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Tool Hire Top Ten 2008: CAN MOMENTUM BE SUSTAINED? Catherine Stratton, author of the famous Plant Hire Investment Reports, presents her exclusive New Year review of the UK’s Top Ten tool and equipment hirers. 2007 has been another momentous year for the UK tool and equipment hire industry. Two events of major importance to the market took place within two days of each other in the middle of June. The first - the £310m sale of HSS to Archie Norman’s investment vehicle Aurigo, backed by US hedge fund Och Ziff - created a tremendous amount of media interest because of the new owner’s reputation as the ‘retail guru’ who had rescued ASDA. The deal valued HSS at over twice the £143m Management Buy In price of January 2004 and gave the financiers 3i a return of more than four times money multiple on its investment. The arrival of Archie Norman as Chairman of HSS has raised the company’s profile, but all the indications are that the company’s strategy under Chief Executive Chris Davies has remained largely unchanged, although it now has greater impetus. For
UK
tool
and
equipment
hire
as
a
whole,
the
second
outstanding
event
of
2007
was
certainly
the
more
important:
Speedy’s
£115m
acquisition
of
Hewden
Tools.
In
our
Tool
Hire
Top
Ten
of
2007,
As this year’s statistical tables show, Speedy now appears to have a considerable lead over its competitors, but that does not mean it is unassailable. A year ago, we were contemplating the longer term implications of Wolseley’s acquisition of Brandon. Through the integration of Brandon and Wolseley’s Hire Centers, Brandon is now the No. 3 player in market. Managing Director Tim Smith has stressed the potential of the Wolseley branch network for Brandon and, of course, the other merchant-owned tool hire operations also have similar possibilities for significant expansion. Many within tool and equipment hire will, however, look at the track record of merchant-owned hire operations and continue to question whether they will fulfil their potential, when hire is often perceived as a secondary activity by both their staff and customers. Nevertheless, it would be foolish for dedicated tool and equipment hirers to dismiss the significant effect on the market companies such as Brandon could have with the right formula and leadership. The latest consolidation of the market meant, of course, that the Top Ten had been reduced to nine again. In last year’s report, we described the process by which we had selected the No.10 to replace Hire Centers. This year it soon became clear that the ambitious Supply UK Hire Shops was the lead candidate for the No.10 position, although as our Current Turnover table shows, we believe that the company is now No.9. Allowing for the Speedy/Hewden consolidation, there has been little change in the relative positions of the other companies, but we would draw attention to the strong growth at TP Hire, which is another merchant-owned operation. THE SIZE OF THE TOOL HIRE INDUSTRY As has been emphasised in previous Tool Hire Top Ten reports, one of the major difficulties when estimating the size of the UK tool and equipment hire market is the problem of definition. Traditionally, tool hire was hand-held tools, then it evolved to include any small item of plant or equipment that could be carried out of the hire shop and loaded into a car or van. Now, it has considerably wider ramifications and, as some of the individual company comments reveal, major players are continually adapting both their tool and equipment offering and their locations to accommodate these changes. Certainly, the trend towards opening larger locations is growing in momentum. It is extremely difficult to define ‘tool hire’ now; the distinction between small plant and tools has become so blurred as to be almost meaningless. All the indications are that companies like Speedy and HSS will continue to widen their offering of non-operated equipment. Both A-Plant and GAP have traditionally been engaged in both non-operated plant and tool hire. Each has provided figures relating to their definitions of ‘tool hire’. Our valuation of the market is based on our estimates of the current revenue levels of the Top Ten companies and what we assess to be their market share. In recent years, we have introduced the concept of ‘Current Annual Turnover’ because the pace of change (through takeovers) and of growth has meant that ‘Historic’ turnover figures were truly out-dated. This year the aggregate total current revenues for the Top Ten is estimated to be over £952m, a rise of over £100m - nearly 12% - on last year. From our extensive discussions with directors of these companies, we believe this figure reflects the level of growth being experienced by the Top Ten. Last year, we ascribed 53% of tool hire revenues in the UK to the Top Ten companies and, bearing in mind the recent changes in structure, we see no reason to change that proportion. Thus we would estimate the total value of the UK tool and equipment hire market at £1.8 billion, a rise of 12.5% on last year’s £1.6 billion. Of course, for everyone in the industry, the main question is can this growth be sustained? All the directors we contacted were still confident about the prospects for 2008, although there were almost inevitably some words of caution. Undoubtedly, there is an enormous amount of construction work in progress - enough to maintain the momentum this year and, perhaps barring financial crises, into 2009. There is so much work that has to be undertaken - such as the Olympic stadia and all the associated developments, the de-commissioning of old power stations and the commissioning of new ones, flood relief, water mains, hospitals and schools - that it is difficult to see the work running out. However, forecasters are cutting UK economic growth forecasts back almost daily, with GDP growth for 2008 now forecast at 2%, compared with the 3% achieved in 2007. There
is
every
expectation
of
further
horror
stories
to
come
on
both
the
international
and
the
domestic
sub-prime
lending
fronts.
