Speedy Hire Regulatory News (SDY)

27 May 2009 07:00



27 May 2009

SPEEDY HIRE Plc

Speedy is the UK's largest provider of tools and equipment for hire

ANNUAL RESULTS FOR THE YEAR ENDED 31 MARCH 2009 

A resilient performance in challenging markets

Revenue growth of 2.3% to £476.1m (2008: £465.5m)

EBITDA* of £125.6m (2008: £131.6m)

Adjusted profit before tax* of £33.9m (2008: £48.1m) ahead of consensus forecast

(Loss) / profit before tax of £(70.6)m (2008: £30.5m) following £95.3m of pre-tax exceptional items relating principally to impairment charges and restructuring and integration costs

Net debt reduced to £248.4m (2008: £255.6m) 

£42m of annualised cost savings in place for the start of the 2009/10 financial year

Adjusted earnings per share* of 48.88p (2008: 73.19p)

Earnings per share of (107.93)p (2008: 47.89p)

Operating cash flow of £98.1m (2008: £102.3m)

Top 20 clients now account for 24% of revenue (2008: 21%)

Increased penetration of industrial and other non-construction markets

The Board has recommended a final dividend of 6.4 pence per share

*pre amortisation, impairment and exceptional items

Commenting on the results, David Wallis, Chairman, said:

"Speedy is dealing effectively with the short term challenges which it faces. Its immediate priorities are fourfold: maximise revenues, optimise costs, generate cash and reduce bank debt. Trading in the early part of the year remains challenging. The difficult conditions which were prevalent in Quarter 4 of FY09 have continued into early FY10, with activity to date being more subdued than anticipated, largely due to contracts being delayed or deferred.

More generally, the principal market in which Speedy operates, construction, has continued to polarise, with contractors increasingly reliant upon government and regulated spending while the private sector continues to withdraw from the market. This dynamic has had a further polarising effect as fewer larger contracts are awarded to fewer larger contractors, and it is these larger construction and engineering groups that are continuing to secure an ever increasing proportion of the workload available. Speedy is growing its revenues with such clients and thereby continues to increase market share; albeit in a smaller overall market. The Group does not believe this market will show any meaningful signs of growth for another twelve to eighteen months.

Recently, there are a few early signs of encouragement which suggest that the market might be entering a relatively more stable environment; however it is premature to suggest that these can be relied upon. With trading currently remaining subdued, the Board is more cautious about the Group's short term outlook."  

For further information:

Speedy Hire Plc	Hudson Sandler
Steve Corcoran, Chief Executive Justin Read, Group Finance Director Tel: 020 7796 4133 on Wednesday 27 May  (thereafter Tel: 01942 720000)	Nick Lyon/Wendy Baker/Kate Hough Tel: 020 7796 4133

A copy of the annual financial report can be found on the Group's website: www.speedyhire.plc.uk

Analyst meeting/conference call:

There will be an analysts' meeting and conference call at 9.00am today. The presentation slides to accompany the conference call will be available at www.speedyhire.plc.uk from 9.00am this morning. A replay facility for this call will be available from Speedy Hire's website. For conference call details please contact Sarah Hughes, Hudson Sandler on 020 7796 4133 or shughes@hudsonsandler.com.

  CHAIRMAN'S STATEMENT

Overview

The caution on the outlook for your business which I expressed in our Interim Report to shareholders has proved to be well founded. The last few months have been exceptionally difficult and challenging, with a rapid and severe contraction in the level of general construction activity. The deterioration of both national and global credit markets has had a negative impact resulting in reduced activity, confidence and capital availability which has caused the cancellation or deferral of construction projects, resulting in a significant weakening in output. We expect this to continue over the medium term. In addition, whilst remaining more resilient, discretionary capital investment by industrial groups has also been deferred. As a consequence, swift and decisive action has been taken by management to align the cost base of the company with the lower levels of revenues being generated. Capital expenditure has also been severely curtailed, surplus assets disposed of, cash management further strengthened and debt reduced.

The financial outcome of the year is summarised in the table below.

	2009	2008	% Change
Revenue	£476.1m	£465.5m	+2.3%
EBITDA*	£125.6m	£131.6m	-4.6%
Group operating margin*	10.4%	13.7%	-3.3ppts
Adjusted profit before tax*	£33.9m	£48.1m	-29.5%
(Loss)/ profit before tax	£(70.6)m	£30.5m	-331.5%
Adjusted basic earnings per share*	48.88p	73.19p	-33.2%
Basic earnings per share	(107.93)p	47.89p	n/a
Total dividend per share	12.8p	19.8p	-35.4%
Operating cash flow	£98.1m	£102.3m	-4.1%
Net debt Gearing	£248.4m 148.3%	£255.6m 106.5%	-2.8% +41.8ppts
Net Debt/EBITDA* Return on Capital (Operating)*	2.0 times 10.9%	1.9 times 15.2%	n/a -4.3ppts

*pre amortisation, impairment and exceptional items

The Board is recommending a final dividend of 6.4 pence per share in respect of the financial year to 31 March 2009, bringing the total for the year to 12.8 pence per share. Subject to shareholder approval, this will be paid to shareholders on 25 August 2009, to all shareholders on the register as at the close of business on 26 June 2009. Although some 35% lower than that paid in respect of the prior year, the Board believes that this recognises the challenging trading conditions your company is facing. Future dividend payments will take into account underlying earnings, cashflows and capital investment plans and the need to maintain an appropriate level of dividend cover. 

The speed and scale of the impact of the turmoil in the financial markets has shocked most of us. As a result, we believe the next two or more years will prove to be very tough for many sectors of the UK economy, none more so than the construction sector. A consequence of the difficulties in the construction sector is that the trend towards outsourcing of non-core activities is growing.

However, looking further ahead, we are confident that our strategic aim of developing close, long term partnerships with major contractors, industrial groups and their respective supply chains, (we currently have exclusive or preferred supplier status with 21 of the top 25 UK contractors) will enable us to develop our traditional tool and equipment hire services offering into a broader support services outsourcing role, encompassing complementary activities such as testing, inspection, maintenance, asset management and training. We have also focused strategically on achieving leading market positions in more resilient sub-sectors of the UK construction industry, which now represent over 70% of our major clients' revenues, including infrastructure development, regulated utilities and petrochemicals. 

Financial Strategy

In April 2009, the Board announced that the Group had successfully renegotiated terms with all of its banks to establish more appropriate covenants on its facility, albeit at significantly increased interest margins. The revised £300m facility extends to June 2012.

Following this successful renegotiation of the facility, the Board has continued to review its capital structure relative to its medium term operational and strategic plans. As part of this review, the Board is considering the merits of an issue of new equity which would, inter alia, reduce net debt and provide additional financial headroom to allow Speedy Hire to maintain current investment levels and optimise its market position when trading conditions stabilise and begin to recover. A further announcement will be made in due course.

Looking Forward

Speedy is dealing effectively with the short term challenges which it faces. Its immediate priorities are fourfold: maximise revenues, optimise costs, generate cash and reduce bank debt. The actions taken by management on all four counts have positioned the business well to deal with current market conditions. However, it is important not to lose sight of our longer term strategy.

The Group aims to extend key customer relationships through its alignment with the major contractors and industrial groups, and their supply chains, which should enable the business to offset some of the current wider construction sector downturn. There will be further opportunities to acquire customer in-house equipment fleets, an area where Speedy has developed a lead position in the market, and to provide fleet management support for customers on an international level. We will also seek to increase market share through natural consolidation as smaller competitors cease to trade, with the aim of maximising our competitive advantage and emerging from the current trading environment in a stronger position.

It has been an exceptionally difficult year for everyone, none more so than for our people, who have responded magnificently to the challenges and I would like to express the thanks of the Board and shareholders to each of them. 

David Wallis

Chairman

CHIEF EXECUTIVE'S REVIEW

Introduction and Overview

Speedy Hire is a business-to-business support services company. It is the UK's leading provider of tool and equipment hire. In recent years, the Group has grown its market share, organically and by selective acquisitions, to approximately 10% of the UK hire market - more than double that of its nearest competitor.

