Executive Hire News › Archives › January/February 2009 › Tool Hire Top Ten 2009 : Nothing is certain - except uncertainty

Tool Hire Top Ten 2009 : NOTHING IS CERTAIN - EXCEPT UNCERTAINTY

Catherine Stratton, author of the highly respected Plant Hire Investment Reports, presents her 8th annual review of the UK's Top Ten tool and equipment hirers.

"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. All the indications are that this year is going to be a very difficult year for the UK economy - with forecasters saying it could be the worst since 1993. Tool and equipment hire cannot remain completely immune from the overall economy, but it should be better positioned than many other markets to withstand any recessionary trends."

This was the concluding paragraph from the 2008 Tool Hire Top Ten. Little did we realise just how bad the financial crisis would get last year and how its tentacles would grip every aspect of the economy. The tool hire industry remained quite buoyant for the early part of the year, but since last autumn, the downturn in private construction has been felt by contractors and hirers alike. There is every sign that, along with the UK economy in general, the hire market is now facing one of its most difficult years ever.

Last autumn, companies that had geared to the continual expansion of their markets had to radically adjust their business models to accommodate rapidly shrinking demand. Hence, we are now seeing depot closures and re-organisation by the largest companies in our Top Ten report. The picture is a constantly changing one; when discussing this report with a director of one leading hirer, we were told that the company was “doing alright today, but we don’t know about tomorrow.” This comment seems to sum up the degree of uncertainty felt by all involved in hire, and, undoubtedly, in most other industries as well.

After 2007’s significant changes in the structure of the tool hire market with Speedy’s acquisition of Hewden Tools and the sale of HSS to Archie Norman’s Aurigo, 2008 produced no surprises on the consolidation front with only modest acquisitions. We must now anticipate that a decline in the market over the next year will lead to further consolidation as healthy companies acquire their weaker brethren and as some withdraw from the market, either by choice or through administration and liquidation.

This year’s Top Ten Tool Hirers look very similar to 2008, with the exception that fast growing Hirebase, a division of Grafton Group’s Buildbase operation, has entered the ranks in ninth position and Martin Plant Hire has dropped out of the Top Ten. The most recent financial data we have for Martin is the accounts for the year ended 31 March 2007, which show the company’s revenues at £9.8m.

THE SIZE OF THE TOOL HIRE INDUSTRY

As we have stressed in previous Top Ten reports, our perennial difficulty in trying to estimate the size of the UK tool and equipment market is one of definition. The tool hire industry has changed considerably in recent years as companies have widened both their product ranges and customer base. The momentum away from shop locations to larger out-of-town centres appears to be accelerating and is likely to be given further impetus by the current downturn as hirers seek to reduce overheads.

We base our calculation of the current value of the tool and equipment hire market on our estimated current revenues of the top ten players and their market share. We introduced this concept a few years ago because the pace of growth and consolidation in the market meant that figures taken from historic accounts were much outdated. In Table 1A we estimate the annual revenues of the Top Ten largest companies based on our assessment on their growth since the historic revenues shown in Table IC, where most of the accounts relate to accounting periods ending in March 2008 or earlier.

TOP TEN GENERATING £972M REVENUE

Estimates in Table IA relate to accounting periods one year later, so we are really looking at the position through to the early months of 2009. Table IA indicates that the Top Ten Tool Hirers are generating a total of £972m of revenues. This is a rise of 2% on last year when we estimated that the Top Ten probably accounted for 53% of the total tool hire market. We believe that their market share has grown over the past year to about 54%, indicating that the market remains at a similar level to last year of approximately £1.8 billion.

Table IA: Estimated Current Annual Revenue (based on interim results where applicable)
Revenue (£m) Change in position from 2008
1. Speedy Hire 425.0 Unchanged
2. HSS Hire Service 170.0 Unchanged
3. Brandon Hire 100.0 Unchanged
4. Jewson Hire 66.0 Unchanged
5. Hire Station 57.0 Unchanged
6. TP Hire 46.0 Unchanged
7. GAP Group Tools 38.0 Up 1
8. A-Plant Tools 37.0 Unchanged
9. Hirebase 20.0 New entrant
10.Supply UK Hire Shops 13.0 Down 1
Total 972.0m

Table IB: Market Share (based on estimates in Table IA)
% Market Share
1. Speedy Hire 23.6 6. TP Hire 2.5
2. HSS Hire Service 9.4 7. GAP Group Tools 2.1
3. Brandon Hire 5.6 8. A-Plant Tools 2.0
4. Jewson Hire 3.7 9. Hirebase 1.1
5. Hire Station 3.2 10. Supply UK Hire Shops 0.8
Total 54.0%

We believe that, for at least the first three quarters of 2008, tool hire was continuing to prosper. The downturn has, of course, now begun to be felt and is likely to become increasingly severe over 2009.

