January/February 2010



View a digital copy of the
January/February EHN issue

Executive Report

Executive news
“Really looking forward”
Olympian challenge
Vital energy

Forum

Show your passion

Tool Hire Top Ten 2010

Survival of the fittest

Exhibitor Profiles

Special spec mini
High on the agenda
Add-on earners

EHS Preview

Show sets the scene

Profile: KDM Hire

Benchmark hirer

Crosshire

Ready to rock and roll

KEYWORD SEARCH

SEARCH

 

Executive Hire News › Archives › January/February 2010 › Tool Hire Top Ten 2010 : Survival of the fittest

Tool Hire Top Ten 2010 : Survival of the fittest

Catherine Stratton, author of the highly respected Plant Hire Investment Reports, presents her 9th annual review of the UK's Top Ten tool and equipment hirers.

"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."

Those were the concluding thoughts of our Tool Hire Top Ten 2009. In terms of activity levels, the year has been difficult with some of the Top Ten hirers reporting revenue falls of up to 30%. Others have seen more modest falls, with 10% to 15% reductions representing a sort of median figure. In view of the high operational gearing of our industry, the casualty levels appear to have been relatively light so far. Major companies such as Speedy, HSS and Ashtead have re-negotiated borrowing terms with their bankers. In the first half of the year there were a series of deeply discounted rights issues, with Speedy raising £100m and Travis Perkins £300m in May, two months after Brandon parent, Wolseley, had raised £1 billion. In this way, major companies have adjusted their balance sheets that had been geared to service the extended period of high demand experienced by the construction industry up until the second half of last year.

As the battle for survival continues, cash flow has been of paramount importance. As a result, we have witnessed huge cuts in capital expenditure, the reduction of hire fleets, axing of depots and shedding of staff by Top Ten players such as Speedy and A-Plant as they sought to align their capacity with shrinking demand. As market leader, Speedy has pruned particularly savagely, with its depot network now reduced to 370 from 500 two years ago. Table IV confirms that seven of the Top Ten hirers have reduced their depot networks over the past year. The only ones to have expanded are T P Hire and Hirebase, which are both owned by builders’ merchants, and have opened hire operations within existing merchants’ locations to boost group revenues. GAP, which has preserved its network intact, operates on a different business model, achieving national coverage through a relatively small number of large depots, offering both tools and non-operated plant.

Whilst there have been few casualties to date, it is possible that mergers and acquisitions activity may be about to be revived. In current market conditions, it seems inevitable that those with cash - or the ability to raise it - will sooner, or later, begin to assess acquisition prospects and the proprietors of those potential acquisitions will now be prepared to accept more realistic valuations for their businesses than they would have contemplated 12 to 18 months ago.

As we set out into the new decade, the structure of the tool hire market looks remarkably similar to a year ago. Indeed readers will note that Table 1A, in which we attempt to estimate the current annual revenues of the Top Ten hirers, shows no change in the batting order from last year, with Speedy still market leader, despite revenue falls of 30%. What has changed, of course, are the respective figures. Last year we estimated current revenues of the Top Ten to be running at just over £972m, which was 4% above the actual figure of £929.3m, shown in Table IB. Hire revenues are always difficult to predict as, unlike many industries, there is little in the way of an order book, but we have to admit that the downturn amongst the Top Ten has been even sharper that we anticipated.

Table IA: Estimated Current Annual revenue (based on interim results where applicable)

Table IB: Historic Annual Revenue (based on most recent annual accounts, where available)

The estimates for Table IA are largely based on trends indicated by half year results, where available, or, in the case of the unquoted companies, on data provided by directors, and our own assessment. This year’s estimated figure of £760m represents an 18% fall on the historic annual revenue in Table IB. Over two thirds of this is represented by the £118m drop in Speedy’s revenues, based on its half year ended 30 September 2009. The market leader has suffered more than almost all its major competitors in the last year.

Whilst demand may continue at, or near to, its current level, we would also expect the nature of that demand to vary in line with the changing pattern of construction demand. We would expect repair and maintenance to be in the forefront of any economic recovery. The outlook for new build remains highly uncertain. The public sector, which has contributed substantially to construction output in the recent past, looks increasingly vulnerable to cuts whichever party wins the Election. Those hirers participating in Olympic contracts will obviously benefit from the high activity levels on those sites, but overall the short term outlook remains bleak.

In past issues, we have discussed the problems of estimating the size of the UK tool hire market because it has become increasingly difficult to define, as most of the leading players have moved away from hiring just ‘tools’ and have expanded their fleets to encompass a variety of non-operated plant. Even HSS is now offering plant in London through the fleet of its subsidiary Laois Plant Hire.

