Signs of a slowdown

The caution that crept in to Europe’s last set of results deepened in the third quarter ERA/IRN RentalTracker.

A noticeable shift in sentiment towards more caution and less confidence was recorded in the previous ERA/IRN RentalTracker survey for the second quarter of 2014 – and this trend has continued into the third quarter, the survey for which was undertaken at the end of September and mid-October.

Across Europe, the balance of opinion on current conditions (the difference between the proportions of respondents reporting improvements and those reporting deteriorating conditions) fell to +1.7% for the three months to the end of September, compared to +33% for the quarter before.

This drop was driven by large falls in Italy (where the balance plummeted from -13% in the second quarter to -72% in the third quarter), France (where the balance fell from -7% to -40%) and Spain (dropping to -33% compared to 0% in the second quarter).

In fact no region escaped unscathed, with the balance of opinion dropping across the board – even in the most confident regions of the UK, Germany and Benelux, but here at least the balance remained in positive territory. Meanwhile, the balance of opinion among respondents from multinational countries stood at 0%, down from +6.7% in the last quarter.

Shift

There could be a range of reasons for this shift in confidence, but most likely is the perceived slowdown in Europe’s economic recovery. The impact of this has been plain to see in many third quarter and nine-month financial results announcements from rental companies around Europe, where revenues and profits have been hit by slower-than-expected demand.

Across Europe, 16% of respondents to the third quarter survey said they expected business to be more than 10% higher year-on-year for 2014 as a whole, while 24% thought business would be between 5% and 10% higher, and 32% thought it would be stable. A -5% to -10% drop in business was predicted by 18% of respondents, while 10% said they thought levels would drop more than 10% year-on-year.

So despite the drop in current confidence levels, the overall balance of opinion for the year is still in positive territory at +12% at the end of the third quarter. In fact, there are more positive signs in this quarter’s ERA/IRN RentalTracker results as well – it certainly wasn’t all doom and gloom.

The UK market continues to appear the most confident in the region, with 73% of respondents reporting growth in the third quarter compared to the same three months a year ago. This figure was up from 62% of respondents to the second quarter survey.

And UK respondents also said they expected to employ more staff in the fourth quarter of the year, with 78% stating that this was the case – up from 69% in the second quarter.

The Benelux region also emerged as a voice of confidence in this quarter’s results, with 63% of respondents reporting year-on-year growth in the third quarter (up from 46% in the last survey), and 50% expecting to employ more staff in the next quarter (up from 33% last time).

Investment

Looking ahead to 2015 investment levels, and a balance of +11.7% of respondents said they expected to increase capital expenditure on their fleets compared to this year. Of these, the most confident were in fact Spanish respondents, with 40% – albeit from a small sample – saying they expected to increase investment by over 10% in 2014. This was up from 33% of respondents saying the same thing in the last quarter.

Nordic respondents came next at 38% expecting to increase capital expenditure by more than 10% next year, while the UK and Germany also came in at above the European average of 30%. Nevertheless, these investment expectations still represented a downgrade on the whole, compared to what respondents said their plans were in the last quarter.

As far as the rest of this year is concerned, 67% of UK respondents said the expected to increase fleet investment by more than 10% this year (69% said they would in the last survey). In Benelux, 63% of respondents said they planned on raise investment by more than 10% this year, a big jump from 33% in the last quarter.

But that positive finding hides that fact that, overall, Europe’s rental companies have slightly reduced their investment plans for this year: the positive balance of opinion on investment this year (the difference in the proportions expecting to increase or decrease their spending) fell from +13% at the end of the second quarter to +7% in the third quarter survey.

Meanwhile, utilisation was another area in which Benelux respondents emerged as the most confident, with 63% reporting increasing utilisation in the third quarter, up from 22% in the last survey.

Elsewhere, however, 20% of UK respondents reporting increasing utilisation in the third quarter, down from 54% in the second quarter. Fewer respondents from Germany, the Nordic region, France and multinational companies also reported increasing utilisation compared to the second quarter, with the average for Europe coming out at 30% in the third quarter, down from 38% in the last survey.

