28th August 2009

Lavendon Group plc ("the Company" or the "Group")

Interim Results for the six months ended 30thJune 2009

Lavendon Group plc, Europe's market leader in the rental of powered access equipment, today announces its Interim Results for the six months ended 30th June 2009.

Financial highlights

• Company has performed in line with Board expectations:

   

  ▪              Revenues £114.0m (2008: £123.0m)
  ▪              EBITDA £40.5m* (2008: £43.9m)
  ▪              Operating profit £14.1m* (2008: £20.7m)
  ▪              Operating profit margin 12.4%* (2008: 16.8%)
  ▪              Profit before tax £5.3m* (2008: £14.2m)
  ▪              Earnings per share 8.75p* (2008: 24.07p)

   

  * Prior to amortisation charges and exceptional items. Amortisation charges totalled £2.1m (2008: £2.3m) and exceptional items totalled £43.2m (2008: £nil). Cash cost of exceptional items £3.6m.

   

  ·   Strong cash generation, and debt reduction programme on plan:

  ▪              Cash generated from operations £31.0m (2008: £34.1m)

  ▪              Capex reduced to £4.8m (2008: £39.5m)

  ▪              Net debt at half year reduced to £273.1m from £305.0m at FY09

  ▪              Debt to pre-exceptional EBITDA is 2.75 times compared to 3.13 times at FY09

  ▪              Group remains fully compliant with its banking covenants

   

  ·   Interim dividend 1.00 pence per share (2008: 3.33 pence per share)

Operational highlights

• Group continues to gain UK market share despite difficult conditions:

   

  ▪              Integration process now complete, delivering an annualised cost benefit of approximately £11m
  ▪              Successful in winning preferred supply deals with a number of prestige customers
  ▪              Gained strong share of Olympics project and anticipate further volume growth
  ▪              Successful acquisition of the trade and certain assets of EPL Access Limited

Kevin Appleton, Chief Executive of Lavendon Group plc said:

"Market conditions in the traditionally quieter first half have been challenging, but the business traded in line with our revised expectations.  The Group was strongly cash generative in the period and our debt reduction plan for the year is on track.

As European market leader, the current economic conditions are providing us with an opportunity to grow our market share, which we will look to continue to do in the second half of the year. We will also continue to manage the business tightly, with a focus on generating cash, to ensure we meet our debt reduction plan for the year."

For further information please contact:

  CHAIRMAN'S STATEMENT

In the first half of the year, the Group's trading performance has reflected the difficult economic environment, and consequently the Group has focused on improving the efficiency of its operations, rationalising the cost base and on the generation of cash to reduce debt levels.

Financial Overview

Group revenues for the six months to 30 June 2009 declined by 7% to £114.0 million    (2008: £123.0 million). On a constant currency basis, Group revenues have decreased by 16%. Operating profits, prior to exceptional items and amortisation charges, were £14.1 million (2008: £20.7 million), with operating margins at 12.4% (2008: 16.8%). 

With net interest costs increasing to £8.8 million (2008: £6.5 million), the Group's profit before tax, amortisation charges and exceptional items was £5.3 million (2008: £14.2 million), with corresponding basic earnings per share of 8.75 pence (2008: 24.07 pence).

Earnings before interest, tax, depreciation and amortisation (EBITDA), prior to exceptional items, were £40.5 million (2008: £43.9 million), with margins steady at 35.5% (2008: 35.6%). After exceptional cash items, EBITDA for the first half of the year was £36.9 million (2008: £43.9 million). Cash generated from operations, including the sale and purchase of rental fleet and other assets, was £31.0 million (2008: £34.1 million). Net cash generated from operating activities, after the payment of interest and tax, was    £18.7 million (2008: £26.0 million).

Amortisation charges totalled £2.1 million (2008: £2.3 million) for the first six months and exceptional items totalled £43.2 million (2008: £nil), of which £3.6 million were cash costs relating to operational restructuring in the UK, Germany and Spain. The non-cash exceptional items of £39.6 million in total related to asset write-downs of £8.8 million in the UK, France and Spain and an impairment of the Group's goodwill and other intangible assets of £30.8 million. The non-cash asset write-down and impairment charges were taken in light of the challenging market conditions that the Group is experiencing in its European operations and the uncertainty on the timing of any future recovery.

After exceptional items and amortisation charges, the Group produced an operating loss of £31.2 million (2008: profit of £18.4 million) and a loss before tax of £40.0 million (2008: profit of £11.9 million), with a corresponding basic loss per share of 78.03 pence (2008: earnings of 20.36 pence).

