Annual Report and Accounts

Transcription

1 Annual Report and Accounts 2012

2 Reaching new heights We are Lavendon Group, the European and Middle East market leader in the rental of powered access equipment. We pride ourselves on delivering excellence to our customers by combining the quality of our hire fleet, the accessibility of our depot network and the expertise of an industry leader. From depots in the UK, Germany, Belgium, France, Saudi Arabia, the United Arab Emirates, Bahrain, Oman and Qatar, we provide a fleet of almost 20,000 access platform units. The equipment we provide enables users to work safely, productively and comfortably at height, whatever the application. We aim to be straight-forward and professional in all of our business dealings. For further information on our business and updates throughout the year, please visit our individual company websites or our corporate website: Contents 1 Financial highlights 2 Chairman s statement 5 Operating and financial review 6 Chief Executive s review 17 Financial review 27 Corporate responsibility 32 Sustainability policy 34 Remuneration report 40 Directors report 47 Statement of directors responsibilities 48 Directors and advisers 49 Corporate governance report 53 Report of the Audit Committee 54 Independent auditors report (Group) 55 Group income statement 55 Group statement of comprehensive income 56 Group balance sheet 57 Group cash flow statement 58 Group statement of changes in equity 59 Notes to the financial statements 89 Independent auditors report (Company) 90 Company balance sheet 91 Notes to the Company s financial statements 97 Group five year financial history 98 Notice and agenda of annual general meeting Scan the QR code opposite with your mobile telephone to be taken to the Investor pages on our website. Our Annual Report 2012 is available in both printed form and on the Investors section of the Lavendon website at:

3 Financial highlights Group revenue 234.6m 225.4m Underlying trading profit (EBITDA) (i) 75.6m 71.7m Underlying operating profit (ii) 35.0m 30.0m Underlying pre-tax profit (iii) 27.6m 21.9m Pre-tax profit 20.8m 14.2m Underlying earnings per share (basic) (iii) 12.83p 10.03p Earnings per share (basic) 9.80p 9.22p Cash generated from operations 39.7m 56.9m Net debt 96.5m 106.6m Net assets 196.8m 185.2m Return on capital employed 10.7% 9.0% Notes (i) Underlying trading profit (EBITDA) is stated before exceptional operating items. (ii) Underlying operating profit is stated before amortisation charges and exceptional operating items. (iii) Figures are stated before amortisation charges, exceptional items and movements in the fair value of financial derivatives. EBITDA is Earnings Before Interest, Taxation, Depreciation and Amortisation. Exceptional operating items represent exceptional operating expenses. Exceptional items represent exceptional operating expenses and exceptional finance expense. With exception of cash generated from operations, net debt and net assets, all the above relate to continuing operations. Revenue ( m) Underlying operating profit ( m) Net debt ( m) Return on capital employed (%) Lavendon Group plc

4 Chairman s statement The Group has made good progress during 2012, with results for the year at the top end of the Board s expectations. Strong revenue growth from our French and Middle East businesses, together with the disciplined delivery of our business plan, which targets improvements in both operational and capital efficiency, have enhanced the performance of the Group and strengthened its resilience to the economic headwinds prevailing in our European markets. This strategic focus has improved our return on capital employed ( ROCE ) for the year, delivered revenue growth and margin improvement, as well as supported increased fleet investment, funded an enhanced dividend and enabled further debt reduction. As our business plan gathers momentum, the Board believes that a firm operational base is being established with an increasingly differentiated service offering. This firm foundation together with our strong cash flows and healthy capital structure, will underpin the future development of the Group, provide enhanced financial returns and continue to create increased shareholder value over the medium term. Return on capital employed The Group s ROCE, our key performance metric, increased to 10.7% for the year; a marked improvement over the return of 9.0% in The calculation of ROCE has been based on the Group s operating profit before exceptional items for 2012, and the average of the opening and closing capital employed for the year of million (2011: million). Further improvements are targeted in 2013 as we look to move the Group s ROCE above our pre-tax weighted average cost of capital of 11% across the business cycle. Dividend Given the continued improvement in the Group s financial performance, the Board is proposing a final dividend of 2.00 pence per share, making a total dividend for the year of 2.75 pence; an increase of 57% over the previous year (2011: total dividend of 1.75 pence). The final dividend, if approved, will be paid on 30 April 2013 to shareholders on the register at the close of business on 8 March The proposed increase in the dividend for the year reflects the Board s confidence in the future and our continued recognition that dividends are an important means of delivering shareholder value. As previously stated, we intend, over time, to increase dividend distributions to a level that is covered three to four times by earnings. Dividend cover in 2012, based on underlying earnings per share, has been reduced to 4.7 times (2011: 5.7 times): the pace of further progress towards our aim will reflect the Group s investment needs and funding requirements as we move through the business cycle. Operational and capital efficiency programmes The expected efficiency gains from our three year plan are being delivered through a range of enhanced operational procedures and processes. By the end of 2012, we had secured operational efficiency gains of 3.7 million per annum; slightly ahead of our schedule to achieve our previously stated target of annualised savings of 5.0 million by the end of These gains have been derived over the past two years, principally in France, Germany and the UK, from a combination of better pricing, improved transport efficiency, sales resource realignment and procurement of goods and services. Our capital efficiency programmes remain focussed on realigning the level of capital employed in our European businesses, while looking to allocate additional capital through fleet expansion to our Middle East operation to meet growing demand. We continue to dispose of surplus underutilised fleet, mainly from Germany, but more recently from Belgium, as well as redistributing fleet to improve overall utilisation levels. Benefits from 2 Lavendon Group plc 2012

5 The Group s ROCE, our key performance metric, increased to 10.7% for the year; a marked improvement over the return of 9.0% in John Standen Chairman improvements to our maintenance processes, originally expected as a reduction to our cost base, are now being delivered through improved availability of fleet, providing increased revenue generation capacity without additional capital investment an important factor that can amplify our financial returns when market conditions improve. The operational and capital efficiency programmes remain a core focus for the Board, and they have played a key part in the overall improvement in the Group s ROCE, particularly in Germany where its ROCE performance has improved by 210 bps in the year, thereby increasing its relative contribution towards the Group s overall performance. Financial results The Group s total revenue for the year increased by 4% to million (2011: million), with rental revenues increasing by 2% to million (2011: million) and revenues from the sale of new and ex-rental fleet equipment increasing by 5.4 million. This increased revenue, together with the additional operational efficiency gains secured in the period, increased underlying operating profits by 17% to 35.0 million (2011: 30.0 million), with margins improving to 14.9% (2011: 13.3%). With underlying net interest costs reducing to 7.4 million during the year (2011: 8.1 million), the Group s underlying profit before tax increased by 26% to 27.6 million (2011: 21.9 million). This increase in profitability, combined with a reduced effective tax rate of 23% (2011: 25%), generated an underlying profit after tax of 21.2 million (2011: 16.5 million) and a 28% increase in underlying earnings per share to pence (2011: pence). Amortisation charges in the year increased to 3.8 million (2011: 2.3 million), reflecting the full year amortisation of the intangible assets acquired as part of the acquisition of BlueSky Access Limited in October During the year, the Group incurred an exceptional charge of 3.6 million (2011: 6.3 million). This charge relates to ongoing restructuring, principally within our German business, and the fees associated with the Group s bank refinancing in February In addition to this charge, there was a credit of 0.7 million relating to the net fair value movement in financial derivatives arising in the year (2011: credit of 0.8 million). After amortisation charges, exceptional items and fair value movements in financial derivatives, the Group s operating profit was 29.7 million (2011: 22.9 million). The Group s profit before tax was 20.8 million (2011: 14.2 million) and the Group s profit after tax was 16.2 million (2011: 15.2 million), with earnings per share of 9.80 pence (2011: 9.22 pence). Using exchange rates consistent with 2011, the Group s total revenues for the year increased by 6% to million (2011: million), with underlying operating profits increasing by 18% to 35.4 million (2011: 30.0 million). Underlying profits before tax increased by 28% to 28.0 million (2011: 21.9 million), while underlying profits after tax increased by 30% to 21.5 million (2011: 16.5 million), with earnings per share also increasing by 30% to pence (2011: pence). As previously reported, the Group s Spanish business was closed in 2011 and its results for the comparative period have been reported as a discontinued operation. Cash flow Underlying earnings before interest, tax, depreciation and amortisation ( EBITDA ) increased by 5% to 75.6 million (2011: 71.7 million), with margins improving to 32.2% (2011: 31.8%). Whilst the planned increase in the purchase and sale of rental fleet assets during the year resulted in net cash outflows rising to 25.4 million (2011: 4.4 million), the Group still generated a healthy level of cash from operations of 39.7 million (2011: 56.9 million). Net cash generated from operating activities, after payment of interest and tax, reduced to 21.2 million (2011: 41.2 million). Investment As planned, the Group increased its level of capital expenditure for 2012 with a total of 47.9 million being invested in the Group s rental fleet and operational infrastructure (2011: 16.9 million). This was partly funded by the disposal of surplus or retired assets which generated 11.1 million (2011: 6.2 million). After reflecting movements in amounts owing to equipment suppliers at the beginning and end of the year, this activity resulted in a net cash outflow relating to capital expenditure of 29.8 million (2011: 8.8 million), which was funded from annual operating cash flows. In 2013, it is planned to undertake an investment programme of similar size to 2012, again funded through annual operating cash flows. The investment programme undertaken in the year has replaced approximately 10% of the Group s rental fleet, expanded the Middle East fleet to meet growing demand, increased the availability of our BlueSky range of machine attachments and improved our operational infrastructure. The overall impact of our fleet investment and disposal programme has been a net reduction in the Group s total fleet size of around 150 units to 19,800 machines by the year end, but with an improved mix of fleet and revenue-generating capability. Net debt Although the Group s capital expenditure programme increased in 2012, the strength of the Group s cash flows, combined with a favourable foreign exchange movement of 1.8 million, enabled the Group to reduce its net debt levels at the year end to 97.3 million (2011: million). Adjusting for the un-amortised costs of 0.8 million relating to the Group s US Private Placement in February 2012, the Group s reported net debt position at 31 December 2012 was 96.5 million. The corresponding debt to equity ratio was 49% (2011: 58%), with an improved net debt to preexceptional EBITDA ratio (calculated on a Lavendon Group plc

6 Chairman s statement continued 16.7% increase in underlying operating profits rolling 12 month basis) of 1.28 times (2011: 1.49 times). The Group is operating well within its banking covenants and has significant liquidity available from its combined finance facilities. Refinancing In February 2012, the Group replaced its previous bank facilities with new debt facilities of 150 million, comprising a 100 million revolving bank facility expiring in July 2016 and a 60 million US Private Placement expiring in July These new facilities provide the Group with a robust diversified financing package, with significant liquidity that will support the development of the Group in the coming years. The costs associated with the new bank facility have been written off as an exceptional item in 2012, whilst the costs relating to the US Private Placement are being amortised over the term of that facility. Summary and outlook We are encouraged by the progress we made during 2012, with our operational and capital efficiency improvements delivering the expected benefits, and increasing demand continuing to drive our Middle Eastern revenues and margins. As a Board, the further improvement in the Group s ROCE continues to be our key priority, as we seek to move this ahead of our weighted average cost of capital in the coming year. Our focus remains on the timely delivery of our targeted operational efficiency gains, to enhance margins, and to allocate capital in support of growth opportunities and underpin our strong market positions. In particular, further investment in our Middle East business is planned, as we believe the growth opportunities in that region are considerable over the coming years and the returns available warrant the deployment of additional capital. The planned increase in our investment programme in 2012 was funded from annual operating cash flows, enabling an extensive replacement programme to be undertaken in our European fleet as well as facilitating an expansion of our Middle East fleet to meet growing demand. The strength of the Group s cash flows not only supported this increased level of investment during the year and funded an enhanced dividend, but also facilitated a further modest reduction in net debt levels. With strong cash flows, a comfortable level of borrowings, a healthy capital structure and enhanced liquidity following the refinancing of the Group in the year, we are well placed to fund our future development and exploit growth opportunities over the medium term. While trading since the year end has been disrupted by the adverse weather seen in the UK and Continental Europe, and being ever mindful of the continuing economic uncertainty, the Board remains confident of its expectations for the year as a whole and believes the Group is well positioned to deliver another year of financial progress and continue to create increased shareholder value over the medium term. John Standen Non-Executive Chairman 28 February Lavendon Group plc 2012

7 Operating and financial review Chief Executive s review Contents 6 Business and market overview 7 Strategy and business objectives 7 Review of performance by country UK Germany Belgium France Middle East 9 Future developments 10.7% return on capital employed Lavendon Group plc

8 Operating and financial review Chief Executive s review Introduction This Operating and Financial Review ( OFR ) describes the main factors and trends underlying the Group s performance and financial position during the year, together with how these factors and trends could impact the Group s future development. The review has been prepared for the Group as a whole and therefore gives greater emphasis to those matters that are significant to Lavendon Group plc and its subsidiaries when viewed as a combined entity. Business and market overview The Group is the European and Middle East market leader in the rental of powered access equipment, operating a fleet of almost 20,000 machines through a network of 83 depots located in Belgium, France, Germany, the UK and a number of countries in the Middle East. Powered access equipment is designed to enable people to work safely and efficiently at height. It is used in a wide range of market sectors and applications, including construction, civil engineering, cleaning, inspection, facilities management, industrial maintenance, broadcasting and telecommunications. In addition to general economic conditions, demand for the equipment is driven by the following factors: Commercial pressure to reduce project timescales, where speed, convenience, efficiency and safety are prime concerns. Increased focus on safety in the workplace, supported by ever more stringent Health and Safety legislation, accelerating the substitution of more traditional methods of access, such as ladders, scaffolding and mobile towers by powered access. The increasing modularisation of construction processes, which tends to produce a greater demand for access equipment on construction sites. Escalating costs and shortage of skilled labour in the construction and refurbishment sectors, leading to a need to ensure those available are equipped with the necessary tools to be as productive as possible. Powered access equipment tends to be rented rather than owned for the following main reasons: The equipment has a relatively high capital cost and stringent transport and maintenance requirements. A range of equipment would be required to satisfy all applications. The need for the equipment tends to be infrequent and inconsistent due to varying work schedules and applications. The combination of the drivers of demand and the efficiencies gained from the rental of the equipment, should, we believe, continue to enable the market to grow in the coming years, subject to prevailing economic conditions. The competitive environments that we experience vary from country to country. However, a consistent feature is that the markets are highly competitive, serviced by operations ranging from divisions of public companies, through private equity backed ventures, to privately owned family businesses, with the construction sector an important market and particularly sensitive to pricing levels. In recent years, we have concentrated our efforts on building our market position in those sectors that value service, reliability and product range above that of simply achieving the lowest price. At the same time, we have sought to improve our operational and capital efficiency through a wide-ranging programme of initiatives, to reduce the impact of 6 Lavendon Group plc 2012

