Plant hire - not much upturn yet

In the middle of May this year Speedy Hire, one of the UK’s largest plant and tool hire firms, came home with full-year results that showed a 35% increase in pre-tax profits to £16.8m, and a 4.3% increase in revenue to £340.4m.

That’s certainly impressive. But one key figure to emerge from these same results is that for the first time in the company’s history the amount of money it makes from the construction market accounted for less than half of its full-year revenue. It still accounted for 49%, but other markets, including infrastructure, had now crossed that crucial Rubicon of 50%.

Chief executive Steve Corcoran, who has now been with the Merseyside-based company for 26 years and has seen it grow from having 13 depots when he joined to over 350 now, is quick to deny that there is any intended move away from construction. “I can never envisage a day when we did not serve the construction market,” he says. “If you look at our sales, construction revenue has actually only gone down by 2.2%, which is far less than the national downturn. It is just that other markets have grown more than that.”

But even still, in 2011 the construction market accounted for 65% of the group’s turnover. A 16% drop in revenue share in just two years is surely a sign of some change.

It’s particularly revealing as it comes at a time when the Government has been launching initiative after initiative to try to stimulate the construction market. In the Autumn Statement last year, for example, the Chancellor announced a capital investment boost of £4.69bn, and this was swiftly followed by a £5.5bn injection in December.

Noble Francis, economics director of the Construction Products Association, has been very vocal in pressing for the Government to be more proactive in passing this money through the system to boost a construction sector whose output fell by 5.9% year-on-year in the first quarter of this year, according to ONS figures, even while the UK as a whole saw a rise in GDP.

But do leading figures in the plant hire sector, which a report by AMA Research estimated at being worth £2.2bn in 2011, agree?

Asif Latief, marketing and strategic accounts director at A-Plant, says he is yet to be convinced about any upturn. “We have not seen any particularly strong growth in the market,” he says. “Initiatives like the Government’s cash injections really take time to get to ground level. Some projects are starting to pick up, such as Crossrail and the Commonwealth Games projects in Glasgow. But generally the market is still struggling. We also think the rest of the year is going to be challenging.”

Brandon Hire managing director Tim Smith agrees that the construction market has been “badly hit”, while Corcoran himself is clearly getting tired of people promising what turn out to be false dawns.

“As far as government initiatives go, the talk has been far greater than the action,” he says. “Funding for Lending is working. We have also seen the private sector beginning to show signs of returning to activity – a good example would be Peel Ports and the construction of a deepwater harbour in Liverpool. But there is still more rhetoric than action.”

So how are plant hire companies reacting to such a market – one which the AMA report reckons will only have grown to £2.4bn by 2016?
Latief says companies like his face particular problems in stimulating the market because “if someone doesn’t need to hire then they are not going to”.

Nevertheless, many companies see possibilities in differentiating themselves from the competition.

Speedy Hire is concentrating its activity on higher volume customers – which usually means larger contractors. Corcoran says his company is “very close to the typical rule of thumb where 20% of our accounts make up 80% of our revenue”.

“Many smaller SMEs will price ahead for each job, rather than continue to hire, so the volume is not always there,” he says, “And we still have to process those accounts, so the price cost per sale is still there.”
This contrasts with Brandon Hire, which is focusing instead on the smaller contractors – a strategy the company has followed since it was formed in a buyout from Wolseley in 2010.

Smith says this has proved a boon because, while the economy is suffering, home owners and businesses, rather than move premises, have been left to “make do, mend and where necessary extend. “This has kept smaller builders busy,” he says.

Other companies have sought to differentiate themselves by significantly extending or renewing their product offer.

Mark Rooney, managing director at Mabey Hire, says his company has brought 13 new products to market in the past two years, “all suited to the requirements of our customer”. “We have invested £500,000 on new technology last year,” he says.

So for example there is Q-Kap, a universal trench sheet-driving tool that fits directly onto the quick hitch of an excavator, eliminating the need for working at height when positioning a drive cap.

Latief claims that as A-Plant is part of the publicly quoted Adshead Group it can afford to invest in new product to a much greater extent that some of its competitors. Is has just bought over 800 new machines in a deal worth £27m. The micro, mini and midi excavators and Loadall telescopic will all be made in JCB’s British factories.

But a key point in differentiation, of course, comes with improving customer service. All the new products in the world won’t make much of an impact if that isn’t in tip-top condition.