We are hearing of increasing numbers of depot closures; at the time of writing we have learnt that A-Plant is closing its eight specialist welding and power generation locations and absorbing their activities into its general hire depots. Major hirers are cutting their depot networks in response to declining demand and the credit crunch.

So where does this leave independent hirers, with one or two depots, or perhaps a regional network? Some will be able to take heart from the nationals leaving their patch. Those independents that continue to provide an effective personal service based on their local knowledge and professional approach should come through this recession and increase their share of their own local markets. In recent years, Executive Hire News has published many articles highlighting the initiatives of local independent hirers. They remain the most formidable competition for the national players. Recession demands a deep knowledge of local conditions and a flexible and quick response to any changes in those conditions - attributes that many independent hirers possess.

We must emphasise, however, that this is a fast moving scenario and we are all too well aware that the market will almost certainly look very different in a year’s time and its size, along with the UK economy, will have diminished. The favourite euphemism amongst politicians and leading business people seems to be that the times are ‘challenging’. They are certainly that and a lot more. The challenge is there for all tool hirers to prove their ability to adapt to probable recessionary conditions throughout the current year and into the early part of 2010 at least.

Table IC: Historic Annual Revenue (based on most recent annual accounts, where available)
Revenue (£m) % Change on previous year
1. Speedy Hire 415.4 +42.2
2. HSS Hire Service 168.7 +7.6
3. Brandon Hire 100.0* +16.3
4. Jewson Hire 63.0* +10.7
5. Hire Station 57.5 +26.7
6. TP Hire 45.0* +5.0
7. GAP Group Tools 40.0* +29.0
8. A-Plant Tool Hire 37.5* +1.1
9. Hirebase 15.0* N/A
10. Supply UK Hire Shops 10.6* +24.7
Total 952.7m +21.2
*figure provided by the company; in the year ended 31 July 2007, Brandon revenues were £86m.

Table II: Operating Profit (£m) % Change on previous year
1. Speedy Hire 43.4* +4.3
2. HSS Hire Service 9.8 -38.7
3. Hire Station 5.5 +91.4
4. GAP Group Tools 5.3** +39.5
5. Supply UK Hire Shops 1.4 Unchanged
A-Plant Tool Hire Not available N/A
Brandon Hire Not available*** N/A
Hirebase Not available N/A
Jewson Hire Not available N/A
TP Hire Not available N/A
*after £10m integration costs, relating to the acquisition of Hewden Tools
**EHN estimate
***In the year ended 31 July 2007 Brandon Hire operating profits were £6.6m.

Table III: Gross Book Value of Hire Equipment
Gross Book Value (£m) % Change
1. Speedy Hire 460.9 +36.4
2. HSS Hire Service 110.8 +22.8
3. GAP Group Tools 51.0 +50.0
4. Hire Station 37.2 +20.7
5. Jewson Hire 36.2 +3.4
6. A-Plant Tool Hire 35.0 -2.8
7. Supply UK Hire Shops 6.1 +29.8
Brandon Hire Not available* N/A
Hirebase Not available N/A
TP Hire Not available N/A
*Brandon: at 31 July 2007 GBV equipment was £60.7m, a rise of 49.8% on the previous year.

Table IV: Number of outlets +/- Change on year % Change on year
1. Speedy Hire 436 -76 -14.8
2. Brandon Hire 270 Unchanged N/A
3. HSS Hire Service 264 * -27 -9.3
4. TP Hire 252 ** +79 +45.7
5. Jewson Hire 232 +6 *** +2.7
6. Hire Station 101 -8 -7.4
7. A-Plant Tool Hire 100 No Change No Change
8. GAP Group Tools 59 +2 +3.5
9. Hirebase 49 N/A N/A
10. Supply UK Hire Shops 25 +4 +19.0
* HSS branch network is comprised of 228 depots (2007: 254), 36 Agency branches (37); in addition HSS Hire is available through 192 (171) Dulux Decorator Centres.
**includes 60 satellite depots *** 12 opened, 6 closed during the year

Table V: No. of employees (based on most recent accounts available, except where provided by company)
No. of employees +/- Change % Change
1. Speedy Hire 4,662 +1,325 +39.7
2. HSS Hire Service 2,376 +47 +2.0
3. GAP Group Tools 880* +85 +10.7
4. Hire Station 695 +105 +17.8
5. Jewson Hire 491 -43 -8.0
6. A-Plant Tool Hire 475 -26 -5.2
7. Hirebase 162 N/A N/A
8. Supply UK Hire Shops 144 +14 +10.8
Brandon Hire N/A** N/A N/A
TP Hire N/A N/A N/A
*relates to whole company operation of plant and tools
** The average number of employees at Brandon during the year ended 31 July 2007 was 1,282.

