Hirequip NZ Limited Interim report Dec. 2003

Hirequip New Zealand Limited
Interim report for the six months ended 31 December 2003

Finance and accounts

This report covers the first interim period where the results of Hirequip (the operating business) are consolidated with the earnings of the former Southern Capital’s investment business.

The Group’s net profit after tax for the six months to 31 December 2003 is $3.77m up from $847,000 for the equivalent period last year. The increase in earnings reflects the more stable earnings from hire operations and the efforts to realise investment assets.

The Group’s EBITDA for the period is $9.75m of which $7.64m was derived from the hire and related activities.

A fully imputed interim dividend of 1¢ps will be paid to shareholders on 19 March 2004. The date of record for dividend payments will be 12 March.

Core Business
Internal Growth

Key events in the period under review have been:

- Acquisition of the Ready Hire business. This was contracted for $21.2m in December and settled in January 2004. The purchase adds 13 branches and one agency branch to our network in the central North Island. Priority is being given to integrating the Ready Hire business into Hirequip’s nationwide branch network and administration system. All senior operational staff have been retained and we are pleased that Mr Richard Grainger, the previous Joint CEO of Ready Hire, continues with the company. Acquisition of the Hamill Hire business located at Hornby, Christchurch (one branch). Together these two acquisitions will increase equipment hire revenue by around 30% on a full-year basis.

- Hirequip’s 2004 capital expenditure budget is $14 million. This programme significantly exceeds depreciation but it will upgrade and enlarge the equipment fleet as well as reducing the average fleet age. With the purchase of Ready Hire, capex requirements for the 2005 financial year are being reviewed, taking into account synergies from the Ready Hire acquisition and future growth opportunities. This is likely to result in capex (net of disposals) being more in balance with depreciation.

- Opened a new branch at Buckle Street in central Wellington.

- Completed the refurbishment and a substantial expansion of Mt Wellington branch in Auckland.

- Commenced upgrading of Lower Hutt and North Shore branches.

- Contracted, by way of intent to lease, a new site in Manukau, Auckland, which will substantially upgrade the facilities we offer compared to our existing branch. The location will house our northern regional workshops, subsidiary Projex Equipment Sales Ltd, and an upgraded hire branch.

- Existing branches at Wanaka, Nelson and New Plymouth which have been recently developed, are presently being offered for sale and leaseback to Hirequip.

- There are a number of opportunities available to continue the growth of Hirequip. Whilst priority is being given to the integration of Ready Hire, a number of other growth initiatives are under investigation, which are allied to Hirequip’s core competencies. As always we hope that some of these might come to fruition, having at first satisfied ourselves as to the business case for adding value.

Investment Assets
Omaha Beach (42.2%)

Section sales over the summer have been very buoyant and unsold inventory from stages released to the market amounts to less than 20 sites. Over $34m of unconditional contracts are being held pending completion of development, issue of titles and settlement.

Neighbourhood 1, which comprises approximately 110 sections, depending on final configuration, is the last area to be released. In a strong market we have found that prices have been firming and new releases have been repriced upwards.
This project has been an outstanding success and it has exceeded our expectations.

Pegasus Bay Town (100%)

During the period under review expressions of interest were sought from potential buyers of PBT. Several parties responded. Further developments will be reported in due course.

Northwood Supa Centa (30%)

This sale contract went unconditional in January 2004 and has now settled, producing a $3.0m profit.

Waimakariri Employment Park (100%)

An announcement was made three weeks ago that pursuant to an unfavourable decision in the High Court, the original development plan would be abandoned. The contingency plan has always been a country living subdivision. A provision has been made against this project of $3.0m, which is included in this result.

Clifford Bay Marine Farms (22.6%)

During the period under review CBMF received a favourable decision from the Environment Court with respect to its application for coastal permits (resource consents). That decision was later appealed to the High Court by the Director General of Conservation (DOC). The High Court heard the appeal in mid February 2004.

Tasman Farms (21.75%)

All farms owned are in Tasmania and therefore the key variables impacting on value are the AUD/USD exchange rate and international prices for dairy commodities. Exchange rate trends remain unfavourable due the weakness of the USD, however commodity prices have reversed the downward trend in recent months. Despite better prices the payout from Bonlac, to whom we supply most of our milk, is not likely to show much improvement in the current year. Climatic conditions have also been very difficult this year and so in the circumstances the net loss of $1.28m reported by the company is a reasonable outcome.

Graeme Wong
Executive Chairman
26 February 2004

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