In
addition,
the
government’s
finances
are
growing
weaker.
Table
I:
Current
Annual
Revenue
Table
II:
Operating
Profit
COMMENT It
has
been
a
momentous
year
for
Speedy.
The
acquisition
of
Hewden
Tools
has
not
only
consolidated
its
No.1
position
in
UK
tool
hire,
but
also
made
it
the
biggest
player
in
revenue
terms
in
the
wider
UK
plant
and
tool
hire
market.
Speedy’s
half
year
results
for
the
period
ended
30
September,
which
include
only
two
months
of
trading
from
the
Hewden
depots,
indicate
strong
progress
with
revenues
up
nearly
36%
at
£209.5m
(2006:
£154.4m).
Steve Corcoran believes that the hire market in 2008 will be “interesting”. He believes that the forecast construction workloads will give strong support to hire over the next three to four years; nevertheless he is alert to the financial dangers and recognises the need to keep a very close eye on the wider economy. He believes that one of the critical factors will be employment; if there is a steep rise in unemployment, the Government will face the combination of a declining tax take and much higher expenditure on benefits, which would lead to a squeeze on infrastructure spend. He advises that the first three to six months of this year will be crucial to understanding how the economy is shaping. Not surprisingly, Steve Corcoran identifies a need for further consolidation in the tool hire market and points out that this would be given further momentum by any signs of recessionary tendencies. HSS
HIRE
SERVICE
HOLDINGS
LTD COMMENT 2007 has also brought significant changes to HSS with a change of ownership and the arrival of Archie Norman as Chairman and major shareholder. Chief Executive Chris Davies describes the year as one of “very good progress”. HSS continues to re-configure its depot network by merging smaller locations onto larger sites; for example, its recently opened depot in Beckton, East London, has replaced two smaller outlets in the area, and will provide much better facilities, for staff and customers, as well as a broader range of equipment on a site adjacent to the Olympics venue. Chris Davies sees the company continuing to trade strongly in 2008 while being aware of the need for prudence in view of the economic background. However, he believes that the underlying fundamentals of the hire market remain right and that HSS will benefit from its improving “capable” network and its greater depth of stock. BRANDON
HIRE
PLC COMMENT Tim
Smith
assumed
the
role
of
Brandon
Managing
Director
in
March,
less
than
a
year
after
Wolseley
had
acquired
the
hirer
but
with
the
integration
of
Brandon
and
Hire
Centers
well
underway.
Since
then
the
company
has
continued
to
expand
its
geographical
coverage
by
openings,
both
greenfield
sites
and
within
existing
Wolseley
locations.
Tim
Smith
is
enthusiastic
about
the
potential
for
Brandon
to
expand
within
Wolseley’s
existing
properties,
describing
all
of
the
merchant’s
1,800
branches
as
“potentially
Brandon’s
route
to
market.”
He
is,
however,
not
content
with
that,
as
the
company
is
also
opening
large
‘standalone’
sites
including
Brandon’s
largest
yet
in
Birmingham
city
centre;
in
addition
to
Tool
Hire,
the
large
sites
will
accommodate
Brandon’s
specialist
hire
businesses
of
Lifting,
JEWSON
TOOL
HIRE HIRE
STATION
LTD COMMENT Hire
Station
has
continued
to
build
substantially
on
its
recovery;
last
year’s
120%
advance
in
operating
profits
has
been
followed
by
150%
uplift
in
the
six
months
ending
30
September
2007
to
£3.4m,
almost
10%
ahead
of
last
year’s
12
months
figure.
The
half
year
has
also
seen
a
32%
jump
in
revenues
to
£29.3m.
