Coates Hire, which is co-owned by Seven Group Holdings (ASX: SVW) and Carlyle Group, has announced it will undertake a business restructure that will involve 75 redundancies.
The company, which is Australia's largest equipment hire group, has had over 125 years of experience functioning in a number of industries, including mining and resources and engineering and building construction. However, due to poor economic conditions, contraction in the construction industry, and declining growth in the mining industry, the company – like other equipment hiring companies – has experienced declining revenues and profits.
March marked the 34th consecutive month of contraction for the construction industry, which highlights the strain that supply companies are under. Building materials company Boral (ASX: BLD), for instance, reported a net loss of $25.3 million for the year, whilst CSR (ASX: CSR) reported a net profit of $17.5 million – down 49.9% from the previous corresponding period. During such times, demand for hired products is expected to be limited.
The growth of Bunnings and Masters – owned by Wesfarmers (ASX: WES) and Woolworths (ASX: WOW) – has also contributed to decreasing demand for hired tools and equipment for construction. The discounted prices and further price guarantees offered by these companies attract consumers and businesses away from other, smaller companies.
Coates Hire isn't the only equipment hire group being affected by industry slowdowns in recent times. It's been a long year for Boart Longyear Limited (ASX: BLY) and Emeco Holdings Limited (ASX: EHL), who recognised a 29% and 22.1% fall in net profit after tax (NPAT), respectively, also reflecting the global slowdown in mining activity.
A spokesman for Coates Hire has stated that the business restructure will not result in the closure of any of its 200 branches throughout Australia, but that a number of the 75 redundancies have already occurred.
Foolish takeaway
Declining demand and activity in the mining and construction sectors has taken its toll on a number of companies and negatively affected their financial statements, however, such conditions are forcing companies to seek more cost-effective ways of running their business activities. This can enable savvy investors to pick up quality, discounted stocks at cheap prices.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
