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DAC’s collapse heralds tough times


Thursday, 14 Aug 2008 ( #373 ) - London, United Kingdom
News Story
Still distribution in the UK has reverted to Still Materials Handling
Analysis by Bill Redmond

Reflecting tightening conditions in the UK forklift market, DAC Handling Solutions Ltd,  Britain’s largest independent distributor  for the Still forklift  product range, went into administration on July 18 but its assets were quickly acquired by Still Materials Handling, DAC’s largest creditor, on July 21 for an undisclosed, substantial sum. DAC’s debts were not part of the Still purchase.

DAC employed over 200 people in the UK, spread over eight depots, but there is no indication yet of any compulsory redundancies.

Tom McCloy, MD of Still Materials Handling Ltd, is standing down with immediate effect but will remain in an advisory capacity to help with the integration until he retires towards the end of this year. He is being replaced by Nick Smith from DAC.

A common problem in the UK forklift industry is the unrealistic residual values placed on used forklifts and DAC is a good example of this. The DAC board had instigated a restructuring plan to remove excess overheads and operational inefficiencies following a dismal performance in the financial year ending January 31, 2007, the latest year for which accounts were filed. This showed that despite a 14.6% sales rise to GBP30.87 million (USD57.73 million) there was a retained loss of GBP1.38 million (USD2.58 million) after exceptional items of GBP1.58 million (USD2.95 million).

The exceptional items reflected a write-down in used truck values to ensure that future depreciation charges in the business reflected a true economic cost through their useful life. Some of its contracts included part-exchange values for trucks that were higher than market values. It is also clear from DAC’s accounts that its negative working capital of GBP5.6 million (USD10.47 million), up sharply from GBP3.29m (USD6.15 million) in 2006, was placing a strain on the balance sheet, thus emphasising its determination to sell used trucks to realise cash and improve working capital. The board recognised, however, that these changes would yield a negative result for the year ended January 31, 2008.

DAC had been struggling in the UK for some years. Its best year since 2001 was in 2004, when pre-tax profit was GBP1.12 million (USD2.09 million), since when they collapsed to just GBP34,000 (USD63,590) in 2005 and GBP86,000 (USD160,850) in 2006. Shareholders’ funds were reduced to just GBP2.24 million (USD4.18 million) in 2007, dwarfed by net bank debt of GBP4.18 million (USD7.81 million).

According to the latest research by Plimsoll Publishing, some 50 of the UK’s largest forklift companies control 89% of the market and 20 of them have been identified as being in "severe financial danger because of a failing business strategy". To that poor business model can be added other unsettling factors like the adverse Euro exchange rate, and the increased cost of borrowing which could raise the cost of fleet renewal in 2009 by 30% compared with 2004 prices. Consequently, Tony Rooney, sales and marketing director for Caterpillar dealer, Briggs Equipment, expects to see a trend towards contract extensions rather than investment in new fleets.

The balance of power is now firmly with buyers and is likely to grow even more as the threat from cheap but good quality imports from China and elsewhere grows. Life may get difficult for truck operators as recession bites but it will be nothing like the discomfiture that faces truck suppliers if they do not improve their poor business models.
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