Speedy wants to be a €2 billion business by 2020. Can they do it?

28 September 2010

Steve Corcoran, chief executive officer of Speedy Hire.

Steve Corcoran, chief executive officer of Speedy Hire.

The UK's largest rental company, Speedy, wants to be a £2 billion business by 2020. Steve Corcoran, the company's chief executive, explains how they aim to do it.

Steve Corcoran isn't afraid of looking at the rental business from first principles, nor of acting on the conclusions. That much is clear from the company's recently launched ‘Project Darwin', which, despite the name, seems less of an evolution than outright reinvention.

Among other things, the project does away with the old product divisions, creates new international and advisory services divisions, and targets the creation of a £2 billion FTSE 100 ‘international service company‘ by 2020. It's a long way from Speedy's origins as a small tool hirer in Wigan, northern England, founded in 1977.

When asked if Speedy is still a ‘hire business' Speedy's chief executive responds characteristically with a question; "Why do people hire at the end of the day? There are three key things: to offset operational risk, offset financial risk, and offset compliance risk. If these are the primary issues, would they have achieved these goals if they had just hired equipment?

"If that's what they are trying to achieve, then how do we mitigate other risks from rental." He's talking about operator training, equipment maintenance, testing - "it's beyond hire, its advisory services."

The result is a Speedy ‘Branded & Advisory Services' division launched last September that will have generated £1 million revenues by March; "We think that can be a three figure million business by the 2020 timetable", says Mr Corcoran, speaking to IRN at the company's small corporate office in Fleet Street in the heart of London. (The company's main headquarters remain close to Manchester in the north, but the London office is handy for meeting bankers, analysts, investors and major customers).

That's just one example of the way that Mr Corcoran is viewing the new Speedy, and the thinking is having a major impact on the company in more fundamental ways.

The depot network is a good case in point. Every rental company has its own depot strategy. For big UK tool hirers in the past, this often meant national networks of 300-400 depots. The idea now is to have a smaller, varied network tailored to its customer base. In practice, this means around 20 to 30 Multi Service Centres (MSC) catering to the demands of its major industrial and engineering customers and stocking the entire range of equipment, including tools, power, lifting and material handling equipment and access.

A larger number - 60 to 70 - of so-called Supercentres is the second element of the network. These are smaller than the MSCs and will have a reduced stock, but still targeted at large users such as contractors and builders working on major city centre contracts. Then come around 250 Express centres, smaller still and located in towns up and down the country.

The depot terminology comes from the UK's leading supermarket chain, Tesco, but Mr Corcoran says Speedy is not treating the market like a retail business, it's just about aligning itself to customers; "You don't need a network", he says, "You need a distribution system...It's about understanding the market and customer needs. We've talked to our customers - asked, ‘how do we service you right?'".

This new structure will take at least five years to implement, and to date there is just a single MSC and two Supercentres in operation. Many of these will require totally new facilities. The hundreds of Express locations, meanwhile, will largely be existing stores from the company's 350 depot network.

Just as significant for Speedy is its venture into overseas markets, spearheaded by a joint venture in the United Arab Emirates (UAE) with Carillion's local joint venture, Al Futtaim Carillion (AFC).

This new international business will be key to Speedy's growth projections in the coming decade. Mr Corcoran, a one-time Speedy depot manager in London who was closely mentored by his predecessor, John Brown, says that by 2020 overseas revenues have the potential to reach £1 billion, which will be half of the £2 billion group target. To put that in perspective, total revenues in the current financial year will be around the £350 million mark.

The initial focus on the Middle East was supposed to be Dubai, but since the crash efforts have switched to Abu Dhabi, where Al Futtaim Carillion is still busy. At current levels of activity revenues could reach £10 million in the first year, says Mr Corcoran.

"It's building new cities, not ‘iconic' buildings, which we think are risky", he says, wary of being associated with speculative mega projects. "It's long term infrastructure - water, power, rails, schools, oil and gas."

The strategy here is to leverage relationships with its major UK customers who are working overseas (or overseas contractors who work with Speedy in the UK). These relationships with big customers have become a major priority for Speedy, not least because these companies have grown their UK construction market shares through the recession.

He acknowledges that rental may not be as firmly established in the Middle East as the UK, but argues that large contractors will be forced to become more efficient as pressures on margins increase, a process that will accelerate the take up of rental; "You need people who can service you properly."

He adds that many contractors, including Carillion, operate in the Middle East without the same number of sub-contractors that you would typically see in the UK. This means that major rental agreements like the five year deal recently signed with AFC have the potential to bring major rewards relatively quickly.

The Carillion joint venture has started in Abu Dhabi, but AFC operates in other Middle East countries as well as in Northern African countries like Egypt and Libya. Mr Corcoran says Carillion is moving into Oman and Egypt and that Speedy could follow them as soon as April this year.

He also sees opportunities to follow customers to oil and gas and large infrastructure markets in countries like Brazil, Australia and Malaysia. Long term, he sees this kind of work as forming a third of the international business. Developments here are "not imminent - next year probably."

If the £2 billion target for 2020 seems ambitious, then consider that even as recently as the autumn last year the target date was actually 2015. IT was the depth of the UK recession that prompted a rethink on the timescale.

