Speedy Hire Regulatory News (SDY)

SPEEDY HIRE Plc

("Speedy" or "the Group")

Results for the six months to 30 September 2015

Speedy, the tools, equipment and plant hire services company, operating across the construction, infrastructure and industrial markets, announces results for the six months ended 30 September 2015 and confirms that the Group expects to deliver a result for the full year in line with the Board's expectations, as detailed in the Company's trading update published on 28 September 2015.

Headline Numbers

1 Before amortisation (£1.3m) and exceptional costs (£14.2m)

2 Based on a rolling 12 month period

Operational Update

· Remedial actions to address legacy performance issues are starting to deliver results

o Reductions in administrative costs expected to deliver full year savings of c.£13m from prior year

o Redistribution of assets across depot network improving asset availability

o Ongoing IT system upgrades providing enhanced management information and an improved customer experience

· Programmes to improve customer retention and acquisition being implemented

o Emphasis on improved customer service provision

o Focus on innovation and differentiation

o Sales function aligned to better address the needs of both Strategic and SME customers

· Full benefits of remedial actions will be realised over the medium term

Commenting on the results Russell Down, Chief Executive, said:

"Following a disappointing and challenging start to the year, reflected in the results we are announcing today, we are beginning to see the benefits of the remedial actions put in place to address the various legacy issues.

These are early days in the Group's recovery and the full benefits will only be realised over the medium term. However, remedial actions implemented to date have started to stabilise our revenue base and we are expecting to see an improvement in the second half.

Whilst our markets remain competitive, Speedy remains a fundamentally good business which in a more lean, efficient and customer-focussed form, has the potential to once again deliver sustainable profitable growth."

Enquiries:

Speedy Hire Tel: 01942 720 000

Russell Down, Chief Executive

John Fahey, Director of Communications

Instinctif Partners Tel: 020 7457 2020

Mark Garraway

Helen Tarbet

James Gray 

Notes to Editors:

Founded in 1977, Speedy is a leading UK provider of tools, equipment and plant hire services to a wide range of clients across the construction, infrastructure, industrial, manufacturing and facilities management sectors - as well as to local trade and industry. The Group provides complementary support services through the provision of training, asset management and testing, repair, inspection and maintenance (TRIM). The Group operates from 212 fixed sites across the UK and Ireland together with a number of on-site facilities.

Forward looking statements

This announcement contains forward looking statements. These have been made by the directors in good faith using information available up to the date on which they approved this report. The directors can give no assurance that these expectations will prove to be correct. Due to the inherent uncertainties, including both business and economic risk factors underlying such forward looking statements, actual results may differ materially from those expressed or implied by these forward looking statements. Except as required by law or regulation, the directors undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

Chief Executive's Statement

Overview

The business had a challenging and disappointing start to the year and this is reflected in the result for the period.

When it became apparent that the Group was experiencing a significant decline in revenue, the Board initiated an urgent review which identified a number of factors including:

· A lack of focus on SME customers

· Poor execution of a number of business improvement programmes, including the implementation of a new IT and Management Information system, resulting in the unavailability of key products in many of our depots

· A lack of ownership, empowerment and accountability within the business

Following the conclusion of the Board's review and the announcement of its findings on 1 July 2015, Mark Rogerson stood down as Chief Executive, Jan Åstrand was appointed Executive Chairman and I was appointed Chief Executive.

We immediately set about implementing a number of remedial actions to address the legacy issues identified:

· A realignment of the sales function to better address the needs of both our Strategic clients and the SME market

· A programme to increase engineering resources, redistribute assets throughout the depot network to improve asset availability, and optimise asset levels

· Improvements to the IT system to enhance management information and the customer experience

· A leaner, more effective operational structure and administrative cost base to more closely align costs with revenues

As a result of these actions:

· We have a clearer understanding of the SME market and are putting in place more targeted initiatives to win business in this core segment

· Our network is increasingly better resourced with the correct types and quantities of assets

· We expect to achieve a reduction in administrative costs for FY2016 of c.£13m against the prior year

Whilst the remedial actions are beginning to deliver results, the full benefits will only be realised over the medium term.

Exceptional costs totalled £14.2m before taxation (2014: £3.7m), and they are included within administrative costs. The programme to reconfigure the depot network has continued in the period, incurring exceptional costs of £2.2m. Costs relating to changing the management structure totalled £3.3m, with the balance of £8.7m incurred in providing for losses on disposal of fleet and the write-off of debts in the International division. This is covered in more detail in the Financial Review.

Our remaining Oil and Gas operation in the Middle East continues to trade at break even.