9 We have seen a further improvement in the Group s financial performance during 2012, despite the continuation of an uncertain economic climate in our European markets. This improvement, driven by operational efficiency gains and leveraging strong market positions, has enabled good progress to be made... Don Kenny Group Chief Executive fluctuations in the economic circumstances of one or more of the countries in which we operate. During 2012 we have continued the development of consultative capabilities to offer solutions to major powered access users, enabling them to achieve safer, more controlled and more efficient environments for their staff involved in working at height. Through deployment of these, often intellectual-property protected solutions, we believe we can continue to win market share in maturing markets with a proposition based on total value added, rather than direct rental price. Strategy and business objectives We have seen a further improvement in the Group s financial performance during 2012, despite the continuation of an uncertain economic climate in our European markets. This improvement, driven by operational efficiency gains and leveraging strong market positions, has enabled good progress to be made towards our key strategic objective of delivering returns on capital employed (ROCE) that are above our weighted average cost of capital over the business cycle. We believe that by achieving this objective; substantial shareholder value will be created; additional growth capital will be attracted when required; and the Group s investment case will be fundamentally differentiated against available alternatives. Our strategy will be delivered through deploying capital into markets that offer attractive margins and/or growth potential, and ensuring our businesses operate with sufficient scale and efficiency that strong market positions are secured to support the future growth of the Group. The Board monitors progress against its strategic goal by reference to key performance indicators. The key performance indicators for the period 2008 to 2012 are shown in the table below: Revenue 1 ( m) Underlying EBITDA margin 2 (%) 32.2% 31.8% 31.4% 35.6% 37.1% Underlying Operating profit margin 3 (%) 14.9% 13.3% 11.4% 14.2% 18.2% Debt to Underlying EBITDA ratio Return on Capital Employed 5 (%) 10.7% 9.0% 6.6% 6.8% 10.8% Employee turnover 6 (%) 19% 18% 15% 31% 26% Definitions 1 Revenue = revenue from continuing businesses as per the Group income statement. 2 EBITDA margin = Underlying EBITDA as a percentage of revenue. Underlying EBITDA is defined as earnings before interest, tax, depreciation, amortisation, exceptional items and movements in the fair value of financial derivatives from continuing businesses, where all figures are as per the Group financial statements. 3 Underlying operating profit margin = Underlying operating profit as a percentage of revenue. Underlying operating profit is defined as operating profit before amortisation charges, exceptional items and movements in the fair value of financial derivatives from continuing operations, where all figures are as per the Group income statement. 4 Debt to underlying EBITDA ratio = the Group s total net debt divided by EBITDA. Net debt is as per the Group financial statements, and EBITDA is as defined in definition 2 above plus EBITDA from discontinued businesses where applicable. 5 Return on capital employed = operating profit before exceptional items as a percentage of capital employed. Capital employed being the aggregate of the average of the Group s opening and closing net assets and net debt, as per the Group financial statements. 6 Employee turnover = number of employees leaving as a percentage of total workforce on an annualised basis. All staff departures are included within the calculation, including restructures and redundancies. (Source: internal data). The table demonstrates the improvement in the Group s financial performance in 2012, with revenues continuing to show growth and underlying EBITDA and operating margins both demonstrating further improvement. As we planned, investment in our rental fleet and operating infrastructure increased considerably in 2012 to 47.9 million (from the 16.9 million invested in 2011), however we were still able to make a modest reduction of 9.3 million in the Group s net debt levels due to the strength of our operating cash flows. The debt to underlying EBITDA ratio has reduced to 1.28 times from 1.49 times at the end of 2011, an important indicator of the improving financial strength of the Group. In 2013, we will continue to invest at the levels seen in 2012 and again plan to fully fund this expenditure through annual cash flows. Employee turnover has increased to 19% from 18% in the prior year, with normalised employee turnover, after removing the impact of restructuring, increasing to 11% from 10% in This increase is disappointing given our focus on employee retention. We will continue to look at the underlying causes behind this movement, so that the appropriate measures can be taken to improve retention in the coming year, and remain convinced that having a stable and well motivated employee base is an important factor in improving the overall performance of the Group. Review of performance by country A summary of the revenues and operating profit by each business unit is given below: Underlying Underlying operating operating Revenue profit profit margin 000 UK % 15.8% Germany % 8.0% Belgium % 22.3% France % 11.2% Middle East % 24.0% Corporate items (4.9) (4.1) % 13.3% All figures shown in the above table relate to continuing businesses and are before amortisation charges, exceptional items and movements in the fair value of financial derivatives. Lavendon Group plc

10 Operating and financial review Chief Executive s review continued We have structured the Group so that each country of operation is viewed as a separate reporting profit centre, supported by central Group service functions. Each operation has its own management team responsible for delivering agreed performance targets. The performance of each continuing operation is summarised below, with all financial figures being underlying numbers quoted before amortisation charges, exceptional items and movements in the fair value of financial derivatives. UK Rental revenues in the UK were broadly flat for the year at million (2011: million), as a year on year pricing improvement of 1.5% compensated for a decline in volumes during the year. An increase in the sale of new and ex-rental fleet equipment enabled the UK to grow total revenues in the year by 2% to million (2011: million). Against the backdrop of a relatively weak market, we believe our UK business is continuing to gain market share with major users of powered access equipment, by differentiating itself through the provision of value adding solutions that improve safety and efficiency. At the same time, we have improved the UK s fleet mix through the replacement of some 1,700 rental units, enhancing the range of equipment on offer to our customers and increasing our revenue generating capacity. The combination of a well invested fleet and a service offering that goes beyond the pure rental of equipment, underpins our ability to secure market share and provides a degree of resilience to pricing pressures. The UK business has been a key contributor to the Group s operational and capital efficiency programme over the past two years, with improvements in pricing, transport efficiency and sales resource allocation. The progress made in transitioning to a more efficient operating model has contributed to the increase in underlying operating profits in the year to 18.9 million (2011: 17.7 million) with margins improving to 16.5% (2011: 15.8%). Germany Total Euro revenues in Germany were flat compared to 2011, with an almost two fold increase in revenues derived from the sale of ex-rental fleet equipment off-setting a 6% decline in rental revenues. Once converted to sterling, total revenues declined by 7% to 47.5 million (2011: 51.2 million), with rental revenues declining by 12% to 43.5 million (2011: 49.7 million). Demand levels in Germany continue to be unpredictable, with volumes in 2012, particularly following the summer months, not reaching prior year levels and not reflecting traditional seasonal patterns. Consequently, our focus was on the continued delivery of our business plan to increase the operational efficiency of the business and to lower its capital base. In particular over the past two years, the German rental fleet has been reduced by over 700 machines, with a net reduction of almost 400 machines in This action has lowered the German capital base, removed a future capital replacement requirement and generated increased disposal revenues and profits. Despite the weaker revenues seen in 2012, the improvements in the cost efficiency of the business and the reduced capital base have delivered a marked improvement in the ROCE performance of Germany, both in absolute terms and in its relative contribution to the overall financial performance of the Group. Whilst the full benefits of our restructure of the business are yet to be seen, and, in the short term, its delivery can create a degree of revenue disruption, we are encouraged by the progress made to date. Underlying operating profits increased to 5.0 million (2011: 4.1 million) and margins improved to 10.5% from 8.0% in Lavendon Group plc 2012

11 Belgium Belgium s total Euro revenues grew by 6%, with rental revenues increasing by 1% and revenues from the sale of new and exrental fleet equipment almost doubling. Once converted to sterling, total revenues were flat at 15.6 million (2011: 15.7 million), with rental revenues declining by 5% to 14.0 million (2011: 14.8 million). This revenue performance was disappointing given our expectation that the transfer of fleet from our closed Spanish operation towards the end of 2011 would be progressively utilised through the year. As we moved through the second half of the year and pricing pressure started to emerge in the market, we took the view that the additional fleet would not be fully utilised and consequently commenced a process to redistribute fleet and dispose of surplus units. Underlying operating profits reflect the increase in the cost base in the year following the transfer of fleet from Spain, declining to 2.8 million (2011: 3.5 million), with margins declining but remaining relatively healthy at 18.0% (2011: 22.3%). France Our French business grew strongly in 2012, with both total and rental Euro revenues increasing by 17%. Once converted to sterling, both total and rental revenues increased by 10%. This strong revenue performance has been driven by a well utilised expanded fleet, with excellent availability, and supported by a targeted sales and marketing strategy. Although the market has remained relatively flat throughout the year, we have been able to gain market share, and whilst pricing has eased this has been more than compensated by increased volumes. The operating leverage derived from the increased revenues was good, as the expanded fleet was placed within the existing depot network, and this generated a 36% increase in underlying operating profits to 2.7 million (2011: 2.0 million), with margins improving to 13.7% from 11.2% in the previous year. Additional capital will be allocated to our French business in 2013 to support our growth aspirations in this market. Middle East Revenues from our Middle East business increased across the year, with the rate of growth accelerating as we moved through the second half of the year. Total local currency revenues, including the sale of new and ex-rental fleet equipment increased by 29%, with local currency rental revenues increasing by 35%. On conversion to sterling, total revenues increased by 31% to 37.1 million (2011: 28.3 million) with rental revenues increasing by 37% to 36.3 million (2011: 26.6 million). Although this growth is centred on our main markets of Saudi Arabia and Abu Dhabi, our other operations in the region experienced increased demand. To meet this increased demand and support the growth of our business, we progressively allocated more capital to the region as we went through the year, investing a total of 12 million in fleet expansion. We believe that the current activity levels are sustainable and likely to improve further as we move through Consequently we are committing additional capital to the region in the coming year, to ensure we are well placed to benefit from the growth opportunities that become available. We believe the scale of the potential in the region could be significant over the medium term and will warrant a further shift of our available capital into the region over time. Underlying operating profits for the year increased to 10.5 million (2011: 6.8 million), with margins improving to 28.3% (2011: 24.0%). Future developments The Group made good progress during 2012 in improving the financial performance of its operations, with strong revenue growth in France and the Middle East being augmented by further operational efficiency gains. In the coming year, we will ensure that the final year of our three year business improvement plan is delivered and that the overall targeted efficiency gain of 5.0 million is secured by the end of At the same time, we will allocate additional capital, principally into the Middle East market but also on a smaller scale into France, to support our ability to meet increased demand, whilst continuing to manage our capital base in Germany to ensure further recovery in its ROCE is delivered. The planned capital investment programme for 2013 is, as in 2012, circa 50 million, and will again be funded from our operating cash flows, thereby ensuring that the Group maintains a comfortable level of borrowing and a healthy capital structure. Whilst ever conscious of the continuing uncertain economic environment, we believe that the combination of self-help measures to improve operational performance, our selective investment in attractive markets and close management of cash generation, should enable the Group to make further progress in improving its return on capital employed in the coming year. Don Kenny Group Chief Executive 28 February 2013 Lavendon Group plc

12 Our businesses and global reach Nationwide Platforms Nationwide Platforms is the UK s largest provider of powered access platforms, working at height training and machine sales. Operating from 38 depots across the country, Nationwide Platforms deliver an unrivalled fleet of access platforms up to 70m. 11, Machine fleet Depots Employees The Group is the European and Middle East market leader in the rental of powered access equipment, operating a fleet of nearly 20,000 machines through a network of 83 depots located in Belgium, France, Germany, the UK and a number of countries in the Middle East. Gardemann Operating for over 30 years, Gardemann is widely recognised as the expert in rental of truckmounted access equipment in Germany. Through a network of 28 depots covering the whole of the country, Gardemann offers a high level of customer service to local and national customers alike. 3, Machine fleet Depots Employees 10 Lavendon Group plc 2012

13 83depots strategically located to serve Europe and the Middle East dk rental dk rental continues to be a market leader in the rental and sale of access equipment in Belgium. The business operates a modern fleet of boom and scissor lifts together with telehandlers and fork-lift trucks. 1, Machine fleet Depots Employees Established Depots Deployment Reach Rapid Middle East Rapid is the market leader in the rental and sale of access equipment in the Gulf region. Through operations in the UAE, Saudi Arabia, Oman, Qatar and Bahrain, the business is ideally positioned to support current and future investment in infrastructure development in the region. 2, Machine fleet Depots Employees Lavendon France Lavendon France is a specialist provider of powered access equipment in France s major industrial centres. Operating from six strategically placed depots, Lavendon France provides a fleet of modern equipment across the country for construction, facilities management and other business services. 1, Machine fleet Depots Employees International projects In support of our multi-national customers, Lavendon now provides powered access solutions for specific customer projects in other countries around the globe and not just in those territories, above, where we have a permanent presence. Our international projects business now provides bespoke customer powered access solutions further afield and is coordinated by our Middle East operation. It continues to actively work with customers to further expand the provision of services where sufficient demand arises. Lavendon Group plc

