RNS Number:0366I
Brandon Hire PLC
27 February 2003
27 February 2003
Brandon Hire plc Full Year Results 2002
Brandon Hire continues to grow through difficult market conditions
Highlights:
* Turnover up 10% to #33.0 m (2001: #30m)
* Profit Before Tax of #3.0 m (2001: #3.3m)
* Earnings per share of 8.2p (2001: 8.8p)
* Dividend growth maintained: dividend per share up to 3.7p (2001: 3.6p)
* Network expanded to 100 branches following addition of 17 new branches
through acquisition and greenfield development: all financed internally
* Establishment of Brandon Loadtite provides an additional income stream
* Organic growth now resumed and reduced cost base should lead to increased
future profitability
Charles Skinner, Chief Executive, said: "2002 was a demanding year for us. In
the first half of the year we did not see the growth in organic profits that we
had anticipated and we were slow to reduce our cost base. Having then taken
steps to rectify this, including making some management changes, we saw organic
growth return in the second half and margins improve once more. We have great
confidence in our ability to deliver increased margins and turnover in 2003,
leading to an improved level of profit. "
John Laycock, Chairman, said: "Despite macro-economic turbulence, our customers
continue to report healthy activity levels. With a tighter cost base in place to
regain our margins, we will resolutely pursue our strategy of well-managed
growth and delivery of increased returns to our shareholders."
Enquiries:
Charles Skinner, Chief Executive Brandon Hire 020 7404 5959 until 2.00pm
Chris Sims, Finance Director Thereafter:
07966 234075/ 07715 760884
Roderick Cameron Brunswick 020 7404 5959
Kate Miller
CHAIRMAN'S STATEMENT
RESULTS
2002 was a weaker year for your company than the previous record year. Mainly as
a result of acquisitions, turnover was up by 10% to #32.9 million but profit
before taxation fell from #3.3m to #3.0m and consequently basic earnings per
share fell from 8.8p to 8.2p. The lower earnings reflect the fall in operating
margins that we experienced, partly as the result of lower profitability from
branches opened or acquired during the year.
Activity in our market was steady but subdued. We saw little organic growth in
our business; this is possibly unsurprising given the 14% growth we experienced
in 2001. We allowed our cost base to increase year-on-year as part of our drive
to increase market share and this contributed to the decline in operating
margins.
DIVIDENDS
Your board is recommending a final dividend of 2.35p, making a total for the
year of 3.7p, a small increase on last year. The record date will be
4th April, 2003 and payment date will be 2nd May, 2003. We are committed to a
progressive dividend policy and we prioritise dividend payments ahead of capital
for expansion.
DEVELOPMENT
During the year we acquired eight businesses, comprising a total of 14 branches,
and opened three new branches. Many of these increased the geographical area
that we can cover, while the acquisition of Loadtite gives us a significant
presence in the specialist lifting market, a product area of increasing
importance. We have now built up our network to 100 branches, a tenfold increase
in less than ten years.
STRATEGY
We continue to focus on the hire of tools and related equipment. We will
continue to establish market leadership in the geographical areas where we
operate and to increase the geographical area we cover. We also remain focused
on return on invested capital and particularly on the ratio of hire income to
fleet cost. This is the most important financial ratio for assessing hire
companies' efficiency and thus their long-term prospects.
The tool hire market remains competitive, but the number of companies involved
is reducing steadily and further consolidation amongst the leading businesses is
inevitable.
Brandon Hire has a strong position in South and South Western England and South
Wales, industry-leading systems, and a highly committed workforce. I believe
that these factors will enable your company to maintain its impressive growth
rate.
STAFF
The year was more demanding for our people. Activity levels in our market were
not as high as 2001, which meant that internal targets were more difficult to
hit. This led to a lower level of bonus for most staff. As the year went on and
the market remained subdued, some cutbacks were instigated. Critically, morale
has remained high. Much has been learned from operating in a slightly more
difficult trading environment. There is a steely determination across the
company to ensure that the slight drop in performance in 2002 will only be a
temporary blip. I draw much comfort from this for our future prospects and thank
our people for their continued commitment, professionalism and enthusiasm.
OUTLOOK
The year has started steadily. We are seeing year-on-year organic growth and we
are running a tighter cost base. These two factors should combine to increase
our profitability in 2003.
John Laycock
Chairman
OPERATING REVIEW
PERFORMANCE
Brandon Tool Hire had a mildly disappointing year. Turnover increased by 10% but
this was largely attributable to new and acquired branches. In 2001 we achieved
organic growth of 14%. In 2002 we anticipated organic growth of 6% but realised
a much smaller increase and were too slow in adjusting our cost base. This was
the primary contributor to our fall in operating profits.
