Strategic review: Murray Pollok talks to Hewden director Kevin Parkes.
By Murray Pollok22 December 2009
Strategic review: UK rental company Hewden is undergoing a major restructuring and is the subject of a major review by owner Finning International. Murray Pollok talked to Hewden general manager Kevin Parkes.
No company likes to be under the spotlight of a 'strategic review' - two words that are likely to strike fear into any business manager. Kevin Parkes, general manager of UK renter Hewden, which is now getting the review treatment from owner Finning, dismisses speculation about the company's future and points out that such reviews are commonplace in the current business climate.
There is no second-guessing what Canadian company Finning will eventually decide to do with Hewden. In any case, Mr Parkes is much happier talking about the significant changes that have been going on at the company over the past year and the prospects he sees for improved performance.
The changes have indeed been significant, partly because they have been carried out as part of a wider restructuring and cost cutting effort in response to the recession. This has seen the depot network, for example, cut from around 102 depots to the current 78 and the fleet size reduced by 20%.
While cost cutting was obviously an important element to the restructure, it also heralded a completely new operational arrangement that Mr Parkes says would have been required in any case. This has seen the company moving away from the five product-focused businesses - access, plant, power, cranes and accommodation - to a three region structure with products integrated.
"The five divisions were separate companies to all intents", Mr Parkes says, speaking to IRN at Finning's head office in Cannock, "They didn't share resources, market intelligence or customer relationships as much as they should."
There is now a three region structure with managers responsible for all of the different products. Product specialists have been retained, working alongside other staff in the depots.
One benefit of this has been greater cross-pollination of leads between different sales people. There are four backroom staff dedicated to communicating leads and prospects - to give a simple example, a rental of accommodation units is an obvious trigger for further sales potential.
The new structure has also helped reduce transport costs. In the past the different product divisions organised transport in their own ways - some did it in-house, others used third part transporters.
"You now have access and earthmoving equipment on the same trucks", says Mr Parkes, "You never saw that before." The total truck fleet has been reduced by a third and the use of outside transport forms cut by a half; "I'm passionate about seeing Hewden kit on Hewden trucks", he says, "Transport cost is one of the three or four significant costs in the business. We've made a big dent in it."
The new organisation also lends itself naturally to another key plank in Hewden's strategy - targeting national accounts. These currently represent around a third of Hewden's business, which Mr Parkes acknowledges is too low; "A company of our size should be looking for over 50% coming from national accounts. Our business offer should sit well with national account customers. The depot network, our accreditations, corporate governance, financial stability - that should all appeal to national accounts."
He argues that big companies "don't buy products, they buy rental services. That's why we have realigned."
In support of this Hewden continues to expand its national accounts sales team. There were nine such staff members at the start of the year and there are now 16 with another 10 to be recruited.
Wouldn't it be an advantage to have smaller tools to offer such customers? Hewden sold its tool rental business to Speedy Hire two years ago and now sources any tools it needs from Speedy or other suppliers where required. If he thinks it was a mistake to sell the tools operation he won't say so - and is scrupulous about not criticising his predecessor - and says simply that "If we need to get tools we find a way of doing it."
The company already has good inroads to some very big customers, and, for example, currently has 13 major sites where it has on-location depots. "You've got to approach it in the right way. These customers are very, very organised: that's why you need a professional team."
One question that some may ask is whether the cost cutting and depot closures will have damaged Hewden's ability to act as the national rental business that it has long been. Mr Parkes argues that the new structure makes it better placed to serve its customers, and says that it is also working together with small, local plant hirers to further expand its coverage nationally.
He says that while there may be further opportunities to consolidate some locations, "We won't damage the integrity of our national coverage - we are still in Inverness and Redruth [two locations at the extremes of UK geography]."
Hand in hand with the major accounts focus will be a more aggressive policy on pricing; "We haven't been as competitive as we should have been in the past", says Mr Parkes, "They [the major accounts] told us; 'We haven't seen you enough, you haven't been competitive enough, and not clear enough about the offering'."
It will be difficult to be more competitive in a market that is suffering from oversupply and had pre-existing pressures on price, but Mr Parkes is at least encouraged by progress.
He says that prices are not quite falling off a cliff, but are "very competitive". Some products more so than others; "Sometimes there seems to be no bottom to the price for a 1 t excavator", he says. He thinks, however, that he is starting to see some light at the end of the tunnel after a period in which the market has been "incredibly difficult".
Helping to stabilise prices has been a significant 20% cut in the size of the fleet since the start of 2008. This has also helped buttress physical utilisation rates, which Mr Parkes says are now as high as they have been since the start of 2008. Utilisation at the plant division is in the mid-60s; "I'm pleased about that. They are all improving, dramatically...We are getting to the point where we are right sized for the marketplace."
The downturn in commercial construction and housing that has so impacted the UK rental sector has seen Hewden - and its competitors - focus more aggressively on other markets, such as public infrastructure projects, utilities ("We've been absent from that market for too long.") and other sectors like petrochemicals and manufacturing that have proven more resilient. Hewden has also benefited from some high profile events work, with rental contracts on U2 concerts and the Glastonbury festival this past summer.
Hewden at least has the advantage of having a young fleet. The average age is around three years, and Mr Parkes says the company will spend under £10 million this year and can live without major capital expenditure for several years.
He says procurement will also be done slightly differently in the future, with Hewden being more selective about the equipment it stocks. Policy in the past was to have one of everything - he says you can have 1 t and 3 t dumpers and not necessarily need a 2 t one as well.
The question is, when will Hewden and other renters start investing heavily again? Mr Parkes says it is a tricky question, because rental companies will have to invest in advance to be ready for contractors' increased demand. His best guess is 2011.
Of course there is a lot of speculation about Finning's review of Hewden for this very reason: Finning is a Caterpillar dealer and prime aim of the Hewden acquisition was that it gave Cat (and Finning) a sizeable chunk of the big UK rental market. That argument breaks down somewhat when the rental company in question isn't buying equipment (and isn't making good profits).
The subject is off-limits in the interview, but Mr Parkes does say that Hewden - whose fleet is 30% Cat by value - isn't under pressure to buy Cat equipment; "I come from the dealership. They understand that we have to do what is right for Hewden."
What is right for Finning is another question. We'll have to wait for the results of the review to find that out.