The Group provides a broad range of products for hire to the construction market, specialist industries, their supply chains and the public sector. In addition to its supply of hire services, Speedy Hire's close alignment with its customers and markets has enabled the business to develop additional services such as facilities management services, regulatory testing and inspection, maintenance and asset management and training, thereby creating important new platforms for future growth.

Speedy Hire operates a highly flexible, delivery-based business model and is structured into two divisions, Tools and Equipment, trading from a network of 399 depots throughout the UK and the Republic of Ireland.

The Group has successfully implemented a consistent strategy over recent years by developing long-term strategic partnerships with major contractors (both national and regional), industrial users and their respective supply chains. As at 31 March 2009, Speedy Hire has exclusive or preferred relationships with 21 of the UK's top 25 major contractors. In addition to providing access to more visible long-term revenue streams, this strategy has afforded a degree of insulation from volatility in the wider construction sector in the last 12 months by virtue of the strong market positions held by a number of those customers in the infrastructure, energy and regulated utilities sectors, all of which remain relatively robust due to their largely public sector derived funding.

Notwithstanding the success of this strategy, Speedy Hire benefits from a highly diversified customer base, with no single customer accounting for more than 5% of Group revenues.

This Review describes the activities of Speedy Hire for the year ended 31 March 2009.

Summary Financial Performance

The key financial highlights for the year to 31 March 2009 are as follows:

Revenues increased by 2.3% to £476.1m (2008: £465.5m)

Operating profit* reduced by 22.3% to £49.7m (2008: £64.0m)

Operating margins* were 10.4% (2008: 13.7%)

Return on capital* (operating) was 10.9% (2008: 15.2%)

Profit before tax* reduced by 29.5% to £33.9m (2008: £48.1m)

The effective tax rate* was 27.6% (2008: 22.5%)

* Pre amortisation, impairment and exceptional items

Speedy Hire reported modest overall revenue growth in the year ended 31 March 2009, with strong growth in the first half of the year offset by a sharp slowdown in the second half of the year as the general construction market weakened rapidly in response to increasing turmoil in the financial sector. In order to position the business appropriately for the predicted downturn in overall activity levels, decisive early action was taken from July 2008 to maximise the Group's free cash generation by implementing major cost reduction initiatives, exerting tight controls on capital expenditure and driving working capital improvement. The result of these actions is that:

between July 2008 and 31 March 2009, 957 employees (17%) have left the business, 82 depots (17%) have been closed and 470 vehicles (15%) returned to their lessors or sold. These actions, together with other cost reduction initiatives, have ensured that cost savings with an annualised benefit in excess of £42m were in place for the start of the new financial year;

capital expenditure in the second half of the year at £22m was approximately 59% down on the level of the first half year spend, with a focus on investing only on assets necessary to maintain the operational integrity of the business and essential IT and property investment, together with judicious support of customers, projects and sectors where appropriate. The Group also engaged in a proactive disposal programme of under utilised and older assets which, together with reduced capital expenditure, has resulted in the net book value of hireable assets reducing by £51.4m (15%) over the second half of the year. Disposal proceeds in the year from asset sales totalled £39.4m;

the net cash outflow relating to working capital movements in the year to 31 March 2009 totalled £12.6m, a £0.8m deterioration on the £11.8m in the prior year. Additionally, in the second half of the year there was a net cash inflow relating to working capital of £5.2m, reflecting closer focus on the management of trade debtors and inventory; and

net debt at 31 March 2009 was £248.4m, a reduction of over £46.3m (15.7%) since June 2008, emphasising the Group's strong cash generation.

Speedy Hire completed two small scale but important acquisitions of customer fleets in the year ended 31 March 2009. In May 2008, the Group acquired the business and assets of Carillion Accommodation Services for a consideration of £12.6m. As part of the acquisition, Speedy Hire entered into a five year strategic partnering agreement with Carillion's UK and Irish businesses under which Speedy Hire moved from being a preferred, to the preferred supplier to Carillion. In August 2008, the Group acquired for a cash consideration of £0.7m the business and assets of Apollo Hire Centres, the internal hire business of Connaught plc, one of the UK's leading service providers to the social housing, public sector and compliance markets. As part of the acquisition, Connaught entered into a three year preferred supplier agreement with Speedy Hire with a two year extension option.

Both of the above acquisitions were rapidly integrated into Speedy Hire's existing operations and represent a continuation of the Group's strategy of using so called 'in house' fleet acquisitions to grow new customers and new markets and increase the breadth and depth of relationships with existing customers.

Operational Highlights

Notwithstanding the potential for the cost reduction initiatives referred to above to cause distraction to the business, Speedy Hire has been careful to ensure that appropriate focus has remained on winning new business and protecting revenue streams with existing customers. Recent contract wins and renewals include:

Olympic Park - Construction Site Solutions (''CSS''), the consortium that includes Speedy Hire, BSS, Hewden and Lavendon, has been selected as the Olympic Development Authority's first choice partner for the 2012 Olympic Park. Under the arrangements to be put in place, Speedy Hire will, as a member of the CSS consortium, provide hire fleet together with additional services for example, safety and training. It is anticipated that the contractual arrangements formalising the relationship between the consortium members and the provision of services by the consortium to the Olympic Delivery Authority will be concluded within the next two months.

Environment Agency - the award of a four year preferred supplier contract.

SembCorp - the renewal of the Group's site based services agreement at SembCorp's Wilton facility, at which Huntsman, SABIC, INVISTA, Artenius and Dow all have operations.

Other new customer supply agreements entered into include, amongst others, Bouygues and Morrison Utility Services.

The renewal of many existing awards (for example, Interserve, Morgan Sindall, and May Gurney).

  Some of the Group's operational highlights for the year to 31 March 2009 include:

Year on year revenue growth of 15.9% with the Group's top 20 customers - which now account for approximately 24% of Group revenues. This growth reflects:

	-	The increasing strength and depth of Speedy Hire's relationships with such customers.
	-	As the general construction market has weakened, the polarization of activity towards a smaller number of much larger public sector and infrastructure projects, in many cases undertaken under long-term framework and partnering agreements, which inevitably favour our larger customers.

Increased penetration of a number of industrial and other non-construction markets - which now account for approximately 35% of Group revenues, including the securing of a 5 year framework agreement to support ExxonMobil at its Fawley facility.

The introduction of a significant number of product innovations targeting increased energy efficiency and reduced carbon emissions, such as our 'Envirocabin' temporary site accommodation system which reduces carbon footprint by over 50 per cent. and significantly reduces water consumption compared to standard site accommodation systems.

Launch of the Hand Arm Vibration (HAV) awareness initiative under Speedy Hire's award winning 'Safety from the Ground Up' campaign which is used to communicate new products, legislation and operator awareness in respect of changes in safe working practice.

The successful trial of a fleet of new generation of electric flat-bed delivery vehicles as part of a strategic initiative with Modec.

Completion of the first phase of the Group's new Shared Service Centre (SSC) as part of Speedy Hire's drive to enhance both administrative efficiency and the quality of Management Information (MI) reporting both internally and to customers.

Continuing the roll-out of Speedy Hire's new Group-wide integrated IT platform, the final phase of which is on target to be completed by December 2009, which will provide increased visibility of asset status and enable the business to derive further operational efficiencies.

Tools

The operational highlights of the tool hire division in the year to 31 March 2009 include:

Revenue £237.2m (2008: £256.6m); EBITA £20.5m (2008: £34.8m) (pre-impairment and exceptional items).

Realignment of the management structure to 4 regional operations (from 6) to create a more responsive and streamlined business.

Establishment of a projects team to co-ordinate the sales and operational efforts on major construction projects.

Attainment of ISO 9001 accreditation to complement existing quality systems accreditation in power, lifting and survey.

The establishment of specialist centres to support customers in their specialist requirements for example small tools, light plant, access and fencing. The establishment of further specialisations in utilities, interiors/ fit-out and air-conditioning are underway.

Continued further penetration of utilities, facilities management and social housing repair markets to complement our existing strong presence in contracting and M&E markets.

Continued development of our training, apprenticeship and prison workshop programmes.

  Equipment

The operational highlights of the equipment hire division in the year to 31 March 2009 include:

Revenue £238.9m (2008: £208.9m); EBITA £39.1m (2008: £40.0m) (pre-impairment and exceptional items).