Trading reflected our usual seasonality with a stronger second half. We
experienced two particularly poor months during the year: June was exceptionally
weak due to the Jubilee and the World Cup which disrupted many of our customers'
work patterns, while December was also poor with many customers starting their
Christmas break much earlier than usual. Encouragingly, there was a return to
organic growth of year-on-year turnover in the second half.
Taking the last two years together, it is clear that we have the ability to grow
our share of a market that can itself be expected to grow steadily over the
coming years.
OPERATIONS
We continued to improve our strong operating systems during the year. Our hire
fleet is well-monitored with all equipment immediately locatable and unsuitable
equipment regularly scrapped. Our Health & Safety standards continue to rise and
achieve good external recognition. The quality and presentation of our branches
is steadily improving. Staff turnover is falling. We have every confidence in
the strength of our financial controls.
CUSTOMERS
Our strength on the operational side increasingly enables our business units to
focus on generating business. Our proposition for our customers is strong:
- we have a good reputation for service
- we have a full range of well-maintained equipment
- we have high density of coverage in the areas where we operate
- we have invested heavily in reducing our customers' administration costs.
Like many businesses we have a lot of customer data and we are now in a position
to use that data to generate more business from existing customers, to target
specific areas for new customers and to assess the profitability to us of
individual customers.
We remain committed to serving the full range of tool hire customers from the
largest construction companies to the individual hiring for their domestic
purposes. Our core market remains local tradesmen, as reflected in over 20,000
active accounts. However, we continue to increase steadily our percentage of
turnover with large high-volume customers who are attracted by our ability to
improve their operational efficiency.
DEVELOPMENT
During the year, we expanded our network to 99 branches. This was achieved
through the acquisition of eight businesses, comprising a total of 14 branches,
and the opening of three new branches.
Part of this expansion increased our area of geographical coverage through
acquisitions in Kent, Braintree, Narberth (Pembrokeshire), and Northampton, and
opening new branches in Ashford (Kent), and Wolverhampton. We also acquired
infill branches in Worthing, Saltash, and Willesden, and opened a new branch in
Basingstoke. Some of these branches have been a drag on profitability in the
short term but we are confident that they will contribute strongly as they
settle into the Brandon network.
The most exciting development occurred in November, when we acquired the
business and assets of Loadtite, the specialist lifting equipment division of
Baldwins. Brandon Loadtite, as it is now called, provides us with expertise in
a closely related business area into which we had already been seeking to
expand. Its customer base and geographical coverage, is similar to that of
Brandon Tool Hire, and the business models are highly complementary. In January
2003 we opened a new Brandon Loadtite in Plymouth and others are planned for
later this year. The business and assets were acquired for less than book value
and can be expected to make a healthy contribution to profits in 2003.
There remains a steady stream of acquisition opportunities, both from
independent operators and from companies seeking to move out of non-core hire
activities. This latter group includes companies which use tools and have
historically had an in-house hire function; such outsourcing continues to
generate growth for dedicated tool hire operators. Vendors' pricing expectations
have declined and the right acquisitions will yield a strong return on invested
capital.
We expect to continue our strategy of using a combination of acquisitions and
new branches to strengthen our position in areas where we currently operate and
to increase the geographical area that we cover. This strategy will be applied
to Brandon Loadtite as well as to Brandon Tool Hire.
OUTLOOK
The trend in recent months of a return to organic growth is continuing into the
current year. We have changed the management in our worst performing areas and
there are strong signs that our performance in these areas is beginning to
improve. Our customers report healthy ongoing activity, despite the
macroeconomic turbulence. The level of competition in the market is broadly
stable. We can also expect to continue to attract more business from the very
large hirers, whom we have been steadily targeting over the last two years. We
are determined to keep our cost base tight during the current year. Given all
the above factors, I believe that operating margins and turnover should both
increase in 2003, resulting in increased profit and returns for shareholders.
