15 Nov 2016 07:00
15 November 2016
Lavendon Group plc
Third Quarter Trading Update 2016
Strong Revenue Growth Continues Through Q3
Lavendon Group plc ("Lavendon" or the "Group"), the market leader in the rental of powered access equipment in Europe and the Middle East, today issues the following Trading Update for the nine months to 30 September 2016:
Summary
· Board confident of delivering results for the full year marginally ahead of its original expectations
· Group total and rental revenues for the nine months increased by 9%
· UK rental revenues for the nine months increased by 8%
· Middle East rental revenues for the nine months increased by 20%
· Continental Europe rental revenues for the nine months increased by 2%
· German restructuring complete and revised business structure now operational
At actual exchange rates, the Group's total and rental revenues (excluding ex-fleet equipment sales) for the nine months ended 30 September 2016 increased by 15% over the prior year. The Group's total and rental revenues for the same period, on a constant currency basis and excluding ex-fleet equipment sales, increased by 9% compared with the prior year. The rental revenue growth rates across the Group's regions for the nine months of 2016 by quarter are given below:
Territory | Contribution to Total Group Rental Revenue | Q1 2016 Rental Revenue Growth Y-O-Y | Q2 2016 Rental Revenue Growth Y-O-Y | Q3 2016 Rental Revenue Growth Y-O-Y | YTD 2016 Rental Revenue Growth Y-O-Y |
UK | 47% | 6% | 8% | 8% | 8% |
Middle East | 25% | 21% | 23% | 17% | 20% |
Continental Europe | 28% | 3% | 3% | 1% | 2% |
Group Rental Revenue | 100% | 9% | 10% | 8% | 9% |
Percentages shown are on a constant currency basis and are rental revenues only (excluding revenues from the sale of new and ex-fleet equipment)
In the UK (47% of total Group rental revenues), market share gains continued to drive strong volume growth that combined with an improving pricing environment to generate an 8% year on year increase in rental revenues in Q3. Fleet utilisation levels reached 74% in Q3 and have continued to improve into Q4, benefiting from the strategic investment made in 2015 to improve the scale and mix of the fleet, together with the better fleet availability from the increased efficiency of our transport and maintenance operations. This performance is now delivering the expected year on year improvement in operating margins.
Our Middle East business (25% of total Group rental revenues) has continued to deliver strong revenue growth, despite increasingly more difficult comparators, with rental revenues increasing by 17% in Q3. Fleet utilisation levels reached 77% in the quarter and have further improved in Q4 to a current level of 80%. Revenue growth from our operations in the UAE, Kuwait, Oman and Qatar has continued to more than absorb a decline in our higher margin Saudi Arabian business. As previously reported, we have moderated our capital investment in the region for 2016, compared to recent years, and have directed this towards those markets demonstrating strong growth. Given this more modest investment and a continued focus on working capital management, the level of free cash generated from the region is increasing significantly in 2016.
Rental revenues in Continental Europe (28% of total Group rental revenues) increased by 1% in Q3, with continued volume growth driving revenues higher in France (+13%) and Belgium (+3%) which more than offset a weaker performance in Germany (-7%). The previously announced programme to restructure our German business is complete and the revised business structure is now operational. Whilst this restructuring process undoubtedly disrupted the ability of the German business to gain traction in terms of revenue, the previously reported operating losses in the first half have been eliminated and the business is now profitable year to date.
In summary, the Group has continued to deliver strong rental revenue growth reflecting the benefits of the investment in additional fleet and operational processes to improve fleet availability. As expected, this revenue growth has absorbed the cost of these investments and reflecting the benefit of the translational impact of Sterling's weakness on our overseas earnings, the Board now expects the Group's results for the year to be marginally ahead of its original expectations.
The Group's ROCE remains firmly above its weighted average cost of capital notwithstanding the increase in the Group's capital employed as we expanded the fleet and continued our self-funded fleet replacement programme.
As expected the Group's net debt level at 30 September 2016 increased to £142 million, on a constant currency basis, relative to £119 million at 31 December 2015. At actual exchange rates, the Group's reported net debt position at 30 September 2016 was £158 million reflecting Sterling's relative weakness against the Euro and US dollar since the UK's vote to leave the European Union (EU). Whilst the Group's net debt level has increased, our strong operational cash generation underpins our ability to operate within our previously stated target leverage range of up to 1.75 times EBITDA.
Whilst it remains too early to assess fully the wider economic implications of the UK's decision to leave the EU, we recognise the increased uncertainty in the macroeconomic outlook. However we do believe the Group remains well positioned to manage this uncertainty, with over 50% of its revenues and profits being derived from outside the UK. As we are seeing in 2016, if there is a prolonged period of Sterling weakness, the Group's reported results benefit from the translational impact on its overseas earnings which may offers some mitigation should there be any adverse economic consequences on the Group arising from the UK's decision.
Don Kenny, Chief Executive of Lavendon, commented:
"The Group's trading performance has continued to deliver strong revenue growth through the third quarter. This growth reflects the benefits of our strategic investment programmes in both 2015 and 2016 to strengthen our market positions in all regions, together with the further operational improvements we have made to support the delivery of our growth plans.
The Board is encouraged by the trading performance to date, and as a consequence of the favorable translational impact on our overseas earnings from the continuing weakness of Sterling, we expect the Group's results to be marginally ahead of our original expectations for 2016."
Ends
For further information, please contact:
FTI Consulting | ||
Jonathon Brill T: +44 (0)203 727 1000 James Styles |
A conference call will be held for analysts at 8.00am (UK time) today (15 November 2016), the details of which can be obtained from FTI Consulting. A replay of the call will be available on the Company's website after the event at www.lavendongroup.com.
Notes to Editors
Lavendon is the European and Middle East market leader in the rental of powered access equipment. The quality and diversity of its hire fleet, coupled with the professionalism and accessibility of its depot network, provides an exceptional product range for customers.
Powered access equipment is designed to enable people to work safely, productively and comfortably at height. It can be used in a comprehensive range of applications, both inside and outside buildings and structures.
The Group has operations in the United Kingdom, Germany, Belgium, France, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. The equipment rental fleet totals c.22,000 units and the Group employs c.1,900 people.