LONDON: Equipment Rental Company Lavendon Group plc. expects revenues to be ahead of expectations due to a “strong” trading performance in 2016 and the weak pound, but it remained cautious over the UK’s economic outlook.
The company saw “strong” rental revenue growth in 2016 due to investment in an additional fleet and improved operational processes, which has driven increased profitability and improved margins.
This trading performance has also benefited from the translational impact of sterling’s weakness on overseas earnings.
The company said that while it is “too early to assess fully the wider economic implications of the UK’s decision to leave the EU, we recognize the uncertainty in the macroeconomic outlook. However we do believe the group remains well positioned to manage this uncertainty, with over 50% of its revenues and profits being derived from outside the UK”.
“As we have seen in 2016, it remains the case that if there is a prolonged period of sterling weakness, the group’s reported results benefit from the translational impact on its overseas earnings which may offer some mitigation should there be any adverse economic consequences on the group arising from the UK’s decision.”
Return on capital employed remains well above its weighted average cost of capital, even though there was an increase in the company’s capital employed due to the expansion of the fleet and the continuation of the self-funded fleet replacement program.
Total rental revenue for the year ended 31 December, excluding ex-fleet equipment sales, increased 15% at actual rates and 8% on a constant currency basis.
For the UK, retail revenue rose 9%, in the Middle East it surged 16% and for continental Europe it was up 2%.
As Lavendon expected, net debt at the end of December increased to £141m, on a constant currency basis, compared to £119m in the previous year. While at actual exchange rates net debt was £157m, due to sterling’s relative weakness against the euro and dollar since the Brexit vote.
The company said that even though net debt has increased, “our strong operational cash generation underpins our ability to operate within our previously stated target leverage range of up to 1.75 times EBITDA (earnings before interest, tax, depreciation and amortization)”.
Chief executive Don Kenny said; “As we move into 2017, whilst recognizing the uncertainty in the macroeconomic outlook, the group is well placed to build on the momentum developed during the past few years and to make further progress in the year ahead.”