14 The way we do business Lavendon in 2012 Looking back on 2012 Getting Fit for the Future Last year a three year Fit for the Future plan was launched across the Group to help coordinate key targets and outline areas for improvement and new success. Broken down into clear and straightforward aims, these were: Growth: Improve business financial performance on the previous year Safety: Continue to improve our safety culture in all business areas Communication: Begin monthly internal communication TeamTalks in all locations to share information, expertise and support Excellence: Implement Technical Excellence (TechX) standards in all depots throughout the Group One year on, and all key targets have been met, and an updated plan is about to be launched. Health and Safety Week featured demonstrations for employees on vehicle and tyre safety, as well as a number of workshops focused on welfare and well-being in the workplace. Your safety, our priority At Lavendon Group, your safety is always our priority. Whatever your relationship with the Group, as a customer, an employee, a supplier, or other stakeholder, that is the goal, we re committed to achieving. To help convey this message, in 2012 we created a guide which shows how we strive to keep your safety as our priority. From engineering and operations, to customer service, training, and procurement, the brochure details the steps we take to put safety first. Of course, Your safety, our priority is about more than a document. It s about our belief in providing the solutions which truly safeguard the wellbeing of all individuals, groups, and businesses who rely on us. In 2013 we will be reinforcing the Your safety, our priority message with specific campaigns in which we hope to raise the awareness of the processes, policies and plans to enhance our reputation as a leading safety solutions provider. A Health and Safety Quiz held for UK business employees saw a huge response rate throughout the company. Pictured: Marc Johnson (Regional Director - South East), left, hands the 2012 Health and Safety Quiz winner prize to Workshop Foreman Graham Sharp (Kent depot). Health and Safety Week 2012 In another Lavendon Group first for 2012, business units in Germany, the UK, and the Middle East held national Health and Safety Weeks in October. Designed to encourage improved awareness of occupational safety and health for all employees, the events of the week were adapted to specific regional requirements and also aimed to embrace suppliers and customers. Events taking place through the week included: Tyre safety awareness workshops (UK) BlueSky product customer demonstration events (UK and Middle East) Director tours of depots and offices to gain safety feedback (UK, Germany and Middle East) Employee health care scheme guidance (UK, Germany and Middle East) Healthy eating hampers delivered to all depots and offices (UK) 12 Lavendon Group plc 2012

15 170 SkySiren customers The uptake of SkySiren by170 of our customers within two years demonstrates how important this device is in supporting their health and safety obligations Introducing BlueSky Solutions Following its acquisition in 2011, 2012 was a year of considerable success for the BlueSky range of safety innovations. A number of major multinational contractors have mandated the use of these products on their sites. We have also received wider industry acclaim and awards as the products gain traction in our markets. Building upon this, the Lavendon Group announced the creation of BlueSky Solutions, a new brand which will be the standard bearer for the introduction of safety innovations to new territories where the Group does not have a rental presence. From its base in the UK, the team behind BlueSky Solutions will continue development of new product innovations, as well as supporting the Group rental businesses in promoting the use of BlueSky products by the traditional rental customer community. A golden year for SkySiren Following its launch at the end of 2011, 2012 proved to be another successful year for the SkySiren, with the ground-breaking anti-entrapment solution receiving a series of high profile awards. These were: Institute of Occupational Safety and Health s (IOSH) Innovation of the Year prize The Construction Health and Safety Group s (CHSG) Beaumont Safety Trophy in recognition of the best new product designed to improve occupational safety and health in the industry SkySiren also contributed to Nationwide Platforms winning the Contribution to Safe Working at Height accolade at the International Awards for Powered Access Scan the QR code with your smart phone app to see a video of SkySiren in action. Alternatively, you can see the video at: AboutUs/VideoGallery/SkySiren/ Lavendon Group plc

16 The way we do business Lavendon in 2012 How are we doing as an employer? What the Lavendon Group Employee Survey said about us... Last year we invited all of our employees to participate in the Lavendon Group Employee Survey. We have received some excellent feedback from our staff and we have now outlined our plans to build upon our successes and make further improvements where we believe we can do better. Highlights from these results, include: 36% of employees answered 10/10 on how likely they were to recommend Lavendon Group companies as employers, with 10 being most likely and one being least likely Our overall response rate 63% Some of our employees also took the time and effort to comment further in support of their responses, examples of which we have are: All staff at all levels are approachable for information and help. The company is well recognised and we are always encouraged to help others and not to be afraid to ask for help. The support the company offers its employees when they want to further themselves is quite special. The training offered, and encouraged, is over and above what is required to do the job, which I think says a lot about the company. Being the market leaders gives me a feeling that the business has continued to be strong throughout the recession, and therefore I feel the job security is as high as possible in these times. Customer survey highlights (Group) We believe it s essential to continually listen, learn, and make improvements for our customers. Last year we held a Customer Survey designed to give us the information and intelligence to continue to deliver and strive to go beyond providing truly market leading products and services. The responses received were very positive and pleasing, indicating that our businesses are excelling in a number of key areas: Machine availability On-time deliveries Local service and support Product innovations Ease of ordering Staff friendliness 14 Lavendon Group plc 2012

17 3 years running The Royal Society for the Prevention of Accidents (RoSPA) gave the business its Gold Award for the third year running Recognition for business excellence... In confirmation of our achievements, Group companies received a number of awards and accreditations during These included: The Royal Society for the Prevention of Accidents (RoSPA) gave the business its Gold Award for the third year running. This is awarded for commitment to making continual improvements to occupational safety and health SAFE contractor once again recognised the safety commitments of the business by awarding its stamp of approval to the consistent and safety-focused processes and policies of the company Additionally, the business also received recognition at the International Awards for Powered Access, receiving the Contribution to Safe Working at Height accolade in praise of the company s holistic approach to health and safety, which includes innovations, training, customer forums and employee development. After years of commitment to build upon the International Standard Organisation s (1SO) 9001 and marks, which represent quality and environmental management respectively, the business achieved the ISO for its achievements in successful and consistent occupational health and safety management Looking forward for 2013 This year, all employees have been encouraged to play their part in building on the successes of the first year of the Fit for the Future plan. That means all employees, regardless of their role, location, or business unit, will be given the opportunity to aid the success of the business and Take the Lead in five main areas. These are: Continuously improve customer satisfaction and brand recognition Ensure our workforce is engaged to deliver high levels of customer service and professionalism Establish improvement programmes that meet our business goals Ensure our systems are fit for purpose, enabling us to have a low cost operating model and ensure our Health and Safety performance is the best in class Ensure our sales activities are effective contributors to growing our profitability and deliver a culture change in the way we buy goods and services This time next year we aim to have taken even greater strides as a business by achieving new feats in all of these areas. Lavendon Group plc

18 The way we do business Lavendon in 2012 What does Technical Excellence (TechX) mean to Lavendon Group plc? All our customer surveys over the last five years have identified machine reliability as a key driver of customer satisfaction and customer loyalty. In response Lavendon launched the pioneering Technical Excellence ( TechX ) project in The TechX project set the new standard for our depots in a number of key areas including engineering and equipment maintenance, environmental management, procurement, housekeeping and health and safety. Technical Excellence status is a standard that a depot must achieve following an audit by the Lavendon s TechX Team. The accreditation process is certainly not automatic, and to gain accreditation a depot must achieve a pass rate of 95%. TechX International ensures quality machines, every time. Once attained annual reviews are conducted to ensure the industry leading standards have been maintained. After five years of commitment, by 2012, all depots right across the Lavendon Group achieved at least the basic TechX standard. Many have even gone far beyond. For all locations, the transformation has been clear, with Lavendon Group workshops standing alone in the industry for the unparalleled levels of service, health and safety and cleanliness. Now, to help the business continue to improve upon its engineering and technical standards, new TechX levels are set to be launched. Not only will these new accreditations demand the highest levels of organisation, but also the greatest standards in the consistent performance of its engineers, the safe and effective maintenance and repairing of equipment, as well as the integration of business systems, such as the new Lavendon Visual Information System (LViS) which has been designed to aid operational processes. Once these standards are achieved, three new levels of improvements are available to depots: TechX Bronze TechX Silver TechX Gold By the close of 2012, 42 of our depots had achieved TechX Silver status and a further 12 depots were accredited with TechX Bronze status. Planned Preventative Maintenance programme To complement the TechX project, Lavendon has also introduced and is rolling out a Planned Preventative Maintenance ( PPM ) programme. The programme is designed to regularly replace those parts with a finite life, well before their mean failure date and thus reduce machine breakdowns from such part failures. This reduces not only the future likelihood of a customer breakdown, but also over time is expected to help reduce the Group s overall machine maintenance costs. The programme has been dovetailed into the existing servicing and pre-dispatch inspection processes. Over time the entire fleet will be brought into the programme. 16 Lavendon Group plc 2012

19 Operating and financial review Financial review of 2012 Contents 18 Financial review of 2012 Underlying trading performance 20 Statutory trading performance Discontinued operation Dividends Cash flow, investment and acquisitions Balance sheet and movements in net debt 22 Return on capital employed Going concern Risks 26.0% increase in underlying pre-tax profit Lavendon Group plc

20 Operating and financial review Financial review of 2012 Group revenue 2012 UK Germany Belgium France Middle East Group revenue 2011 UK Germany Belgium France Middle East 114.8m 19.7m 15.6m 19.7m 37.1m 112.3m 51.2m 15.7m 17.9m 28.3m Financial review of 2012 The review of the Group s financial performance is based principally on what we term the underlying business performance. This measure excludes amortisation charges, exceptional items, movements in the fair value of financial derivatives and, in 2011, the results from the Group s discontinued Spanish operation. We believe that the use of underlying figures aids the comparison with prior periods and the understanding of the Group s financial performance. Underlying trading performance A summary of the Group s financial performance for 2012, at both constant currency exchange rates and actual exchange rates, with a comparison against 2011, is set out in the table below:- million 2012 at 2011 (unless stated otherwise) 2012 FX rates 2011 Revenue Underlying EBITDA Underlying operating profit Underlying profit before tax Underlying profit after tax Statutory profit after tax Underlying earnings per share (pence) Statutory earnings per share (pence) All figures shown in the above table and described as Underlying, are figures per the Group financial statements before amortisation charges, exceptional items, movements in the fair value of financial derivatives and discontinued businesses. Statutory earnings per share represent earnings from continuing operations. The impact of the year on year movement in average exchange rates for the Group s main trading currencies (principally sterling, euros and a number of Middle east currencies), was to reduce revenues, profits and earnings in 2012 by up to 8% as shown in the table above. The figures discussed in this Financial review of 2012 are at actual exchange rates for both 2012 and Group revenues for the year increased by 4% to million (2011: million). The split of these revenues between the various countries of operation, compared to 2011, is shown in the adjacent charts (all figures in millions): The Group s revenues are principally derived from the rental of its equipment fleet, but also include revenues from the sale of new equipment and from the disposal of ex-rental fleet units. The split of revenues between each of these channels is shown in the table on page 20. Rental revenue is shown net of discounts and value added tax, but includes income generated from the transportation of equipment, provision of fuel, charging of damage waiver fees and the sale of spare parts. The income derived from the rental of machines is determined by the interplay of several factors: size of rental fleet, mix of machine types within the fleet, utilisation of the fleet, length of hire and rental rates achieved. The importance, or weighting, of each of these factors can change by week or by month as the year progresses, due to normal seasonal patterns of demand, or to changing customer workloads. As the table on page 20 shows, rental revenues for the year increased by 2% to million (2011: million), while revenues derived from the sale of new equipment and ex-rental fleet units increased by 15% and 86% respectively. The increase in revenues from the sale of ex-rental fleet units, compared to 2011, was expected due to the increased level of investment in the Group s rental fleet which has resulted in the replacement and subsequent disposal of over 2,000 rental machines in the year. The increased level of sales of new equipment reflects the unpredictable nature of this revenue stream. The Group s costs are largely fixed in nature within the short to medium term, with significant movements in the cost base, outside of acquisitions, mainly being determined by either depot openings and 18 Lavendon Group plc 2012

21 With effect from 29 February 2012, the Group agreed terms to replace its existing bank facilities with new debt facilities of 150 million. Alan Merrell Group Finance Director closures, or fleet expansion or contraction. This feature of our business amplifies the effect of any small movements in revenue on the profitability of the Group, as there is little associated increase or decrease in our cost base in the short term. This impact is often referred to as operational leverage. The two main cost areas of the business are employee costs and depreciation. During 2012, employee costs, excluding redundancy costs, increased to 61.2 million (2011: 59.8 million), but as a percentage of rental revenues, these costs remained stable at 27.7% (2011: 27.6%). Depreciation costs reduced to 40.7 million in the year (2011: 41.6 million), and as a percentage of rental revenues depreciation reduced to 18.4% (2011: 19.2%) due to the continued reduction in the size of the Group s rental fleet and the increased revenues generated from this fleet. The Group s underlying EBITDA for the year increased to 75.6 million (2011: 71.7 million), with margins improving to 32.2% from 31.8% in Underlying operating profits increased by 17% to 35.0 million (2011: 30.0 million), with margins improving to 14.9% from 13.3% in the prior year. The improvements seen in both underlying EBITDA and operating profit margins reflect the combination of the revenue growth achieved and the actions taken to increase operational efficiencies and restructure the Group across the year. Working at height safety success for new 12,000 seater arena Throughout the last 12 months, major international contractor Lend Lease has called upon UK access leader, Nationwide Platforms, to help take on the 125 million challenge to construct Scotland s largest purpose built arena. The Hydro is set for final completion in 2013 and will be a 12,000 seat national home for major entertainment events. The venue will also be used for the Netball and Gymnastics events during the 2014 Commonwealth Games in Glasgow. All applicable platforms on the site were fitted with SkySiren, whilst a series of unique Material Handling Attachments (MHAs) from the BlueSky range were also made available to powered access users. Net interest charges for the year reduced to 7.4 million (2011: 8.1 million), following the reduction in the net debt levels of the Group across both 2011 and After interest costs, the Group s underlying profit before tax increased by 26% to 27.6 million (2011: 21.9 million). With an effective tax rate of 23% (2011: 25%), the Group s underlying profit after tax was 21.2 million (2011: 16.5 million). The Group s underlying earnings per share increased by 28% to pence per share (2011: pence). Lavendon Group plc

