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City News : Speedy's positive news
Catherine Stratton assesses Speedy's renegotiated bank facility.
The news that Speedy had renegotiated its bank facility came as a relief to investors and has lifted the share price by over 80% in recent weeks, still a long way below the heights of a year ago but a welcome improvement and one which should raise investors’ perception of the hire industry as a whole. The amended £300m facility, like the previous £325m one, extends to June 2012, and sets covenants which the Group says provide it with “sufficient headroom above the required ratios.” The company will pay an interest margin above LIBOR ranging from 2-4%, depending on the ratio of net debt to EBITDA.
The first covenant test comes in June and the company expects that will set a margin of 3%, which compares with effective interest rates of between 6.29% and 6.73% paid by Speedy in the year ended 31 March 2008. Of course, there is a price to be paid - a one-off amendment fee of 1.5% was paid to the lenders, but Speedy now has secured funding at a level in line with current market conditions, putting it on a much firmer foundation.
Pre-close trading update
So how is Speedy finding the market? In conjunction with the bank facility announcement, the company issued a pre-close trading update. Unsurprisingly, it stated that conditions in the final quarter of its financial year to the end of March had remained “difficult.” A substantial cost reduction programme had been implemented, giving the Board confidence that its profit before tax (pre-amortisation and exceptional costs) for the full year would be “in line with current market expectations, which are at the lower end of the £33m-38m guidance provided in January 2009.”
Speedy was quick off the mark to implement cuts to adjust the company to the steep decline in demand as the economy shrank. However, it is the largest player in the hire market and its culture has been committed to growth, so it will take time before the full effects of these measures are seen. Nevertheless, the scale of the cuts is proportionate to the diminution of the company’s markets. Since July last year, Speedy has reduced its workforce by 17% (957 people), its depots by a similar percentage (87 closed) and its vehicle fleet by 15%.
The result will be annual cost savings of £42m for the new financial year. As was well publicised in last month’s EHN, the company has also pruned its hire fleet by a disposal programme for under-utilised assets, which has seen net book assets fall by £30m (representing 9% of the fleet). All these measures will result in one-off charges of £25m in the financial year 2008/2009. Nevertheless the Group’s cash generation is such that it is continuing to pay down debt and it is anticipated that, at 31 March 2009, it is below the £255.6m of 1 April 2008 and over £40m lower than its peak last June. Speedy CEO Steve Corcoran anticipates a reduction in capital expenditure to between £40m and £45m in the current year, compared with £75m last year.
Speedy has recently announced the appointment of KBC Peel Hunt as its joint corporate broker (its other broker is Oriel Securities).
Peel Hunt specialises in medium sized companies.
IN BRIEF
Aggreko: Its Interim Management Statement issued in mid-April indicated that the company had achieved “a strong start” to 2009 with revenues in the first three months up 42%, which equated to 17% on a constant currency basis. The statement went on to say that Aggreko expected to deliver a strong first half and that the full year trading in 2009 would be at a similar level to 2008 on a constant currency basis; it concluded that if the sterling/dollar exchange rate remained stable for the rest of the year, the company would achieve “substantial growth” on 2008.
Ashtead: There has been a change at the top of Ashtead’s US subsidiary Sunbelt. Cliff Miller, its CEO, who had been with the Group for 13 years, left in early April. His successor is Joe Phelan who was previously CEO of DHL Global Mail in Florida. Before joining DHL he had held a number of senior executive positions at American Airlines. • |