Consolidation of sales management across the business to facilitate cross-selling and streamline resourcing.

Launch of the Group's communications offering to include 3G mobile site-communications and extension of the safety offer which has complemented the existing offer in industrial and petrochemical markets.

Development of the Group's regulatory test and inspection business which has now been rolled out nationwide.

Extension of the Group's accommodation offering into facilities management incorporating the provision of fully serviced temporary office accommodation.

The Group's new specialist rail business extending the reach of its services to both Network Rail and with the rail operations of existing Speedy Hire clients.

Further penetration of industrial and petrochemical markets with new on-site facilities awarded and several existing contracts renewed/ extended.

The operational priorities for the coming year include:

Continued extension of the offering into and penetration of growth markets and products including infrastructure construction, public sector and industrial.

The continued development of the temporary on-site depot service for major projects. 

The consolidation of the 10 operating businesses into a single trading entity to enable customers to trade from one account across the UK.

The alignment of the sales force to market sectors to enable us to develop a deeper level of understanding of the Group's clients' needs.

Continued investment in service improvement initiatives and customer facing management information systems.

Continued development of the MSC (Multi Service Centre) and superstore formats.

Continued expansion of the Group's facilities management, regulatory test and inspection and asset management services.

Speedy Hire's Market

Overview

The UK hire market is valued at approximately €8.3 billion (Source: European Equipment Rental Industry 2008 Report). Driven by growth in outsourcing and regulatory pressures, the trend to hire rather than own continues. Contractors and other operators manage their costs by outsourcing their fleet activities which at the same time enables them to benefit from the emphasis on health and safety and quality assurance by the major providers in the UK hire market and to seek efficiencies from consolidation of their supply chains. The experience of Speedy Hire's senior management team during the last recession in the early 1990s was that capital constraints caused customers to accelerate this process and the Directors believe that similar patterns are already emerging at the onset of the current recession.

Speedy Hire's national network, range of products and award-winning commitment to safety standards differentiate it from many of its competitors. These dynamics are increasing demand for more modern fleet, fully compliant with health and safety regulations and, increasingly, with a focus on energy efficiency and carbon emission reduction. Speedy Hire has invested consistently in these areas over many years and is therefore well-placed to benefit from such changes.  New Markets

Whilst Speedy Hire's principal market remains the construction sector in its widest sense, the Group continues to extend its position to a broader range of industrial and other non-construction sectors.

Notwithstanding that Speedy Hire has increased its revenues from its key construction clients by £142m in the last 3 years, building and construction sector revenues as a proportion of Group revenues have reduced from 80% to 65% over the same period.

The Group's Equipment businesses continue to provide the Group with a platform to penetrate additional areas of the market. We are increasingly active in industrial markets, where we provide site-based service support at large scale facilities such as steelworks, petrochemical plants and naval bases.

The Group's businesses continue to see opportunities for expansion and cross-selling in areas of activity closely related to the core hire offering and which enhance the relationship with our larger clients, for example:

The Group's facilities management services increasingly take on greater complexity and, when combined with the other services we are providing, add value from the client's perspective. We now offer services including the management of all customer equipment requirements via consolidated order-desks irrespective of whether Speedy Hire is the equipment provider and the provision of a wider range of site logistics services such as serviced offices and temporary on-site hire and training facilities.

Regulatory testing and inspection services and repairs of customers' own equipment utilising the existing infrastructure and systems of the Group.

The management and maintenance on an out sourced basis (including most recently in the rail sector), of customers' owned asset fleet on the Group's systems.

Training for our customers in relation to the skills needed for their employees to perform tasks using our tools and equipment safely and efficiently.

Geographically, our market is expanding beyond the UK. In 2006, the Group began operating in the Republic of Ireland.

In January 2009, and following the establishment of the strategic partnering agreement with Carillion in May 2008 referred to above, Speedy Hire placed an implant team in the in-house fleet operations of Al Futtaim Carillion, Carillion's longstanding joint venture in the Middle East and North Africa. The implant team is working with Carillion locally to identify and implement efficiency improvements to its equipment operations across the region.

Market Outlook

Whilst the longer term prospects for the Group are positive, current conditions in construction markets remain difficult.

Major contractors have benefited from strong spending by Government, particularly in education, health, utilities and transport infrastructure related sub-sectors, with these activities now accounting for between 70% and 90% of major contractors' order books. However, the wider construction market, in particular contractors exposed to the private sector, private house building and consumer spending, continues to find conditions difficult.

Having anticipated this situation in 2008 and advised shareholders of the increasing likelihood of a severe contraction in activity going forward, we undertook prompt and decisive actions to right-size our operating base. As a result we believe that we are well placed to trade through market conditions which continue to prove challenging and which we believe will not reach a trough until the autumn of 2009. In management's opinion we do not expect construction market growth until 2010. However, our market leading position, strong brand and growing relationships across a diverse customer base, position the Group well to benefit from consolidation in the market. There is ample opportunity to grow our leading 10% market share, particularly through close alignment with and the ability to support the beneficiaries of Government and regulated industry spending.

In the short term we will continue to reduce capital outflow, manage down costs and reduce bank debt through strong cash generation.

Our Strategy

Speedy Hire's strategy continues to be driven by strong relationships with customers. Our overall vision is to see Speedy Hire become a world class service provider with the expertise and reach to support our customers on a consistent basis wherever they do business. In order for us to reach 'preferred' or 'strategic partner' status, our customers demand that we provide quality, consistency and added value to their businesses. Our investment in fleet, our unrivalled operational network in the UK and our expanding range of services are ensuring we are well placed to meet these requirements.

The key means by which Speedy Hire seeks to achieve this goal are as follows:

	To retain strong customer relationships
	Why: By understanding our customers we have been able to identify: new products and services to meet their needs; new markets where these products are utilised; and expand geographically with their support.
	To operate the most modern and comprehensive fleet in the industry
	Why: The best fleet is less prone to breakdown, is compliant with current legislation and a younger fleet gives us more flexibility with our long-term expenditure requirements.
	To have an effective national network offering a full range of products and services
	Why: Our national network ensures our customers have better access to more products and services wherever they work, improving their productivity by reducing their downtime.
	To increase our product and service ranges
	Why: The continuing development of the specialist areas has allowed us to broaden our offer in those areas where we detect customer opportunities. It enables our customers to obtain more high-quality services from fewer suppliers, while increasing cross-selling opportunities, thus improving operational flexibility and strengthening our client relationships.
	To be a leader in service innovation
	Why: The ability to influence innovation and change increases the trust of our clients thereby improving our strong client relationships. We have continued to drive innovation in our industry and are constantly striving to improve our products and services. When our customers need a solution we want them to think of us first.
	To maintain product expertise
	Why: To ensure that our customers can have confidence in our product knowledge and can therefore trust us to source and service their hire requirements competitively and professionally with equipment suitable to their project.
	To invest in marketing
	Why: We continue to invest in developing our understanding of the markets in which we operate and the trends that we see in those markets from a customer, supplier or legislative perspective. We use marketing to position and promote our brand effectively. By understanding our customers and their markets better we identify new products and services to add to our offering.
	To employ a large direct sales force
	Why: We understand the value of having face-to-face contact with our customers, to understand their needs, service them better and provide us with the flexibility to respond to changing demand.
	To be an industry consolidator
	Why: We see further consolidation opportunities in select areas in the industry as both likely and desirable, particularly in relation to customer fleets and areas of our equipment business. This consolidation will have a positive impact on the supply chain, health and safety and quality improvements.
	To maintain financial strength
	Why: To ensure that Speedy Hire can continue to invest in the resources necessary to support the ambitions of its customer base.

Looking Ahead

Through our proven strategy, Speedy Hire is well positioned to grow its share of the UK hire market still further. The current economic turmoil is already driving further outsourcing by customers. Speedy Hire's strength of relationships and proven track record of delivery mean that the Group should benefit disproportionately from this market dynamic. 

Steve Corcoran

Chief Executive

FINANCIAL REVIEW

1. Shares, earnings and dividend

Earnings per share, adjusted for amortisation of intangibles and exceptional items, decreased by 33.2% to 48.88 pence (2008: 73.19 pence). A final dividend of 6.4 pence per share is recommended, giving a total, (if approved), of 12.8 pence per share for the year (2008: 19.8 pence). The proposed final dividend, (if approved), leaves the overall dividend 3.8 times covered (calculated as adjusted earnings per share divided by dividend). The final dividend will be paid to shareholders on 25 August 2009, to all shareholders on the register as at the close of business on 26 June 2009.