22 Operating and financial review Building Financial review up to Christmas continued with Nationwide Platforms Operating and financial review continued Statutory trading performance Amortisation charges were 3.8 million for the year (2011: 2.3 million), reflecting the annualisation of the amortisation of the intangible assets acquired with the acquisition of BlueSky Access Limited in October During the year, the Group incurred exceptional items of 3.6 million (2011: 6.3 million). This charge is the combined effect of exceptional operating costs of 1.5 million, relating principally to restructuring charges incurred in Germany during the year, and exceptional finance expense of 2.1 million relating to the fees associated with the Group bank refinancing in February The Group also benefited in the year from a credit on the movement in the fair value of the Group s financial derivatives of 0.7 million (2011: 0.8 million). After amortisation charges and exceptional operating costs, the Group produced an operating profit of 29.7 million (2011: 22.9 million). After amortisation charges, exceptional items and movements in the fair value of financial derivatives the Group produced a profit before tax of 20.8 million (2011: 14.2 million) and a profit after tax of 16.2 million (2011: 15.2 million), earnings per share of 9.80 pence (2011: 9.22 pence). Discontinued operation As previously reported, the Group s Spanish business was closed in 2011 and its results for the comparative period have been reported as a discontinued operation. Sale Sale of Sale Sale of Rental of new ex-fleet Total Rental of new ex-fleet Total Country revenue equipment equipment sales revenue equipment equipment sales UK Germany Belgium France Middle East Dividends The Group is proposing a final dividend of 2.00 pence per share, making a total dividend for the year of 2.75 pence an increase of 57% over the previous year (2011: 1.75 pence). The final dividend, if approved, will be paid on 30 April 2013 to shareholders on the register at the close of business of 8 March Cash flow, investment and acquisitions A summary of the Group s cash flows for the year is shown in the chart on page 22. During the year, the Group generated 65.3 million of cash from operations, after movements in working capital and payment of exceptional operating costs but prior to the purchase and sale of rental assets (2011: 61.3 million). A total of 47.9 million was invested in the maintenance and expansion of the Group s fixed asset base (2011: 16.9 million). This investment was partly funded by the sale of surplus and retired assets, which generated 11.1 million in cash (2011: 6.2 million). After movements in amounts owed to equipment suppliers at the beginning and end of the year of 7.0 million, the net capital expenditure for the year was 29.8 million as shown in the chart above. The amount owed to equipment suppliers at the end of the year was 10.4 million. During 2012, deferred consideration of 3.0 million was paid relating to the acquisition of BlueSky Access Limited completed in October A final payment relating to this acquisition of 1.0 million will become payable in October Balance sheet and movements in net debt The Group s balance sheet is summarised below: As at As at 31 Dec 31 Dec 'millions Goodwill and other intangible assets Property, plant and equipment Current assets excluding cash Liabilities excluding gross debt (52.4) (50.5) Deferred tax provisions (13.7) (18.7) Net debt 1 (96.5) (106.6) Shareholders equity Return on capital employed (%) % 9.0% Net asset per share Net debt to underlying EBITDA ratio (times) Net debt to equity ratio (%) 4 49% 58% Definitions 1 Net debt is comprised of bank borrowings, loan placement and hire purchase liabilities less cash and cash equivalents and net of unamortised debt issue costs. 2 Operating profits before exceptional items divided by the average of the opening and closing shareholders equity after adding back net debt. 3 Net debt divided by underlying EBITDA, where underlying EBITDA is earnings before interest, tax, depreciation, amortisation, exceptional items and movements in the fair value of financial derivatives from both continuing and, in 2011, discontinuing businesses. 4 Net debt divided by shareholders equity. The Group s net assets increased by 6% to million (2011: million), with net assets per share increasing to 1.19 (2011: 1.14). The main movements in the balance sheet were: amortisation of intangible assets partially offset by investments made in computer software; depreciation of property, plant and equipment, mainly offset by increased investment in rental fleet and operational infrastructure; an increase in current assets (principally trade and other receivables) due to the revenue growth in the year; and 20 Lavendon Group plc 2012

23 57% increase in full year dividend over the previous year a reduction in net debt following repayments from operational cash flows in the year. Although the level of capital expenditure increased significantly during the year, the Group s strong cash flows were sufficient to fund this investment and also facilitate, when combined with a small favourable foreign exchange movement of 1.8 million, a further modest reduction of 9.3 million in net debt levels to 97.3 million by the year end (2011: million). Adjusting for the un-amortised costs of 0.8 million relating to the Group s US Private Placement in February 2012, the Group s reported net debt position at 31 December 2012 was 96.5 million. The corresponding net debt to underlying EBITDA ratio is 1.28 times, a further reduction from the previous year s level of 1.49 times, and net debt to equity ratio is a comfortable 49% (2011: 58%). This reduced level of debt is well supported by operational cash flows. Innovations aid safety success of 1bn power station project The largest power station built in the UK for more than 25 years benefitted from the safety expertise Nationwide Platforms provided. The construction of the Pembroke Power Station began in 2007 and since completion produces enough power to fuel 3 million homes. Throughout the project, the Group s UK business provided up to 65 machines on hire at any one time. Nationwide Platforms also provided the award-winning SkySiren, as well as a range of other safety innovations from the BlueSky range. The Group has exposure to movements in interest rates on its borrowings. This exposure is managed by maintaining a mix of fixed and floating interest rate borrowings. This allows the Group to mitigate the impact of interest rate fluctuations by allowing some benefit from rate reductions, whilst offering some protection against rate rises. At the year end, the fixed rate element of borrowings was 56%, a reduced level when compared with the previous year end fixed rate element of 65%. This reduction reflects the decline in the Group s use of hire purchase facilities to fund the acquisition of assets, and the desire to move towards a more even split between fixed and variable interest rate borrowings. Based on the year end mix and quantum of borrowings, a movement in Euro interest base rates of 0.25% would increase or decrease the Group s annual interest cost by approximately 68,000, whilst a similar movement in Sterling base rates would also increase or decrease annual costs by 68,000. In February 2012, the Group agreed terms to replace its existing bank facilities with Lavendon Group plc

24 Operating and financial review Financial review continued new debt facilities of 150 million, comprising a 100 million revolving bank facility expiring in July 2016 and a 60 million US private placement expiring in July The bank facility has an interest rate margin of between 225 basis points and 325 basis points above LIBOR or EURIBOR depending on the currency drawn, and the US private placement has a fixed coupon of 4.89%. These facilities provide the Group with a robust medium to long term diversified financing package, with significant liquidity, which will support the development of the Group in the coming years. The costs associated with the completion of the bank refinancing, of 2.2 million, have been written off as an exceptional item in 2012, whilst the costs associated with the US Private Placement, of 0.9 million are being amortised over the term of that facility. Return on capital employed The Group s return on capital employed (ROCE) increased for the year to 10.7%, a marked improvement on the 9.0% achieved in 2011, driven by increased operating profits and a further reduction in the average capital employed during the year. Further improvement in this key metric remains the fundamental objective of the Group for the coming years. Going concern After making appropriate enquiries, the directors have formed a judgement, at the time of approving the accounts, that the Group can have a reasonable expectation that adequate resources will be available for it to continue its operations for the foreseeable future, and consequently it is appropriate to adopt the going concern principle in the preparation of the financial statements. In forming this judgement, the directors have reviewed the Group s budget for 2013 and the forecast for 2014 (including downside sensitivity scenarios), cash flow forecasts, contingency planning, the sufficiency of banking facilities and forecast compliance with banking covenants. Risks The Group has a structured process to identify and prepare mitigation strategies for business risks. A formal risk register is reviewed annually by the Group Executive Committee and the Group s internal auditors. The register details the risks identified, the allocation of executive accountabilities and current and planned future mitigation strategies. The Group Executive Committee and the Audit Committee have approved the risk register. There are risks and uncertainties inherent in our business that may affect future performance. Some of these factors have already been discussed, but others are listed below and are amongst those that we think could cause the Group s actual results to differ materially from those expected or those produced historically: Competition The powered access industry is highly competitive and highly fragmented. Numerous competitors, ranging from national operators to smaller multi-regional or independent companies, serve many of the markets in which the Group operates. The Group is generally able to compete on the basis of quality and breadth of service, expertise, reliability, and the price, size, mix and relative attractiveness of its powered access fleet. During the year, the Group has pro-actively sought to strengthen its market positions, by developing consultative capabilities which seek to differentiate our offering to customers, to mitigate the impact of increased competition should it occur. Reduction in demand by customers A large portion of the Group s customer base consists of customers from the commercial construction and industrial sectors. A downturn in commercial construction or industrial activity, or a decline in the desirability of powered access equipment, may decrease the demand for powered access equipment, or depress the hire rates that the Group can charge for its units. The key factors which may cause a temporary or long-term downturn in the commercial construction and industrial sectors are as follows: a slow-down in the economies within which the Group operates; and/or millions Opening debt Operating cash Net Capex (65.3) 29.8 Interest/tax Dividends Deferred consideration Refinancing fees Share issue FX Closing debt (0.1) (1.8) a significant increase in interest rates or other factors affecting end customer demand/investment; and/or a restriction on the availability of finance to fund construction projects; and/or over-capacity in the businesses that drive the demand for commercial construction or industrial equipment. Whilst a downturn in the commercial construction and industrial sectors could have a material adverse effect on the Group s business, we are actively managing our exposure to these sectors and are 22 Lavendon Group plc 2012

25 31% Breathing new life into the increase in revenues generated by the world s sixth oldest ship Group s operations in the Middle East focusing our efforts on widening the Group s customer base into other less cyclical areas. In addition, the Group s geographic spread of profits and cash flows reduce the impact that country specific economic fluctuations would have on the Group s overall performance. Seasonality The Group is subject to changes in demand patterns during the year caused by seasonal factors. Construction activity tends to increase in the summer months and during periods of prolonged mild weather, whilst decreasing during the winter months and extended periods of adverse weather. In addition, due to the timing of public holidays in Europe, there are more invoicing days in the second half of the year. Furthermore, the Group s trading is weighted towards the months of September, October, November and early December as the Group s customers seek to complete work ahead of the year end and onset of winter. Should the Group experience a prolonged period of adverse weather, it could have a material adverse effect on the Group s business. Safety solutions at the core of Qatari gas project The new construction of a world leading gas-toliquid plant in Qatar has been taking shape throughout 2012 supported by Lavendon s Middle East brand, Rapid. The 12bn project has stringent health and safety requirements and also imposes the challenge of a remote construction location upon contractors. Rapid have provided powered access solutions to enable safe and cost-effective work at height on the project which is predicted to take three years to complete. The Middle East powered access leader has also provided accredited training and unique innovations from the BlueSky range to further enhance safety and aid productivity. Retention of senior management and employees The Group depends on its senior management team and a stable experienced workforce. Although it is not anticipated that members of the management team will be lost or replaced, or that employee turnover will increase sharply, the disruption caused by either of these events happening could adversely affect the Group s business until suitable replacements are found. The Group regularly reviews remuneration packages and aims to offer competitive salaries and attractive short- and long-term incentive schemes, including the use of share incentive plans where appropriate. Access to capital The Group requires capital for, amongst other things, purchasing powered access machines to replace existing machines that have reached the end of their useful life and for growth through increasing the scale of the existing rental fleet, by Lavendon Group plc

26 Operating and financial review Financial review continued establishing new depots and operations, or completing acquisitions. If the cash that the Group generates from its business, together with cash that it may borrow or has borrowed under its credit facilities, is not sufficient in the long term to fund its capital requirements, additional debt and/or equity financing will be required. If such additional financing were not available to fund the Group s capital requirements, revenue and cash flow could decrease, potentially having a material adverse effect on the Group. The Group aims to ensure that it has the necessary equity base and sufficient banking and other credit facilities available to support its development plans. We believe that the combination of the Group s equity base and the strong cash flows generated by the business, together with the credit lines available from banks and other institutions, will provide adequate funding for our foreseeable needs. Currency and interest rate fluctuations Although the Company is a UK company that reports in pounds sterling, in 2012 the Group derived approximately 35% and 16% of its revenue in Euros and Middle Eastern currencies, respectively. A significant amount of its assets, liabilities and costs are also denominated in Euros and Middle Eastern currencies. These overseas results are translated at the applicable exchange rate, which fluctuates from time to time. Fluctuations in the value of the Euro or Middle Eastern currencies in relation to the pound sterling may have a significant impact on the Company s financial condition and results of operations as reported in pounds sterling. Currency fluctuations can also have a significant impact on the Group balance sheet, particularly total shareholders funds, when the financial statements of the non-uk subsidiaries are translated into pounds sterling. The translation of the assets and liabilities of the Group s non-uk businesses at the relevant balance sheet date results in the recognition of foreign exchange translation gains or losses. The Group balance sheet is affected by movements in the sterling value of its net investments in its non-uk businesses and the sterling value of its consolidated net debt. The Group is also exposed to interest rate risk on its floating rate debt. Fluctuations in interest rates may affect the interest expense on existing debt and the cost of new financings. The Group utilises interest rate swap agreements and fixed interest rate debt agreements to manage and mitigate its exposure to changes in the interest rates. Legal proceedings The nature of the Group s business exposes it to claims for personal injury or property damage resulting from the use of the powered access equipment that the Group rents or sells. The Group carries insurance covering a wide range of potential claims. The Board believes that the level of insurance is sufficient to cover existing and future claims. Changes in tax legislation or interpretation The Group is exposed to the risk presented by changes in tax legislation and the interpretation and enforcement of such legislation. The Group s activities are subject to tax at various rates, computed in accordance with relevant legislation and practice. Action by governments to increase tax rates or to impose additional taxes could reduce the profitability of the Group. Political, legal and regulatory developments The Group is subject to various legal and regulatory regimes. Future global political, legal or regulatory developments concerning the activities carried out by the Group and the arena in which the business operates may affect the Group s ability to operate and operate profitably in the affected jurisdictions. Should the Group s businesses fail to comply with applicable legal and regulatory requirements, or become unable to operate due to a deteriorating political climate, this may 24 Lavendon Group plc 2012