The overall balance of opinion in Europe on the issue of fleet utilisation stood at +3% ­– a big drop compared to the balance of 45% reported in the second quarter.

Southern pain

Among southern European countries, the region which stood out in terms of declining sentiment was Italy. As well as seeing a somewhat drastic collapse in the balance of opinions on current business conditions, respondents from this country also reported lower investment intentions and quarter-on-quarter growth.

Employment intentions for the next quarter remained stable compared to the last survey, but this was hardly positive at 0% of respondents expecting to employ more. In fact, the only measurement that appeared stable for Italy was utilisation, with 14% of respondents reporting increasing quarter-on-quarter rates, up from 13% in the last survey.

Spanish respondents weren’t quite as downbeat as Italy, but the picture here was still far from rosy. Interestingly, however, 33% of Spanish respondents (of a small sample) said they expected to increase investment by over 10% this year – a stable response quarter-on-quarter, perhaps demonstrating some confidence in future business prospects.

Year-to-date

Looking at business levels for the e first nine months of 2014, 40% of all respondents to the third quarter ERA/IRN RentalTracker survey reported better business conditions than for the same period in 2013, up from 34% of respondents to year-to-date sentiment in the third quarter of last year.

In fact, despite the gloomy conditions reported by some countries, the overall balance of opinion for the year-to-date increased to +13% for the third quarter of 2014, compared to a balance of +5.9% at the same point last year. However, an improvement like this can easily be attributed to changes in a single country – in this case it is largely driven by the dramatic upturn in sentiment in the UK over the past year.

This demonstrates that while it may have been a difficult three months for many companies in Europe, particularly compared to the start of this year, the UK and some other areas are bucking the trend.

Forecasts

Looking ahead to 2015 reveals something of a mixed picture, with German respondents standing out as the most optimistic – 75% of respondents from this country said they expected business to be either better or much better in 12 months’ time, up from 70% in the last survey. Italian respondents are the gloomiest, with just 14% forecasting better conditions, compared to 43% in the last survey.

Overall, 61% of respondents around Europe said they expected to see improving business conditions in 12 months, while 26% said they expected conditions to remain stable and 14% expected declines. This gives an overall balance of opinion of +47%, compared to +40% in the last survey. That is an encouraging finding.

Nevertheless, it is undeniable that sentiment on business conditions has weakened in the three months to the end of September compared to the second quarter. The economic environment in Europe has been punctuated by periods of volatility since the financial crisis, and it should come has no surprise that caution is the response when recoveries seem to be slowing down, or underperforming compared to expectations.

The fact that European rental companies are still reasonably confident that the environment will improve in the coming 12 months – more confident than they were at the end of the second quarter at least – should bring some comfort.

And as well as data from the third quarter ERA/IRN RentalTracker, this report also contains IRN’s annual Global Confidence Survey of the rental industry – and here confidence levels seemed altogether more positive.

The full report on the results, with extra graphs and tables, as well as the full Global Confidence Survey results, will be published in the November-December issue of International Rental News.

The survey

In total approximately 120 companies in Europe responded to the ERA/IRN RentalTracker survey for the third quarter of 2014. The survey was carried out at the end of September and through October.

Our thanks to all the companies who participated and to the following organisations which helped distribute the European survey to their members and contacts:

Assodimi (Italy)

ConfalQ (Spain)

Construction Plant-hire Association (CPA) (UK)

DLR (France)

Hire Association Europe (HAE) (UK)

Norwegian Rental Association

Danish Rental Association

The Association of Finnish Technical Traders

Verhurend Nederland (Netherlands Rental Association)

The RentalTracker for Europe is a joint venture between IRN magazine and the European Rental Association (ERA). If you have suggestions about how the survey could be improved, then please contact the ERA on [email protected] or Helen Wright, IRN Editor, at [email protected]