SPEEDY HIRE PLC
Chief Executive Steve Corcoran
Head Office Chase House, 16 The Parks, Newton-le-Willows, Merseyside, WA12 0JG
Telephone Number 01942 720000
Website www.speedyhire.plc.uk
Hire activities Tools, power, survey and lifting equipment, pumps, cabins
Geographical coverage UK, Ireland
Status Public company, listed on London Stock Exchange

COMMENT
Speedy’s interim results, issued in late November, have now been superseded by a profits warning on 20 January (for full details see City News on page 9). The statement indicated that Speedy’s revenues for the year to 31 March 2009 are expected to be ‘broadly in line with those of the prior year’. As the company achieved a 22% growth in revenues at the interim stage, this is clearly suggesting a severe fall in the second half and gives credence to Steve Corcoran’s view that 2009 is going to be “torrid” for the market as underlying activity levels fall as order books are worked out and replaced. He believes that construction activity could be set to fall by 15% this year. Speedy has embarked on significant cost cutting and re-organisation to meet the demands of this rapid change in fortune. The company is establishing a Shared Service Centre that will consolidate its back office and administration processes, thereby ‘removing the costs associated with duplication of process and improving cash flow efficiency’. It is expected to become operational in June.

Further consolidation of operations is planned: a year ago a Multi Service Centre, housing all Speedy service on one site, was set up in Warrington. Between 20 and 30 similar centres are envisaged. Steve Corcoran believes that the steep downturn in demand will inevitably lead to rationalisation and consolidation in the construction market, with medium-sized contractors the most vulnerable. This will clearly have an impact on the hire market. Steve declares “now is not a time for hirers to be thinking in isolation; there is a need for a broader breadth of understanding” of the current market forces. He is critical of what he describes as “very silly pricing in local markets”, saying that it is preventing improvements in service quality and standards. He stresses that price stability is a paramount need for the health of the tool hire industry.

HSS HIRE SERVICE GROUP LTD
Chief Executive Chris Davies
Head Office 25 Willow Lane, Mitcham, CR4 4TS
Telephone Number 020 8260 3100
Website www.hss.com
Hire activities General tool and equipment hire, sales, training and service, together with specialist activities such as lifting, safety and survey, welding
Geographical coverage UK, Ireland. International franchises
Status Private company with private equity funding

COMMENT
HSS has undergone considerable re-organisation in the last two years as the company has moved away from its traditional high street locations and re-aligned its customer base. Chris Davies believes that this has led to an increasing emphasis on larger locations and a wider range of equipment and services. “This has given HSS a much stronger position in which to meet the challenges of the downturn. HSS is well prepared and will trade through the difficulties, helped by our continuing strategy of developing our network.”

Since Chris Davies’ arrival at HSS, the hirer has put an increasing emphasis on its role as a logistic and technical partner for customers. This is encouraging the further development of HSS specialist activities such as lifting, rail and facilities management. Amongst recent initiatives are HSS Pit Stop which provides a management service for tools and equipment and HSS Resource which supplies fully trained operatives for tools and equipment.

HSS is still opening larger centres, it now has 63 Premium and Super Centres; Chris Davies says it is maintaining an aggressive search for suitable properties. He remains positive about its continuation and says that any closures of HSS branches are likely to be only in association with the opening of bigger centres.

HSS has undertaken a big capital expenditure programme over the last two years with the result that its fleet is 25% larger than three years ago. This gives it the ability to reduce capital expenditure this year; it has also tightened up on its repair procedures with the aim of getting equipment back in service faster. There has been a significant improvement in equipment availability as a result, which, in turn, reduces the need for capital expenditure.

BRANDON HIRE PLC
Managing Director Tim Smith
Head Office 72-75 Feeder Road, St.Philips, Bristol, BS2 0TQ
Telephone Number 01179 719 119
Website www.brandonhire.co.uk
Hire activities Tool Hire, Lifting Equipment, Pipe Hire, Loo Hire
Geographical coverage National
Status Subsidiary of Wolseley plc.