27 51% of Group revenues generated outside the UK result in a financial loss or restriction on the Group s ability to operate its business. Environment and safety laws and regulations The Group s operations, like those of other companies engaged in similar business, require the handling, use, storage and disposal of certain regulated materials. As a result, the Group is subject to the requirements of UK and European environmental and occupational health and safety laws and regulations. These regulate such matters as waste water, storm water, solid and hazardous wastes and materials and air quality. Under such laws and regulations, the Group may be liable for, amongst other things, the cost of investigating and remediating contamination (regardless of fault) and for fines and penalties for non-compliance. The Group s operations generally do not raise significant environmental risks, but the Group does use hazardous materials to clean and maintain equipment, dispose of solid and hazardous waste and waste water from equipment washing, and store and dispense petroleum products from storage tanks located at some of its locations. The Group has rigorous procedures to manage the disposal of these materials. German access specialists apply skills for Rhine Bridge challenge 2012 saw Gardemann supply specialist access solutions to assist with the essential maintenance of Germany s longest rope bridge. Built in 1963, the Rhine Bridge requires ongoing maintenance to ensure the control of material damage caused during the everyday use of the structure by traffic. The use of a Gardemann s 70 metre truck mounted platform helped ensure that repair and maintenance teams had a safe, convenient and cost effective means of accessing all required heights. The Group also operates in an industry where safety is a key consideration for both the well being of our employees and customers that hire our equipment. Failure to comply with regulatory requirements or to meet customer expectations with regard to the provision of safe equipment could result in litigation, financial penalties and damage to the reputation of the Group. As far as the Board is currently aware, there are no pending or likely litigation, remediation or compliance costs relating to either environmental or safety issues that will have a material adverse effect on the Group. However, it is not possible to be certain as to the potential financial impact on the Group if adverse environmental conditions or safety concerns are discovered or environmental Lavendon Group plc

28 Operating and financial review Financial review continued or safety requirements become more stringent. If the Group were required to incur material environmental compliance or remediation costs that are not currently anticipated, the Group s results would be adversely affected. Business IT system availability An interruption to the availability of the Group s IT systems could have a material impact on the Group s communication, ability to service customer needs, maintenance of adequate records and overall financial performance. In order to mitigate this risk, the Group is engaged in a continuous improvement programme to upgrade and harmonise its operational, business and accounting processes across all territories. The Group employs system and software programming professionals to maintain the Group s IT infrastructure and develop systems to meet the business requirements. In addition the group has a fully formed and tested disaster recovery programme in place to protect against major systems failure. Düsseldorf Boat positioned perfectly with Gardemann s access solutions One of Europe s most luxurious boats took centre stage at a major exhibition in Germany assisted by Gardemann. A range of powered access equipment was used to install and secure the Düsseldorf Boat into position using safety wiring. Event managers also took advantage of Gardemann s versatile fleet to clean and polish the boat before the display was opened to the general public. Alan Merrell Group Finance Director 28 February Lavendon Group plc 2012

29 Corporate Responsibility Contents 28 Environment 29 Community 30 Our CR objectives Summary 31 Marketplace Workplace 32 Sustainability policy Lavendon Group plc

30 Corporate responsibility We care about customers and colleagues alike. We are easy to do business with. We deliver on our promises, both operational and financial. In our 2010 Annual Report we set out our vision for Corporate Responsibility. We believe we have always operated in a responsible and sustainable manner but we have recognised the need for a more focussed and directed Corporate Responsibility agenda as a part of our unique offering to our customers and to further engage our employees. In our previous annual report we identified the four key principles that our company operates by: Performance: valuing and rewarding the attainment of business goals. Integrity: being reliable, ethical, honest and straightforward in our relationships with customers, staff, shareholders and suppliers. Process-orientation: encouraging a culture where business challenges are resolved constructively and permanently and fire-fighting is avoided. Initiative: encouraging staff to take ownership of business opportunities and to proactively collaborate in their personal development. These principles are reflected in a set of management values, which have been adopted by the Board and senior management of the business as the guide to how we endeavour to run our business: We provide a safe working environment. We aspire to be a motivated, professional team. We treat everyone with respect. We invest time and resources to develop each employee to their full potential. We behave like responsible co-owners of the business. These key principles have served us well and will continue to form the foundations of our vision for Lavendon Group s Corporate Responsibility going forward. Environment In our 2010 Annual Report we introduced our six Key Performance Indicators (KPIs) for the Environment. We set targets that would not only challenge our employees but would tackle environmental issues that will be relevant to us, and the wider industry, for the foreseeable future. This focus area requires greater engagement from our employees, involving a change to their habits and a greater involvement in the management process. To help achieve the targets, we provide clear and justified reasoning to aid understanding as well as encouragement and leadership from all areas of the business. The successes we have seen in achieving our targets to date demonstrates how intrinsic our Corporate Responsibility programme has become and how well our employees have accepted the challenge. In 2010 we set an ambitious target to achieve a 10% reduction in utility use by Our consumption figures for all three utility services (gas, electricity and water) have seen a 13% reduction since 2010, a considerable achievement. Aside from the financial benefits in the reduction of utility use, significant reductions have been made in the environmental impact of our operations. The use of electricity and gas has a well understood CO 2 impact and the reduction in our use of these utilities delivers immediate savings in CO 2 emissions. In 2012 water use became a national focal point, record periods of drought were recorded, bringing with it a sharper focus on the issues of the global water imbalance. In 2010 we recognised the importance of water usage forming part of our wider environment targets and included this within our strategy. The figures for 2012 demonstrate the benefits of our dedication. As a business we pride ourselves on the service provided to our customers. It is this service that maintains our market leading position and our value as a business. A part of this service is our dedication to providing high quality equipment supported by best in class maintenance programmes. In 2011 we started our Planned Preventative Maintenance (PPM) scheme which, together with our TechX programme, promotes efficient maintenance of machines. These two schemes have both improved the quality of service to our customers and have also brought us reductions in breakdowns and requirements to scrap machines. These reductions have a direct impact on the amount of waste produced by our operations as well as the CO 2 emissions associated with attending breakdowns or disposing of scrap machines. As our PPM scheme becomes further embedded in to our business and the benefits of our work filters through our fleet, we will expect to see further reductions in CO 2 emissions beyond Lavendon Group plc 2012

31 Give&Gain Sustainability Week Give & Gain Day focussed on employee engagement on various topics and saw the launch of initiatives within the company to drive the delivery of our Corporate Responsibility targets. 25,000 Raised for charity The Lavendon Group Cycle Challenge involved all of our European companies in one combined effort to raise money for charity. Community The UK Volunteering Policy was introduced during the inaugural Sustainability Week held in June The UK Volunteering Policy was introduced during the inaugural Sustainability Week held in June The policy encourages our employees to take part in community volunteering and charity events by allowing two days a year, in addition to the employee holiday entitlement, to dedicate to a charitable cause. Community volunteering has been identified as an excellent way to engage our employees in our corporate responsibility aims, as well as developing new skill sets, stronger teams and greater community participation for our employees. The Lavendon Group Cycle Challenge involved all of our European companies in one combined effort to raise money for charity. A team of sixteen employees, made up of four employees from each of our European companies, Nationwide Platforms (UK), Gardemann (Germany), Lavendon (France) and dk Rental (Belgium), took on the challenge to cycle between Alpen in Germany to Lutterworth in the UK. The route took in various depots from each country and covered a combined total distance of 790km. In all, forty employees were involved in the completion of the challenge helping to raise over 25,000 for charity. The total funds raised were shared between four nominated charities which were chosen by the employees from each company. This truly collaborative event underlines the dedication that Lavendon Group has to its Corporate Responsibility vision and demonstrates the engagement in this vision from its employees. A Cycle2Work initiative was also introduced to the business, as well as a volunteering policy which encouraged employees to donate their time to good causes in business time. Lavendon Group Cycle Challenge Sustainability Week Lavendon Group held its first ever Sustainability Week in 2012, with UK business Nationwide Platforms leading the way with a series of events, competitions and campaign launches. In June 2012 the inaugural Sustainability Week was held in the UK. Each day of the week was dedicated to a different theme, from Environment, Community, Marketplace and Workplace culminating in a Give and Gain Day. The week focussed on employee engagement and saw the launch of various initiatives within the company to drive the delivery of our Corporate Responsibility targets. Leicestershire and the re-launch and focus on the Big Switch Off first introduced in A copy of the Sustainability Policy, adopted in 2011, is displayed within this report and is also available on the Lavendon Group s website: The week was a great success with some of the key outcomes being the nomination of Cancer Research UK as the dedicated charity of year, employee engagement in local fund raising, a volunteering placement at a college local to the Lavendon Group head office in Lavendon Group plc

32 Our CR objectives Marketplace Key performance Before indicators milestone 2020 Customers using 0 0 Lavendon Group 5 50 CO 2 Statement working with customers to help them understand their CO 2 impact Customers using anti crushing devices Customers using energy reducing attachments/ enhancements Environment Key performance % reduction 2012 Before indicators since 2010 milestone 2020 Energy/turnover % 10% reduction 50% reduction (mwh/ m) in utility use in utility use % Hazardous 95% 92% 94% -1% All depots 99% of all waste waste recycled recycling 97% diverted from landfill Weighted average % 20% reduction 50% reduction vehicle emissions vs vs CRC (Carbon Established Widened Shadowing 2012 milestone Shadow CRC Voluntary Reduction all stakeholder awareness of CRC achieved compliance registration Commitment exposure to CRC compliance compliance criteria UK only) current legislation across the Group criteria Elimination in 1.27% 1.01% 0.93% 27.0% 50% reduction <0.5% failure breakdowns rate Elimination in scrap machines % 75% reduction Zero scrap machines Workplace Key performance % improvement 2012 Before indicators since 2010 milestone 2020 Employee Net Promoter 8 Employee survey % 20% improvement 50% over 2010 Score (ENPS)* carried out in 2012 improvement Customer Net Promoter 32 Customer survey % 20% improvement 50% Score (CNPS)* carried out in 2012 improvement over 2010 Health & Safety* 9 accidents 45 accidents 7 accidents 22.2% Zero reportable Zero reportable reported reported reported accidents accidents *UK only results -Group base lines established in 2012 Community Key performance Before indicators milestone 2020 Charitable giving Charities Charity committee 30,095 Community Recognised as Committee established and strategy adding value established total donations in place where we operate of 48,934 made Volunteering Nil Policy established Formal Formal policy 30% of employees to be active policy now adopted volunteer by 2012 adopted Gifts in kind Adhoc Policy to be Covered Formal policy > 100k of benefit established under our adopted into the community and active volunteering by 2012 and charity committee policies The following annual consumption data has been captured in order to set baselines for the above reduction targets Reduction since 2010 Gas and Electricity (kwh) 10,400,923** 10,052,912 9,033,236 1,367, % Energy/turnover (mwh/ m) 46** % 13.0% Water (m 3 ) 45,290 40,669 35,278 10, % Average CO 2 emissions per vehicle: Cars % Service vans % ** 2010 restated in Lavendon Group plc 2012

33 Marketplace Lavendon Group is focussed on delivering excellence to its customers, through innovation and service. Our internal programmes such as TechX, the Lavendon Academy and Planned Preventative Maintenance all go towards improving the experience of the customer when dealing with our Group. Our BlueSky range of products offers a range of solutions to our customers that can help to reduce unsafe practises and improve efficiency. The products are designed to support the health and safety, budgetary and corporate responsibility targets of our customers. Lavendon Group offer a range of different products, such as SkyRack, which is designed to carry pipe work safely to height, SkySiren, which has been designed specifically to prevent crushing hazards in a boom lift, and SkySentry, which prevents unauthorised use and intelligent machine management. We recognise that the vast majority of our customers experience the same pressures and expectations in their work, and as market leader we strive to provide solutions that improve both safety and efficiency. SkySiren was developed in response to a need from our customers to prevent the issue of entrapment within boom type platforms. The uptake of SkySiren by 170 of our customers within two years demonstrates how important this device is in supporting their health and safety obligations. In 2012 we introduced SkySentry which is designed to remotely secure machines from unauthorised use and at the same time monitor and display information on machine use. For the first time, this product enables a customer to have full control over their rented equipment, helping us to support many of our customers own Corporate Responsibility objectives. This product enables customers to realise benefits in health and safety, cost efficiency, emissions reduction and a reduction in community disruption. Workplace Our employees are the key to driving the success of our Corporate Responsibility agenda. The workplace is where we engage our employees on our Corporate Responsibility aims and it is only through them that we will develop a sustained approach to Corporate Responsibility. The development and progression of our employees is vital to us in order to retain talent, develop the skills of our staff and constantly improve on the service we offer to our customers. Lavendon Group is keen to promote staff from within it ranks, and is developing a pool of talent through its training programmes. Lavendon Group will also continue to support the training of apprentices, especially in engineering trades. We understand that as well as developing talent from within, the benefit of an apprenticeship scheme is that it allows us to train our workforce not just the necessary skills but also in the culture of our company. Specific focus is made on the engineering job family as we recognise that this trade is becoming increasingly under-subscribed. By working to introduce engineers at an apprenticeship level we are insuring ourselves against an ever decreasing pool of talent. Our apprentices come from all areas of our operation, some of which are communities listed in the English Indices of Deprivation for education and employment. Promoting and developing our apprenticeship scheme tackles these issues head on. In 2012 we continued to develop and roll out our TechX programme, with all new premises going through the accreditation process. Designed to improve efficiencies in work, health and safety and general housekeeping TechX not only supports our commitment to health and safety and the highest levels of quality for our customers, but it supports our aim of improving the environment. The TechX programme aids the reduction and efficient streaming of waste and it promotes the efficient maintenance of machines, which together with Planned Preventative Maintenance, reduces the emissions and waste associated with attending machine breakdowns. Summary Lavendon Group has demonstrated its increasing dedication to Corporate Responsibility and this is evident through the successes delivered against the KPIs for Particular success can be seen in employee engagement, which has resulted in utility use reductions and ENPS scores. In 2012 we introduced our Corporate Responsibility agenda to the Group outside of the UK, and the successful conclusion of the Lavendon Group Cycle Challenge demonstrates that there is total support for our vision around the Group. In 2013, we will focus more on pushing the KPIs within each operating country to make further progress towards our Corporate Responsibility targets. Our Corporate Responsibility agenda within the Group will move towards a more global focus over time as we have demonstrated that not only can our operations deliver savings and achieve greater engagement with our workforce, but the systems and processes that are put in place are promoting best practise and are delivering a better service to our customers. It is this realisation that is of paramount importance in sustaining our Corporate Responsibility and this is the message that will make the programme successful across the Group. Lavendon Group plc