The targets themselves don't frighten him, and he says that the UK operation has the capacity to reach £1 billion. He mentions, for example, new offerings such as a gap insurance service for customers - covering small items of plant - that could generate revenues of several hundred million pounds.

However, the UK recession has clearly changed the calculations. The company's share price - down to around £0.30 from a peak of £3.50 in 2007 - and losses in the first half of its current financial year (to 30 September) illustrate the pressures that Speedy is under in the current market.

In the recent past Speedy has been benefiting from government spending on public works and sectors including education and the health service, as well as investment in the utilities sector. This has been particularly important given the dramatic falls in non-residential construction. Construction represents around 50% of Speedy's business, and that market alone dropped by around 20% in 2009.

One big issue here is uncertainty over future levels of government spending. However, Mr Corcoran's view is that the impact of falls in government spending "is not going to be as severe as it is suggested." He thinks pension funds, for example, will increasingly step in and make investments in infrastructure. Even if public spending comes down, he believes that there will be a way for funding in infrastructure to be maintained.

In any case, a fall off in public spending will be sustainable as long as private sector spending recovers. "There are signs of housebuilding recovering", says Mr Corcoran, "the repair and maintenance market is improving; education spending is being forced through quite aggressively - mainly private sector funding." He recognizes, however that private sector investment remains depressed, although at least stabilising.

Price competition is one consequence of the depressed demand. Steve Corcoran says prices "have got silly. We are all really at risk of not understanding our own costs and returns". He says the company is focusing on making sure its sales force understands the value of the service they provide, and "negotiating from knowledge".

Speedy has cut its fleet by 20% in value terms, which is less than the almost 30% fall in revenues that the company reported in the six months to September last year. Mr Corcoran says the resulting fall in utilisation will help ensure that the fleet isn't overworked, particularly since capital investment has been dramatically cut and the fleet is being aged. Net CapEx in the current financial year will be around £20 million, a sizeable proportion of which has been spent on the Middle East venture.

He says that Speedy's fleet is divided 50/50 between short term assets (needing replaced before five years) and longer term assets that can be held on to longer if necessary. He says it is Speedy's strategy to generate cash by extending the ages of the long life assets to pay for investment to maintain the short term fleet.

Rather than invest in updating the fleet, Speedy prefers to pay down its debts (net debt stood at £141 million at the end of January). "Two or three years ago we were saying that 100% gearing was fine", he says, "That's changed, after the downturn. We think that 50-70% is now healthy. On the basis that the market is still subdued, our position is to err to the 50% level." It is currently at around 55%

There are so many changes afoot at Speedy that it is inevitable to ask if the company is bent on becoming a full line, generalist rental company. It currently goes well beyond the size of equipment of a classic tool hirer - its gensets, for example, go up to 1.4 MW - but Speedy hasn't yet moved into large powered access or traditional plant hire territory with larger excavators.

Instead, the company has a ‘managed services' division that sources larger equipment from other suppliers - including Lavendon for powered access. Turnover at the division has now reached £25 million. Mr Corcoran says this makes sense; "We don't necessarily need to own everything. Why not use external suppliers for some products."

It is typical of Mr Corcoran's thoughtful approach to rental that his ambitious growth target doesn't necessarily mean investing in every type of equipment, or being all things to all people. Perhaps evolution is an apt description of the strategy after all.

=== BOX STORY ===

"I've always been a bit cocky", says Steve Corcoran, "I'm fairly entrepreneurial: always looking for a way of doing things better."

His first job in rental was with Manchester-based hire company PB Hire - a renter of transport and small tools - where he started in 1986. PB was subsequently sold to John Mowlem (who also owned HSS Hire at the time), and Mr Corcoran joined Speedy as a London sales manager in 1989 and was then appointed city depot manager in London.

"I was finding new ways of growing the business in the south", he recalls. This included the establishment of Speedy's first lifting and surveying divisions, "We were growing aggressively. When Speedy floated in 2001 John [John Brown, then the managing director] asked me to join him on the board. When John retired [in 2005], I got the role."

By this time John Brown had already charted a course to become a national player. Mr Corcoran kept up the pace, making several major acquisitions including Hewden's tool hire operation, power renter LCH, LGH (Lifting Gear Hire), and in-house rental operations at contractors including AMEC and Carillion.

The focus now has shifted from acquisitions to surviving the UK recession and expansion overseas.

=== BOX STORY ===
Olympic boom?

At its peak, work on the London Olympics site will bring in annual revenues of around £10 million for Speedy, which is working on the site as part of the Construction Site Solutions rental consortium, one of two rental consortia on the project.

It sounds a lot, but perhaps it's not quite as much as Speedy hoped. "Construction started later than we wanted", says Mr Corcoran. "We will not have realized the full value we expected this year because of the late start."

He says that rental revenues as a proportion of total project spending will typically vary from 1% (simple projects) to as high as 9% (complex jobs). In the case of the London Olympics he thinks it will be closer to 2.5-3.0%.

Prefabrication has been a big element of the project, and that has taken some rental volume out. "There is more fixing, installation tasks, welding, and less cutting, breaking and grinding", he says.

The peak for Speedy will start around April this year when the major buildings reach the fit-out stage, with high levels of activity being maintained for about a year.

"The Olympics is in 2012, but construction has to stop around August 2011", he points out, "It has only got another year and a half to go."

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