HSS holding the tools but still can’t quite finish the recovery job

Shares in struggling tool rental group HSS Hire dived yesterday following a profit warning to the stock market.

The shares tumbled about 25 per cent before recovering some of the losses to close down nearly 12 per cent, or 6.5p, at 49p as the company said revenue growth had been “materially” lower than expected and warned over profits for the second half.

The alert came as HSS Hire reported mounting pre-tax losses of £30.1 million for the first half to 1 July, compared with a £7.8m loss a year earlier.

Neil Wilson, market analyst at ETX Capital, said the company had been “hit by Brexit”, with mid-sized and smaller customers hiring fewer tools as business confidence had ebbed.

On an underlying earnings basis, stripping out exceptionals, the company swung to a £7.3m loss against profits of £9.4m a year ago.

HSS said while its recovery plan had helped return the group to the black in June and driven revenue growth in its rental division, progress had been slower than targeted.

Chief executive Steve Ashmore said: “Whilst the rate of recovery in our rental revenues has been positive, it has been materially slower than originally targeted, leading to lower-than-expected profitability over this period.”

The company now forecasts adjusted earnings of £8m to £11m for the second trading half, leading stockbrokers to issue profit downgrade forecasts for the full year.

The new City expectations for the second half suggest HSS is on track for fullyear underlying earnings of between £700,000 and £3.7m.

Ashmore said the group was taking “decisive action”, and that its target market remained “attractive and fragmented”. HSS has been slashing costs and axing branches to reduce overheads by about £13m a year.

It shut 50 branches during the first half, bringing the total closed in the past 12 months to 68, while it is also integrating a new national distribution and engineering centre.

The group has issued a string of profit warnings and overhauled management since floating on the stock market in 2015. Ashmore, a former director of industrial maintenance company Brammer, took the reins at HSS on 1 June.

He replaced John Gill, who quit in May after eight years with the firm. Wilson at ETX added: “Investors will be used to this kind of warning. Steve Ashmore,thesecondnewceo in as many years, is trying to turn things around but conditions are challenging.”