34 Our sustainability policy At Lavendon Group, we understand that as a leader in the rental of powered access equipment we have a responsibility for the social, environmental and economic sustainability of our business. As a Company we challenge our employees to make a difference.we look to develop our relationship with the communities in which we work, to reduce our impact on the environment and improve health and safety both within and outside of our premises. Through our own innovation and the promotion of best practice, we are dedicated to achieving these aims. The following Sustainability Policy outlines our aspirations to make a positive impact on the communities in which we work by operating as a professional, ethical and responsible Company. This policy supports the business principles and management values that the Company has adopted. Communities Our employees, our customers and our wider stakeholders, live and work in the communities that we serve, and is why supporting and engaging with these communities is one of our priorities. Benevolence We will continue to offer our employees the opportunity to nominate beneficiaries for the funds controlled by our charities committee as well as offering sponsorship to employee charitable fundraising. Volunteering We will actively encourage our employees to spend time volunteering within their local communities and for worthy causes as a part of their employment with our Company. Gifts in kind As a member of the communities we serve, our employees can offer services and expertise to help support local events and initiatives. Market place We are committed to working with our customers and suppliers to consider the full lifecycle impact of goods and services that we use and supply, as well as the benefits of new technologies and practices. CO 2 statements We are determined to provide a full CO 2 statement to our customers so that they can better assess the impact of their renting activity and so that together we can work towards a reduced carbon footprint. Innovative new technologies We will use our knowledge and expertise to produce technologies and systems of work that can decrease the impact on the environment caused by the use of our machines. Suppliers We will work with our supply chain to deliver social, environmental and economically sustainable solutions through responsible sourcing. Work place The development of our employees and the improvement of efficiencies and safety of our work places will continue to demonstrate our dedication to supporting sustainable operations. Employee net promoter score We will develop and engage our work force in a way that supports our employee s expectations of us to respect me, trust me, train me, value me. Customer net promoter score We will be a supplier of choice for our customers, working to a high level of service and promoting the sustainable use of our machines. Health and safety We will continue to be recognised for the work that we do to make sure that our employees and customers are protected from the risks of occupational injury or ill health. Environment We are committed to reducing any potentially negative effect our operations have on the environment by exploring every opportunity to develop processes and strategies that can help us to reduce the impact we have on the environment. Use of utilities We understand the impact that utilities use has on the environment and will work to reduce our consumption of energy, water and gas through employee lead initiatives and efficient monitoring. Disposal of waste We will continue to dispose of waste product in a way that causes the least damage to the environment and we will seek to enhance and improve the methods that we employ to achieve this aim. Vehicle emissions We will reduce emissions resulting from our car, delivery vehicle and machine fleets by investing in and developing new technologies and practices designed to reduce emissions. Carbon and other pollutant reduction We will maximise resource efficiencies throughout our operations to avoid waste, increase recycling and reduce our emissions. Elimination of breakdowns and scrap machines We will actively seek improved efficiencies in our maintenance programmes to reduce the environmental impacts associated with attending, repairing and scrapping machines or parts. 32 Lavendon Group plc 2012

35 Financial and statutory information Contents 34 Remuneration report 40 Directors report 47 Statement of directors responsibilities 48 Directors and advisers 49 Corporate governance report 53 Report of the Audit Committee 54 Independent auditors report (Group) 55 Group income statement 55 Group statement of comprehensive income 56 Group balance sheet 57 Group cash flow statement 58 Group statement of changes in equity 59 Notes to the financial statements 89 Independent auditors report (Company) 90 Company balance sheet 91 Notes to the Company s financial statements 97 Group five year financial history 98 Notice and agenda of annual general meeting Lavendon Group plc

36 Remuneration report Introduction This report has been prepared by the Remuneration Committee and is in accordance with Schedule 8 to the Accounting Regulations under the Companies Act 2006 as well as the relevant requirements of the Listing Rules of the Financial Services Authority. The report describes how the principles relating to directors remuneration in the UK Corporate Governance Code (the Code ) have been applied during the year. A resolution to approve the report will be proposed at the forthcoming Annual General Meeting of the Company on 18 April Auditable information The Remuneration Report has been audited by PricewaterhouseCoopers LLP as required by Schedule 8 to the Companies Act Under Part 3 of the schedule, the following sections of the Remuneration Report are subject to audit: remuneration during 2012, pension contributions, long term equity incentives and Directors interests. The remaining sections of the Remuneration report are unaudited. Remuneration Committee The Remuneration Committee (the Committee ) comprises the two non-executive directors of the Company, Jan Åstrand (Chairman of the Committee) and Andrew Wood together with the Group s Chairman John Standen. All members of the Committee are considered to be independent by the Company. The terms of reference for the Committee are available from the Lavendon Group website ( The Committee s principal duties are summarised below: make recommendations to the Board on the framework and policy for the remuneration of the Company s Chairman, executive directors and other senior management members as shall be determined; review the remuneration policy on a regular basis to ensure it remains appropriate and that members of executive management are rewarded fairly and provided with appropriate incentives to encourage enhanced performance; and review and approve the design, determine the targets and level of annual awards for any performance related bonus schemes and long-term incentive schemes. During the year, the Committee were advised by Aon Hewitt, a firm of independent executive remuneration consultants, on its current remuneration policy and the remuneration packages of the Company s executive directors (Aon Hewitt did not provide any other services to the Company or Group in the year). The Committee met on six occasions during the year where the following matters were reviewed: whether any bonus was payable to executive directors under the annual bonus scheme for 2011; the design of the annual bonus scheme, including targets, for executive directors for 2012; whether any awards made under the Company s Long Term Incentive Scheme in earlier years were to vest; the level of awards to be made under the Company s Long Term Incentive Scheme for 2012, together with the performance measures and targets that were to apply to these awards; the appropriateness of the Company s remuneration policy and the remuneration arrangements for the executive directors and senior management members; the implementation of the Deferred Share Bonus Plan, following shareholder approval at the Company s Annual General Meeting on 19 April 2012; the introduction of clawback provisions to be applied to awards under the annual bonus scheme, Deferred Share Bonus Plan and the Long Term Incentive Plan; and approval of the Remuneration Report for Details of attendance at Remuneration Committee meetings are given in the Corporate Governance Report on page 51. Directors remuneration policy The remuneration of the Company s executive directors comprise a base salary, an annual performance bonus, participation in a long term incentive plan with returns based on group performance, together with a defined contribution towards pension arrangements and other benefits, as detailed in this report. In determining the remuneration packages of the executive directors of the Group, and advising, where appropriate, on the remuneration policies relating to the Group s senior management below Board level, the Committee aims to ensure that: executives are appropriately rewarded for their contributions to the Group, and account is taken of their individual responsibility and performance; remuneration packages reflect current market conditions in order to attract, retain and motivate executives of a high quality; 34 Lavendon Group plc 2012

37 rewards are linked to the Group s performance so that the interests of the executives are aligned with those of the Company s shareholders; executive shareholding is encouraged to ensure a longer term focus; and the Company complies with the Code. The Committee believes that there should be an appropriate balance in the executive directors remuneration packages between fixed and variable (performance related) pay, that encourages the long-term success of the Company. The chart below illustrates the expected mix between fixed remuneration (base salary, benefits and pension) and variable remuneration (bonuses and long-term incentives), for target performance (target payout) and out-performance (maximum payout): Out-performance Target 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Base salary Benefits Pension Bonus Long-term incentives The Committee introduced clawback provisions during 2012 for performance related awards (the annual bonus scheme, Deferred Share Bonus Plan and the Long Term Incentive Plan). This reflects best practice guidelines as set out in the Code and enables the Committee to 'clawback' awards in prescribed circumstances. The individual components of the remuneration package for executive directors are summarised below: Elements of executive remuneration Element of pay Objective Award level Performance criteria Performance period Base salary To attract and retain high performing individuals to lead the company Our policy is to pay salaries at market rates that reflect the role, skill levels, experience and performance An appraisal of the performance of the individual is taken in to account when salary levels are reviewed each year Not applicable Benefits To operate a competitive benefits and pension structure that provides adequate protection to our directors and aids in recruitment and retention company car medical insurance disability cover Not applicable Not applicable Pension Defined contribution of 25% of salary cash in lieu alternative offered Not applicable Not applicable Annual bonus To drive and reward delivery of short-term business objectives Up to 150% of base salary 30% of the maximum (45% of salary) is paid for on-target performance Achievement of a combination of financial objectives linked to profitability & ROCE (75% of total) and corporate/personal objectives (25% of total) One year If bonuses exceed 30,000 then 30% of the total annual bonus will be deferred into Company shares for one year Long term incentive plan (LTIP) To drive and reward longer term business objectives Up to 150% of base salary each year Achievement of TSR measures relative to FTSE indices or specific financial targets (EPS & ROCE) Three years with no retesting Lavendon Group plc

38 Remuneration report Continued Base salary The Committee reviews salaries of executive directors annually, with changes taking effect on 1 January of each year. In determining salary increases the Committee takes into account individual performance, market data and the policy being adopted by the Company for pay reviews elsewhere in the Company or Group. Salaries are benchmarked against comparable roles in companies of a similar size and in companies within the industry sector. Benefits in kind The executive directors receive certain benefits in kind, principally company cars, private medical insurance and disability cover. Directors pension entitlement The Company does not offer a defined benefit pension scheme, instead it makes contributions to individual pension arrangements of 25% of base salary. Where contributions to individual pension arrangements would exceed 50,000 per year, executive directors are offered cash in lieu, as an alternative for the amount above 50,000. Annual bonus & deferred share bonus plan The Committee establishes the criteria that must be met in each financial year if a bonus is to become payable to the executive directors. The maximum bonus potential is 150% of salary (maximum payout), with 45% of salary (target payout) being payable for on-target performance. The targets are a combination of financial performance and corporate/personal objectives, with up to 125% of salary payable for achievement of financial performance targets and up to 25% of salary payable for achievement of corporate/personal objectives. The financial performance targets have to be achieved before any bonus relating to corporate or personal objectives become payable. Under the terms of the bonus scheme, where any bonus payable exceeds 30,000, 30% of the total bonus will be deferred into shares of the Company for a period of one year, as required under the terms of the Company s Deferred Share Bonus Plan. In addition, at the discretion of the Remuneration Committee, the executive directors may voluntarily invest part or all of their remaining after tax cash bonus in shares and receive a potential matching award subject to performance over a three year period (up to a 1:1 match on the gross bonus invested). The performance conditions for any potential matching awards will be finalised each year once bonus payments are confirmed and if notification is received that a director wishes to voluntarily invest part, or all, of his remaining cash bonus. Performance conditions will be based on earnings per share and return on capital employed reflecting the strategic priorities of the business to grow earnings and improve returns on the Company s invested capital Long term incentive plan The Committee has responsibility to supervise the Company s long-term equity incentive schemes, determining the level of annual awards and their associated performance conditions. The executive directors currently have outstanding awards under the 2006 Long Term Incentive Plan. The Share Option Scheme, previously in place, is now closed and no further awards will be made under that plan. Under the Long Term Incentive Plan, the Company is able to make annual awards up to 150% of base salary each year. The performance period for each annual award is three years with no retesting available. The performance measure relating to the outstanding awards granted as at 31 December 2012 is Total Shareholder Return relative to the FTSE Small Cap Index excluding Investment Trusts. The awards granted under this Plan to the executive directors are detailed in the Remuneration during 2012 section of the Directors' Remuneration Report. Directors service contracts In keeping with recommended practices under the Code, the Group s policy on executive directors service contracts is that no notice period of employment should exceed twelve months duration and that contractual termination payments must not exceed the notice period in the directors service contracts at the time of termination. The service contracts of both Don Kenny and Alan Merrell contain provisions relating to their duty to mitigate their loss in the event of termination. The executive directors have service contracts with the Company and the Chairman and non-executive directors have letters of appointment, which in the case of the non-executive directors, are for a period of three years. Details of the service contracts and letters of appointment are given below: Contract Unexpired Notice date term period Don Kenny 1 October 2011 Rolling contract 12 months Alan Merrell 26 May 1998 Rolling contract 12 months John Standen 30 September 2010 Rolling contract 3 months Jan Åstrand 20 December months Fixed term Andrew Wood 20 December months Fixed term 36 Lavendon Group plc 2012

