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Hirequip Announces Profit Of $1.1 Million

10 March 2006

Hirequip Announces Profit Of $1.1 Million For Half Year,
Dividend Unchanged

Listed hire company Hirequip has posted a net profit after tax for the group of $1.1m for the six months to 31 December 2005, compared with $3.7m for the same period last year. Revenue from core hire and related operations was $42.5 million, up from $41.1 million for the same period last year.

Hirequip’s Joint Chief Executive George Paterson said, “Despite some sectors of the economy in general showing signs of weakening, such as residential construction, the outlook for our business remains positive with a significant number of non-residential construction and roading projects either underway or in the planning stages. We are encouraged by the positive trend in revenue for the beginning of the second half of the year after a somewhat flat first six months.

“The full year forecast EBITDA for the hire business, whilst subject to the vagaries of autumn and early winter weather, is likely to be in the range of $27m to $29m after deduction of the one-off costs. This compares to $27m for the 2005 year.

“Earnings in the current period were impacted by a one-off cost of $1.2m incurred undertaking the ‘Doing it better’ initiative. This initiative focused on improving efficiency and effectiveness across the business was started in November and December. So far measurable cost savings on an annualised basis are in the range of $1.0m - $1.2m per annum. While the benefit of this expenditure will be derived in future periods, the accounting treatment of the cost has been to book it as an expense in the current period.

This result follows the Company’s adoption of the New Zealand Equivalent of International Financial Reporting Standards (NZIFRS), which required restatement of the balance sheet as at 30 June 2004, 31 December 2004 and 30 June 2005.

EBITDA from the core business before a one-off cost of the Company’s ‘Doing it better’ initiative decreased marginally from $12.3m to $12.1m between periods. Group net profit after tax, restated in accordance with NZIFRS, for the six months was $1.1m compared to $3.7m for the same period last year. Bank debt increased with the further expansion of the hire fleet, branch upgrades and land purchased for future branch development.

An unchanged fully imputed interim dividend of 1.25cps will be paid to shareholders on 28 March 2006. The date of record for dividend payments will be 24 March 2006.

Brian Stephen, Joint Chief Executive said, “Over the past two years the Company has followed its stated policy of favouring internal growth with an aggressive capital expenditure programme. The expansion and upgrade of the hire fleet and existing branches has been in preference to purchasing potentially over valued rental businesses with significant goodwill. This strategy has allowed the Company to take advantage of the high NZD exchange rate.

This investment has also materially reduced the average age of the Company’s assets which has improved the Company’s competitive position.“

“Revenue for the first six months when compared to the corresponding period last year is up 3.5%. This increase does not fully reflect the recent additional investment that has been made in new equipment. However the Company is confident that the availability of new equipment will enhance utilisation and future profitability.”

Mr. Stephen said, “Revenue for January and February 2006 is significantly higher than the modest increase reported in the first half of the year. A number of supply orders for large projects will be delivered in the second half of the year. Accordingly the second six months is being approached with confidence.

“In the event that excess fleet capacity eventuates it will be corrected by the sale of the Company’s old and obsolete plant and future capital expenditure tuned to match demand and Company return requirements.”

Redevelopment of the Palmerston North and Rotorua branches was completed during the period with the Whangarei branch likely to be completed by April 2006. Further branch developments are planned for Grenada, Tauranga, Hastings, Hamilton and Silverdale, and sub-branches have been set-up on the Springhill and Milton new prison sites to support these construction projects.

The amount of branch development currently being undertaken has given rise to the Company carrying a greater than normal amount of property on its Balance Sheet. This has contributed to interest costs being higher than normalised levels. The Company is in the process of disposing of a number of properties with settlements due before year end.

The ‘Doing it Better’ initiative enabled Hirequip to reduce costs in key areas, principally in labour, and repairs and maintenance. The benefit of these savings has not been captured in the interim result and will flow from the second half of the year forward. The Company also reports that it has established an internal audit and training function to improve systems compliance and put a significant investment into the development of the HQ brand.

The Company reports that while no profits occurred during the period the book carrying value of the remaining legacy assets is conservative and considerable future profits can expect to be realised.

Mr Stephen said, “We believe the initiatives undertaken will strengthen the Company’s financial performance in future periods and accordingly the non recurring costs expensed in this half year will have been well spent.

“We are confident that our strategy of investing in our people and the systems they need to support their daily activities, improving fleet age and condition and upgrading branch facilities will place Hirequip in the best possible position going forward.”


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