Cramo updates strategy with focus on profit over growth

By Murray Pollok12 September 2012

Cramo's updated strategy and financial targets - detailed at a Capital Markets day held on Tuesday in Helsinki - puts the focus on improving profitability of existing businesses.

The company will continue with its ‘best in town' strategy - only operating where it can have a meaningful presence in a market - and focus on improving profitability rather than pure growth.

Vesa Koivula, Cramo's CEO, told analysts, "Before everything, we will strive for further improvements in profitability, and mainly in existing markets." He said Cramo wanted to be the role model in rental; "We want to set the standard, for others to see us as the benchmark. Size does not do that. It's how we work and develop the business."

The company's new financial targets - which replace the targets issues at its previous Capital Markets day two years ago - reflect this strategy. It wants to have an EBITA (profits before interest, tax and amortisation) margin of 15% over a business cycle and to grow revenues faster than the market, again over the business cycle. That latter target is easier to accomplish now given the slower rates of growth in the market.

Cramo has reduced its target for return on equity (ROE) to 12%, through the business cycle. Its previous target, announced two years ago, was for 15% ROE.

Mr Koivula said; "Our target is to focus on profitability and efficient use of capital through operational agility and excellence. We aim to optimise our operations in mature and growth markets and to grow faster than the market. Our policy is to pursue stable profit distribution."

Actions to improve profitability by becoming more efficient and by reducing costs are already underway. The company will make some job cuts for both permanent and temporary staff, but is also working at increasing pricing, with one focus on controlling discounts given to major customers.

In a discussion on pricing measures, Martti Ala-Härkönen, Cramo's chief financial officer, told analysts; "You have to increase your fighting spirit."

Mr Ala-Härkönen said cost reduction efforts already being taken would have a positive €10 million impact on EBITA for the whole year.

Another key objective is to transform the Theisen business in Germany, Austria and Hungary. The company has already exited the Swiss market (closing three depots) and has closed a further five unprofitable locations in Germany. Three more are still to close.

The German locations were previously run with just two staff who rented construction equipment mainly to local customers. Cramo is now implementing the ‘Cramo concept' at these locations, increasing the range of equipment being rented - including access and tools - and being more proactive in targeting new customers.

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