39 Remuneration during 2012 The remuneration paid to individual directors in 2012 is summarised in the table below: Performance Base salary Benefits related Termination Total Pension and fees in kind payments payments remuneration contributions Executive directors: Don Kenny* Alan Merrell Kevin Appleton** Chairman and non-executive directors: John Standen**** Jan Åstrand**** Andrew Wood**** Tim Ross*** Total directors emoluments , * Don Kenny was appointed on 1 October ** Kevin Appleton left employment with effect from 30 June 2011, and, under the terms of his contact, he was entitled to receive a termination payment, after mitigation, of 312,000. In addition to Kevin Appleton s termination payment, the Committee determined that awards over 136,500 shares in the Company, previously granted under the Company s 2006 Long-Term Incentive Plan in 2010, would vest on the date of cessation of his employment. These awards were exercised on 9 August 2011 and had a value, on exercise, of 136,500. *** Tim Ross retired from the Board on 20 April **** John Standen and Jan Åstrand received additional fees of 145,000 and 99,000 respectively in 2011, due to their expanded interim responsibilities as Executive Chairman and Chief Executive Europe while the search for the Company s new Chief Executive Officer was being undertaken. Andrew Wood received additional fees of 8,125 in 2011 due to the increase in his responsibilities for the period that John Standen and Jan Åstrand assumed interim executive roles in the management of the Group. The fees of Jan Åstrand and Andrew Wood also included a supplementary payment of 8,125 in 2011 to their base fees as non-executive directors for the year, relating to the time commitment required at the start of their terms of appointment to become fully briefed on the Group s operations and markets. Amounts shown as base salary and fees relate to base salary in the case of executive directors and fees in the case of the Chairman and the non-executive directors. The Board has determined the fees payable for the Chairman and the non-executive directors with reference to current market conditions and after consultation with external advisors. Base salaries for Don Kenny and Alan Merrell throughout 2012 were 315,000 and 230,000 respectively. These base salaries were reviewed in January 2013, where Don Kenny s and Alan Merrell s salaries for 2013 were set at 324,450 & 237,000 respectively. Pension contributions In 2012, the total of contributions made towards individual pension arrangements for Don Kenny and Alan Merrell was 78,750 and 57,500 respectively. Of Don Kenny s total contribution, 50,000 was paid into his pension fund and a taxable cash in lieu payment of 28,750 was made. Of Alan Merrell s total contribution, 50,000 was paid into his pension fund and a taxable cash in lieu payment of 7,500 was made. Annual bonus payments For 2012, the Group s financial performance had to deliver an operating profit before amortisation and exceptional items of 34.7 million and a return on capital employed of 10.4% before any bonus payments would start to accrue. The maximum bonus potential would be earned if operating profits before amortisation and exceptional items for the year were 51.0 million and the Group s return on capital employed reached 15.8%. The Group s financial performance for the year passed through the minimum threshold, and a provisional bonus accrual of 35% of base salary has been made for Don Kenny and Alan Merrell which is subject to the Committee s review of performance against the corporate/personal objectives set for the year. As required under the terms of the Company s Deferred Share Bonus Plan, should bonuses be awarded, and if they are in excess of 30,000, then 30% of the total bonuses will be deferred into shares of the Company for a period of one year. Lavendon Group plc

40 Remuneration report Continued Long term equity incentives 1996 Unapproved Executive Share Option Scheme The awards granted under this Scheme are detailed in the table below, and were subject to performance conditions that required a range of earnings per share growth targets to be met. The Scheme is now closed. Share options Number Options Options Number Option of shares granted in lapsed in of shares Issued price per 1 Jan 2012 the year the year 31 Dec 2012 capital ordinary share Earliest date Latest date Date granted Note No. No. No. No. % pence exercisable exercisable Alan Merrell: 27 Feb 2002 (i) 138, , Feb Feb 2012 Notes (i) The options granted to Alan Merrell on 27 February 2002 were exceptional grants made by deed. The options were not exercisable unless growth in pre-exceptional earnings per share ( EPS ) exceeded the growth in the Retail Price Index ( RPI ) over the performance period by at least an average of 8 per cent per annum. The options were exercisable in full if growth in pre-exceptional EPS exceeded growth in RPI by at least an average of 12 per cent per annum. The options were exercisable on a straight-line basis between nil and 100% between the two applicable percentage targets. The market price of the Company s shares at 31 December 2012 was pence; the range of market prices during the year was between pence and pence. The option was not exercised during the year, and lapsed on 27 February Long Term Incentive Plan The awards granted under this Plan to the executive directors are detailed in the table below: Long Term Incentive Plan Awards Awards Awards Awards Awards granted at granted during exercised lapsed during granted at 1 Jan 2012 during the year during the year the year 31 Dec 2012 Vesting Note No. No. No. No. No. date Don Kenny (iii) 162, ,371 3 October 2014 (iii) 275, , April , , ,480 Alan Merrell (ii) 121, ,613 (iii) 240, , April 2013 (iii) 150, , April 2014 (iii) 200, , April , , , , , , ,613 1,029,317 Notes: (ii) The awards were subject to performance conditions. The vesting of 50% of the awards was based on the Company s TSR performance and the vesting of the other half was based on the Company s EPS performance. EPS was measured by reference to the fully diluted EPS as disclosed in the audited annual financial statements adjusted to exclude unusual or non-recurring items at the discretion of the Remuneration Committee. The vesting of the TSR-related half of the awards required the Company s TSR performance over a single three-year period to be at least 2.00 for 7.5% of the awards to vest, increasing on a straight line basis to 50% of the awards vesting if the share price was at least The EPS-related element required the Company s EPS in 2011 to be at least equal to 33.10p for 7.5% of the awards to vest and greater than or equal to 48.92p for 50% of the awards to vest. The performance conditions of these awards were not met during the performance period, and the awards lapsed on 23 April (iii) The awards are subject to a performance condition. The vesting of 100% of the awards will be based on the Company s TSR performance relative to the performance of the FTSE Small Cap Index excluding Investment Trusts (the Index ). The vesting of the awards will require the Company s TSR performance over a single three-year period to be at least equal to the performance of the Index for 15% of the awards to vest, increasing on a straight line basis to 100% of the awards vesting if the TSR performance is 60% or more above the performance of the index. 38 Lavendon Group plc 2012

41 Directors interests The interests of the directors in the ordinary share capital of the Company are shown below: Beneficial number of shares 31 Dec Dec 2011 Don Kenny 128, ,000 Alan Merrell 142, ,762 John Standen 85,000 67,500 Jan Åstrand 56,983 56,983 Andrew Wood 50,000 50,000 During the year the following share transactions were undertaken by the directors: i. On 18 May 2012 John Standen purchased 17,500 Ordinary shares in the Company at pence per share. ii. On 18 May 2012 Don Kenny purchased 28,552 Ordinary shares in the Company at pence per share. Director share ownership guidelines It is the Company s policy that executive directors should build a shareholding in the Company, over time, equal to 100% of annual salary to facilitate the alignment of interests with those of the Company s shareholders. As at 31 December 2012, Don Kenny and Alan Merrell held shares with a value equivalent to 57% and 86% of their base salaries respectively. All directors interests are beneficially held. There has been no change in the directors interests in the ordinary share capital of the Company between 31 December 2012 and 28 February Shareholder voting Each year the Board seeks shareholder approval of the Remuneration Report through the proposal of a separate resolution at its Annual General Meeting. The Remuneration Report for 2011 was approved by shareholders at the Company s Annual General Meeting on 19 April 2012, with 87.8% of the 126,981,656 votes cast being in favour of adopting the report. Approval of the Remuneration Report for 2012 will be sought at the Company s forthcoming Annual General Meeting on 18 April Company performance The chart below shows the Company s performance, measured by Total Shareholder Return (TSR), compared to the FTSE Small Cap Index excluding Investment Trusts (the Index ) for the five years ended 31 December The Company considers the Index to be the most meaningful comparison of historic share price performance in assessing the Company against an index of similarly sized businesses. 150 Total shareholder return reflects the theoretical growth in value of a shareholding over the period assuming that gross dividends are reinvested to purchase additional shares at the closing price applicable on the ex-dividend date. 100 Index Dec Dec Dec Dec Dec Dec 12 Lavendon Group Total Return Index FTSE Small Cap Index Total Return Index Jan Åstrand Chairman of the Remuneration Committee 28 February 2013 Lavendon Group plc

42 Directors report The directors present their report and the audited consolidated financial statements of the Group for the year ended 31 December Principal activities The principal activity of the Group and its subsidiaries is the rental of powered access equipment. Powered access equipment is used to provide temporary aerial access for people in a broad range of applications: in industrial repair and maintenance; construction; telecommunications; outside broadcasting; sign erection; and highway maintenance. These activities are undertaken both in the UK and overseas. Review of the business The Group is required to set out in this report a fair review of the business of the Group during the financial year ended 31 December 2012 and of the position of the Group as at 31 December 2012, together with a description of the principal risks and uncertainties facing the Group (known as a Business review ). The information that fulfils the requirements of the Business review can be found in the following sections of the Chief Executive s review: Business and market overview on pages 6 and 7; Review of performance by country on pages 7 to 9; and within the Operating and financial review: Risks on pages 22 to 24; and Corporate responsibility on pages 27 to 32 which are incorporated in this report by reference. Financial results The financial results for the year are set out in the Group income statement on page 55. The Group profit for the year of 16,166,000 (2011: 9,377,000) will be transferred to reserves. The position at the end of the year is set out in the Group balance sheet on page 56. Dividend In addition to the interim dividend of 1,237,000 (0.75 pence per share) paid during the year, the directors recommend a final dividend for the year of 3,301,000 (2.00 pence per share). (2011: interim dividend of 610,000 (0.37 pence per share) and final dividend of 2,275,000 (1.38 pence per share)). Directors The directors of the Company during the year are shown on page 48. Information on the directors interests in the ordinary shares of the Company during 2012 is set out in the Remuneration report on page 39. No director has, or has had, any beneficial interest in any transaction of significance, which has been effected by any Group company at any time during the year. The Company has maintained insurance throughout the year to cover all directors against liabilities in relation to the Company and its subsidiary undertakings. Employees The Group pursues a policy of employee communication through regular team briefings and newsletters. Personal employee development is encouraged through the provision of relevant training towards industry accredited certification and licences. Employee involvement in the financial performance of the Group is encouraged through a comprehensive range of well-established profit share programmes. The Group consults with employees on a regular basis so their views can be taken into account in making decisions that might effect their interests. It is the policy of the Group that disabled people, whether registered or not, should receive full and fair consideration for all job vacancies for which they are suitable applicants. Employees who become disabled during employment will be retained wherever possible and retrained if necessary. The Group is prepared to modify procedures or equipment wherever this is practicable, to allow full use to be made of an individual s abilities. The Board has issued a statement of business operations and culture detailing the Group s commitment to ensuring that all employees comply with all applicable laws and regulations, support a culture of honesty and integrity, conduct operations in an ethical and professional manner, and act at all times to prevent impropriety, discrimination, bribery and corruption. The Board also operates an independent whistle-blowing system to allow employees to raise matters that they feel should be addressed by the Group. 40 Lavendon Group plc 2012

43 Non-current assets During the year the Group s total capital expenditure on non-current assets amounted to 47,905,000 (2011: 16,929,000). Details of this expenditure, and all other non-current asset movements, are set out in notes 13 and 14 to these financial statements. Issue of share capital By resolutions passed at the Annual General Meeting on 19 April 2012 the directors were generally and unconditionally authorised for the purposes of Section 551 of the Companies Act 2006 (the Act ), to exercise all the powers of the Company to allot shares and grant rights to subscribe for, or convert any security into, shares: (a) up to an aggregate nominal amount (within the meaning of Section 551(3) and (6) of the Act) of 549,708 (such amount to be reduced by the nominal amount allotted or granted under (b) below in excess of such sum); and (b) comprising equity securities (as defined in Section 560 of the Act) up to an aggregate nominal amount (within the meaning of Section 551(3) and (6) of the Act) of 1,099,417 (such amount to be reduced by any allotments or grants made under (a) above) in connection with or pursuant to an offer by way of a rights issue in favour of holders of ordinary shares in proportion (as nearly as practicable) to the respective number of ordinary shares held by them on the record date for such allotment (and holders of any other class of equity securities entitled to participate therein or if the directors consider it necessary, as permitted by the rights of those securities), but subject to such exclusions or other arrangements as the directors may consider necessary or appropriate to deal with fractional entitlements, treasury shares, record dates or legal, regulatory or practical difficulties which may arise under the laws of, or the requirements of any regulatory body or stock exchange in any territory or any other matter whatsoever. These authorisations expire at the conclusion of the next Annual General Meeting of the Company to be held on 18 April 2013, and the directors are re-proposing that renewal should be sought. Such proposals are set out as resolutions 11 and 12 in the Notice of the Annual General Meeting on pages 98 to 104. Details of movements in share capital during the year are set out in note 26 to the Group s financial statements. In addition, the directors have been given power pursuant to Sections 570(1) and 573 of the Companies Act 2006 (the Act ) to: (a) allot equity securities (as defined in Section 560 of the Act) of the Company for cash pursuant to the authorisation conferred by that resolution; and (b) sell ordinary shares (as defined in Section 560(1) of the Act) held by the Company as treasury shares for cash, as if Section 561 of the Act did not apply to any such allotment or sale, provided that this power shall be limited to the allotment of equity securities for cash and the sale of treasury shares: i. in connection with or pursuant to an offer of or invitation to acquire equity securities (but in the case of the authorisation granted under (b) above, by way of a rights issue only) in favour of holders of ordinary shares in proportion (as nearly as practicable) to the respective number of ordinary shares held by them on the record date for such allotment or sale (and holders of any other class of equity securities entitled to participate therein or if the directors consider it necessary, as permitted by the rights of those securities) but subject to such exclusions or other arrangements as the directors may consider necessary or appropriate to deal with fractional entitlements, treasury shares, record dates or legal, regulatory or practical difficulties which may arise under the laws of or the requirements of any regulatory body or stock exchange in any territory or any other matter whatsoever; and ii. in the case of the authorisation granted under (a) above (or in the case of any transfer of treasury shares), and otherwise than pursuant to paragraph (i), up to an aggregate nominal amount of 82,456. These authorities expire (unless renewed, varied or revoked) at the conclusion of the Annual General Meeting to be held on 18 April During the year, the Company issued an aggregate of 198,731 ordinary shares (2011: 359,422 ordinary shares) of one pence each: 189,225 shares were issued under the Share Incentive Plan and 9,506 shares were issued following the exercise of options under the Lavendon 1996 Approved Share Option Scheme. Lavendon Group plc

