Executive Hire News › Archives › June 2009 › City News : Speedy counts the cost
City News : Speedy counts the cost
Catherine Stratton provides a detailed assessment of the latest annual financial results from Speedy and considers its £100m rights issue.
“Exceptionally difficult and challenging” - Speedy Chairman David Wallis’ description of recent months is all too evident in the company’s 2008/09 results. The UK’s largest hirer saw revenues grow by just over 2% last year; in the six months to September 2008, the company achieved revenues of £256.2m (up 22% on the same period of 2007) but they fell to £219.9m in the second half (down 14% on the 2007/08 second half). This is a substantial fall, but recent announcements from Hewden and Ashtead (see below) suggest that the market has probably declined even further over the early months of 2009.
One of the most striking aspects of Speedy’s results is the decline in both revenue and operating profit at the Tool Hire operation as the segmental analysis shows. Revenues from Equipment Hire managed double digit growth (assisted by the acquisition of Carillion Accommodation Services in May 2008) and a small decline in profits at the operating level.
SPEEDY: RESULTS FOR THE YEAR ENDED 31 MARCH 2009
| |
2009 (£m) |
2008 (£m) |
% Change |
| Revenue |
476.1 |
465.5 |
+2.3 |
| EBITDA |
125.6 |
131.6 |
-4.6 |
| Adjusted pre-tax profit* |
33.9 |
48.1 |
-29.5 |
| (Loss)/profit before tax** |
(70.6) |
30.5 |
-331.5 |
*pre-amortisation, impairment and exceptional items
** after exceptional items as follows:
| |
Mar 2009 (£m) |
Mar 2008 (£m) |
| Restructuring/Integration costs |
(21.0) |
(10.0) |
| Impairment- non current intangible assets |
(60.9) |
- |
|
Impairment- non current tangible assets - Accommodation |
(8.8) |
- |
| Financial expenses |
(4.6) |
(0.4) |
| |
(95.3) |
(10.4) |
| Taxation |
23.0 |
3.1 |
| Net |
(72.4) |
(7.3) |
SEGMENTAL ANALYSIS
| Revenue |
|
|
|
| |
2009 (£m) |
2008 (£m) |
% Change |
| Tools |
237.2 |
256.6 |
-7.6 |
| Equipment |
238.9 |
208.9 |
+14.4 |
| Total |
476.1 |
465.5 |
+2.3 |
| Operating Profit |
(before amortisation, impairment and exceptional costs) |
| |
2009 (£m) |
2008 (£m) |
% Change |
| Tools |
20.5 |
34.8 |
-41.1 |
| Equipment |
39.1 |
40.0 |
-2.3 |
| Central costs |
(9.9) |
(10.8) |
-8.3 |
| |
49.7 |
64.0 |
-22.3 |
| Operating margins |
|
|
|
| |
2009 |
2008 |
|
| Tools |
8.5% |
13.5% |
|
| Equipment |
15.8% |
18.4% |
|
| Group |
10.4% |
13.8% |
|
Speedy’s bottom line has, of course, been severely mauled by the exceptional costs which it incurred as a result of its re-organisation to reduce its structure to a size better fitted to the fast declining market. In all, the company has reduced both its depot network (now 399 locations) and its headcount by 17%. The more positive news is that the company has £42m of annualised cost savings in place at the beginning of the 2009/10 financial year. Speedy has also reduced its capital expenditure; in the second half of 2008/09 it fell to £22m, 59% lower than the previous six months. This has helped to cut net debt to £249.4m at 31 March 2009, a 15% reduction from 30 June 2008.
Altering its approach radically
In the past year Speedy has had to alter its corporate approach radically. It has had to adjust its focus from growth and acquisition in an expanding market to retrenchment and adaptation to meet the needs of a quickly receding market. The company has, however, always been very conscious of the need to retain customers and had secured long term supply agreements with many leading contractors before the present downturn. Over the years, it has been particularly active in acquiring the tool and equipment fleets from construction companies in conjunction with establishing supply agreements; the most recent of these are the Carillion deal referred to above and, on a smaller scale, the acquisition of the trade and assets of Apollo Hire Centres from social housing specialist Connaught for £700,000 last August. Speedy indicates that at the end of March 2009, it had exclusive or preferred supplier status with 21 of the UK’s top 25 contractors.
Speedy has also taken steps to diversify its customer base. It states that, over the past three years, building and construction revenues as a proportion of Group revenues have declined from 80% to 65% with the Equipment businesses being the main proponents of this change. There are signs of widening geographical horizons as well as, this January, Speedy began to undertake its first business outside the British Isles with the placing of an ‘implant team’ with Carillion’s joint venture operations in the Middle East. Speedy will hope that this will provide a model on which it can build partnerships with other major UK customers who have overseas interests.
Long and hard road
Speedy has travelled a long and hard road over the last year. It has done much to adjust to the current conditions but, like everyone else, it still has to contend with uncertainty over the length and depth of the recession. The company believes that it is “well placed to trade through market conditions which continue to prove challenging” and which it thinks “will not reach a trough until the autumn of 2009.” Speedy states that it does not believe the market will show “any meaningful signs of growth for another twelve to eighteen months.”
In last month’s EHN City News we covered Speedy’s renegotiated bank facility. In the statement accompanying its results, Speedy indicates that it is considering the merits of issuing new equity; this would enable it to reduce debt and to ‘optimise its market position’ as trading conditions stabilise and begin to recover. When conditions improve, Speedy will aim to not only retain its 10% market share, but to expand it. A successful rights issue or placing could play an important role in this strategy, but current conditions in both the Stock Market and the hire market suggest that it will not be an easy task.
STOP PRESS (28 May)
It took just 24 hours for the possibility of Speedy raising extra capital to become reality. The company has just announced a rights issue to raise £100m (after expenses of £5m); for each share they currently hold, shareholders will be offered a further nine at 23p each. When the final dividend of 6.4p per share, announced yesterday, is taken into account, this price represents an 86% discount on the 176p price at the Stock Market close on 27 May and a 39% discount on the theoretical ex-rights price (the new shares will not rank for the dividend payment). The £100m to be raised compares with Speedy’s market capitalisation of approx. £95m on 27 May. This is a radical move by Speedy to reduce its bank borrowings and, thus, its dependence on bank finance. Over recent months there has been a spate of rights issues as public companies seek the obvious alternative to bank funding, the terms of which have often become onerous during the credit crunch and its immediate aftermath.
The funds raised will all go towards reducing Speedy’s debt; net debt stood at £248.4m at 31 March 2009, resulting in gearing of 148%, which will be reduced to below 60% by the rights issue. This will give Speedy much more flexibility to manage its finances during the recession and give it a greater independence from its bankers.
The initial Stock Market reaction appears to be quite supportive as the shares opened at 170.75p an hour after the announcement, which provides a sober and cautious assessment of the immediate outlook for the company and the hire market. Speedy Chairman David Wallis states, “the rights issue will strengthen the Group’s balance sheet during an unprecedented period of challenging trading and limited visibility over future revenue streams. Combined with the recently announced covenant amendments and amended bank facility agreement this rights issue will allow Speedy Hire to emerge from the current market conditions in a position of greater strength.”
Next month’s City News will undoubtedly return to this topic as we assess Market reaction and examine the rights issue prospectus. • |