This year we continue our usual practice of calculating the size of the market by reference to our estimates of the current revenues of the Top Ten and our assessment of their market share. Our revenue estimates are mainly based on projections of the historic revenue figures shown in Table 1B, making use of any half year results and general market evidence. Last year we indicated that we believed the Top Ten companies accounted for 54% of the tool hire market. In view of the culling of depots over the past year, we now think that their share has fallen back to about 50%. This would put a value of £1.5 billion on the entire market, compared to our estimate of £1.8 billion last year. If, as seems likely, repair and maintenance activity becomes a major prop of the market over the next year or so, a further increase in the market share of independent hirers is to be expected and the Top Ten might see their proportion falling below 50%.

Overall the expectation must be that 2010 will see activity levels following a similar trend to 2009. The severe decline in building output is likely to result in rationalisation and consolidation of the construction sector and that will also bring pressure to bear on the hire market, with it too experiencing some revival of mergers and acquisitions activity. The continuing pressures brought about by a low level of demand over the past 18 months look set to be sustained throughout a large part, if not all, of this year, suggesting that 2010 may prove to be not just a testing time, but a test of survival, for many hirers.

Table II: Operating Profit

Table III: Gross Book Value of Hire Equipment

Table IV: Number of outlets

SPEEDY HIRE PLC

Chief Executive Steve Corcoran
Head Office Unit 1, The Parks, Newton-le-Willows, Merseyside, WA12 0JQ
Telephone Number 01942 720000
Website www.speedyhire.plc.uk
Hire activities Tools, power, survey and lifting equipment, pumps, cabins, non-mechanical access, rail, safety and training
Geographical coverage UK, Ireland
Status Public company, listed on London Stock Exchange

COMMENT

It has been a very difficult year for the UK’s No.1 hirer. Since the second half of 2008, Speedy has implemented a series of measures to cut depots, personnel and vehicle numbers by over 19%. It has completed a radical re-shaping of its structure with its new Shared Service Centre, consolidating its ten operating businesses into one single trading entity to enable customers to trade from one account across the UK.

As referred to in our introduction, Speedy has strengthened its balance sheet through a £100m rights issue which (coupled with severe cutbacks in capital expenditure - net capex was £7.6m in the six months to September 2009, compared with £40m in the same period of 2008) has led to a significant strengthening of the balance sheet, with gearing at the end of September standing at 53.1%, compared with 148.3% at the end of March 2009. Speedy’s recent interim results show a 27.9% decline in revenues to £184.8m, which after exceptional costs of £6m has resulted in a loss before tax of £13.6m, compared with a profit of £19.4m in the first half of last year and a loss of £71.1m (after exceptional costs of £90.7m) for the year ended 31 March 2009.

Speedy has made it clear, however, that, having reduced its overall operations to a size more commensurate with the greatly reduced market, it is still alert to opportunities for expansion. In January 2009, it established a team in the in-house fleet operations of Carillion’s joint venture operations in the Middle East. In January 2010, the two businesses signed a five year Strategic Services Agreement, whereby Speedy becomes the contractor’s exclusive supplier of light plant and equipment. Speedy sees this as a foundation for eventually serving other UK contractors operating in the region.

Steve Corcoran believes that 2010 will be a very difficult year for the hire industry as mainstream construction will be under even more pressure because of a falling workload, but there will be some relief as the wider economy begins to stabilise and repair and maintenance and house building activity starts to stabilise. Overall, he foresees a lot of changes in prospect for the construction industry as consolidation gets underway and the hire market will have to respond to that. Steve Corcoran believes that, with its strong balance sheet and its high market share, Speedy is very well positioned to benefit from any re-alignment.

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

The past year has been a testing time for HSS; it is now two and a half years since Archie Norman’s Aurigo, together with Och-Ziff, purchased 3i’s majority stake in the business. Like several of its competitors, HSS has re-negotiated its banking facilities and the company says the new terms will allow it to pursue its growth plans. HSS says that its banks and its investors are both very supportive of the company’s objectives.

The past year has seen the company continue its programme of developing larger stores, with 12 openings and two more due to start trading early in this New Year. There have been no forced closures. Last May saw the launch of LiveHire, an on-line facility providing major customers with real-time hire information and enabling them to manage their hire costs more effectively. In January, HSS will launch Hire Insight, an electronic tracking system which will enable customers to maintain tighter control of equipment on hire.

