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City News:

A-Plant and Aggreko signal expansion

Catherine Stratton comments on all the developments at A-Plant, Aggreko and Andrews Sykes and catches up with Speedy’s latest acquisition.

In the wake of their recent strong trading results (see last month’s City News), A-Plant and Aggreko have both announced significant acquisitions this autumn. A-Plant has been indicating for some time that, as its recovery accelerates, it will be looking to strengthen its position in some of its specialist activities. The acquisition of Lux Traffic Controls gives it market leadership in this niche sector.
A-Plant is paying £15.5m for the privately-owned company, which was established 40 years ago. Lux began as a manufacturer of traffic lights, but, in recent years, it has focused on renting the equipment, while maintaining an input into the design.

Lux had a network of over 40 service outlets and these have now been amalgamated into the A-Plant network to give the group a total of over 50 dedicated traffic locations. A-Plant Chief Executive
Sat Dhaiwal described the acquisition as “a good fit with very little overlap in terms of outlets”. The enlarged traffic business will be re-branded as A-Plant Lux Traffic Control & Management and will offer ‘package solutions’ for traffic management issues, not only providing the equipment, but also undertaking all the necessary connected administration concerning road closures, signage and local authority approvals. An added attraction for A-Plant is that Lux has exclusive UK rights for the variable message sign systems manufactured by US company Addco; this is an area which
Sat Dhaiwal believes has good potential.

In the year ended 31 July 2006 Lux reported revenues of £19.1m and pre-tax profits of £0.9m; the net assets of the acquired business are £4.6m. Ian Robson, Finance Director of A-Plant’s parent Ashtead, says, “Lux is particularly attractive because of its high return on capital employed and fits into A-Plant’s strategy of developing specialist businesses where returns are higher than in general plant.”

Ashtead shares were trading at 156p on the day the acquisition was announced (17 October); since then they have fallen back and are currently trading at 145p, capitalising the group at £807m.

On a sad note, the death has been announced of Ashtead Non-Executive Chairman Cob Stenham at the age of 74. He joined the Ashtead board in 2003 and, since he became Chairman in January 2004, has steered the company through to its current strong recovery.

AGGREKO’S MAJOR ACQUISITION

The $212m (£111m) acquisition of GE Energy Rentals is Aggreko’s first major acquisition for some considerable time and indicates that the company is now moving forward again after its period of
re-organisation. Aggreko is taking over all GE Energy Rentals’ activities except those relating to large gas turbines and the purchaser’s core rental fleet is expanded by 30% as a result. It strengthens the company’s position in power and temperature control rental, where it is already a world leader.

The transaction is in cash, funded by new debt facilities provided by Aggreko’s existing financiers and comprises an initial consideration estimated at $179m and a further deferred consideration of up to $27m. GE entered energy rental in 1998; it is the only multinational competitor to Aggreko in both Power Projects and local businesses, with 35 locations in 12 countries. GE Energy was loss-making in 2005, when it had revenues of $197m; it broke even in the first quarter of 2006.

Clearly this acquisition strengthens Aggreko’s international position considerably. It brings expanded capacity in major markets such as North America and Europe, but also gives access to new areas such as Chile and Mexico. Aggreko expects the acquired assets to generate about $35m operating profit within three to four years. It plans to have GE-ER fully integrated within a year of completion, but the company warns that there is likely to be some disruption within the first six months.

Exceptional re-structuring costs are expected to be around £16m, while there will be a further £12m re-branding and servicing costs to bring the GE-ER fleet up to Aggreko standards.

In the wake of the acquisition Aggreko shares hit a new high of 382.75p on 10 October; they continue to trade strongly, but as we go to press, they are trading a little lower at 366.5p, giving a market capitalisation of £987.

This move by GE will inevitably trigger speculation as to whether this sale signals that it is about to retreat from the hire market. In particular, many will be wondering if the company might dispose of its UK equipment rental business which saw a 4% drop in turnover to £43m last year and a loss before tax of £2.6m (2004: loss of £2.0m).

Andrews Sykes interim results include an analysis of turnover by ‘activity’; this indicates that ‘hire’ revenues at £19.15m were up 11.5% on the first half of 2005, and they now represent nearly 70% of the Group’s turnover. Revenues from sales were down nearly 15% at £4.5m, while installation turnover fell 8% to £3.9m. Unsurprisingly, the accompanying Chairman’s statement indicates that “the hire of heating and portable air conditioning equipment benefited from the colder winter and warm early summer respectively”; it goes on to say that the performance continued “well into the second half” and to express optimism for the full year’s result.

Less than a week later, Andrews Sykes announced that it had taken the unusual step of making its Finance Director Anthony Bourne redundant; he had been appointed in May 2002 and the company states that following the disposal of its Accommodation and Engineering Appliances businesses, and other re-organisation, the Board believes that the Financial Director’s function can now be carried out by existing management. A Non-Executive Director has assumed responsibility for the financial function with the assistance of the Group’s Financial Controller and Company Secretary. Of course, as an AIM listed company, Andrews Sykes is not subject to the same requirements as a company with a full Stock Exchange Listing. The shares are currently trading at 143.5p, capitalising the company at £64m.

• As we went to press, Speedy Hire announced its acquisition of Lifting Gear Hire (LGH) for £13.5m, satisfied in cash and Speedy shares. LGH has 34 UK outlets, employing 309 people, with a further 26 based at its Atherton head office. Together with the Speedy Lifting operation, it creates a network of 70 depots. In the short term, the businesses will run side by side as Speedy Lifting and Speedy LGH. The acquisition includes the LGH branch network, LGH Training, LGH Engineering and LGH’s Megalift industrial machinery moving operator, together with facilities based on customer sites. The Winches, Rigging Services (entertainment) and Suspended Access operations have not been acquired. Bill Parkinson, who founded LGH in 1970, comments, “LGH has gone as far as we can take it and I am convinced Speedy can take it to a wider market than we were able to.” We will report on the acquisition in greater depth next month. •

Executive Hire NewsArchivesNovember 2006City News › A-Plant and Aggreko signal expansion

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