John Singleton continues to steer Hire Station on to a sound growth course, with profit margins now over 10%. The past year has seen several expansionary moves, including establishing locations at Heathrow and in Southern Ireland for its pipe threading specialist activity, MEP. The setting up of Climate Hire, which was strengthened by April’s acquisition of Cool Customers, has proved successful and was able to participate fully in the flood remediation work of last summer. ESS Safeforce retains the market leadership in safety equipment and has recently reinforced its position through the acquisition of Able Safety. John Singleton says that the momentum indicated by Hire Station’s interim results continues with no sign of slowing down. TP
HIRE COMMENT Richard
Dey
reports
that
TP
Hire
has
built
up
a
strong
operational
team
over
the
past
year,
in
the
course
of
which
its
new
National
Service
Centre
in
Northampton
was
opened.
He
states
that
this
has
contributed
to
a
strong
sales
performance
accompanied
by
increased
levels
of
utilisation;
TP
Hire
will
continue
to
drive
sales
through
its
core
customer
base
whilst
increasing
the
network
of
A-PLANT
TOOL
HIRE COMMENT The
Ashtead
interim
results
for
the
six
months
ended
31
October
2007
reveal
strong
revenue
and
profits
growth
for
the
group
as
a
whole
and
for
A-Plant,
which
saw
revenues
rise
by
19%
to
£108.5m
and
operating
profits
by
48.6%
to
£16.5m.
Sat Dhaiwal believes that the latest major consolidation is good for the market overall and that there are continuing growth opportunities. He sees the A-Plant strategy as offering tools complementing its plant fleet. The company is now looking to roll out a network of ‘super sites’ with the complete A-Plant range of plant and tools. He says this is a challenge because of the restricted number of sites readily available; most of the developments have to be undertaken as ‘design and build’, so there is a time factor involved. Nevertheless A-Plant is making good progress; it currently has some 24 ‘super sites’, of which 15 are ‘up and running’, and a further seven, at least, are expected over the next 12 months. A-Plant’s Chief Executive stresses the company’s commitment to tool hire; in terms of return on investment, tool hire is more profitable than the company’s general plant business and it remains very much part of the hirer’s strategy. GAP
GROUP
LTD COMMENT The financial year ending 31 March 2007 was a somewhat disappointing one for the UK’s largest independent plant and tools company. The ‘drag’ effect of depot openings and refurbishment costs led to a drop in profits, but Douglas Anderson makes clear the current year is proving to be an outstanding one for the Group, with revenues up 23% in the first half and profits for the full year are set to reach record levels. GAP has recently installed a new computer system; since October all its depots have been operating on Movex. 2007 has been something of a hiatus in terms of depot openings, but the company is poised to open a new location in Croydon to give coverage in south London, and its existing depots in Lincoln and Kilmarnock are moving to bigger premises. The company is looking to strengthen its UK coverage with up to a further six depots - all in the southern half of England - over the next 18 months. Douglas Anderson is confident about the market’s prospects, stating, “there is no reason for a slowdown in construction in the next couple of years.” SUPPLY
UK
HIRE
SHOPS
LTD COMMENT Richard
Coffey
has
ambitious
plans
for
Supply
UK
Hire
Shops;
with
several
new
depots
scheduled
to
open
at
the
turn
of
the
year,
he
is
confident
that
the
company
will
have
26
branches
by
the
end
of
January
2008
and
aims
to
have
reached
more
than
40
within
two
years,
as
well
as
opening
‘on
site’
shops
in
major
developments.
Supply UK is still finding the market “fairly buoyant”. Richard Coffey believes that there is significant growth potential for the company, which he describes as “offering a great alternative to the nationals” and says it is increasingly attracting heavyweight national customers. JG
MARTIN
PLANT
HIRE COMMENT Andrew Martin describes 2007 as “a bumper year” and affirms that he is “very optimistic” for 2008. The past year has seen Martin Plant Hire consolidating its depots and focusing on expanding its existing range of equipment; a new depot is planned to open in early 2008 and the company has plans to double its existing network in Scotland over the next five years. Like most hirers, Andrew Martin is wary about the overall economic outlook and would like to see a further cut in base rate, describing the recent quarter percentage reduction as “too little and too late”, but he remains very optimistic about the level of construction activity in Scotland in the immediate future, and points out that further ahead there will be an uplift for both construction and the local economy, as Glasgow prepares to host the Commonwealth Games in 2014. • Executive Hire News › Archives › January/February 2008 › Tool Hire Top 10 › Can momentum be sustained
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