The Group's capital expenditure during the first half of the year was reduced to £4.8 million (2008: £39.5 million) and this represents the majority of the Group's investment plans for the year. In addition to this investment, amounts owing to equipment suppliers from the previous year-end of £5.0 million were settled, and disposal proceeds of £4.9 million were generated from the sale of retired assets. This combined activity resulted in a net cash outflow relating to capital expenditure of £4.9 million for the period (2008: £24.6 million).

A total of £9.6 million was settled during the period in deferred consideration and redemption of loan notes from acquisitions made in 2008 and earlier years. This was partly financed by a £1.2 million issue of shares.

The continued strength of the Group's cash flows, together with a favourable foreign exchange movement of £26.6 million on the Group's Euro-denominated borrowings (partly reversing the adverse foreign exchange movement of £42.4 million at the 2008 year-end), has enabled the Group to reduce net debt levels from £305.0 million at the previous year end to £273.1 million at the half year. The Group's net debt to pre-exceptional EBITDA, calculated on a rolling 12 month basis, was 2.75 times at the half year, compared to 3.13 times at the previous year-end. The Group remains fully compliant with its banking covenants.

Dividend

The directors are declaring an interim dividend of 1.00 pence per share (2008: 3.33 pence per share). This will be paid on 16 October 2009 to shareholders on the register at the close of business on 11 September 2009.

Business Review

Operating profits quoted within the business review are 'underlying operating profits' stated before exceptional items and amortisation charges. 

UK

Our UK businesses (Nationwide Platforms and Panther) experienced a more difficult market environment during the first half of the year, resulting in a sharp decline in demand. The weakness in demand levels is attributable to a combination of commercial and industrial construction projects being shelved or postponed for a lack of commercial viability or available funding, together with a marked fall in discretionary non-construction activities such as commercial signage.

Conscious of this market environment, we accelerated the final phase of our integration activities in the UK, successfully completing the process in April 2009. Our substantial scale has enabled the overall integration programme over the last 12 months to deliver a reduction in the UK's annual cost base of around £11 million, through reducing the number of depot locations by 34%, decreasing headcount by 28% and scaling back the rental fleet by 13%. Whilst this has been a painful process for all involved, it has increased the business' resilience to the current economic climate and has positioned it to benefit strongly when market conditions improve.

In addition to securing a more efficient cost base, the UK business has been successful in winning preferred supply deals with a number of major clients and prestigious projects, which we believe is increasing our market share. Our fleet, training and accessories range, as well as the information support we are able to provide, allows us to offer genuine efficiency advantages to major customers, which are hard for many smaller competitors to replicate. Additionally, as part of the Construction Site Solutions Consortium, supplying various products into the 2012 Olympic park build programme, we have gained a strong share of the current powered access rental requirement for the project, and anticipate further volume growth in the second half of 2009 and throughout 2010. 

In August 2009, we acquired the trade and certain assets of EPL Access Limited out of administration for a cash consideration of £1.3 million, together with the assumption of £2.8 million of debt. This business is currently being integrated into Nationwide Platforms, a process expected to yield some £1.5 million in cost synergies at a one-off restructuring exceptional cost of £0.5 million. Trading of EPL since acquisition has been in line with our expectations.

Revenues for the first six months declined by 20% to £52.2 million (2008: £65.3 million), with a like-for-like revenue decline, after making adjustments for the acquisition of The Platform Company completed in April 2008, estimated at around 30%. This revenue decline, partly offset by savings from the integration of the UK operations, resulted in underlying operating profits falling to £4.4 million (2008: £9.9 million), with operating margins at 8.4% (2008: 15.2%).  

Germany

The German market has slowed over the first half of the year, with evidence of rate pressure and reduced activity levels across most customer sectors. At the same time, our business has benefited from increased stability, following some post-merger disruption in the first quarter of last year, and this has allowed us to re-gain some market share, albeit in a weakened market.  

To mitigate these market conditions, further actions have been taken to reduce the cost base during the first half of the year. These actions were substantially complete by the end of May and have lowered the annual cost base by around €2.5 million. Opportunities for further substantial cost reductions, through the consolidation of depots and subsequent increase in scale of operations, are limited due to the distances between conurbations. Consequently, additional efficiency gains will be sought through improvements in operational systems and processes over the coming months.  

Euro revenues for the first half declined by 13% however, after adjusting for exchange rate movements, revenues in Sterling grew by 1% to £26.0 million (2008: £25.8 million). Underling operating profits reduced to £1.1 million (2008: £3.3 million), with operating margins declining to 4.2% (2008: 12.8%).

France and Belgium

Whilst markets in both countries have been subdued during the first half, we have sought to manage the impact by reducing overall fleet size and carefully controlling variable costs. These actions should further increase the operational leverage available from the depot network, following the process of depot consolidation undertaken in 2008, once market conditions improve.