Hewden Hire’s marketing director Jeff Schofield says his company has recently moved to “take the hassle out of hire” by offering next day delivery on a core fleet of the 30 most hired plant and access product lines.

“After analysing over 100,000 hire transactions, we were able to identify our 30 most popular plant and access product lines,” he says. “Any orders on these placed before 12pm are guaranteed to be delivered in the morning on the following day, anywhere in the UK. Orders placed between 12pm and 5pm will be delivered before 5pm the next day. If we fail to deliver within the guaranteed times, customers will automatically receive a £100 credit.”

The company has plans to roll the service out to other items soon.
A-Plant has also been concentrating on improving its deliver times – within reason. “We will make sure we will deliver when we say we do,” says Latief, “but at the same time we will not promise that we will have everything ready for 8am, because that is unrealistic.”

The company has also been using mystery shopping services, in addition to recording all customer phone calls, to improve on its customer satisfaction rating. “We already have a customer satisfaction rating – among people who would recommend us to other people – of 98%,” says Latief, “but we stick with the view that 2% is not enough.”

Mabey Hire, meanwhile is looking at extending its reach by offering equipment for sale as well as hire. The company has now launched Mabey Sales, a new division headed by industry veteran Richard Hinkley, to spearhead such a move. “We recognise that we deal in some commoditised projects that do not really suit the hiring model, particularly non-engineered items,” says Rooney.

He insists that the new venture will not be taking any business away from its existing hire business. “We have a business development team who are working out what products to sell, and what works best from a selling perspective, but we will be offering this in many different sectors,” he says.

Another key element to focus on when it comes to improving customer service is training. Rooney says offering free training wherever possible to customers “makes them more efficient, and means they can get the job done as quickly as possible, which is a key consideration for them”.

For the past 18 months Speedy Hire has been looking to expand its managed service contracts under a banner of test, repair, inspect and maintain (TRIM). Corcoran says TRIM is “for people who want to have standard plants and don’t want to make the capital investment in such things as training and repair”.

As with Mabey, it also allows the company to move outside the traditional hiring model, as the service can also apply to a customer’s own products. But Corcoran says training is a fundamental part of the offer. “The trouble with not having people properly trained is that at best they can damage the machinery, at worst cause injury or death,” he says.

As a further example of working with the customer, Speedy Hire has also been helping many of its customers with their sustainability reporting, to help with their PQQs.

All that is certainly bound to improve customer relations. But is there not a more fundamental issue, namely the cost of fuel, whose adjustment might not help get the plant hire industry and the construction sector it serves up and running again?

After all, as Rooney points out, plant hire companies get hit by the cost of fuel at both ends – its expense puts customers off hiring in the first place, and increases the cost of delivering product to them when they do. Corcoran claims that every 1p increase in fuel duty represents an £80,000 increase in operating costs for his company.

So do these men not think the Chancellor could boost in the industry by cutting fuel duty now?

Corcoran certainly does. He says a cut is necessary not just for the plant hire industry but for UK plc as a whole. “People have to realise that there has not been a global recession,” he says. “There has been a decline in Europe and the USA but there are other parts of the world that have been growing nicely. And if we can’t compete with them we will pay the price. So I would like to see the Chancellor making fuel duty a bit less of a burden.”

Unlike Rooney, he even goes on to claim that such a cut would not necessarily lead to a cut-back in public sector funding for the kind of major construction and infrastructure projects his customers depend on. “People who say that assume that it is government money that is funding these projects,” he says. “That might be the case with roads, but energy and water improvements are now largely privately financed. So if fuel duty were lowered there might be less coming into the Chancellor’s pocket, but there would be an upturn in activity.”

Latief, however is much more circumspect. While he does want to see a cut in duty, he says the industry must not cut off its nose to spite its face by jeopardising government investment in this way.

He says the high cost of fuel has in a roundabout way served to help his company improve customer service too, by improving its delivery drivers’ efficiency. Every driver who joins A-Plant has to join at the same time in the month, so that they can go through the company’s driver training programme that is designed to make them more aware of the best way to load and unload to maximise efficiency. Each vehicle also comes equipped with dashboard equipment that alerts them to how well they are driving. “We want to reduce accidents and to cause less wear on brakes and tyres,” says Latief.

The same IT can also be used on a wider scale to plan deliveries, so that, he says, “you are not going to have a huge HGV delivering just two drills”.

It is, perhaps, yet another cogent example of an industry that, while waiting for stimulation from both customers and government, is doing everything it can to improve gloomy conditions itself.

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