44 Directors report Continued Share option schemes The Company established two share option schemes on admission of its ordinary shares to the Official List of the London Stock Exchange on 10 October 1996, namely: i. the Lavendon Group 1996 Company Share Option Plan (the Employee Scheme ); and ii. the Lavendon Group 1996 Unapproved Executive Share Option Scheme (the Executive Scheme ). Options were granted under the terms of the schemes on the day following the announcement of the Group s interim and annual financial results each year at an option price equal to the mid-market quoted share price derived from the London Stock Exchange Daily Official List at the close of trading on the preceding day. The schemes were closed on reaching their tenth anniversary on 10 October 2006, and no further share options have been issued under these schemes. The value of options granted to any individual was subject to an individual limit such that the aggregate exercise price of all options granted during a year could not exceed 200 per cent of base annual salary in the case of a director, or 100 per cent in the case of any other employee. Options were granted subject to the following performance targets: The Employee Scheme An option would be exercisable in full if growth in pre-exceptional earnings per share ( EPS ) exceeded growth in the Retail Price Index ( RPI ) over the performance period by an average of at least 3 per cent per annum. The Executive Scheme An option would not be exercisable unless growth in pre-exceptional EPS exceeded growth in the RPI over the performance period by an average of at least 3 per cent per annum. The option would be exercisable in full if growth in EPS exceeded growth in the RPI by an average of at least 6 per cent per annum. The option would be exercisable on a straight line basis between these two percentage levels. All performance targets were measured over an initial three year period and to the extent that they were not met, they could be retested. In the case of an option granted in the period to 31 August 2003, the target may be achieved on a three-year rolling basis up to the tenth anniversary of grant in the case of the Employee Scheme, and the seventh anniversary in the case of the Executive Scheme. Any options granted after this date are capable of being retested annually over 0-4 years and 0-5 years, provided that the target is always measured from the fixed base of the financial year immediately prior to grant. The option will lapse to the extent that the target has not been achieved by the end of the fifth year. There is a two year period over which options can be exercised. The options remain exercisable until the seventh anniversary of their date of grant. Details of options granted to executive directors are disclosed separately in the Remuneration report on pages 34 to 39. Details of all other share options granted under the terms of the schemes, that still have options exercisable at 31 December 2012, are shown below: Options Ordinary share Option price exercised Options Options not Options options Issued share per ordinary since date lapsed since exercisable at exercisable at granted capital share of grant date of grant 31 Dec Dec 2012 No. % Pence No. No. No. No. i. The Employee Scheme 5 March , , ,813 4,460 5 September , , ,818 3, October , ,861 29, March , ,617 92,883 4,241 8 September , , ,616 44,646 8 March , ,062 98,923 38,540 7 September , , ,175 72,519 7 March , ,216 58,675 5 September , ,833 61,307 1,896, ,166 1,067, , Lavendon Group plc 2012

45 Share incentive plan During 2007 the Company established a Share Incentive Plan ( the SIP ). The SIP is a UK HM Revenue & Customs ( HMRC ) approved plan under which the Company can provide share benefits in a tax advantaged way to all its UK employees on the same terms. Details of the shares issued under the SIP are detailed in note 27. The SIP allows the Company to either give free shares to employees or provide a facility for employees to purchase shares from their pre-tax salary. Shares purchased by employees may be supplemented by the Company with additional free matching shares. Operation The board of directors of the Company (the Board ) supervises the operation of the SIP. The SIP comprises the following three elements and the Board may decide which element to offer to eligible employees: (a) Free Shares are ordinary shares in the Company ( Shares ) which may be allocated to an employee. The market value of Free Shares allocated to any employee in any tax year may not exceed 3,000 or such other limit as may be permitted by the relevant legislation. Free Shares may be allocated to employees equally, on the basis of salary, length of service or hours worked, or on the basis of performance, as permitted by legislation. (b) Partnership Shares are Shares an employee may purchase out of their pre-tax earnings. The market value of Partnership Shares which an employee can purchase in any tax year may not exceed 1,500 (or 10% of the employee s salary, if lower), or such other limit as may be permitted by the relevant legislation. The funds used to purchase Partnership Shares will be deducted from the employee s pre-tax salary. (c) Matching Shares are free Shares which may be allocated to an employee who purchases Partnership Shares. The Board may allocate Matching Shares to an employee who purchases Partnership Shares up to a maximum of two Matching Shares for every one Partnership Share purchased (or such other maximum ratio as may be permitted by the relevant legislation). The same Matching Share ratio will apply to all employees who purchase Partnership Shares under the SIP on the same occasion. An award of Shares may not be made under the SIP later than ten years after shareholder approval of the SIP. Eligibility Employees of the Company and any designated participating subsidiary who are UK resident taxpayers are eligible to participate. The Board may allow non-uk tax resident taxpayers to participate. The Board may require employees to have completed a qualifying period of employment of up to 18 months in order to be eligible to participate. All eligible employees must be invited to participate. Retention of shares The trustee of the SIP trust will award Free Shares and Matching Shares to employees and hold those Shares on behalf of the participants. Free Shares and Matching Shares must usually be retained by the trustee of the SIP trust for a period of between three and five years after award. The trustee will acquire Partnership Shares on behalf of participants and hold those Shares on behalf of the participants. Employees can withdraw Partnership Shares from the SIP trust at any time. The Board may decide that awards of Free Shares and/or Matching Shares will be forfeited if participants cease to be employed by a company in the Company s Group within three years from the grant of those awards unless they leave by reason of death, injury, disability, redundancy, retirement on or after reaching age 50, or the business or company for which they work ceases to be part of the Company s Group. In any of those cases, the participants will be required to withdraw their Shares from the SIP. If an employee ceases to be employed by the Company s Group at any time after acquiring Partnership Shares, he will be required to withdraw the Shares from the SIP trust. Lavendon Group plc

46 Directors report Continued Corporate events In the event of a general offer being made to shareholders, participants will be able to direct the trustees how to act in relation to their Shares. In the event of a corporate reorganisation any Shares held by participants may be replaced by equivalent shares in a new holding company. Dividends on shares held by the trustee of the SIP Any dividends paid on Shares held by the trustee of the SIP on behalf of participants may be either used to acquire additional Shares for employees ( Dividend Shares ) or distributed to participants. Rights attaching to shares An employee will be treated as the beneficial owner of Shares held on his behalf by the trustee of the SIP. Any Shares allotted under the SIP will rank equally with Shares then in issue except for rights attaching to such Shares by reference to a record date prior to their allotment. Overall SIP limits The SIP may operate over new issue Shares, treasury Shares or Shares purchased in the market. In any ten calendar year period, the Company may not issue (or grant rights to issue) more than 10 per cent of the issued ordinary share capital of the Company under the SIP and any other employee share plan adopted by the Company. Treasury Shares will count as new issue Shares for the purpose of this limit unless institutional investor bodies decide that they need not count. Variation of capital In the case of a variation in the share capital of the Company, Shares held in the SIP will be treated in the same way as other shares. Alterations to the SIP The Board may, at any time, amend the SIP in any respect, provided that the prior approval of shareholders is obtained for any amendments that are to the advantage of participants in respect of the rules governing eligibility, limits on participation, the overall limits on the issue of Shares or the transfer of treasury Shares, the basis for determining a participant s entitlement to, and the terms of, Shares to be acquired and the adjustment of awards. The requirement to obtain prior shareholder approval will not, however, apply to any minor alteration to benefit the administration of the SIP, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control, or regulatory treatment for any participant or any company in the Company s Group. General Awards made under the SIP are not transferable other than to the participant s personal representatives in the event of their death. No benefits received under the SIP will be pensionable. Substantial shareholdings At 28 February 2013 the following interests in the ordinary share capital of the Company had been notified: Name % interest Prudential plc Artemis Investment Management LLP 9.95 Kames Capital 7.30 Aberforth Partners LLP 5.81 SVG Investment Managers Limited 5.61 Henderson Global Investors 4.90 Legal & General Group plc Lavendon Group plc 2012

47 Charitable donations The Group made donations amounting to 28,000 (2011: 49,000) during the year. There were no donations to political parties during the year (2011: nil). Policy on payment of suppliers The Company s creditor payment period at 31 December 2012 was nil days (2011: nil) as the Company had no trading activities. Corporate governance The information that fulfils the requirements of a corporate governance statement in accordance with rule 7.2 of the Disclosure Rules & Transparency Rules can be found in the Corporate governance report on pages 49 to 52 and in this Directors report. The Corporate governance report forms part of the Directors report and is incorporated into it by cross-reference. Environmental, social and community matters This information is detailed in the Corporate Responsibility section on pages 27 to 32. Independent Auditors PricewaterhouseCoopers LLP ( PwC ) have been the Company s auditors since the Group s flotation in 1996, with the Group audit partner changing by rotation every five years, most recently in 2008 and scheduled again for change in During 2012, the Company s Audit Committee reviewed the effectiveness of the auditors and recommended to the Board that a resolution to re-appoint PwC be proposed at the Annual General Meeting. Consequently a resolution to reappoint PwC as auditors to the Company will be proposed at the Annual General Meeting together with a resolution authorising the director s to fix their remuneration. A review of PwC s effectiveness will be undertaken in 2013 following completion of the 2012 year end audit. The Audit Committee will continue to keep under review the independence and objectivity of the Company s external auditors. Takeover Directive disclosure Following the implementation of the EU Takeover Directive by certain provisions of the 2006 Act, we are required to make additional disclosures. A number of these disclosures can be found elsewhere in this Report as set out below: structure of Lavendon Group s share capital (see page 85); employee share schemes (see pages 42 to 43); significant direct or indirect shareholdings (see page 44); appointment and replacement of directors (see page 49); and the powers of directors (see page 41). The disclosures which are not covered elsewhere in this Report include the following: Agreements which may result in restrictions on share transfers The Company is not aware of any agreements between shareholders which may result in restrictions on the transfer of securities and/or on voting rights. Change of control There are no significant agreements to which the Company is a party that may take effect, alter or terminate upon a change of control following a takeover bid, other than that in relation to Company s borrowings, which could become repayable on a takeover being completed. Shares with special rights There are no special rights or obligations attaching to the ordinary shares and there are no shares in the Company with special rights with regard to control of the Company. Lavendon Group plc

48 Directors report Continued Restrictions on transfer of Lavendon Group shares The Company s articles of association provide that the Company may refuse to transfer shares in the following customary circumstances: where the share is not a fully paid share; where the share transfer is in favour of more than four joint transferees; and where the share is a certificated share and is not accompanied by the relevant share certificate(s) and such other evidence as the board may reasonably require to prove the title of the transferor. These restrictions are in addition to any which are applicable to all UK listed companies imposed by law or regulation. Articles of association The Company s articles of association may be amended by special resolution of the Company s shareholders. Compensation for loss of office There are no agreements between the Company and its directors or employees providing for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid. By order of the Board Alan Merrell Secretary 28 February Lavendon Group plc 2012

49 Statement of directors responsibilities The directors are responsible for preparing the Annual Report, the Directors Remuneration Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the Parent Company financial statements in accordance with United Kingdom accounting standards and applicable law. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the group and company financial statements respectively; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the Group s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors statement pursuant to the Disclosure and Transparency Rules Each of the directors, whose names and functions are listed in the Directors and advisers section of the Annual Report confirms that, to the best of their knowledge: the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and the Directors report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. So far as the directors are aware, there is no relevant audit information of which the Company s auditors are unaware and they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Company s auditors are aware of that information. By order of the Board Alan Merrell Secretary 28 February 2013 Lavendon Group plc

50 Directors and advisers Directors John Standen, Non-Executive Chairman and Chairman of the Nomination Committee and a member of the Remuneration and Audit Committees John is a Durham graduate and is a member of the Securities Institute. He spent the majority of his career in corporate finance and was Chief Executive of Corporate Finance for BZW from 1993 to He retired from Barclays plc in 1998 and has since been a non-executive Chairman or Director of a number of quoted companies. He is currently non-executive Chairman of Biome Technologies plc and, in a voluntary capacity, Chairman of the Council of the University of Hull. Don Kenny, Group Chief Executive Don has been Group Chief Executive since 1 October He is a qualified accountant and prior to joining the Group was with Carillion plc, serving as an Executive Director on the main Board from Before joining Carillion plc, he held executive management positions with Johnson Controls, Sulzer Corporation and the Mowlem Group. Alan Merrell, Group Finance Director Alan has been Group Finance Director since May He qualified as a Chartered Accountant in Prior to joining the Group he had spent the previous 12 years in the transportation industry with TNT Post Group where he held a number of financial roles, both in the UK and overseas, before becoming Finance Director for its international business operation. Jan Åstrand, Non-Executive Director, Senior Independent Director, Chairman of the Remuneration Committee and a member of the Audit and Nomination Committees Jan is a Swedish national. He is currently a Non-Executive Director of Northgate Plc. He was previously Chairman of CRC Group plc until January 2007, and prior to this, he was Chairman of Car Park Group AB in Stockholm and also Senior Independent Director of PHS Group Plc. From 1994 to 1999 he was President and Chief Executive of Axus (International) Inc. (previously known as Hertz Leasing International), and from 1989 to 1994 he was Vice President, Finance and Administration and Chief Financial Officer of Hertz (Europe) Ltd. Andrew Wood, Non-Executive Director, Chairman of the Audit Committee and a member of the Remuneration and Nomination Committees Andrew is currently a Non-Executive Director and Chairman of the Audit Committee for both Berendsen Plc and Air Partner Plc. He was previously Group Finance Director of BBA Aviation Plc, from which he retired in April 2010, and prior to this he was Group Finance Director of Racal Electronics Plc. He is a chartered management accountant. Secretary and Registered Office Alan Merrell, 15 Midland Court, Central Park, Lutterworth, Leicestershire LE17 4PN Advisers Independent Auditors PricewaterhouseCoopers LLP, Chartered Accountants and Statutory Auditors, Cornwall Court, 19 Cornwall Street, Birmingham B3 2DT Solicitors Stephenson Harwood, 1 Finsbury Circus, London EC2M 7SH Eversheds, 115 Colmore Row, Birmingham B3 3AL Bankers Lloyds TSB Bank plc, 1 Bede Island Road, Bede Island Business Park, Leicester LE2 7EA Stockbrokers Peel Hunt LLP, Moor House, 120 London Wall, London EC2Y 5ET Financial Adviser Hawkpoint Partners Limited, 41 Lothbury, London EC2R 7AE Registrars Capita Registrars Limited, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU Public Relations FTI Consulting, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB 48 Lavendon Group plc 2012