Major UK contractors reduce rental spending in 2010

The top 75 customers for equipment rental in the UK last year reduced their total spend on rental by more than 10% last year according to the latest Plant Hire Investment Report by UK analyst Catherine Stratton.

The top 75 customers spent an average £12.3 million in the 2010/11 financial year, totalling £923.5 million, said the report. Forty-four of the top 75 spenders reduced their rental expenditure last year and 21 cut spending by between 20% and 55%.

"Many construction companies have experienced sharp declines in revenues as their workloads have fallen dramatically, but we are seeing hire expenditure plunge even more steeply", wrote Mrs Stratton in the report, "This is indicative not only of the pressure on hire rates but also of the shortening of hire periods."

Mrs Stratton makes the point that the UK is an extremely mature rental market so there is less scope for these falls to be offset by increases in rental penetration such as may occur in markets like the US or continental Europe. In these countries, contractors may use times of recession or weak demand to switch to rental to reduce costs or as a way of minimising risks.

Overall, Mrs Stratton said the outlook for the UK rental sector remained uncertain; "This year we are seeing some signs of a muted recovery in the [plant hire] sector with company revenues and profits now showing signs of tentative growth. Balance sheets have been repaired and leading companies are beginning to invest again.

"The critical question is whether this can be sustained against a background of a generally struggling economy and a specifically struggling construction sector. It is hard to believe it can."

She forecasts further rental company closures and rationalisation in the sector. "It is sad to say that we are almost certainly going to see a continuing stream of smaller companies either going into administration or just withdrawing from the market.

"It is, however, not beyond the realms of possibility that some larger companies (especially unquoted ones) will also find themselves under considerable financial pressure over the next year. In current circumstances, further rationalisation looks inevitable over the medium term."

Total rental revenues from the top 75 rental companies was £4.39 billion, which is 7% higher than a year ago. However, these figures include operations outside the UK, which is very significant for companies like Aggreko, Ashtead and Lavendon.

Aggreko was top of the list for rental revenues, followed by Ashtead Group, Speedy Hire, Lavendon and HSS Hire. The fastest growing company was powered access renter Kimberly Access, with Northridge and Quattro Group in second and third place.

Hewden topped the list of companies with the best year-on-year change in trading profits, followed by Kimberly Access and Northridge.

The Plant Hire Investment Report is available for £499 (paper copy) or £899 (in electronic format). For more information, see www.phir.co.uk.