Atlas Copco Seeks Possible Sale of RSC After Record Year

March 1, 2006
STOCKHOLM, Sweden Coming on the heels of a record fourth quarter and 2005, Atlas Copco last month announced its intention to explore a divestment of RSC

STOCKHOLM, Sweden — Coming on the heels of a record fourth quarter and 2005, Atlas Copco last month announced its intention to explore a divestment of RSC Equipment Rental, the second largest equipment rental business in North America.

Atlas Copco CEO Gunnar Brock said the possibilities of developing synergies with the Stockholm, Sweden-based manufacturers' other business areas are “limited.”

“The rental service business is growing and performing extremely well,” Brock said. “The operating environment and the business characteristics, however, are very different from Atlas Copco's industrial equipment operations and the possibilities to capture and develop synergies are limited.”

Speculation had been strong for some time among rental industry executives that Atlas Copco would eventually move to divest RSC. With NES Equipment Rental announcing exploration of a possible sale, two of the top five rental companies are now openly seeking buyers.

RSC's fourth-quarter operating profit of $111 million represents an increase of nearly 60 percent over the same period last year, and was RSC's highest quarter ever. The improvement marks the company's 11th consecutive quarter-over-quarter increase in operating profit. The operating profit for the full year was $357.6 million, an increase of 53.3 percent from 2004.

Total revenue was $424 million for the fourth quarter, compared to $371 million in 2004, and $1.6 billion for the full year compared to $1.4 billion in 2004.

Rental volume for 2005 was about $1.28 billion, up about 13 percent year over year, and rental rates increased 7 percent in 2005. Same store rental revenue increased 21 percent. Sale of used equipment, representing 14 percent of total revenue, increased 4 percent in 2005.

Rental fleet utilization, an important measure of efficiency, improved to 73 percent in the fourth quarter, compared to 60 percent in the same quarter last year, and averaged 70 percent for the full year, compared to 67 percent in 2004.

Net investment in fleet increased, reflecting higher rental volume, increased sales of used equipment, and high utilization. At the end of the quarter, total rental fleet at original cost was 11-percent higher than at the end of 2004, while fleet-on-rent increased 17 percent. The quality of the rental fleet improved as average fleet age was reduced from 3.3 years to 2.5 years.

Increased rental volumes, ongoing capital and cost-efficiency improvements, along with continued positive development of rental rates all contributed to RSC's strong results, the company said. EBITDA improved to 43 percent for the fourth quarter from 35 percent in fourth quarter 2004, and to 40 percent for the full year 2005, up from 33 percent in 2004. Return on operating capital employed increased in the quarter to 26 percent from 19 percent in 2004, significantly outperforming the cost of capital for the company and continuing to generate positive economic value.

Based in Scottsdale, Ariz., RSC Equipment Rental is No. 2 on the RER 100.