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Trading statements

Lavendon revenue up

14 July 2016 07:56

Lavendon (LVD) announced it is confident of delivering its expectations for the full year.


- Group total revenue for the first half increased by 11%, with rental revenues up 9%

- UK rental revenues increased by 7%

- Middle East rental revenues increased by 22%

- Continental Europe rental revenues increased by 3%

- Short-term impact on margins from investment expected to unwind over second half

- German restructuring continues on track to be fully operational during Q4

The group's total revenue for the six months ended 30 June 2016, on a constant currency basis and excluding ex-fleet equipment sales, increased by 11% compared with the prior year, with rental revenues increasing by 9%.

Based on actual exchange rates, the group's total revenue (excluding ex-fleet equipment sales) increased by 15% with rental revenues increasing by 13% over the first half.

In the UK (44% of total Group rental revenues), market share gains drove strong volume growth that generated a 7% year on year increase in rental revenues in the first half (8% in Q2).

This increased rate of revenue growth reflects the benefits of the additional strategic investment made in 2015 to improve the scale and mix of the fleet, together with better fleet availability through the increased efficiency of our transport and maintenance operations.

During Q2, we also increased the level of investment in the UK above that originally planned for 2016 by an additional £7 million, adding capacity on selected high demand units.

While the cost of these investment decisions has tempered margin progression in the first half, we expect these costs to be fully absorbed over the balance of the year and for the UK business to deliver another year of margin improvement.

Our Middle East business (29% of total Group rental revenues) has continued to deliver significant revenue growth, with increased utilisation of an enlarged fleet delivering 22% year on year growth in rental revenue across the first half (23% in Q2).

Revenue growth from our operations in the UAE, Kuwait, Oman and Qatar has continued to more than absorb a decline in our higher margin Saudi Arabian business.

As previously reported, we have moderated our planned investment in 2016 for the region, compared to recent years, and this is being directed towards those markets demonstrating strong growth.

Given this more modest investment spend and a broadly stable working capital profile, we expect to increase the level of free cash generated from the region during the year.

Rental revenues in Continental Europe (27% of total group rental revenues) increased by 3% year on year in the first half (3% in Q2), with continued volume growth driving revenues higher in France (+10%) and Belgium (+2%) which more than offset a weaker performance in Germany (-2%).

The previously announced programme to restructure our German business continues to progress as planned and is on track to be fully operational during the fourth quarter of this year.

In summary, the Group has delivered strong rental revenue growth in the first half reflecting the benefits of the investment in additional fleet and operational processes to improve fleet availability.

While the cost of these investments has constrained our operating margins in the first half, our overall profitability has continued to improve and we expect these investment costs to be fully absorbed over the second half of the year.

The Group's ROCE remains firmly above its weighted average cost of capital notwithstanding the increase in the Group's capital employed as we expanded the fleet and our self-funded fleet replacement programme continues.

During the first half, exceptional costs of c.£2.5m have been incurred relating to the restructuring programme in Germany and the re-integration of the previously out-sourced UK transportation function.

As expected the group's net debt level at 30 June 2016 increased to £138 million, on a constant currency basis, relative to £119 million at the 31 December 2015.

At actual exchange rates, the group's reported net debt position at 30 June 2016 was £150 million reflecting sterling's relative weakness against the Euro and US dollar at the half year following the UK's vote to leave the European Union (EU).

With the group's strong operational cash flows and planned investment programme for 2016, the group continues to operate comfortably within our previously stated target leverage range of up to 1.75 times EBITDA.

While it is too early to fully assess the wider economic implications of the UK's decision to leave the EU, we recognise the increased uncertainty in the macroeconomic outlook.

We do however believe the group remains well positioned, with over 50% of its revenues, profits and cash flows being derived from outside the UK.

Should there be a pro-longed period of Sterling weakness, the group's reported results would benefit from the translational impact on its overseas earnings which offers some mitigation should there be any adverse economic consequences on the Group arising from the UK's decision.

Lavendon chief executive Don Kenny said: "The Group's trading performance in the first half has seen the delivery of strong revenue growth building on the momentum established towards the end of 2015.

"This growth reflects the benefits of our strategic investment programme in 2015 to strengthen our market positions in all regions, and the continued operational improvements made during the first half to support the delivery of our growth plans.

"Given the encouraging trading performance in the first half, together with the degree of resilience provided by our international operations, the Board remains confident of making further progress during the year and delivering on its expectations for 2016."

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