20 in the tool hire rankings) had turnovers ranging from £7.8m to £3.2m). Although some of these companies are growing at well above the average rate, their national market share remains of limited significance when compared with the Top Ten, although they are each significant players in their regional markets. As in 2005 and 2004, we have produced two turnover tables: Table I shows our estimates for the turnover levels being currently generated on an annual basis and Table IA shows the historic annual turnover of each company. The latter is based on the most recent annual accounts where these are available or on information provided by the individual companies. The Current Annual Turnover Table indicates the growth levels which we anticipate for the top ten tool hirers. A year ago, we were projecting an aggregate turnover of £653m for these ten companies, which compares with the total of £663m for this year’s Historic Turnover Table, indicating that our estimates were slightly conservative. Our 2006 Current Turnover Table forecasts an aggregate value of £730m, suggesting an overall growth rate of 10%. Extrapolating statistics is a hazardous undertaking, but it seems clear from the evidence of these tables over the past few years that the tool hire industry is continuing to grow at a rate above that of the overall UK economy. Estimates of the actual size of the tool hire market have varied widely; last year we held to our view that it was worth in excess of £1 billion. The projections from our Current Turnover Table lead us to revise our valuations significantly upwards. Experience and observation over the years with regard to the overall plant and equipment hire industries in The Plant Hire Investment Report would suggest that the top ten companies account for rather less than 50% of the sector’s revenues. If we apply a similar criterion to the UK tool hire market, this suggests a value approaching £1.5 billion. We would emphasise, however, that this is an estimate, based on a narrow band of statistics. It is EHN’s intention to research this market in greater depth over the coming year and we hope to be able to publish more substantial evidence in future. Table
I:
Current
Annual
Turnover
(based
on
interim
statements
and
results
where
applicable)
Table
II:
Operating
Profit
(based
on
latest
annual
accounts
where
available) Table
III:
Gross
Book
Value
of
Hire
Equipment
(based
on
end
year
figure
in
most
recent
annual
accounts,
except
where
indicated) Table
IV:
Number
of
outlets
(as
at
December
2005) Table
V:
Number
of
employees
(based
on
the
most
recent
annual
accounts
available,
except
where
provided
by
the
company) Table
VI:
Remuneration
of
the
highest
paid
director
(based
on
the
most
recent
annual
accounts
available) SPEEDY HIRE CENTRES PLC Chief
Executive
Steve
Corcoran Comment Speedy’s interim results showed it continues to out-perform most, if not all, of its competitors, with a 21% increase in revenues and a 23% rise in operating profits (see December City News). Steve Corcoran retains his confident stance, with regard not only to Speedy’s traditional construction customers, but also in his company’s capacity to open up new avenues for hire products. The strength of Speedy’s national network means that it is able to move resources between regions so that it can benefit from areas of strong demand; Steve points to the north west of England (in particular Liverpool and Manchester) and Scotland as being particularly buoyant at present. The company is still expanding its geographical presence within the British Isles; its most recent acquisition was of Delyn Hire Centres taking Speedy into north Wales, one of the few parts of the mainland where previously it had no presence. Early 2006 will see operations opening on the other side of the Irish Sea in both Belfast and Dublin. Steve Corcoran affirms that the company plans to roll out a dozen depots in Northern and Southern Ireland over the next three years. He believes that the capital cities of each are “extremely vibrant” in construction terms. In the South, there are major infrastructure plans to improve transport across to the west coast in terms of both road and light rail developments. The outlook for the Irish economy remains bullish and Steve is confident that the company’s strong relationships with Irish contractors operating in the UK will stand it in good stead in Dublin. He also points out that the scale of Southern Ireland’s infrastructure plans is such that British contractors will be heavily involved. HSS HIRE SERVICE GROUP LTD Chief
Executive
Paul
Nolan Comment Paul Nolan describes 2005 as “quite a tough year” as HSS has built on the improvements in structure it started to implement in 2004, following the completion of the MBI. The company now has 45 ‘Premier Centres’ in place; each has an area manager with a sales team, and beneath this tier are the large number of HSS satellite stores. In some areas, such as London, the company has identified the need for, and put in place, a middle tier of depots. HSS maintains a very strong customer base with both the ‘white van’ and the domestic markets; because of increased rents and difficulties of transport, its traditional high street locations are a less attractive option; HSS is taking a more flexible approach to property and now has an ongoing programme by which between 5% and 10% of its portfolio will be “churned” each year. The concept of the Premier Centres has enabled HSS to focus on its capacity, offering a complete product portfolio and widening its range by accommodating compact plant, compressors and generators, all of which meet the requirements of HSS customers. Paul Nolan says that the award of the three year Network Rail contract is a demonstration of the success of the Premier Centre concept. This has also encouraged HSS to extend opening hours at some Centres to either 18 hours, six days a week or, in some cases, 24 hours, seven days a week, because of overnight maintenance work on rail and other infrastructure. Like others in the market, Paul Nolan reports that custom is becoming increasingly account based; he says that HSS is achieving sound organic growth. Revenues rose 8% in 2005 and prices have been steady. He expects similar growth levels in 2006 but voices concern at what he describes as “kamikaze” pricing by some competitors. He stresses that HSS is aiming at customers for whom reliability of service and product is critical. HEWDEN HIRE CENTRES LTD Managing
Director,