Chris Davies concedes that 2009 was a “tough” year; HSS has seen revenue declines of about 13%, a rather better performance than many of its peers. He believes the company has achieved this by focusing on its broad business, while developing and extending relationships with major customers such as Sainsbury’s and BAA.

The HSS Chief Executive thinks that over the last two months of 2009 there have been some signs of the hire market stabilising, but, for the time being, he says the hirer has to keep focused on its customers and its key role to help people manage their equipment needs better. He feels HSS is well positioned with its assured brand name and its experienced workforce.

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.brandontoolhire.co.uk
Hire activities Tool Hire, Lifting Equipment, Pipe Hire, Loo hire
Geographical coverage National
Status Subsidiary of Wolseley plc

COMMENT

Brandon appears to be seeing the beginning of a better financial performance. It has pruned its depot network - in particular, where the merger with Hire Center had led to duplication in some towns - and branches have been combined. Tim Smith says that Brandon has not moved from many towns and has retained two outlets in some, such as Bodmin where both a standalone branch and an outlet within Wolseley’s Build Center site have continued to trade successfully throughout the downturn. The timing (almost four years ago) and the nature of the merger with Hire Center have given Brandon a ‘unique’ position to drive efficiencies. It has had the opportunity to assess critically the merged depot network ahead of the downturn, and thus has been exceptionally well placed to make strategic cuts, after thoroughly assessing the strengths and weaknesses of locations, in particular where there has been a geographical overlap.

Like his competitors, Tim Smith acknowledges that the market has been “tough” and he singles out the shortening of the length of hire contracts as a major consequence of current market conditions. Nevertheless he is confident that Brandon has reacted well to the market conditions through the stringent reduction (estimated at 24%) of its cost base.

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 Sainte-Gobain, a public company listed on the Paris Bourse

HIRE STATION LTD

Managing Director John Singleton
Head Office Field Farm Road, Long Eaton, Nottingham, NG10 3FZ
Telephone Number 0845 604 5337
Website www.hirestation.co.uk
Hire activities General tool hire, lifting and safety 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

In December, Vp - the parent group of Hire Station - issued its interim results for the half year ended 30 September. The group, which has a wide range of specialist hire activities, showed more resilience to the recession than some other quoted hirers. Group revenues were down 16% at £71.1m and profits before tax fell 34.8% to £8.8m. Like its competitors, Vp has savagely cut capital expenditure, with net investment falling to £2.4m in the six months, compared with £13.9m in the same period a year earlier. This has strengthened the balance sheet, taking gearing down to 53% and leaving the Group in a good position to take advantage of growth opportunities when market conditions improve. The Group has re-branded all its six divisions to better reflect their association with Vp, while maintaining their specialist focus.

Hire Station staged a robust performance with revenues down 11.5% and operating profit falling by just over 50% to £2m. John Singleton believes that company is well placed to grow its current 3% to 4% market share; the strengthening of the Vp brand has brought about more co-operation between all six divisions with, for example, all the divisional sales directors meeting regularly. The Hire Station MD says the company has never been so busy talking to potential customers and it is investing more time and resource into selling its services. The contracts it won over last year include signing up as one of two strategic hire suppliers to Enterprise and, more recently, an exclusive two year deal with the disaster recovery business, Belfor. Hire Station holds the largest hire fleet of disaster recovery equipment in the UK. John Singleton describes overall revenues as having been “flat” throughout the second half of 2009, suggesting that things are “bottoming out.” He says hire revenues have held up “reasonably well”, but the sales of ancillary items have been more difficult.

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

The past year has seen TP Hire expanding its geographical coverage significantly through the introduction of ‘satellites’ in a large number of locations. Richard Dey says that the hirer’s main aim for 2010 is to focus on Travis Perkins’ core customers with the objective of increasing the proportion hiring equipment from the company. In February, the company is set to announce what Richard Dey describes as “a major initiative that will significantly enhance customer service.”

TP Hire’s owner, builders’ merchant Travis Perkins, issued a trading update shortly before Christmas. It affirmed its view that “the merchanting market has stabilised, and the retail market has continued to enjoy a steady revival in activity.” Overall the Group said trading in the last two months was “a little ahead of expectations”.

GAP GROUP LTD

Joint Managing Directors Douglas & 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

Douglas Anderson says he cannot find words to describe the past year; nevertheless GAP has done somewhat better than some of its peers with revenues down 22%. He confesses, however, that the company will be lucky to break even in the year ending March 2010. Douglas says that Scotland went into the recession more slowly than England, but it will also be slower to come out. He sees the overall problem as not a lack of jobs - GAP is finding lots of work is available - but the destruction of margins. He predicts that the lift will come once rationalisation gets underway, which he thinks will be soon as rumours abound of foreign-owned companies withdrawing from the market and of more depot closures to come at other national hirers.