In the first half, combined Euro revenues declined by 22% compared to the same period last year, but in Sterling terms revenues reduced by 9% to £14.0 million (2008: £15.4 million). Underlying operating profits for the first half were £1.9 million (2008: £2.8 million), with operating margins declining to 13.6% (2008: 18.2%).

Spain

Spain remains an extremely weak market, with the Spanish industry association for rental, ANAPAT, estimating that there is currently excess capacity of powered access equipment in the market of around 30% and that end-user demand is continuing to decline. During the first half, we have taken actions to reduce the fleet size and headcount costs, and will continue to do so as the year progresses. Our clear focus is to ensure that the business does not create trading or cash pressures for the rest of the Group, whilst we wait for market opportunities to develop.

As a result of reduced volumes and pressure on hire rates, local currency revenues have fallen by 42%, and, in Sterling terms, by 32% to £5.0 million (2008: £7.4 million). This fall in revenue, whilst partly offset by the cost-saving actions, has produced a breakeven result for the first half (2008: profit of £1.6 million).  

Middle East

Our Middle East business has enjoyed another period of impressive growth, driven by an increase in fleet size (average fleet size has increased by almost 500 units, or 45%, compared to a year ago) to meet market demand that continues to develop strongly in many parts of the region. The outlook for major projects remains encouraging for the foreseeable future and we will continue to develop the scale and quality of our business both through investment in people and premises, and further deployment of equipment in the coming months.

Revenues in the region have grown by 39% in local currencies and by 86% on translation to Sterling, reaching £16.9 million (2008: £ 9.1 million). As the mix of our revenue streams moves more towards the higher margin rental business, and away from the sale of new equipment, our underlying operating profits have increased strongly to £6.8 million (2008: £3.0 million), despite the continued drag of expansion costs on our profitability. Operating margins were very healthy at 40.2% (2008: 33.0%).

Summary and Outlook

The European economic climate has deteriorated rapidly and significantly from the fourth quarter of 2008, and visibility of short-term future demand is more opaque than we have ever experienced.

We have responded to these circumstances by accelerating our business consolidation efforts to eliminate duplicate costs and excess fleet wherever possible. Following this consolidation, the Group's European workforce has been reduced by over 270 people in the past 15 months (14% of the total workforce), and similarly the Group's rental fleet has been reduced by some 2,500 units (10% of the total rental fleet). At the same time, we have continued to invest in our Middle East business, re-deploying fleet from our European operations, to meet market demand. The Middle East is now our strongest profit generator, and is likely to remain so in the immediate future, and will remain a priority area for investment and development.

Coupled with these efforts we have maintained a clear focus on cash generation. We significantly reduced our capital expenditure during the first half of the year, to less than £5.0 million, and will continue to limit our requirements until market conditions improve and warrant increased investment. This control, together with our successful drive to generate cash through the disposal of retired rental fleet units and proactive management of working capital, has enabled us to make good progress on debt reduction.

Our profitability is inextricably linked to our revenue performance and this, in turn, is governed by a market environment that remains extremely difficult to predict. Nonetheless, we are confident in our ability to generate strong cash flows to reduce debt levels, and we continue to review ways to accelerate this process of deleveraging, to ensure that the Group remains securely financed and in a position to benefit from the eventual market upturn as well as any further consolidation opportunities that arise in the medium term. 

Whilst demand in July was more subdued than expected, the Group is moving into its traditionally stronger trading half of the year, and provided our normal seasonal patterns prevail for the remainder of the year, the Group should continue to trade in line with management's expectations.

Group income statement (unaudited)

All of the Group's trading activities relate to continuing activities.

Group statement of comprehensive income (unaudited)

Group balance sheet (unaudited)

The condensed consolidated interim financial information on pages 6 to 22 was approved by the Board of Directors on 28 August 2009 and signed on its behalf by:

Analysis of changes in net borrowings (unaudited)

during the six months ended 30 June 2009

  Statement of changes in equity (unaudited)

For the six months ended 30 June 2009

For the six months ended 30 June 2008

  Statement of changes in equity (unaudited) 

For the year ended 31 December 2008

 Notes to the interim financial information (unaudited)

1. The condensed consolidated interim financial information for the six months ended 30 June 2009 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2008, which have been prepared in accordance with IFRSs as adopted by the European Union. This condensed consolidated interim financial information has been reviewed, not audited. The condensed consolidated interim financial information set out on pages 6 to 22 does not comprise statutory accounts for the purpose of section 434 of the Companies Act 2006. Comparative figures for the six months to 30 June 2008 and 12 months to 31 December 2008 have been previously presented in the Group's Interim and Annual reports for 2008 and do not comprise statutory accounts for the purposes of section 240 of the Companies Act 1985. Further details of these and the accounting policies under IFRS as adopted by the European Union are available on the Group's website (www.lavendongroup.com). The Group's statutory accounts for the year to 31 December 2008 have been filed with the Registrar of Companies. The auditors, PricewaterhouseCoopers LLP, reported on those accounts and their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985.  

