lavendon group plc 2006 preliminary results presentation march 2007

Lavendon Group plc2006

Preliminary Results Presentation

March 2007

2

Agenda

• Highlights

• Financial performance

• Cash flow and debt management

• Strategy and trading review

• Summary and outlook

3

Agenda

• Highlights





4

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

5

Agenda

• Highlights





6

Summary of 2006 Preliminary ResultsYear Year

Ended Ended %£'Sterling 31-Dec-06 31-Dec-05 Movement

Turnover 124.7m 100.0m 25%

EBITDA 38.3m 29.8m 29%

Operating profit 12.7m 7.3m 74%

Profit before tax 7.7m 2.9m 165%

Profit after tax 6.9m 0.9m

EBITDA margin 30.7% 29.8%

Operating profit margin 10.2% 7.3%

Earnings per share 18.09p 2.40p

Dividend per share 3.00p 2.25p 33%

Cash generated from operating activities 29.6m 25.3m 17%

7

Group Turnover 2006

62

61

81

28 2122

57 7 4 4 4

7 8 10

108100

125

0

20

40

60

80

100

120

£'milli

ons

UK Germany France Spain Middle East Total

2004 2005 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

8

Group Operating Profit

7.3

8.3

12.2

-3.4 -3.2

-1.9

-0.6 -0.5 -0.5

0.4

2.7 2.7 2.5

5.7

7.3

12.7

-5

0

5

10

15

£'milli

ons

UK Germany France Spain Middle East Total

2004 2005 2006

• 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

9

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

0.1

2.9

7.7

-1.7

0.9

6.9

-2

3

8

£'m

illion

s

PBT PAT

2004 2005 2006

10

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)

-3.43

2.40

18.09

2.25 2.25

4.50

-5

0

5

10

15

20

£'milli

ons

EPS DPS

2004 2005 2006

11

Agenda

• Highlights





12

31.4 29.8

38.3

0

5

10

15

20

25

30

35

40

2004 2005 2006

29.131.2

36.9

0

5

10

15

20

25

30

35

40

2004 2005 2006

EBITDA Cash Generated from Operations

EBITDA and Cash Flow for 2006

29.1% 29.8% 30.7%EBITDA Margin %

Acquisitions

£5.9m

13

Application of Cash Flow

36.9

61.7 7.3

1.4

25.7

37.3

13.4 9.4

99.0

1.5

0

20

40

60

80

100

OpeningDebt

OperatingCash

InterestTax

Dividend Capex Acq' Debtassumedon Acq'

Shareissue

proceeds

FXmovement

ClosingDebt

£'m

illio

ns

14

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%

2.3

26.20

8.2

22.4

35.5

25.7

0

10

20

30

40

£'millio

ns

2004 2005 2006

Capex Depreciation

15

Acquisitions

£'millions Panther Kestrel AMP Gardemann Total

Cost : cash 8.3 6.0 4.1 25.7 44.1shares issued 2.0 9.1 11.1

10.3 6.0 4.1 34.8 55.2

Amount deferred 3.0 1.5 1.0 11.1 16.6

Net assets acquired 2.7 1.9 2.9 6.5 14.0

Fair value adjustments 0.0 0.2 -0.3 5.7 5.6

Intangibles recognised 0.7 0.4 0.2 1.4 2.7

Goodwill recognised 6.9 3.5 1.3 21.2 32.9

Debt assumed within net assets 6.3 0.6 3.6 2.9 13.4

Cash acquired 1.5 0.2 0.9 3.3 5.9

Fleet 1350 350 525 1750 3975

Depots 6 1 4 23 34

Employees 90 27 57 230 404

16

Financing

• 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%

99

62

114 110

89

0

20

40

60

80

100

120

2002 2003 2004 2005 2006

£'m

illion

s

Fixed rates Variable rates

2.58

2.08

2.833.063.17

Level of net debt and Debt to EBITDA Ratio

17

Agenda

• Highlights





18

Strategy for Growth

• 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

“Building scale intelligently”

19

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

20

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

21

UK - Review

• 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

0

1,000

2,000

3,000

4,000

5,000

6,000

H2

1997

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Units on Hire

Revenue/Unit on Hire - Index

22

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

23

Market Review -Germany

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

2002 2003 2004 2005 2006 (F)

Growth in market capacity Growth in market demand

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

24

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

25

Germany - Review

• 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

0

500

1000

1500

2000

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H2 1

998

H2 1

999

H2 2

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H2 2

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Units on Hire


26

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

27

Middle East - Review

• 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

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100150

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Units on Hire

28

France - Review

• 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

0

100

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29

Spain - Review

• 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

0

50

100

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300

350

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H1 2

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H2

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H2

2006

Units on Hire


30

Agenda

• Highlights





31

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

Questions

lavendon group plc 2006 preliminary results presentation march 2007

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