In the year ended 31 March 2009, the Group reported pre-tax exceptional items totalling £95.3m. £21.0m of this amount relates to restructuring and integration costs principally relating to the reduction of the Group's operating cost and fixed asset base. In addition, the Group incurred £4.6 m of exceptional financial costs principally comprising bank fees relating to its recent bank facility renegotiation. The balance relates to impairment of non-­current intangible and property, plant & equipment of £60.9m and £8.8m respectively. Of the total exceptional items, the cash cost is anticipated to be £17.9m, of which c. £12.0m had been incurred prior to 31 March 2009. The tax impact of these exceptional items is likely to lead to a cash inflow of approximately £10m in the year ending 31 March 2010.

2. Capital Structure and Treasury

Capital Strategy

Speedy Hire's long term funding is provided through a combination of shareholder funds and bank debt. At 31 March 2009, shareholder funds totalled £167.5m and net debt outstanding was £248.4m, resulting in gearing of 148.3% (2008: 106.5%). 68% of the Group's gross capital employed (shareholders' funds plus net debt) is represented by hire fleet assets.

Despite the challenging trading conditions over the last 12 months, the decisive action taken by management has ensured that cash continues to be generated. This includes the realisation of £42m of annualised cost saving benefit and significantly reduced capital expenditure, which in the second half of the year ended 31 March 2009 was at a level of approximately 59% of the expenditure made in the first six months of the year.

Hedging

Speedy Hire's policy is to hedge a portion of its debt against the risk of interest rate movements. We aim to have between 40% and 70% of our debt covered by interest rate risk management instruments. As at 31 March 2009, Speedy had a number of instruments covering £140m of the Group's debt, with maturity dates of between September 2009 and July 2011.

Cash generation

Speedy Hire is a cash generative business, with operational cashflow typically able to support organic growth of approximately 10%. In the event of a market downturn, the business is able rapidly to redirect free cash generation to the reduction of debt. This feature of the business model is supported by two distinct elements of Speedy Hire's supply chain strategy:

Whilst retaining competitive terms with suppliers due to its scale, capital expenditure is structured so as to be subject to short forward order requirements with no minimum volume thresholds.

Speedy Hire has ensured sustained investment over several years in the latest, and therefore fully regulatory compliant, hire fleet. Whilst the average fleet age of UK tool and equipment companies is 3.1 years, over 60% of Speedy Hire's fleet is less than 3 years.  Accordingly, Speedy Hire enjoys a further competitive advantage in that its hire fleet is more durable and sustainable in the event of a prolonged downturn and has more flexibility to allow its hire fleet to age than competitors without impacting the operational integrity of its business and service levels to customers.

Speedy Hire's cash flow, expressed as a ratio of EBITDA (pre-exceptional items) to revenues, remained strong in the year ended 31 March 2009 at 26.4% (2008: 28.3%) and operating cash flow was resilient at £98.1m (2008: £102.3m).

Return on capital

Return on Capital (based on pre-exceptional EBITA) totalled 10.9% in the year ended 31 March 2009. This compares to 15.2% in the prior year period. The principal reason for this decline relates to a 22.4% decline in EBITA to £49.7m. Additionally, although year-end capital employed totalled £415.9m, a £79.8m reduction over the position at the beginning of the year, the average capital employed in the year to 31 March 2009 remained above the average for the prior year period.

Bank Funding

In June 2007, the Group put in place a £325m, five year bank facility with a group of seven relationship banks which expires in June 2012. In light of the volatility in trading conditions, Speedy Hire announced in its January 2009 trading update that it had commenced discussions with its banking partners to establish more appropriate covenants under its facility. As announced on 1 April 2009, following a detailed review by the banks of the Group's business, operational model, financial projections and cashflow forecasts, all seven banks agreed terms for an amended £300m facility to June 2012. The amended facility, in addition to providing for prudent levels of headroom, includes quarterly interest, fixed charge, leverage and cashflow cover tests which are more appropriate to current market conditions. The amended facility also provides flexibility for Speedy Hire to set dividends and bonus payments and manage capital expenditure in line with business needs.

In consideration of the amendments referred to above, the interest margin above LIBOR under the amended facility ranges from 2 to 4% depending on the ratio of the Group's net debt to EBITDA (less net capital expenditure). Accordingly, the Group is incentivised to manage down its net debt position. Following the first covenant test at the end of June 2009 the Group anticipates that the margin payable would be at 3%. In order to secure the above amendments, a one-off amendment fee of 1.5% was paid to the banks on 31 March 2009.

The above factors, combined with the retention to June 2012 of the term of the Existing Facility with the same partnership banks, in the opinion of the Directors represent a positive outcome for Speedy Hire.

Justin Read

Group Finance Director

Consolidated income statement

for the year ended 31 March 2009

	Note	Before exceptional items	Exceptional items	Total	Before exceptional items	Exceptional items	Total
		2009	2009	2009	2008	2008	2008
		£m	£m	£m	£m	£m	£m
Revenue	2	476.1	-	476.1	465.5	-	465.5
Cost of sales		(188.1)	-	(188.1)	(167.1)	-	(167.1)
Gross profit		288.0	-	288.0	298.4	-	298.4
Distribution costs		(50.5)	-	(50.5)	(49.8)	-	(49.8)
Administrative expenses		(197.0)	(90.7)	(287.7)	(191.8)	(10.0)	(201.8)
Analysis of operating profit
Operating profit before  amortisation and exceptional items		49.7	-	49.7	64.0	-	64.0
Amortisation		(9.2)	-	(9.2)	(7.2)	-	(7.2)
Impairment of intangible assets	3	-	(60.9)	(60.9)	-	-	-
Impairment of property, plant & equipment	3	-	(8.8)	(8.8)	-	-	-
Exceptional restructuring costs	3	-	(21.0)	(21.0)	-	-	-
Exceptional integration costs	3	-	-	-	-	(10.0)	(10.0)
Operating (loss) / profit	2	40.5	(90.7)	(50.2)	56.8	(10.0)	46.8
Financial income	4	0.2	-	0.2	0.9	-	0.9
Financial expense	4	(16.0)	(4.6)	(20.6)	(16.8)	(0.4)	(17.2)
(Loss) / profit before taxation		24.7	(95.3)	(70.6)	40.9	(10.4)	30.5
Taxation	5	(7.0)	23.0	16.0	(9.2)	3.1	(6.1)
(Loss) / profit for the financial year		17.7	(72.3)	(54.6)	31.7	(7.3)	24.4
Attributable to:
Equity holders of the parent				(54.6)			23.3
Minority interests				-			1.1
				(54.6)			24.4
				Pence			Pence
Earnings per share
- Basic	6			(107.93)			47.89
- Diluted	6			(107.93)			47.49
Dividend per share	7			12.8			19.8

  Consolidated statement of recognised income and expense

for the year ended 31 March 2009

				2009	2008
				£m	£m
Cash flow hedges: Losses taken to equity (net of tax)				(5.3)	(1.2)
Net loss recognised directly in equity (net of tax)				(5.3)	(1.2)
(Loss) / Profit for the financial year				(54.6)	24.4
Total recognised income and expense for the financial year				(59.9)	23.2
Attributable to:
Equity holders of the parent				(59.9)	22.1
Minority interests				-	1.1
				(59.9)	23.2