Except as described below, the accounting policies adopted in this report are consistent with those of the annual financial statements for the year to 31 December 2008, as described in those annual financial statements. 

The following new accounting standards and amendments to existing standards are effective for annual periods beginning on or after 1 January 2009 and have been adopted by the Group:

i) IAS16 (amendment), 'Property, plant and equipment' (and consequential amendment to IAS7, 'Statement of cash flows') (effective from 1 January 2009). The amendment is part of the IASB's annual improvements project published in May 2008. Entities whose ordinary activities comprise renting and subsequently selling assets present proceeds from the disposal of those assets as revenue and should transfer the carrying amount of the asset to inventories when the asset becomes held for sale. A consequential amendment to IAS7 states that cash flows arising from purchase, rental and sale of those assets are classified as cash flows from operating activities. The impact of this amendment on the Group's income statement is to reclassify fleet disposals from operating expenses to revenue and cost of sales. Revenue increases by £4,901,000 to £114,008,000 for the six months ended 30 June 2009 (six months ended 30 June 2008: increase of £6,652,000 to £123,012,000, year ended 31 December 2008: increase of £11,397,000 to £259,767,000). Cost of sales increases by £3,580,000 to £81,630,000 for the six months ended 30 June 2009 (six months ended 30 June 2008: increase of £5,195,000 to £69,761,000, year ended 31 December 2008: increase of £9,510,000 to £149,476,000).  

The impact on the Group's statement of cash flows is to reclassify the purchase and sale of rental fleet assets from investing activities to operating activities, increasing cash generated from operations by £1,413,000 to £30,990,000 for the six months ended 30 June 2009 (six months ended 30 June 2008 increase of £588,000 to £34,117,000, year ended 31 December 2008 decrease of £4,796,000 to £73,311,000).

ii) IAS1 (revised) 'Presentation of financial statements'. The revised standard requires all non owner changes in equity to be presented separately from owner changes in equity. The Group has elected to present non owner changes in equity in a group statement of comprehensive income, separate from the group income statement.

iii) IFRS8 'Operating segments'. For more information see note 2.

iv) IAS23 (Revised) 'Borrowing costs'. There were no material amendments following the adoption of IAS23.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 January 2009 and have not been early adopted:

v) IFRS3 (Revised) 'Business combinations'

vi) IFRIC17 'Distributions of non-cash assets to owners'

vii) IFRIC18 'Transfers of assets from customers'

  2. Segmental analysis

With effect from 1 January 2009, the Group adopted IFRS8 "Operating Segments". This accounting standard requires a "through the eyes of management" approach under which segment information is presented on the same basis as that used for internal reporting purposes. For internal reporting, Lavendon Group is organised into six operating segments based on the geographical locations of UK, Germany, Belgium, France, Spain and Middle East.

Lavendon Group's chief operating decision maker is the Group Executive Board. The Group Executive Board reviews the Group's internal reporting in order to monitor and assess performance of the operating segments for the purpose of making decisions about resources to be allocated. Performance is evaluated based on a combination of revenue and underlying operating profit.

The segmental information for the six months ended 30 June 2008 and year ended 31 December 2008 has been restated to show Belgium and France as separate operating segments as a result of adopting IFRS8 "Operating Segments".

Six months ended 30 June 2009

Note:

The assets and depreciation charge shown for the Middle East operation includes rental equipment owned by the UK operation, but which is used by and costed to the Middle East operation. The inclusion of the assets and depreciation charge in the Middle East more accurately reflects the commercial nature of the arrangement.

The information disclosed for the UK operation includes certain centralised Group costs, assets and liabilities which may relate to the operation and financing of overseas subsidiaries.

Inter segment trading is not significant and therefore has been eliminated in the analysis presented above, so that only trading between the Group and external third parties is represented.

  2. Segmental analysis continued

Six months ended 30 June 2008

Note:

The assets and depreciation charge shown for the Middle East operation includes rental equipment owned by the UK operation, but which is used by and costed to the Middle East operation. The inclusion of the assets and depreciation charge in the Middle East more accurately reflects the commercial nature of the arrangement.

The information disclosed for the UK operation includes certain centralised Group costs, assets and liabilities which may relate to the operation and financing of overseas subsidiaries.

Inter segment trading is not significant and therefore has been eliminated in the analysis presented above, so that only trading between the Group and external third parties is represented.

  2. Segmental analysis continued

Year ended 31 December 2008