Nevertheless, GAP is still looking at various new openings. Douglas Anderson says the company will shortly be launching a new division and it is continuing the development of its non-mechanical equipment business which, since it began in Shotts last year, has now opened a second depot in Bradford, with two more to come in Warrington and Leicester in the course of the first half of this year, and an opening in east London targeted for the second half.

In common with the rest of the industry, GAP has axed capital expenditure and this has assisted it in halving its debt in 18 months. The benefits of its prudent depreciation policy are now being seen through its enhanced cash generation.

A-PLANT TOOL HIRE

Chief Executive (A-Plant) Sat Dhaiwal
MD (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, a public company listed on the London Stock Exchange

COMMENT

Ashtead - the parent company of A-Plant - announced its half year results in December. In the six months ended 31 October 2009, the Group saw a 24% decline in revenues to £441m, with profits before tax falling 53% to £18.6m. Revenues at UK subsidiary A-Plant fell 29% to £84m and operating profits by 78% to £3.1m.

A-Plant experienced a fall of 16% in ‘average fleet on rent’, compared with the same period of 2008 and pricing pressure resulted in an 11% decline in yields. The implementation of the company’s cost reduction measures led to a 24% reduction in overheads at A-Plant over the half year.

Ashtead Group derives 80% of revenues from the US and Geoff Drabble described its operational performance as “strong”, affirming that the Group was “clearly gaining market share.” He concludes, “With a restructured business delivering good margins and gaining market share, together with the flexibility given by the recently extended debt facilities, the Board believes that Ashtead is well placed to benefit when markets recover.”

HIREBASE

Hire Director Adrian Watts
Head Office Gemini One, 5520 Oxford Business 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 Grafton Group PLC (Irish-registered public company)

COMMENT

Hirebase entered our Top Ten listing for the first time last year. It was then pursuing a fairly aggressive expansion policy, having grown its number of locations by 25% over the previous 18 months and was still looking to expand by a further ten depots in 2009. In the event, five depots scheduled for opening last January went ahead; the rest have been ‘mothballed’, but may be revived before too long. Adrian Watts reports a somewhat improving picture and describes the last three or four months trading as “reasonable.” Parent Buildbase is seeing the beginnings of improvement and this will assist Hirebase. He detects less pressure on hire rates than at the onset of the recession and thinks there are now some signs of a recovery. Like others, however, he finds hire periods have shortened considerably. He identifies theft of tools as a big problem, together with a large proportion of branches suffering break-ins, despite security systems.

With signs that repair and maintenance work is reviving, Hirebase, with small and medium-sized builders forming a high proportion of its customers, should be as well, if not better, placed than many to meet the challenges of the coming year. Adrian Watts remains cautiously optimistic and is currently exploring the option of expanding the Hirebase fleet into some larger equipment - up to 21 tonnes.
The Grafton Group has recently issued a trading update indicating that sales are improving across its UK businesses.

SUPPLY UK HIRE SHOPS LTD

Managing Director Richard Coffey
Head Office Lowry House, Opal Court, Moseley Road, Fallowfield, Manchester, M14 6ZT
Telephone Number 0161 224 4600
Website www.supplyuk.co.uk
Hire activities Tools and equipment, survey and laser, disaster recovery
Geographical coverage Northern England, Midlands, south Wales and south east England
Status Private company

COMMENT

Like everyone else, Richard Coffey is finding trading conditions “very tough.” The company, which made its ‘debut’ in the Top Ten two years ago, after a period of significant expansion, has now put its expansion plans on ice and is pursuing a policy of retrenchment by cutting its spending and looking after its existing business. Its turnover has held up well and it is still trading profitably, but margins are much tighter. It has established a new specialist business, Force 3, which hires equipment to the damage restoration industry.

Richard Coffey admits that the difficult conditions have encouraged Supply UK to tighten up on its business. “We are a lot better organised than a year ago and we thought we were quite good then.” Now spending is under tighter control, enhancing cash generation, while assets are better managed and being moved more strategically between branches. Supply UK’s MD thinks the market is going to get tougher in 2010 with the prospect of public spending cuts looming. He believes, however, that the company has taken the right steps to weather the continuing storm and is now geared not only to survive, but also to take advantage of opportunities as they arise. •