HSS Hire Group PLC (LON:HSS) shares slumped after the equipment and tool hire company scrapped its interim dividend as it works to cut its debt and turnaround the struggling business.
The company, which saw its chief executive step down in April after reporting a wider annual loss, delivered another weak performance in the first half and warned that revenue growth in the current quarter will be “materially lower” than it had previously estimated.
In the six months to 1 July, reported losses before tax grew to £30.1mln from £7.8mln in the same period last year and sales fell 3.4% to £160.5mln. Adjusted underlying earnings (EBITDA) dropped to £17.1mln from £32.1mln.
HSS said in a statement that profits were hit by costs associated with “substantial operating model changes”.
READ: HSS Hire's boss steps down after annual losses widen
Steve Ashmore, who took over the role of chief executive in June following John Gill’s departure, said: “Whilst the rate of recovery in our rental revenues has been positive, it has been materially slower than originally targeted, leading to lower than expected profitability over this period.”
Adjusted EBITDA in the second half is now expected to be in the range of £8mln to £11mln.
Ashmore said the company was taking action to reinvigorate rental revenue growth through new sales initiatives and cost cuts. The group is targeting annualised cost savings of £13mln.
HSS continues to struggle as Brexit vote hits construction sector
HSS has been struggling since it floated on the London Stock Exchange in 2015 having issued several profit warnings. It has taken a further hit from a slowdown in the wider British construction sector since the UK voted to leave the European Union last year.
“Confidence in the construction sector has undoubtedly taken a knock and the tool hire market is expected to grow more slowly in 2017 as a result,” said Neil Wilson, senior market analyst at ETX Capital.
HSS said it was focused on reducing net debt and moving towards profitability. Net debt stood at £230.6mln at the end of the first half.
With this in mind, HSS has decided against paying an interim dividend.
"The new leadership team is currently conducting a thorough review of the group's strategy to gain profitable share in what remains an attractive and fragmented market,” said Ashmore.
Shares fell 13.10% to 48.54p in morning trading.
Speedy Hire could make an opportunistic bid for HSS, analyst suggests
Wilson said while Ashmore is trying to turnaround the business, conditions remain challenging and investors are losing patience.
The analyst added that perhaps it may be time to revive talks for a merger with Speedy Hire, which has made a recovery following a troubled few years with pre-tax profit of £14.4mln last year on a 12% increase in revenues.
In its latest trading update, Speedy said full-year results would be well ahead the previous year.
“Diverging fortunes could bring the two together after a failed attempt back in 2015,” said Wilson. “An opportunistic bid could work, particularly with the market cap of HSS temptingly low.”