Hirepool sees profits from 2015 on debt repayment, merger benefits

Monday 16th June 2014

Hirepool is projecting profits from 2015, after years of losses, having squeezed out costs since buying major rival Hirequip out of receivership last year and using its initial public offering to pay down debt.

Hirepool is forecasting a net profit of $25 million for the year ending June 30, 2015, from a pro forma loss of $17.8 million in the current year, according to the company’s prospectus. After adding back finance costs, depreciation and amortisation of Hirepool and Hirequip, pro forma aggregated earnings before interest, tax, depreciation and amortisation are forecast at $34.5 million this year and $60.5 million in 2015.

Hirepool alone has posted net losses each year from 2009, according to the prospectus, mostly reflecting finance costs. Hirequip achieved a profit in 2012 and for the 10 months to May 6 2013, following three years of losses, the figures show.

“In financial years prior to FY2015F, the stand alone Hirepool and Hirequip businesses carried significant debt and, in a number of years, generated losses,” the company says in the prospectus.

It prefers to focus on Ebitda figures because last year’s acquisition of Hirequip “generated significant one-off merger and associated costs in FY2013 and FY2014” and the latest year’s results will also include the costs of the IPO. It forecasts an Ebitda margin rising to 33 percent this year from 29 percent in 2013, and widening again to 39 percent in 2015.

Following the merger, Hirepool is the nation’s only generalist hire equipment company, although it has only about 19.6 percent of the market based on last year’s application to the Commerce Commission to buy Hirequip. Those figures included an estimate that the building hire industry generated $780 million of equipment hire revenue in 2013, while Hirequip’s revenue was $153 million.

Revenue is forecast to decline to $140.6 million this year, before recovering to $155.6 million in 2015. The company attributes the revenue decline this year to Hirepool primarily attributes a drop in major project sales and disruption relating to the acquisition and merger of Hirequip, which included slashing the number of branches of the combined group to 56 from 90.

As a result of the capital raising, interest bearing debt will drop to $85 million on listing from $203.6 million at June 30.

Major companies, spending more than $100,000 a year, make up 44 percent of Hirepool’s sales, while revenue is evenly spread throughout its three regions in New Zealand and by industry sector, the prospectus says.

Hirepool plans to raise as much as $262 million in its IPO prior to listing on the Australian and New Zealand stock exchanges next month with a market capitalisation of as much as $340 million.

The Auckland-based company said it plans to sell as much as 120.1 million new shares, raising up to $136.5 million and 83.5 million existing shares, raising up to $125 million, in a range of $1.10 to $1.50 apiece. The final price will be set by a bookbuild to institutions and retail brokers on June 24, the company said.

Australian private equity firm Next Capital currently owns 64 percent of Hirepool and Macquarie Group holds 21 percent. Hunter Powell Investments holds 7 percent and the balance is owned by current and former managers. After the sale, Next, Macquarie and their co-investors will own between 20 percent to 35 percent of the company.

Hirepool says it expects to benefit from an expanding New Zealand economy with a large pipeline of infrastructure and construction projects ahead, as well as eyeing acquisitions and widening its product range.

Auckland businessman Tenby Powell, who founded Hunter Powell Investments with his partner Sharon Hunter, bought Hirepool with Goldman Sachs JB Were from Owens Group for $43 million in 2003 and retained a 20 percent stake in the expanded company when it was sold to Next Capital in 2006 for $174 million, according to his profile on the ICMI Speakers Bureau.

BusinessDesk.co.nz

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