Efficiency drive weighs on HSS profits as hire firm’s losses widen

HSS Hire has warned that profits for the second half of the year will be lower than initially hoped after changes intended to make the business more efficient hit sales.

HSS said revenues in the six months to July 1 had fallen by 3.4pc to £160.5m, while pre-tax losses widened to £30.1m compared to £7.8m in the first half of last year. The news sent shares in the company down 11.7pc to close at 49p yesterday.

The company, which provides equipment to consumers and businesses, blamed changes to its central distribution facility in Cowley for disruption in trading, which caused some lost business while it moved from the old system to the new one.

Despite measures to kick-start revenue growth in the rental business, progress has not been as good as the firm’s management initially hoped, meaning profits will be lower at the end of the year. Yesterday’s results show the firm’s performance in the final period in which former chief executive John Gill was at the helm. Mr Gill stepped down earlier this year after HSS failed to narrow its losses, capping years of sliding performance.

The company has struggled since it listed on the London Stock Exchange in early 2015. It issued two profit warnings later that year and last year reported full-year losses of £17.4m, from £13.8m in 2015. Shares, which were floated at 210p a piece, have fallen around 30pc this year as the company was affected by the wider slowdown in the construction industry following the vote to leave the European Union.

Steve Ashmore, the Exel veteran who took up the post of chief executive in June, blamed “substantial operating model changes” for the most recent slump in profits.

“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,” he said.

HSS said adjusted earnings before interest, taxes and amortisation for the second half of the year would now be in the range of £8m to £11m.

But analysts warned that the firm was unlikely to return to profitability in the next 18 months. Andrew Nussey, analyst at Peel Hunt, said he expected the company to make a pre-tax loss of around £14m at the end of the year, and a further loss of £7m in 2018, adding that “challenges remain” for the firm.

Mr Ashmore insisted the market remained “attractive and fragmented”, and said the company was in the middle of a thorough review of its strategy.

He said that HSS was taking “decisive action” to reinvigorate revenues through “new sales initiatives”.