Consolidated balance sheet

At 31 March 2009

	Note			2009	2008
				£m	£m
ASSETS
Non-current assets
Intangible assets	8			71.2	128.9
Property, plant & equipment	10			323.2	372.9
				394.4	501.8
Current assets
Inventories				12.2	16.2
Trade and other receivables				104.4	143.6
Tax receivable				6.9	-
Cash				11.0	4.4
				134.5	164.2
Total assets				528.9	666.0
LIABILITIES
Current liabilities
Borrowings	11			(0.2)	-
Trade & other payables				(64.1)	(120.0)
Other financial liabilities				(5.7)	(0.5)
Provisions				(4.1)	(1.0)
Current income tax				-	(5.9)
				(74.1)	(127.4)
Non-current liabilities
Borrowings	11			(259.2)	(260.0)
Provisions				(3.8)	(1.2)
Deferred tax liabilities				(24.3)	(37.3)
				(287.3)	(298.5)
Total liabilities				(361.4)	(425.9)
Net assets				167.5	240.1
EQUITY
Share capital	13			2.5	2.5
Share premium account	13			111.0	111.0
Merger reserve	13			3.7	3.7
Hedging reserve	13			(6.0)	(0.7)
Retained earnings	13			56.3	122.3
Total equity attributable to equity holders of the parent				167.5	238.8
Minority interests	13			-	1.3
Total equity				167.5	240.1

Consolidated cash flow statement

for the year ended 31 March 2009

							2009	2008
							£m	£m
Cash flow from operating activities
(Loss) / profit before tax							(70.6)	30.5
Adjustment for:
Movement in provisions							5.7	-
Financial income							(0.2)	(0.9)
Financial expense							20.6	17.2
Exceptional impairment of intangible assets							60.9	-
Exceptional impairment of tangible assets							8.8	-
Amortisation							9.2	7.2
Depreciation							75.9	67.6
Loss / (profit) on disposal of property plant and equipment							1.6	(9.7)
Equity-settled share-based payments							(1.2)	2.2
							110.7	114.1
Decrease / (increase) in inventories							4.0	(3.1)
Decrease / (increase) in trade and other receivables							39.2	(27.6)
(Decrease) / increase in trade and other payables							(55.8)	18.9
Cash generated from operations							98.1	102.3
Interest received							0.2	0.9
Interest paid							(21.4)	(15.5)
Income tax paid							(9.8)	(4.7)
Net cash flow from operating activities							67.1	83.0
Cash flow from investing activities
Acquisition of businesses							(14.6)	(137.4)
Purchase of property, plant & equipment							(75.1)	(104.1)
Disposal of property, plant & equipment							39.4	34.4
Net cash flow from investing activities							(50.3)	(207.1)
Net cash flow before financing activities							16.8	(124.1)
Cash flow from financing activities
Proceeds from shares issued							-	56.2
Share issue costs							-	(2.8)
Finance lease payments							(0.2)	-
Proceeds from new loans							-	73.5
Dividends paid							(10.0)	(8.7)
Net cash flow from financing activities							(10.2)	118.2
Increase / (decrease) in cash							6.6	(5.9)
Cash at the start of the financial year							4.4	10.3
Cash at the end of the financial year							11.0	4.4

Notes to the financial statements

1	Preparation of annual results

The annual results have been prepared on the basis of the accounting policies which are to be set out in Speedy Hire Plc's annual report and accounts for the year ended 31 March 2009.

In accordance with EU law (IAS regulation EC1606 / 2002) the annual financial report announcement has been prepared in accordance with International Financial Reporting Standards ('IFRS') adopted for use in the EU as at 31 March 2009 ('adopted IFRS'), International Financial Reporting Interpretations Committee ('IFRIC') interpretations and those parts of the Companies Act 1985 applicable to companies reporting under adopted IFRS.

The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 March 2009 or 2008 but is derived from those accounts. Statutory accounts for 2008 have been delivered to the registrar of companies, and those for 2009 will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports, and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985.

The annual results have been extracted from the audited numbers.

The annual results were approved by the Board of directors on 26 May 2009.

  

2	Segmental analysis

The Group's primary segmental reporting format is class of business, as the Group's management and internal reporting are structured in this manner. The Group's activity is conducted solely within the United Kingdom & Republic of Ireland.

	Tools			Equipment					Total
	2009	2008	2009			2008				2009	2008
	£m	£m	£m			£m				£m	£m
Analysis of segmental result
Total revenue	240.1	257.8	247.7			217.3				487.8	475.1
Intra-group revenue	(2.9)	(1.2)	(8.8)			(8.4)				(11.7)	(9.6)
Revenue	237.2	256.6	238.9			208.9				476.1	465.5
Segmental result before depreciation, amortisation and exceptional items	53.2	67.8	74.4			69.9				127.6	137.7
Impairment of intangible assets	(43.2)	-	(17.7)			-				(60.9)	-
Impairment of tangible assets	-	-	(8.8)			-				(8.8)	-
Exceptional restructuring costs	(13.0)	-	(4.6)			-				(17.6)	-
Exceptional integration costs	-	(10.0)	-			-				-	(10.0)
Depreciation	(32.7)	(33.0)	(35.3)			(29.9)				(68.0)	(62.9)
Amortisation	(3.9)	(2.0)	(5.3)			(5.2)				(9.2)	(7.2)
Result before corporate costs	(39.6)	22.8	2.7			34.8				(36.9)	57.6
Corporate costs (including exceptional items of £3.4m (2008:£nil)										(13.3)	(10.8)
Operating (loss) / profit										(50.2)	46.8
Net financial expense										(20.4)	(16.3)
(Loss) / profit before tax										(70.6)	30.5
Taxation										16.0	(6.1)
(Loss) / profit for the year										(54.6)	24.4

  

2	Segmental analysis (continued)
		Tools		Equipment		Total
		2009	2008	2009	2008	2009	2008
		£m	£m	£m	£m	£m	£m
Analysis of segment net assets
Segmental non-current assets
Intangible assets		27.8	61.7	43.4	67.2	71.2	128.9
Property, plant & equipment		155.5	175.5	167.3	169.3	322.8	344.8
		183.3	237.2	210.7	236.5	394.0	473.7
Segmental current assets		71.1	82.7	40.5	94.7	111.6	177.4
Segmental total assets		254.4	319.9	251.2	331.2	505.6	651.1
Cash						11.0	4.4
Unallocated assets						12.3	10.5
Total assets						528.9	666.0
Segmental liabilities Borrowings		(45.3)	(91.0)	(42.7)	(55.1)	(88.0) (258.6)	(146.1) (260.0)
Unallocated liabilities						(14.8)	(19.8)
Total liabilities						(361.4)	(425.9)
Net assets						167.5	240.1

	Tools		Equipment		Total
	2009	2008	2009	2008	2009	2008
	£m	£m	£m	£m	£m	£m
Analysis of capital expenditure
Intangible assets	8.9	60.7	3.5	2.2	12.4	62.9
Property, plant & equipment	24.7	120.1	36.5	37.9	61.2	158.0
Segmental capital expenditure	33.6	180.8	40.0	40.1	73.6	220.9
Unallocated capital expenditure					13.9	13.4
Total capital expenditure					87.5	234.3

  

3	Exceptional items

2009

Impairment of non-current assets

A provision of £60.9m has been made against the Group's goodwill and intangible assets following a review of their carrying values as part of the annual impairment testing process. Deterioration in the markets in which the Group operates, notably the construction markets, has resulted in the Group revising its assumptions regarding future activity levels. This has resulted in revised forecasts of cash flows arising in cash generating units. An impairment loss has been calculated on a value in use basis and consists of a £48.0m write-down in goodwill and £12.9m write-down of other acquired intangibles. Further information on the impairment testing process is contained in note 8.

In addition, an impairment loss has been identified in respect of the carrying value of tangible assets in respect of the Accommodation business, and accordingly £8.8m has been written off the carrying value during the year.

Exceptional restructuring costs

As part of the Group's cost reduction programme, a number of initiatives were undertaken to reduce the Group's operating structure to a more appropriate level in light of the changes in market conditions. The main elements of cost incurred as part of these processes include provisions for onerous lease obligations on depot closures (£5.3m) together with provisions against the carrying value of related fixtures & fittings and leasehold improvements (£0.5m), redundancy costs (£4.0m), losses incurred on the one-off disposal of surplus hire fleet assets (£7.1m), re-organisation of back-office structures and the ongoing creation of a central shared-service facility (£0.8m). In addition, costs of £1.9m were incurred arising from the acquisition and integration of the Amec LSS and Carillion Asset Management businesses (relating primarily to redundancy, relocation and asset re-organisation costs). 

Other exceptional items

During the year, the Group negotiated amendments to its bank facility to establish more appropriate financial covenants. As part of this process, £1.4m of costs were incurred in respect of various advisors working for either the Group or the bank syndicate (included within operating expenses), and arrangement fees amounting to £4.6m (included within financing costs) were paid to the bank syndicate.

