Lavendon Group plc 2006 Preliminary Results Presentation

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Lavendon Group plc2006Preliminary Results
Presentation

• March 2007

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Agenda

• Highlights
• Financial performance
• Cash flow and debt management
• Strategy and trading review
• Summary and outlook

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Agenda

• Highlights
• Financial performance
• Cash flow and debt management
• Strategy and trading review
• Summary and outlook

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Highlights

• Results ahead of expectations
• Revenue increased by 25
• EBITDA increased by 29
• Operating profit increased by 74
• Four acquisitions completed in the year at a cost
  of 55.2m
• UK growing revenues and margins
• German turn-around accelerating
• Middle East market continues to be strong
• Dividend doubled

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Agenda

• Highlights
• Financial performance
• Cash flow and debt management
• Strategy and trading review
• Summary and outlook

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Summary of 2006 Preliminary Results
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Group Turnover 2006

• UK growth driven by acquisitions and better
  utilisation of combined fleets
• German growth rates accelerated in 2nd half
• Growth in Middle East driven by increased fleet
  in response to demand

Acquisitions 19.4m
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Group Operating Profit

• UK margins improved through acquisitions and
  efficiency of existing business
• German revenue growth now reducing losses at a
  greater rate
• Middle East profits suppressed by transport and
  duty costs in the year

Acquisitions 3.5m
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Group Profit Before and After Tax

• PBT increased by over 2.5x, despite higher
  interest costs
• PAT benefited from low effective tax rate of 12,
  due to increased scope to use German tax losses

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Earnings and Dividend per Share

• Number of shares in issue increased by 10 during
  the year, following acquisitions
• EPS increased seven fold with tax benefit, almost
  six fold on a normalised basis
• Final dividend proposed of 3.00 pence, making
  total dividend 4.50 pence
• Dividend is covered 3.8 times under UK GAAP (2.9
  times without tax benefit)

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Agenda

• Highlights
• Financial performance
• Cash flow and debt management
• Strategy and trading review
• Summary and outlook

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EBITDA and Cash Flow for 2006
Acquisitions 5.9m
EBITDA
Cash Generated from Operations
EBITDA Margin
29.1
29.8
30.7
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Application of Cash Flow
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Capex and Depreciation

• No changes to depreciation policies
• Capex includes 11.9m settlement of lease
  residuals
• Expansion capex directed at Middle East and UK
• Depreciation as a of revenue reduced to 20.6
  from 22.4

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Acquisitions
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Financing
Level of net debt and Debt to EBITDA Ratio

• Issued equity to vendors of businesses acquired
  raising 9.4m
• Increased bank facility to 99m, with further
  scope for reducing margins
• Current net debt at a comfortable level, with
  gearing at 105 (2005 80) and 2.58 debt to
  EBITDA ratio
• Interest cover
• 7.8x EBITDA
• 7.5x cash generated from operations
• 2.6x operating profit
• Blended interest rate is 5.05

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Agenda

• Highlights
• Financial performance
• Cash flow and debt management
• Strategy and trading review
• Summary and outlook

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Strategy for Growth
Building scale intelligently

• Having established a strong operational platform
  in the UK and Germany our principal focus is to
  consolidate our position in those markets
• Further investment in the Middle East strengthens
  our position as market leader and generates
  excellent returns
• Our investment strategy in France and Spain will
  be governed by our own business performance,
  other opportunities and our evaluation of market
  dynamics

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Market Review - UK

• Market steady at the start of the year but
  improved as the year progressed
• Forecasts for market growth are solid, supported
  by major construction projects
• Manufacturer lead times remain extended for most
  equipment types

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Business Review - UK

• Approach during the year has been to
• Acquire market capacity when opportunities arise
  that meet specific criteria
• Secure revenue streams of acquired businesses
• Increase overall asset utilisation through
  re-hire operations
• Target expansion investment into growing market
  sectors
• Enhance margins of existing business through
  efficient operation and fleet re-balancing

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UK - Review
Units on Hire

• Revenues up 33 to 81.3m (61.1m)
• Operating profits up 47 to 12.2m (8.3m), with
  margins up from 14 to 15
• Existing business improved margins from 13.6 to
  14.2
• Acquired businesses produced 3.5m of operating
  profit at a margin of 17.6
• Inter-company rehire generated 1.0 m of the
  additional margin

Revenue/Unit on Hire - Index
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Market Review - Germany

• BBI forecast market value growth in Germany at
  around 3.5 in 2006
• The market has been improving recently and our
  members report positive expectations for 2007, as
  a result of the improved economic situation in
  Germany as a whole, and in construction in
  particular German industry association
• Forecasts for market growth are now above those
  for the UK, and ability to add capacity is
  limited in the short term

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Market Review -Germany
Source Chalcraft consulting
The German market has been working through an
historic over-supply problem. Competitors
capital constraints, market consolidation and
manufacturers capacity constraints, together
with stronger market conditions should see this
situation ease
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Business Review - Germany

• Approach during the year has been to
• Stabilise staffing and service levels following
  restructure in previous year
• Provide platform for targeted rate increases as
  market improved
• Work to further reduce the overhead burden of the
  business
• Facilitate step-change in performance through
  acquisition

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Germany - Review
Units on Hire

• Revenues increased by 3 to 21.8m (21.1m), with
  rate of increase accelerating in the 2nd half
• Losses reduced to 1.9m (3.2m)
• Acquisition of Gardemann doubles scale of
  business
• Integration now under way, with 2.4m of
  annualised synergies expected

Revenue/Unit on Hire - Index
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Business Review Middle East

• Market review undertaken and decisions made to
• Increase scale of business to benefit from market
  strength, whilst maintaining underlying margins
• Improve returns by using refurbished ex-European
  equipment wherever possible
• Support growth by strengthening management,
  engineering resources and IT systems

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Middle East - Review
Units on Hire

• Revenue increased 37 to 10.3m (7.5m)
• Fleet increased by 75 across the year to 740
  units, further 300 additions planned in 1st half
  of 2007
• Operating profits were 2.5m (2.7m)
• Profitability subdued by fleet increase, as
  transport and import duty costs of 0.5m were
  incurred (one-off cost)
• Group ERP system to be implemented in H1 2007

Revenue/Unit on Hire - Index
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France - Review
Units on Hire

• Revenue increased by 6 to 7.1m (6.7m)
• Operating loss marginally reduced to 493,000
  (521,000)
• Depot network reduced to six key locations with
  increased average fleet size
• No further investment until operation becomes
  profitable

Revenue/Unit on Hire - Index
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Spain - Review
Units on Hire

• Revenues up 17 to 4.2m (3.6m), driven mainly
  by rate increases
• Operating profit of 0.4m (breakeven)
• A small business but well managed and now
  profitable, with scope for further growth

Revenue/Unit on Hire - Index
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Agenda

• Highlights
• Financial performance
• Cash flow and debt management
• Strategy and trading review
• Summary and outlook

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Summary and Outlook

• Market situation improving in all main markets
• Acquisitions performing well
• Profitability and margins improving
• Debt EBITDA ratio at a comfortable level
• Financial headroom exists to support further
  growth
• Structural solution to German problem
  implemented
• Trading in the new year has been strong and
  provides optimism for the remainder of the year

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Questions