Feature: Loxam branches out

I met Stéphane Henon late in the afternoon of the fourth day of the recent Intermat exhibition in Paris.

The timing was partly due to the fact that earlier, his company Loxam had hosted a tour of its site at Aulnay-sous-Bois - barely five kilometres from the show venue - with manufacturers, other rental companies, and members of both the European and American Rental Associations in attendance.

As an extra item of added value, the Aulnay-sous-Bois location is home to Loxam brands for both general rental and access equipment divisions.

If this suggests a theme of a company keen to develop relationships, the message is an appropriate one. Twenty-four hours earlier, Loxam had announced only its second commercial venture outside Europe in its history, with the news it had taken an initial 25% stake in the Brazilian rental firm Degraus, which has 20 branches across the huge South American country.

While the decision to enter the notoriously volatile South American market was not expected by some industry observers, the person showing the least surprise is Stéphane Henon himself.

“We are an industrial player,” said Loxam’s managing director.

“We’re not in Brazil for the next three years or five years, we’re there for the next 20 years.”

The other positive factor in the link up with Degraus is the local knowledge that the host company brings to help Loxam through the difficult early years of establishing itself in the new territory.

One of the key points of the Degraus announcement was that the owner Izaac Costa - who got the family run business off the ground as a scaffolding supplier in 1987 - would remain in charge.

“If we had been looking short-term, we might have been scared by the Brazilian market,” said Mr Henon.

“But Degraus is a well managed business and the owner has been very reasonable in the way he has driven his company. You get big ups and big downs in some markets, but this is a good opportunity for the next 20 years.”

Downturn

Nevertheless, Loxam has gone into a continent best described as “demanding” and a country experiencing a significant downturn after years of high growth despite the theoretical economic boosts of last year’s FIFA World Cup football tournament and the 2016 Rio de Janeiro Olympic and Paralympic Games.

So what did Loxam think it would find when it started the process?

“With Brazil, I was expecting what people call an emerging market, but you can’t say it’s emerging any longer. However, the administration involved is very heavy, complicated and sophisticated.

“That’s why we’ve partnered with a local company, because we can rely on the existing management. We won’t manage it like a French or Belgian operation.”

Mr Henon joined Loxam in 2000 and is in his third year as managing director. Before Loxam, he was in manufacturing, running the engineering office for a company that supplied the pharmaceutical industry.

His earliest role was as a consultant with Deloitte. When he talked about his current employer, he used the word “exciting” several times. It was clear he wanted to lead by example.

“I joined 15 years ago and I’ve had various roles within the group. I’ve always been excited by whatever I’ve done, but this is a bigger role with more responsibility. Since the 2009 French economic crisis everyone in the company has had to work harder and for longer hours just to achieve the same results we were getting before.”

However, that crisis, and its aftermath, did not stop Loxam from pursuing growth outside its own country. During 2014 it bought the Danish access equipment company Dansk Lift and the general rental company Workx, based in the Netherlands.

It was a bold move, but it paid off, in as much as Loxam’s financial results for the year showed a solid performance, with revenues stable at €812 million, EBITDA up €10 million to €255 million, and an increased profit margin of 31.4%.

After what it described as a “re-profiling” of the fleet, net fleet investment was €50 million, while the number of employees at the end of December, 4670, was the highest at any time in the past five years.

The twin acquisitions also drove the proportion of Loxam’s business done away from France up from 15% to 20% in the space of a year.

It now operates in 13 European countries in total. But when pressed on whether there is anything in common between those deals and Degraus, Mr Henon has to admit this is not the case.

“There are no similarities at all between Brazil and Denmark or the Netherlands. Dansk Lift and Workx were about reinforcing our position in the top one or two players in the countries concerned. Degraus is different. It’s a first step.”

Strategy

From the outside, and especially with the previous comment in mind, the stake in Degraus could be interpreted as a change in strategy. Stéphane Henon said it is absolutely not.

“Nothing has fundamentally changed. Outside France, in most countries the recovery has started, most obviously in northern Europe but also in Spain.

“Benelux has had a reasonably good start to the year. It was the right timing in terms of the acquisition of Workx. Denmark is better and Dansk Lift has given us some good synergies with general plant operators, whereas before it had been sub-hiring machines from other rental companies. That was an instant benefit. We were expecting it, but it’s happened very rapidly.

“But activity in France is challenging, it’s a post-election year. We believe that there could be some measures taken by the government to improve the situation, but we don’t believe this will have a major impact before 2016.

“At the moment civil engineering projects are decreasing, and when we listen to our customers they tell us they are struggling.”

It could be tempting for outsiders to view Loxam’s Brazilian ambitions as a magic bullet to divert attention from the French market, but that is the last thing on Mr Henon’s mind.

Even with the French market in the doldrums, the company still plans to open more Loxam City stores – shops focusing on smaller equipment and serving a varied customer base – within Paris this year, and is looking to take the concept to other French cities in the foreseeable future, possibly under a different name.

And while the focus of growth remains on Europe, Degraus will remain an exercise in groundwork for a couple of years at least.

“We believe it wasn’t a bad time to step into the Brazilian market. An opportunity is an opportunity and we had the money to do it. We are not dreaming of big growth in 2015 or 2016, but it gives us two years to get to know our partner better and work together to develop strategies, such as what kind of range we offer to the market.

“Do we serve the general plant companies, or do we get into specialised areas like powered access?

Consolidation

“Rental will develop in Brazil, that’s for sure. There could be some consolidation in the Brazilian market - that’s typically what happens when business is not so good. But we will open more branches in the next five years and continue looking for other companies to acquire. The Loxam group has always been a mix of organic growth and acquisitions.”

In the meantime, while one can never imagine Loxam resting on its laurels, back at base the show will go on pretty much as it has done so far.

“We are not managing big contracts with big customers. We’re managing thousands of small customers, hundreds of thousands of pieces of equipment and more than 600 branches. I’m working very closely with the CEO Gérard Déprez to manage these small details,” said Mr Henon.

“Loxam is always looking for diversification – in the fleet, in a new range of equipment every year, in getting into landscaping equipment in the past three years. We’ve diversified the customer base away from civil engineering and construction as well.

“Around a third of our customers are outside those areas now, and we want to develop that still further.”

This is a feature from the April May 2015 issue of IRN. For the full feature, including extra images, please subscribe to the magazine by visiting www.khl.com/subscriptions