Comment Brian Sherlock confirms that Hewden’s five year plan is now at the end of it second year with its operational and sales management teams in place. Five general managers have been appointed and 33 ‘Rental Centres’ established as the ‘hubs’ of the ‘hub and spoke’, with the rest of Hewden’s locations, the ‘spokes’, identified as Rental Stores. 2006 will see £9m invested in IT systems (with an additional £4m to follow). The new system will be in place throughout all Hewden’s 360 locations by next December; this is a total package, designed by US IT company Lawson, and covering both rental and back office, customers and suppliers. Hewden’s Rental Stores are described by Brian Sherlock as “in essence, tool hire locations with an enhanced product offering.” The changes now in place will improve national coverage. He says that there are currently no discussions going on to change the name to CAT Rental Stores and such a change would only be made, if it was thought to improve the company’s standing. The Hewden brand, however, remains very strong. Brian points out that only 17% of Hewden’s equipment portfolio in terms of original cost is Caterpillar. The first three quarters of 2005 saw volumes increasing for Hewden’s tool hire products and some improvement in margins. With its “total” offering, the company is aiming at the “professional customer”. Brian Sherlock states that throughout the changes in Hewden, there has been a determination not to lose customer focus and that the company is continuing to concentrate on “what it is good at.” BRANDON HIRE PLC Chief
Executive
Charles
Skinner Comment Brandon is due to issue a trading statement in early January, ahead of the publication of its 2005 results in late February. Finance Director Chris Sims indicates that the company is “cautiously optimistic.” 2005 was a year of rapid expansion for Brandon as it reached ‘national’ coverage and added 32 locations to its network. This year’s interim results suggested that it might have suffered some ‘indigestion’ as a result, but that the second half would see a strong recovery. Turnover in the first half was 18% up on the same period of 2004 but operating profit fell 8% to £2.3m. Like its competitors, Brandon is seeing the growing trend towards national contracts. Amongst those it has secured is a preferred supplier agreement with Enterprise plc. In 2005 Brandon acquired 13 new locations. In November, on announcing the latest one, Light Hire, Charles Skinner stated, “Having established a national network, we are now looking to make more earnings-enhancing infill acquisitions.” JEWSON HIRE POINT Director
of
Tool
Hire
Richard
Pedersen HIRE STATION LTD Managing
Director
John
Singleton Comment For the past two years, John Singleton has been nursing Hire Station back to health and his efforts, and those of his management team, are now beginning to bear fruit; the recent interim results of Vp showed an impressive turnaround in Hire Station’s position. In the six month period the tool hirer produced operating profits of £900,000, before exceptional costs of £400,000 relating to the recently acquired Pivotal Group, compared with a loss of £300,000 in the same period of 2004. John Singleton believes that the company has now built up momentum and there is much more progress to come in both general tool hire and its specialist activities of lifting and safety. The company’s National Call Centre in Manchester now handles 25% of all its transactions and its monthly revenues have doubled over the past year. Hire Station’s larger customers find it preferable to deal with a single point. Hire Station says it puts safety as a top priority and ESS Safety Services (formed by the merger of Hire Station’s Safeforce and Pivotal acquired last July) has become the biggest specialist safety company in the UK and, according to John Singleton, is four times larger than any competitor. Lifting is another specialist product area being expanded significantly, with a further 13 locations being added to take that network to 22 by the end of March; it is planned that lifting equipment will be available from all Hire Station depots by the end of the year. It will be organised on a ‘hub and spoke’ basis with 10 to 12 locations as ‘hubs’ and the rest as distribution centres. A-PLANT TOOL HIRE SHOPS Chief
Executive
(A-Plant
Ltd)
Sat
Dhaiwal Comment Following the resignation of Richard Dey as Managing Director of A-Plant Tool Hire Shops, A-Plant CEO Sat Dhaiwal is currently acting as MD; he states that tool hire is “buoyant with some key product growth areas” such as Lifting and Safety where fast growing demand has led the company to make substantial investment and where the company expects to build on recent growth. A-Plant has been very successful in securing major accounts business for both plant and tools and has gained a number of sole and preferred supplier agreements which are likely to have a positive impact on turnover. Amongst contracts secured of late are a 12-month preferred supplier agreement with Serco, which is expected to be worth £400,000 per annum and a five-year sole supplier strategic partnership with the Birse Group, worth at least £3m annually. Sat Dhaiwal indicates that the company is now actively considering acquisitions and greenfield site openings to further improve its network; early in 2006 it is opening a greenfield site with design and build premises in Oxford, which is to be a flagship tool hire location for that area. HIRE CENTER Brand
Director-Hire
David
Himsworth • EHN has now completed its interview with David Himsworth and visited Wolseley UK’s new ‘super-center’ in Littlehampton and our report will be published in the next issue. TP HIRE Chief
Executive
Geoff
Cooper GAP GROUP LTD Joint
Managing
Directors
Douglas
and
Iain
Anderson Comment Douglas Anderson reports that GAP is still finding the market “very good.” Over the past year GAP has opened four new depots; the company’s combined plant and tool operations mean that its locations are on a larger scale than traditional tool hire outlets and the capital cost of opening up each depot is correspondingly higher. Recent openings have included Plymouth and Exeter so that the company can now claim ‘national coverage’. It has two further openings, in Swansea and close to Tower Bridge, scheduled for early 2006, and after that two more in Cambridge and Gloucester. The establishment of a national network has been very important for GAP which Douglas Anderson says is becoming increasingly reliant on national customers, with the larger construction groups ever more determined to tie up supply chains. Large national and regional customers now account for 70% of trade; nevertheless, he points out, GAP’s “local” business is also increasing but at a slower rate. Although headline hire rates are stable, Douglas points out that customer care packages cost money and business costs generally are rising. • Executive Hire News › Archives › January 2006 › Tool Hire Top 10 › Tool hire outperforms the UK economy
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