Results and Dividend

Revenue for the period was £165.0m (2014: £189.3m). UK and Ireland revenue declined by 12.0% to £155.2m (2014: £176.3m), reflecting a decline in core hire revenues, but was also affected by reduced revenues from planned disposals compared to the prior period (2015: £2.1m, 2014: £6.0m). The decline in International revenue reflects the strategy announced in November 2014 to concentrate on Oil and Gas markets.

EBITDA before exceptional costs was £25.6m (2014: £37.5m). Profit before tax, amortisation and exceptional costs for the period was £2.0m (2014: £10.3m).

Earnings per share before amortisation and exceptional costs were 0.29 pence (2014: 1.39 pence).

The interim dividend has been maintained at 0.30 pence per share to be paid on 29 January 2016 to shareholders on the register as at 18 December 2015.

Balance Sheet and Debt Facilities

As at 30 September 2015, net debt was £102.6m (30 September 2014: £104.4m) giving a net debt to EBITDA ratio of 1.69x (2014: 1.38x), on a rolling basis.

The Group continues to operate well within its banking facilities having last year undertaken a re-financing which secured a new £180m 5-year asset-based revolving facility at an improved margin and with agreements in place to support additional funding, if required.

Operations

We have reduced the UK and Ireland headcount since the year end by 298 to 3,167. The reduction has been across the business with a significant cost saving coming from senior and middle management levels. For the full year administrative costs are expected to be c.£13m below the prior year.

As well as implementing the remedial action programmes referred to above, I have taken the opportunity to review progress overall on the business improvement programmes put in place by the previous management.

It was clear that the programmes needed to attach a greater priority to our customers' needs.

We are now rolling out a three-part customer focussed strategy which is essential in a business with over 50,000 customers ranging from large corporations to sole traders.

· Service

We are prioritising improvements to customer service throughout the organisation. It is imperative that our decisions are based on what is best for the customer and that everything we do as an organisation is customer focussed.

Initiatives ranging from in-store hospitality, to reducing paperwork for the customer and the time it takes to hire a piece of equipment will improve the Speedy customer experience and enhance customer satisfaction.

· Differentiation and innovation

Whilst we continue to deliver innovation in the products we bring to our customers, we operate in a commodity driven market with few barriers to entry. We are therefore working on bringing innovation to the service we deliver to our customers, and putting in place measures to improve our systems and processes to make it easy for our customers to do business with us.

We are investing time in talking to our customers, and asking them what they need and want from Speedy. Based on their feedback we are working on a number of initiatives that will introduce new value added products and services that will increasingly differentiate Speedy from its peer group.

· Relationships

We have not invested sufficiently in developing and building long term customer relationships across our customer base. We need to increase the levels of repeat business by anticipating our customers' needs through getting to know them better.

As part of this focus on all customers, from our national Strategic clients to our 50,000 strong SME base, we will be upgrading our Customer Relationship Management systems which will assist with availability of equipment based on real-time intelligence as we build relationships from the ground up.

Board and People

Mark Rogerson stepped down as Chief Executive Officer on 1 July 2015. On the same date Jan Åstrand, who joined the Board and became Non-Executive Chairman in November 2014, was appointed Executive Chairman and I was appointed Chief Executive in addition to my role as Group Finance Director.

We are making progress in selecting a new Group Finance Director and will make an appointment on an interim basis ahead of a full-time replacement being announced.

I would like to thank all of our people for their commitment and resilience over a very difficult period. We still have a long way to go and a lot of hard work ahead of us.

Outlook

Following a disappointing and challenging start to the year, reflected in the results we are announcing today, we are beginning to see the benefits of the remedial actions put in place to address various legacy issues.

These are early days in the Group's recovery and the full benefits will only be realised over the medium term. However, remedial actions implemented to date have started to stabilise our revenue base and we are expecting to see an improvement in the second half.

Whilst our markets remain competitive, Speedy remains a fundamentally good business which in a more lean, efficient and customer-focussed form, has the potential to once again deliver sustainable profitable growth.

Russell Down

Chief Executive

Results

Revenue for the period decreased by 12.8% to £165.0m (2014: £189.3m) as a result of lower hire revenue in UK and Ireland, and the concentration on Oil and Gas business in the International division. Revenues from planned disposals amounted to £2.1m (2014: £6.0m).

Gross margin decreased to 57.0% (2014: 58.5%) reflecting a slight decline in core hire margins together with a greater proportion of lower margin services. The resulting gross profit of £94.1m (2014: £110.7m) declined by 15.0%.

Group operating profit before amortisation and exceptional costs decreased to £4.5m (2014: £13.8m). Profit before taxation, amortisation and exceptional costs decreased to £2.0m (2014: £10.3m). After taxation, amortisation and exceptional costs, the Group made a loss of £11.4m compared to a profit of £2.9m during the same period in 2014.