The resulting tax credit arising in relation to exceptional items amounts to £23.0m, of which £16.8m relates to current tax, and £6.2m relates to deferred tax.

2008

Exceptional integration costs relate to the costs associated with the integration of the Hewden Tools acquisition. On 1 August 2007, the Group acquired the trade and assets of the tool hire operation of Hewden Stuart Plc. The costs incurred in the period relate to a provision for lease costs associated with properties made vacant by the relocation of the business into the other depots within the tool network (£2.9m), write off of related fixtures and fittings in the closed depots (£1.3m), re-branding and sales and marketing costs (£1.5m), costs associated with the transitional services arrangements (£1.2m), consultancy and other one off costs associated with the integration (£3.1m). In addition £0.4m of exceptional bank facility fees were incurred. 

The resulting tax credit arising from the costs associated with the integration and acquisition amounted to £3.1m.

  

4	Financial income and expense

	2009	2008
	£m	£m
Financial income
Bank interest received	0.2	0.2
Other interest received	-	0.7
	0.2	0.9
Financial expense
Interest on bank loans and overdrafts	(15.0)	(16.1)
Hedge interest paid	(0.3)	-
Amortisation of issue costs	(0.5)	(0.5)
Exceptional amortisation of issue costs	-	(0.4)
Exceptional bank arrangement fees	(4.6)	-
Other finance costs	(0.2)	(0.2)
	(20.6)	(17.2)
Net financial expense	(20.4)	(16.3)

5

Taxation

	2009	2008
	£m	£m
Current tax
UK corporation tax at 28% (2008: 30%)	(5.1)	4.2
Adjustment in respect of prior years	2.3	0.4
Total current tax	(2.8)	4.6
Deferred tax
UK deferred tax at 28% (2008: 28%)	(9.2)	2.8
Adjustment in respect of prior years	(4.0)	(1.3)
Total deferred tax	(13.2)	1.5
Total tax (credit) / expense	(16.0)	6.1

  

5	Taxation (continued)

The tax credit for the year is lower than the standard rate of corporation tax in the UK and is explained as follows:

	2009	2008
	£m	£m
(Loss) / profit before tax	(70.6)	30.5
Tax at 28% (2008: 30%)	(19.8)	9.2
Expenses not deductible for tax purposes	2.5	1.8
Non-taxable income	(0.6)	(0.9)
Impact of change in UK corporation tax rate to 28% on deferred tax	-	(2.6)
Share-based payments	0.4	(0.5)
Impairment of goodwill arising on consolidation	3.2	-
Adjustments to tax in respect of prior years	(1.7)	(0.9)
Tax (credit) / charge for the year	(16.0)	6.1
Tax recognised directly in equity (note 13)
Deferred tax charge	0.2	1.1

6	Earnings per share

Basic earnings per share is based on the loss after income tax attributable to equity holders of the Parent of £54.6m (2008: profit - £23.3m) and the weighted average number of 5 pence ordinary shares in issue during the year of 50,619,978 (2008: 48,764,167). The weighted average number of ordinary shares used for the diluted earnings per share is calculated as follows:

	2009			2008
	Earnings	Weighted average  number of shares	Earnings per share	Earnings	Weighted average  number of shares	Earnings per share
	£m	million	pence	£m	million	pence
Basic earnings	(54.6)	50.6	(107.93)	23.3	48.8	47.89
Share options	-	-	-	-	0.3	(0.07)
Employee share scheme	-	-	-	-	0.1	(0.33)
Diluted earnings	(54.6)	50.6	(107.93)	23.3	49.2	47.49

The table below reconciles basic earnings per share to earnings per share pre-amortisation and exceptional items.

	2009	2008
	pence	pence
Basic earnings per share	(107.93)	47.89
Intangible amortisation charge after tax per share	14.13	10.31
Exceptional items after tax per share	142.68	14.99
Basic earnings per share pre-amortisation and exceptional items	48.88	73.19

  

7

Dividends

The aggregate amount of dividend comprises:

	2009	2008
	£m	£m
2008 final - 13.4 pps (2007: 11.5 pps) on 50.7m shares (2007: 48.2m)	6.8	5.5
2009 interim - 6.4 pps (2008: 6.4 pps) on 50.7m shares (2008: 50.4m)	3.2	3.2
Aggregate amount of dividends paid in the financial year	10.0	8.7

Subsequent to the end of the year, the Directors proposed a final dividend of 6.4 pence (2008: 13.4 pence) per share, bringing the total amount payable in respect of the 2009 year (if approved) to 12.8 pence (2008: 19.8 pence). If approved, the final dividend will be paid to shareholders on 25 August 2009, to all shareholders on the register as at the close of business on 26 June 2009. The Employee Benefit Trust established to hold shares for the Long Term Incentive Plans has waived its right to the interim and final proposed dividends. At 31 March 2009, the trust held 281,673 5p ordinary shares (2008: 383,366).

8	Intangible fixed assets

	Goodwill		Customer  lists		Non-complete agreements		Brand		Supply agreements		Total
	£m		£m		£m		£m		£m		£m
Cost
At 1 April 2007	48.1		18.5		-		3.8		9.0		79.4
Additions through business combinations	41.2		13.0		4.6		0.3		5.7		64.8
At 31 March 2008	89.3		31.5		4.6		4.1		14.7		144.2
Additions through business combinations	4.2		4.7		0.3		-		3.2		12.4
At 31 March 2009	93.5		36.2		4.9		4.1		17.9		156.6
Amortisation and impairment
At 1 April 2007	(1.2)		(1.6)		-		(0.7)		(4.6)		(8.1)
Charged in year	-		(2.7)		(0.8)		(2.2)		(1.5)		(7.2)
At 31 March 2008	(1.2)		(4.3)		(0.8)		(2.9)		(6.1)		(15.3)
Charged in year	-		(4.0)		(1.2)		(0.6)		(3.4)		(9.2)
Impairment (note 3)	(48.0)		(7.1)		(1.0)		-		(4.8)		(60.9)
At 31 March 2009	(49.2)		(15.4)		(3.0)		(3.5)		(14.3)		(85.4)
Net book value
At 31 March 2009	44.3		20.8		1.9		0.6		3.6		71.2
At 31 March 2008	88.1		27.2		3.8		1.2		8.6		128.9
At 31 March 2007	46.9		16.9		-		3.1		4.4		71.3

  

8	Intangible fixed assets (continued)

All goodwill has arisen from business combinations. On transition to IFRS, the balance of goodwill as measured under UK GAAP was allocated to cash-generating units (CGUs). These are independent sources of income streams, and represent the lowest level within the Group at which the associated goodwill is monitored for management purposes. The Group's reportable business segments, Tools and Equipment, are the CGUs assessed for impairment testing.

Goodwill arising on business combinations after 1 April 2004 has been allocated to the CGUs that are expected to benefit from that business combination. 

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

The recoverable amounts of the goodwill and intangible assets allocated CGUs are determined by value in use calculations. These calculations use cash flow projections based on five-year financial forecasts approved by management. The key assumptions for these forecasts are those regarding revenue growth, net margin and the level of capital expenditure required to support trading, which management estimates based on past experience adjusted for current market trends and expectations of future changes in the market. To prepare value in use calculations, the Group uses cash flow projections for a fifteen year period, based on the 2009-10 budget and subsequent four years' business plans. Cash flows beyond this period are extrapolated at an estimated average long-term nominal growth rate which has been estimated at 2.5 per cent (2008: 5.0 per cent) being an estimate of inflation, and discounted back to present value, using the Group's pre-tax discount rate. The discount rate assumptions use an estimate of the Group's weighted average cost of capital. The pre-tax discount rate used to discount cash flow forecasts is 13.9 per cent (2008: 9.4 per cent). The pre-tax discount rate has been adjusted for company and market specific risks which the Directors consider to be consistent across both CGUs.