Charles Skinner
Chief Executive
Profit and loss account FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2001*
Before Acquisitions Total Total
acquisitions
#000 #000 #000 #000
------------------------------------------------------------------------------------------------------
Turnover - continuing operations 30,568 2,369 32,937 30,065
Cost of sales (7,154) (646) (7,800) (6,959)
----------- ----------- ----------- -----------
23,414 1,723 25,137 23,106
Distribution costs (2,888) (146) (3,034) (2,576)
Administration expenses (17,231) (1,514) (18,745) (16,483)
Operating profit before goodwill
amortisation 3,489 79 3,568 4,200
Goodwill amortisation (194) (16) (210) (153)
------------------------------------------------------------------------------------------------------
Operating profit -
continuing operations 3,358 63 3,358 4,047
----------- -----------
Profit on sale of properties 323 -
------------ -----------
Profit on ordinary activities
before interest and taxation 3,681 4,047
Net interest payable (729) (751)
------------ -----------
Profit on ordinary
activities before taxation 2,952 3,296
Tax on profit on ordinary activities (744) (943)
------------ -----------
Profit on ordinary
activities after taxation 2,208 2,353
Dividends (996) (966)
------------ -----------
Retained profit 1,212 1,387
------------ -----------
*restated on adaptation of FRS 19
2002 2001*
pence pence
------------------------------------------------------------------------------------------------------
Earnings per share
Basic earnings per ordinary share 8.2 8.8
Fully diluted earnings per ordinary share 8.1 8.7
*restated on adaptation of FRS 19
Statement of total recognised gains and losses FOR THE YEAR ENDED 31 DECEMBER
2002
2002 2001
#'000 #'000
-----------------------------------------------------------------------------------------------------
Profit on ordinary activities after taxation 2,208 2,353
------------ ------------
Total recognised gains relating to the year 2,208 2,353
------------ ------------
Prior year adjustment re FRS19 (892)
------------
Total recognised gains and losses since last Annual Report 1,316
------------
Balance sheet AS AT 31 DECEMBER 2002
2002 2001*
#'000 #'000
------------------------------------------------------------------------------------------------------
Fixed assets
Intangible assets 3,316 2,654
Tangible assets 18,620 15,771
Investment 200 200
------------ ------------
22,136 18,625
------------ ------------
Current assets
Stocks 2,253 1,636
Debtors 9,223 7,928
Cash at bank and in hand 56 49
------------ ------------
11,532 9,613
Creditors
Amounts falling due within one year 10,068 8,356
------------ ------------
Net current assets 1,464 1,257
------------ ------------
Total assets less current liabilities 23,600 19,882
Creditors
Amounts falling due after more than one year 10,476 8,262
Provisions for liabilities and charges 1,161 927
------------ ------------
Net assets 11,963 10,693
------------ ------------
Capital and reserves
Called up share capital 2,692 2,684
Share premium account 5,951 5,901
Revaluation reserve 313 313
Other capital reserve 10 10
Profit and loss account 2,997 1,785
------------ ------------
Equity shareholders' funds 11,963 10,693
------------ ------------
Approved by the board on 27 February 2003
J S Laycock, Director
C J Sims, Director
*restated on adaptation of FRS 19
Cash Flow Statement FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2002 2001 2001
#000 #000 #000 #000
----------------------------------------------------------------------------------------------
Net cash inflow from operating activities 6,194 6,705
Returns on investments and servicing of finance
Bank and loan interest paid (626) (706)
Interest element of finance lease rentals (103) (45)
----------- -----------
(729) (751)
Taxation paid (864) (226)
Capital expenditure
Payments to acquire tangible fixed assets (3,867) (3,704)
Receipts from sales of tangible fixed assets 2,026 1,625
----------- -----------
Net cash outflow from capital expenditure (1,841) (2,079)
Acquisitions and disposals
Purchase of businesses (2,667) (1,394)
Equity dividends paid (980) (952)
Financing
Issue of ordinary share capital 58 4
New loans received 2,067 -
Repayments of amounts borrowed - (2,500)
Capital element of finance lease rentals (710) (502)
----------- -----------
Net cash inflow/(outflow) from financing 1,415 (2,998)
----------- -----------
Increase/(decrease) in cash in the year 528 (1,695)
----------- -----------
Net cash inflow from operating activities
2002 2001*
#'000 #'000
------------------------------------------------------------------------------------------------------
Operating profit 3,358 4,047
Depreciation charges and goodwill amortisation 3,426 3,010
Profit on sale of tangible fixed assets (193) (255)
Increase/(decrease) in stocks (257) (36)
Increase/(decrease) in debtors (964) 464
Increase/(decrease) in creditors 818 (465)
Increase/(decrease) in provisions 6 (60)
-------------- --------------
Net cash inflow from operating activities 6,194 6,705
-------------- --------------
Reconciliation of net cashflow to movement in net debt
2002 2001*
#'000 #'000
------------------------------------------------------------------------------------------------------
Increase/(Decrease) in cash 528 (1,695)
Increase/(Decrease) in debt and lease finance 1,357 3,002
-------------- --------------
Change in net debt from cashflows (829) 1,307
New lease financing (2,329) (1,128)
-------------- --------------
Movement in net debt in the year (3,158) 179
Net debt at 1 January (11,510) (11,689)
-------------- --------------
Net debt at 31 December (14,668) (11,510)
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