Adjusted earnings per share before amortisation and exceptional costs were 0.29 pence (2014: 1.39 pence) with the basic loss per share after exceptional costs and amortisation of 2.21 pence (2014: earnings per share 0.56 pence).

Segmental analysis

The Group's segmental reporting is reported as UK and Ireland Asset Services and International Asset Services. The figures in the tables below are presented before corporate costs.

1 before exceptional costs

Revenue in UK and Ireland Asset Services totalled £155.2m, representing a decline of 12.0% (10.1% before planned fleet disposals). EBITA margin before exceptional costs was 4.5% (2014: 11.5%).

1 before exceptional costs

Revenue in International Asset Services decreased by 24.6% to £9.8m (2014: £13.0m), as a result of the decision to exit the loss-making general and spot hire market in the second half of FY2015. The retained core hire activity is now profitable, and supported by a wider Partnered Services business which represents an increased proportion of overall activity.

Exceptional costs

Exceptional costs totalled £14.2m before taxation (2014: £3.7m), and they are included within administrative costs.

The programme to reconfigure the depot network has continued in the period, incurring exceptional costs of £2.2m. Costs relating to changing the management structure totalled £3.3m, with the balance of £8.7m incurred in providing for losses on disposal of fleet and the impairment of a receivable as part of the International asset disposals in February 2015, together with outstanding trading balances.

The Group has made the impairment following default by the purchaser on outstanding payments. The Group continues to pursue payment of the outstanding amounts, however in the absence of any assurances regarding likely settlement, a provision has been made against balances outstanding amounting to £7.5m.

Interest and taxation

Interest expense in the period fell to £2.8m (2014: £4.2m) as a result of the refinance in September 2014.

The tax credit for the period (£2.1m) represents an effective tax rate of 42.9% pre-exceptional costs (2014: 34.4%); 15.6% post exceptional costs. This has been calculated by reference to the projected charge for the full year ending 31 March 2016.

Dividend 

The Board has maintained the interim dividend at 0.30 pence per share, a total cash cost of approximately £1.6m. The FY16 interim dividend will be paid on 29 January 2016 to shareholders on the register on 18 December 2015.

Capex and disposals

Purchases of property, plant and equipment during the period amounted to £43.4m (2014: £48.4m), of which £37.7m (2014: £39.1m) related to investment in equipment for hire and the balance principally to investment in IT infrastructure and improvements to the property network.

Proceeds from the disposal of property, plant and equipment amounted to £9.3m in the period (2014: £11.2m). Group net capex totalled £34.1m (2014: £37.2m). Asset disposals generated a loss of £0.4m (2014: gain £1.8m) against their carrying value.

Cash flow and net debt

Cash from operations before changes in hire fleet amounted to £41.7m (2014: £25.9m) reflecting an improvement in the management working capital compared to the prior period. After investment in hire fleet, the depot network and IT, free cash flow (before dividends and financing activities) amounted to an inflow of £5.0m (2014: outflow £19.0m).

Net debt reduced in the period to £102.6m (31 March 2015: £105.3m) with net debt to EBITDA (rolling 12 months) at 1.69x (31 March 2015: 1.45x) and gearing increasing slightly to 46.7% (31 March 2015: 45.0%).

Headroom within the Group's committed £180m bank facility amounted to £56.4m at 30 September 2015 (31 March 2015: £55.0m). The facility contains 'springing' covenants in respect of Leverage and Fixed Charge cover, which are only tested if headroom on the facility is less than £18m. The facility is currently covenant-free.

Balance sheet

Net assets at 30 September 2015 totalled £219.8m (31 March 2015: £234.0m), equivalent to 42.10p per share. Net debt/net tangible fixed assets is 0.38x at 30 September 2015 (31 March 2015: 0.38x), underlining the strong asset backing within the business.

Net capex in the period was £13.0m (2014: £14.6m) above the Group's depreciation charge. Net property, plant and equipment amounted to £267.4m at 30 September 2015 and is therefore higher than at the beginning of the period (£253.3m). Equipment for hire represents approximately 84% (31 March 2015: 84%) of net property, plant and equipment of which £9.6m (31 March 2015: £8.6m) relates to International Asset Services.

Intangible assets have been tested for impairment at 30 September 2015 on a basis consistent with March 2015. Changes to the discount rate and revisions to forecast cash flows in the period have reduced the surplus recoverable amount over carrying value of assets for the UK and Ireland division.

Gross trade receivables totalled £97.3m at 30 September 2015 (30 September 2014: £106.7m). Bad debt and credit note provisions totalled £13.5m at 30 September 2015 (30 September 2014: £5.9m), equivalent to 13.9% of the debtor book, including provisions made through exceptional items in the period (2014: 5.5%).

