Speedy Hire sells accommodation hire unit

26th Apr 2011 09:11

Speedy Hire, a UK provider of tools and equipment for hire, has sold its accommodation hire business to Elliott Group, a subsidiary of Algeco Scotsman, for a total consideration of £34.9m in cash.Following years in which Speedy "experienced particularly challenging trading conditions" in that business line the company has decided to concentrate on its core operations, improve its return on capital and strengthen its balance sheet. The disposal will result in an exceptional loss of around £16m on the sale, of which some £12.5m will be a non-cash charge. The exceptional charge will principally be reflected in the group's 2011 full year results.As at 30 September 2010, the business being sold had gross assets of £53.0 million (excluding working capital which will be retained by Speedy). The unit's revenues for the financial year ended 31 March 2011 totalled £35.5 million, down from £40.6 million the year before. The unit made an operating loss of £4.5 million last year. The net cash resulting from the sale will be used to reduce debt, resulting in pro-forma net debt of approximately £80 million at 31 March 2011.Lastly, both companies have entered into a three-year partnering agreement to provide customers with an integrated service offering.Singer Capital Markets welcomed the sale, noting that, "given the large losses encountered by the division, the disposal is likely to result in an increase inEBITDA [earnings before interest, tax, depreciation and amortisation], and operating profit and profit before tax."Panmure Gordon was similarly enthused, and reiterated its "buy" recommendation."This clears up a big fly in the Speedy improvement ointment, and is good newson a number of different fronts. Clearly an underperformer where improvement could be some way off, this frees a considerable amount of cash to reduce debt and to allow for rising fleet investment in other areas, should it be required as the business responds to growing volumes over time," the broker said. "By default, it also makes the remaining business look much healthier in overall terms as rations improve accordingly, though the real benefit must be the management time freed up and the ability to focus on areas where oversupply is not such a great issue and where others in the markets Speedy serves have less clout than Elliot has in temporary accommodation (the market leader and buyer of Speedy?'s operation)," the broker added.ab