Emeco to exit Europe and consolidate in North America

Australian heavy equipment rental company Emeco is to close its European business in July 2010 and consolidate its US activities into its Canadian operations.

The decisions follow a strategic review by new managing director Keith Gordon. The closure of the Netherlands-based European operation will entail a restructuring charge of A$9.5 million and the US consolidation will have a one-off charge of A$20 million.

Emeco, which had earlier decided to downsize its European business following poor results, said the decision to exit the business entirely was taken because of continued underperformance, the likelihood of continued poor returns, and the fact that the European presence offered no benefits for its machine procurement activities.

Emeco expanded its European heavy rentals operation in early 2007 when it acquired Netherlands businesses Euro Machinery and sister firm Euro Rental. Euro Machinery's founder, Harry Haverkotte, and his son Roy joined the Emeco Europe management team in 2007, but Harry left in mid-2008 and Roy has now departed as well.

The office will be closed by early July and the machines on rent in Europe will be sold or shipped to Australia. The business had 17 machines on rent in Emeco's fiscal 2009.

In the US, Emeco will close its Houston, Texas head office and its depot in London, Kentucky, with North American operations consolidated at Emeco's existing office in Edmonton, Canada. The North American head office will be in Edmonton, led by Ian Testrow, previously president of Emeco Canada.

Mr Gordon said; "the fundamentals of the Appalachian coal market do not support an ongoing presence by Emeco in this region. The long term outlook is for a steady decline in coal production in the region and customer support for the rental model is unlikely to be sustainable in the medium term."

The company's rental and sales fleet in Kentucky will be sold or relocated to Canada.

Mr Gordon said Emeco remained committed to pursuing profitable growth in North America. The company's main business in the Canadian oil sands area will now be supplemented by customer-led projects in other areas. "While we continue to see opportunity in the US, we will only pursue these markets where we are confident that a low cost business model can be applied to deliver value", he said.

Emeco, which will publish its half year results in the last week of February, said it expected to report operating net profits of A$13.5 million for the six months to 31 December.

"The operating environment in the first half has been challenging but we are seeing strong signs of recovery in our market", said Mr Gordon, "Although a number of new mining projects that will provide revenue for Emeco have incurred short term delays, momentum has been building towards the end of the half."

He added; "We have dealt with our underperforming businesses and now our remaining businesses in Australia, Indonesia and North America provide Emeco with a strong platform for growth as the market recovers."