COMMENT
Tim Smith says that the hirer will only play a limited part in Wolseley UK’s announced restructuring plans. In 2008, up until the end of July, Brandon had opened 15 new large sites and closed two small outlets, giving it a net increase in capacity of 85,000ft2. It has since opened two more large branches. Most of its new locations are in the north of the UK, as Brandon continues to correct its historical southern bias, although the company has also continued to improve its branch network in the south. A large site has opened in Stratford, east London, and the company is also co-locating with other parts of Wolseley; for example it has opened on Plumb sites in Penzance and on Jersey.

Tim Smith points out that Brandon is less affected by construction than most of the rest of Wolseley. He believes that Brandon’s continuing focus on customer service will prove beneficial. On pricing he says the company has not changed since last year, but it is apparent that the duration of hires is becoming shorter. Unsurprisingly, he is concerned that 2009 will see a steep rise in bad debt as customers’ cash flow is squeezed.

Tim Smith believes that Brandon is in a much stronger position than as an independent company. He believes that, in tough times, it is better to be a part of a national organisation. As customers look to drive down administrative costs, the objective of reducing the number of suppliers will continue to play an important part, giving Brandon, which is closely linked to suppliers of building products, an advantage.

JEWSON HIRE
Director of Tool Hire Richard Pedersen
Head Office Merchant House, Binley Business Park, Coventry, CV3 2TT
Telephone Number 02476 438400
Website www.jewson.co.uk
Hire activities Tools and equipment
Geographical coverage National
Status Division of Jewson, a subsidiary of Groupe Saint-Gobain, a public company listed on the Paris Bourse

HIRE STATION LTD
Managing Director John Singleton
Head Office Fields Farm Road, Long Eaton, Nottingham, NG19 3FZ
Telephone Number 0115 973 7400
Website www.hirestation.co.uk
Hire activities General tool hire, lifting and safety equipment, air conditioning and heating equipment, specialist fusion and pipe fitting equipment
Geographical coverage National
Status Subsidiary of Vp plc, a public company listed on the London Stock Exchange

COMMENT
Hire Station has continued its policy of making strategic acquisitions to improve both its geographical and product coverage; its latest was that of Power Tool Supplies, a well established Brighton tool hire and sales company.

The half year results of Vp (issued in late November 2008) showed that, in the six months ended 30 September, Hire Station had generated revenues of £28.9m, a fall of 1.5% on the same period of the previous year, but operating profits, before amortisation, had grown 22.5% to £4.2m. The accompanying statement indicated that revenues had been affected by the depressed demand for cooling equipment during the poor summer and that the comparative period of 2007 had been boosted by remedial flood work.

John Singleton admits to feeling cautious as New Year trading begins; he believes a slow start is inevitable. He considers that the main problem for hirers is activity levels, but he says that this does not appear to have led to any general pressure on hire rates.

Hire Station went through significant re-organisation four years ago and this should give the company an advantage in the current market. It has also built up its specialist activities, which John Singleton says are holding up well. In particular he selects the safety operation ESS, which he describes as “going like a train.” Overall, Hire Station is still pursuing a growth strategy, which the MD says is evidenced by his current recruitment of a Sales Director.

TP HIRE
Chief Executive (Travis Perkins) Geoff Cooper
Group Hire Director Richard Dey
Head Office Lodge Way House, Harlestone Road, Northampton, NN5 7UG
Telephone Number 01604 752424
Website www.travisperkins.co.uk/hire
Hire activities Small plant and tools
Geographical coverage National
Status Division of Travis Perkins plc.

COMMENT
Commenting on the big increase in the number of TP Hire outlets over the last year, Richard Dey explained the company had opened a large number of ‘satellite’ locations offering a limited range of kit to collect, whilst orders for delivery are passed to the nearest hire centre. He stressed that TP Hire’s main focus for 2009 was on offering “a quality service to our Group customers. We still have a tremendous amount of headroom with customers that trade with the Group and this remains our key target area.” In summing up his expectations for 2009, Richard Dey affirms, “whilst we expect trading conditions to be tough, we will continue to experience solid growth.”