Principal risks and uncertainties

The Group faces a number of risks and uncertainties which could have a material impact upon its long-term performance. These risks are both internal and external. The Board has an established set of processes which assists in the identification, evaluation and management of these risks.

The principal risks and uncertainties facing the Group at 31 March 2015 were set out on pages 31 to 33 of the 2015 Annual Report (a copy of which is available from the Group's website at www.speedyservices.com). These risks remain valid as regards their potential to impact the Group during the second half of the current financial year and no new significant risks have been identified during the current period.

1 Basis of preparation

Speedy Hire Plc ('the Company') is a company incorporated and domiciled in the United Kingdom. The interim financial statements of the Company as at and for the six months ended 30 September 2015 comprise the Company and its subsidiaries (together referred to as 'the Group').

The financial statements of the Group for the year ended 31 March 2015 are available from the Company's registered office, or from the website: www.speedyservices.com.

The Group meets its day to day working capital requirements through operating cash flows, supplemented as necessary by borrowings. The Directors have prepared cash flow projections for the period to March 2017 which show that the Group is capable of continuing to operate within its existing loan facilities and can meet the covenant tests set out within the Facilities. The key assumptions on which the projections are based include an assessment of the impact of future market conditions on projected revenues and an assessment of the net capital investment required to support the expected level of revenues.

Whilst the Directors consider that there is a degree of subjectivity involved in their assumptions, on the basis of the above the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis of accounting in preparing the interim financial statements.

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS34 Interim Financial Reporting as adopted by the European Union (EU) and the Disclosure and Transparency Rules (DTR) of the UK FCA. As required by the latter, the interim financial statements have been prepared applying the accounting policies and presentation that were applied in the Company's published consolidated financial statements for the year ended 31 March 2015 except as described below. They do not include all the information required for full annual financial statements, and should be read in conjunction with the Group's consolidated financial statements as at and for the year ended 31 March 2015.

The comparative figures for the financial year ended 31 March 2015 are not the Company's statutory accounts for that financial year. Those accounts which were prepared under IFRS as adopted by the EU (adopted IFRS) have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The interim report was approved by the Board of Directors on 9 November 2015.

Significant accounting policies

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 March 2015.

The International Accounting Standards Board (IASB) and International Financial Reporting Interpretations Committee ('IFRIC') have not issued any standards or interpretations which have been endorsed by the EU at 30 September 2015, with an effective date of implementation after the date of these Financial Statements.

Seasonality

In addition to economic factors, revenues are subject to a small element of seasonal fluctuation largely driven by certain UK public holidays and their impact on the billing cycle, resulting in marginally fewer trading days in the second half of the year. In this financial year the Easter break fell into the first half of the year, helping to balance the trading impact of the Christmas and Easter break in the second half.

Whilst construction activity tends to increase in the summer months, the equipment range helps to mitigate the impact, specifically with heating, lighting and power generation products being more heavily required in the winter months. Overall, the Directors do not feel that these factors have a material effect on the performance of the Group when comparing first half results to those achieved in the second half.

2 Changes in estimates

The preparation of interim financial statements requires management to make judgements, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing the interim financial statements, the significant judgements made by management in applying the Group's accounting policies and key sources of estimation uncertainty for the consolidated financial statements for the year ended 31 March 2015 continued to apply.

3 Exceptional items

During the period, exceptional administrative costs of £14.2m have been incurred as the business finalised the roll out of its new network structure, restructured its operations and provided for an impairment of a receivable as part of the International asset disposal, together with outstanding trading balances.

Exceptional costs of £2.2m were incurred in the period as the programme to reconfigure the depot network was finalised. These costs include provisions for onerous leases which remain as a result of the changes and costs relating to implementing the change programme.

Costs relating to changing the management structure totalled £3.3m, including redundancy costs and related expenditure.

Further costs have been incurred in exiting the International general and spot hire markets relating to disposals and professional fees, amounting to £1.2m.

The Group has made a provision against outstanding debts relating to International asset disposals in February 2015, together with outstanding trading balances, following default by the customer on outstanding payments. The Group continues to pursue payment of the outstanding amounts, however in the absence of any assurances regarding likely settlement, a provision has been made against balances outstanding amounting to £7.5m.

4 Segmental analysis

The segmental disclosure presented in the financial statements reflects the format of reports reviewed by the Chief Operating Decision Maker (CODM). UK and Ireland Asset Services deliver asset management, with tailored services and a continued commitment to relationship management. International Asset Services deliver major overseas projects and facilities management contracts by providing a managed site support service.

For the six months ended 30 September 2015

For the six months ended 30 September 2014

For the year ended 31 March 2015