Deterioration in the markets in which the Group operates, notably the construction markets, has resulted in the Group revising its expectations about the level of activity which will be sustainable in the long term. An impairment loss has been calculated on a value in use basis and consists of a £48.0m write-down in goodwill and £12.9m write-down of other acquired intangibles. Following this there is no difference between the carrying amount and the recoverable amount of the goodwill and intangibles balances at the balance sheet date. £14.8m of the remaining goodwill net book value relates to the Tools division, and £29.5m to the Equipment division. Of the total goodwill value, £1.5m relates to 2009 acquisitions, £10.4m to 2008 acquisitions, £25.0m to 2007 acquisitions, and £7.4m in respect of acquisitions in prior years.

Impairment calculations are sensitive to changes in key assumptions of revenue growth and discount rate. An increase of 1% in the discount rate, with all other assumptions held constant, would give rise to an additional impairment charge of £5.4m in Tools and £4.0m in Equipment. A decrease of 1% in the forecast revenue growth, with all the other assumptions held constant, would give rise to an additional impairment charge of £5.3m in Tools and £2.4m in Equipment.

9	Acquisitions

All acquisitions in the current and prior year have been accounted for under the acquisition method of accounting. An assessment has been made of the fair value to the Group of the assets and liabilities acquired on all acquisitions.

The Group acquired the trade and assets of the Carillion Accommodation Services ('CAS') business from Carillion Plc in May 2008, for a total consideration of £12.6m, comprising cash and acquisition costs. CAS hires and sells portable and modular accommodation, servicing both the Carillion group's internal accommodation requirements and those of a number of external customers. CAS's accommodation business operates from three UK depots and has 23 employees, all of whom transferred to Speedy as part of the transaction. CAS has been integrated within Speedy's Accommodation Division, which specialises in the hire of accommodation and storage units. 

  

9	Acquisitions (continued)

The Group also acquired the trade and assets of Apollo Hire Centres from Connaught plc in August 2008 for a consideration of £0.7m.

The initial fair values of the assets and liabilities of both acquisitions are as follows:

		Book value at  acquisition	Fair value Adjustment	Fair value
		£m	£m	£m
Intangible assets		-	8.2	8.2
Hire equipment assets		0.9	-	0.9
		0.9	8.2	9.1
Goodwill capitalised				4.2
Total consideration				13.3
Satisfied by:
- cash consideration				12.7
- costs of acquisition				0.6
				13.3

The customer list intangible has been valued using the 'excess earnings' method, and is based on income forecast to be generated over the next ten years. The valuation assumes that the customer attrition rate will be 10% per annum, based on management estimates and historical rates recorded by the company. Capital asset charges have been applied using risk-adjusted weighted average costs of capital in respect of fixed assets, working capital and the workforce. Other assumptions used in the valuation include an assumed growth in income from customers of 2.5% per annum. The customer list intangible is being amortised over five years, which is considered to be the period over which the majority of the benefits are expected to arise. The non-compete intangible has been valued using the incremental income method. 

In addition, the Group acquired the remaining minority interest in Speedy Asset Leasing Limited on 30 April 2008 for a cash consideration of £1.3m.

During 2007-8, the Group acquired the trade and certain assets of the Hewden Hire Centres business from Hewden Stuart Plc and the Amec Logistics and Support Services ("LSS") from Amec Plc. The 31 March 2008 balance sheet has been restated to accommodate adjustments to fair values in respect of the acquired assets. These adjustments arose from the estimation and finalisation of determining the fair value of the hire fleet, taking into account changes in the value of the acquired fleet which were lost at the time of the acquisition. As a result of these adjustments, the carrying value of tangible assets has decreased by £1.9m compared to the values adopted in the March 2008 financial statements. An equal and opposite adjustment has been made to goodwill.

  

10		Property, plant & equipment
		Land &  buildings	Hire equipment	Fixtures, fittings & motor vehicles	Total
		£m	£m	£m	£m
Cost
At 1 April 2007		20.4	438.3	28.6	487.3
Additions		4.0	85.9	14.2	104.1
Arising on acquisition of businesses		0.7	91.4	14.7	106.8
Disposals		(0.3)	(45.8)	(7.7)	(53.8)
At 31 March 2008		24.8	569.8	49.8	644.4
Additions		5.2	59.7	10.2	75.1
Arising on acquisition of businesses		-	0.9	-	0.9
Disposals		(2.0)	(116.1)	(1.7)	(119.8)
At 31 March 2009		28.0	514.3	58.3	600.6
Depreciation
At 1 April 2007		(9.3)	(167.9)	(14.4)	(191.6)
Charged in year		(3.2)	(60.7)	(3.7)	(67.6)
Arising on acquisition of businesses		(0.2)	(34.0)	(7.2)	(41.4)
Disposals		0.1	27.0	2.0	29.1
At 31 March 2008		(12.6)	(235.6)	(23.3)	(271.5)
Charged in year		(2.8)	(63.5)	(9.6)	(75.9)
Impairment (note 3)		-	(8.8)	-	(8.8)
Disposals		0.4	77.0	1.4	78.8
At 31 March 2009		(15.0)	(230.9)	(31.5)	(277.4)
Net book value
At 31 March 2009		13.0	283.4	26.8	323.2
At 31 March 2008		12.2	334.2	26.5	372.9
At 31 March 2007		11.1	270.4	14.2	295.7

The net book value of land and buildings comprises:

	2009	2008
	£m	£m
Freehold properties	0.4	2.2
Long leasehold properties	0.7	0.4
Short leasehold properties	11.9	9.6
	13.0	12.2

An impairment review has been completed during the year using the basis set out in note 8. 

An increase of 1% in the discount rate, with all other assumptions held constant, would give rise to an additional impairment provision against hire equipment of £2.7m. A decrease of 1% in the forecast revenue growth, with all the other assumptions held constant, would give rise to an additional impairment charge of £3.9m.

  

11	Borrowings

The Group's bank overdrafts are secured by cross guarantees and debentures given by Group companies in favour of Barclays Bank PLC. The bank loans are secured by a fixed and floating charge over all the assets of the Group. The maturity profile of the borrowings is as follows:

	2009	2008
	£m	£m
Current borrowings
- Finance lease liabilities	0.2	-
Non-current borrowings
Maturing between two and five years
- finance lease liabilities	0.6	-
- term loan	90.0	100.0
- revolving credit facility	170.0	161.8
- un-amortised issue costs	(1.4)	(1.8)
	259.2	260.0
Total borrowings	259.4	260.0
Less: cash at bank and in hand	(11.0)	(4.4)
Net debt	248.4	255.6

The Group agreed revised terms for its loan facilities on 31 March 2009, resulting in changes to the total facility available, repayment schedule, and margin applied to borrowings. The revised facilities comprise a £90m term loan, and a £210m revolving credit facility, both of which expire in June 2012. An ancillary £5m overdraft facility has been made available, which reduces the revolving credit facility by a corresponding amount. 

The term loan facility reduces by £20m in the year to March 2010, £40m in the year to March 2011, and £30m in the year to March 2012. The revolving credit facility reduces by £20m in the year to March 2010.

The revolving credit facility can be drawn for various periods specified by the Company, up to the maturity date, with interest being calculated for the drawn period by reference to the London Inter Bank Offer Rate applicable to the period drawn, plus a margin which during the year ranged from 67.5 to 400 basis points. The effective interest rate applicable to cash deposits during the year was 3.50%. The effective interest rates on bank overdraft and term loans & revolving credit facilities were 3.79% and 4.46% respectively.