GAP GROUP LTD
Joint Managing Directors Douglas and Iain Anderson
Head Office Carrick House, 40 Carrick Street, Glasgow, G2 8DA
Telephone Number 0141 225 4600
Website www.gap-group.co.uk
Hire activities Non-operated plant and tools
Geographical coverage National
Status Private company owned by the Anderson family

COMMENT
The year ended 31 March 2008 was a record one for GAP Group, as its profits rose by almost 50% to £8.8m. The performance was helped by the fact that the company opened no new depots in the year. Very recently, it opened a non-mechanical plant depot in Shotts, midway between Glasgow and Edinburgh. This specialist operation is a new departure and has been set up by taking the non-mechanical equipment held at GAP’s seven other depots in the central belt of Scotland. Thus it will free up space and time for the other depots, allowing them to focus fully on mechanical equipment.

Douglas Anderson says that GAP has no plans to close any depots despite the current economic problems. Its capital expenditure will be cut back savagely this year to around £12m (in the year to March 2008 it spent a record £44.8m). Between 2005 and 2008 GAP invested almost £120m, which gives it a very modern fleet and thus a degree of flexibility when it comes to replacement.

Douglas Anderson says that the company is finding considerable regional differences in conditions with its performance stronger the further north GAP goes. He admits that bad debt is a cause for growing concern with the incidents now running at two or three a week. Like others, GAP’s priorities are now controlling overhead costs and reducing debt, both in trading and balance sheet terms.

A-PLANT TOOL HIRE
Chief Executive (A-Plant) Sat Dhaiwal
M.D. (Plant & Tools Division) Paul Fereday
Head Office 102, Dalton Avenue, Birchwood Park, Warrington, WA3 6YE
Telephone Number 01925 281000
Website www.aplant.com
Hire activities A wide range of plant and tools, including lifting, surveying, drilling, surface preparation and dust extraction equipment
Geographical coverage National
Status Subsidiary of Ashtead Group plc

COMMENT
In early December, when Ashtead Group published its half year results to 31 October 2008, it also announced that it had embarked upon a restructuring programme to generate cost savings of £45m per annum. As part of this exercise, the Group is reducing the plant fleets of both its US-based Sunbelt and of A-Plant by 7%. The equipment will be sold through a series of auctions in the first three months of 2009; the disposals will comprise a broad range of equipment, but mainly the lighter end of earthmoving equipment.

The implementation of the restructuring programme has led to an exceptional charge of £36m in the first half; in the main this relates to the impairment of those assets to be sold and to the provision for future rents on properties where closure has already been announced. Ashtead has indicated that it expects to take a further charge of about £19m in the second half. However, fleet disposals are expected to generate net cash inflows of between £25m-£30m by April 2009.

HIREBASE
Hire Director Adrian Watts
Head Office Gemini One, 5520 Oxford Business Park South, Cowley, Oxford, OX4 2LL
Telephone Number 01865 871700
Website www.hirebase.co.uk
Hire activities Tools and small plant
Geographical coverage From Shetland to Crawley, and Norwich to Exeter
Status Division of Buildbase - a subsidiary of Irish registered Grafton Group plc

COMMENT
Adrian Watts says that Hirebase is budgeting for further growth in 2009 due to the momentum of its recent expansion. Over the last 18 months, the company has increased its number of locations by 25% to 49. These have all been established as greenfield sites and their developing maturity should enable Hirebase to increase revenues. The company will open a further five depots in January 2009 and aims for five more in the rest of this year. At present all the Hirebase outlets are within Buildbase locations. Adrian Watts is confident that the hirer will produce revenue growth of around 30% in the current year. As the majority of Hirebase operations are relatively new and it has a policy of building up its locations slowly - starting with just two employees, then expanding to three in the second year and four in the third - it is much less likely to be faced with the redundancy and cost cutting problems of its larger competitors.

SUPPLY UK HIRE SHOPS LTD
Managing Director Richard Coffey
Head Office Lowry House, Opal Court, Moselely Road, Fallowfield, Manchester, M14 6ZT
Telephone Number 0161 224 4600
Website www.supplyuk.co.uk
Hire activities Tools and equipment, survey and laser
Geographical coverage N. England, Midlands, S. Wales and S.E. England
Status Private company

COMMENT
The current stage of Supply UK’s development sees it reaching out beyond the north west, central England and south Wales, where it now has an established presence, to come nearer to national coverage with openings in what Richard Coffey describes as “key areas” such as the central belt of Scotland, the north east and south coast of England. Supply UK’s ambitious expansion of recent years has meant that the company has seen a change in its client base with the company in an increasingly strong position to challenge its larger national competitors. Richard says that the company is continuing to grow its share of the hire market and that, while other hirers felt the impact of the downturn in November, that month was Supply UK’s best ever. He further adds that Supply UK’s transition to a national player is being recognised by major hire customers and attracting their interest.