12		Analysis of consolidated net debt
		At 1 April 2008	Non-cash movement	Cash flow	At 31 March 2009
		£m	£m	£m	£m
Cash at bank and in hand		4.4	-	6.6	11.0
Borrowings		(260.0)	0.4	0.2	(259.4)
		(255.6)	0.4	6.8	(248.4)

  

13	Reconciliation of movement in consolidated equity

	Share   capital	Share  premium	Merger   Reserve	Hedging   reserve	Retained  earnings	Sub-total	Minority interest	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
Total equity at 1 April 2007	2.3	57.8	3.7	0.5	106.6	170.9	0.2	171.1
Profit for the year	-	-	-	-	23.3	23.3	1.1	24.4
Losses on cash flow hedges	-	-	-	(1.2)	-	(1.2)	-	(1.2)
Dividends	-	-	-	-	(8.7)	(8.7)	-	(8.7)
Cost of share-based payments	-	-	-	-	2.2	2.2	-	2.2
Tax on items taken directly to equity	-	-	-	-	(1.1)	(1.1)	-	(1.1)
Issue of ordinary shares	0.2	53.2	-	-	-	53.4	-	53.4
Total equity at 31 March 2008	2.5	111.0	3.7	(0.7)	122.3	238.8	1.3	240.1
Loss for the year	-	-	-	-	(54.6)	(54.6)	-	(54.6)
Losses on cash flow hedges	-	-	-	(5.3)	-	(5.3)	-	(5.3)
Dividends	-	-	-	-	(10.0)	(10.0)	-	(10.0)
Cost of share-based payments	-	-	-	-	(1.2)	(1.2)	-	(1.2)
Tax on items taken directly to equity	-	-	-	-	(0.2)	(0.2)	-	(0.2)
Minority interest	-	-	-	-	-	-	(1.3)	(1.3)
Total equity at 31 March 2009	2.5	111.0	3.7	(6.0)	56.3	167.5	-	167.5

14	Annual report and accounts

The Annual Report and Accounts for the year ended 31 March 2009 will be posted to shareholders on or about 19 June 2009.

  Principal risks & uncertainties

The Board is fully committed to identifying, evaluating and managing significant risks facing the Group, and has developed a set of processes that enable it to do so. The Board maintains a register listing the strategic, financial and operational risks potentially affecting the Group. These include, but are not limited to, the macro-market and economic conditions in which the Group operates, competitor activities, gearing, regulation and current business projects, including those risks associated with acquisitions. Risks are prioritised according to their expected likelihood of occurring and impact if they were to occur. Impact is evaluated not only in terms of possible financial impact on the Group - loss of income/additional expenditure - but also according to their effects on employees, operational efficiency and stakeholder relations.

From the list of risks identified, ten key risk issues have been identified, the successful management of which is seen as key to the Group's ability to achieve its corporate goals. An Executive Board Director has been assigned to take responsibility for the management of each risk. Overall responsibility for the risk management process rests at Board level with the Group Finance Director. The Board reviews and evaluates the risks of the Group on a half-yearly basis, which ensures that as new risks emerge in connection with projects or general market developments, appropriate actions can be discussed, agreed and taken in a flexible manner.

This table below summaries the small group of risks that were identified as key, together with a short description of monitoring/ mitigation.

Risk & description	Mitigation
1. Reduction in market A downturn in construction / industrial activity, or a decline in the desirability of hiring tools and equipment to fulfill such activity, may decrease the demand for hiring tools and equipment or reduce the prices that the Group can charge for its services.	The Group continually monitors and assesses market capacity by reference to a number of external sources, together with internal data which reports customer, product, and geographical demand. It operates a flexible model that can react to prevailing market conditions.
2. Inability to obtain capital If the Group is unable to obtain sufficient capital in the future, it may be required to reduce or delay capital expenditure, resulting in the ageing of the fleet. This could disadvantage the Group relative to its competitors and may adversely impact its ability to command acceptable levels of pricing.	The Group has committed bank facilities which are reviewed in comparison to capital requirements on a regular basis. Potential sources of finance are assessed on a regular basis. The Group has a long standing relationship with its banking syndicate, and manages its capital requirement through maintaining a short lead time for purchasing equipment, and other expenses.
3. Operating & financial restrictions resulting from existing debt facilities The Group's operating and financial flexibility is restricted by its level of indebtedness and financial covenants, which in the longer term could materially adversely affect its business, financial position or ability to pay dividends.	The Group performs regular financial forecasts covering both short and longer- term projections. The forecasts are intended to provide the Group with early warning of potential capital constraints, or potential breaches of financial covenants. The Group can then take the appropriate action.

  

4. Project implementation In situations where there is a lack of coordination of key strategic projects this may lead to the Group operating in an inefficient manner and, therefore, having an adverse effect on the profitability and/or financial state of the Group.	The Group operates a 'project Board' which reviews the status and progress of each of the key initiatives. Each major project maintains its own risk register and implementation plan, the size and scope of which varies depending on the complexity of the particular project. The Board receives regular progress reports on project developments as part of Board meeting agendas.
5. Business co-ordination Due to the size and nature of the Group, the coordination of individual and collective business and management strategies can be an inherent problem, which may impact upon the Group's financial position and/or profitability.	The Group is implementing the 'One Speedy' initiative, which has as one of its primary principles, the simplification and harmonisation of Group processes. The intention is to align and integrate the Speedy businesses to customers and markets.
6. Interruption or failure of IT and related systems Any interruptions to the Group's IT systems could have a material adverse effect on the Group's business, communication, capabilities, management of projects and overall financial performance. The Group is currently in the process of consolidating its back office function into a new shared service centre ('SSC'). There is a risk of disruption to the business as a result of this change.	Responsibility for the integrity of the Group's IT systems rests with the IT Director. Back-up and recovery procedures are in place for key systems. Changes to Group systems are considered as part of wider change management programmes, and implemented in phases wherever possible. A Project Director has been appointed to oversee the SSC implementation, and is following the Group's project implementation methodology outlined above. A project Board is in place to co-ordinate the transfer of existing functions and processes into the new structure.
7. Increase in competition The equipment rental industry is extremely competitive and highly fragmented. Many of the markets in which the Group operates are served by numerous competitors, ranging from national equipment rental companies to regional independents. Some of the Group's principal competition may have greater financial resources, be more geographically diversified, have greater brand recognition in certain market sectors and may be better able to withstand adverse market conditions within the industry. The Group is generally able to compete on the basis of quality and breadth of service, expertise, reliability, and the price, size, mix and attractiveness of its tool and equipment fleet. These factors are significantly affected by the level of the Group's capital expenditure. If the Group is required to reduce or delay capital expenditure for any reason, any resultant ageing of the hire fleet may place the Group at a disadvantage to its competitors and may adversely impact its ability to command acceptable levels of pricing.	The Group monitors its competitive position closely, with a view to ensuring that it is able to offer its customers the best solution to their requirements. Capital expenditure requirements are assessed as part of the budgeting process, and throughout the year via regular forecasts. Day-to-day capital expenditure requirements are assessed on a needs basis, with limited long-term future ordering commitments.  The Group monitors the performance of its major accounts against market forecasts and individual expectations with a view to ensuring that the opportunities for the Group are maximised.

  

8. Failure / insolvency of major customer Whilst no single customer accounts for more than 5 per cent. of revenue in the event of the loss of a major customer, the revenue generated by the Group could be reduced with a corresponding impact on the Group's market position	Credit control processes are in place to monitor the potential for credit defaults and exposures. This is reported on a regular basis to the executive management team, and where necessary, issues are escalated to resolve payment issues as soon as practicable. Visibility of exposures to individual customer groups is improving through the implementation of the new business information and credit management systems. The Group does not maintain credit insurance since nearly all of its debt exposure is with UK-based customers, and management of the risk of debt default is managed as part of the day-to-day operations of the business.
9. Failure / insolvency of major supplier Availability of supplier credit is an important aspect of the Group's continued operation and financial performance. Any reduction in the availability of supplier credit could adversely impact the Group.	The group undertakes regular reviews and discussions with suppliers to understand potential changes in the marketplace. Reviews are also held with key credit insurers to ensure that they have an up-to-date view of the Groups financial position, allowing supplier credit to be made available if necessary.
10. Government spending cut-back Government expenditure is important across the wider construction industry in the United Kingdom. Any reduction in Government expenditure could adversely impact the Group.	The Group assesses changes in Government spending as part of its wider market analysis. The impact on the Group of reduction in expenditure is assessed as part of the ongoing financial and operational budgeting and forecasting process. Capital resources are made available to growing or stable areas of the business as the need dictates. Expenditure is in most cases made on the basis of sound orders and commitments which cannot be supplied from the existing portfolio of assets in order to meet immediate demand.

  Directors' responsibility statement in respect of the annual financial report (extracted from the Annual Financial Report)

We confirm that to the best of our knowledge: 

The financial statements, prepared in accordance with applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as whole 

The Directors report, Chairman's message, Operating and Financial Review include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

For and on behalf of the Board of Directors 

SJ Corcoran JR Read Director Director 

ENDFR PUUQWAUPBUCM