Half Year Results

30 August 2013

Lavendon Group plc

Half Year Results 2013

Results in line with Board expectations

Lavendon Group plc ("the Group"), Europe's market leader in the rental of powered access equipment, today announces its Half Year Results for the six months ended 30June 2013.

Notes

(i) Underlying results are stated before amortisation charges, exceptional items and movements in the fair value of financial

derivatives.

(ii) Underlying and statutory measures are the same.

2013 H1 Highlights

· ROCE increased by 50bps to 10.5% (2012: 10.0%)

· Strong growth in France & Middle East offset softer market conditions elsewhere

· Group underlying operating profit increased by 2%; margins up to 12.2% (2012: 11.9%)

· On track to comfortably deliver £5m of annualised efficiency gains by end of 2013

· Continued focus on capital efficiency through fleet realignment and capital allocation

· Investment plans, including expansion in Middle East, funded from annual cash flows

· Net debt at £108 million (net debt to EBITDA at 1.4x); year end level expected to be broadly in line with December 2012

· Interim dividend up 53% reflecting Board's confidence in Group's future prospects

Don Kenny, Group Chief Executive said:

"The Group has made further good progress in the first half of the year with our financial results in line with the Board's expectations. There has been a continued improvement in our profitability from relatively stable revenues. The benefit of the Group's geographic diversification combined with the continued delivery of operational efficiency gains and a more effective capital base has delivered a 50bps year on year improvement in our key performance metric, ROCE."

"With the first phase of the operational efficiency programme almost complete, the Board is now assessing the scope of our next phase of business improvement initiatives with the aim of establishing new targets for delivery in the coming months. At the same time, the disciplined management of our capital base will continue to deploy resources in support of our market positions and to develop growth opportunities as they arise. In particular, we will allocate additional capital to the Middle East business during the second half given the returns available across the region. The Board's key priority remains to continue to improve the Group's ROCE and then maintain it above our weighted cost of capital over the business cycle; we believe the Group is well positioned to achieve this."

"Trading since the half year has remained in line with the Board's expectations, and, whilst recognising the continuing economic uncertainty, the Board believes that the Group is well positioned to deliver its expectations for 2013 and substantial shareholder value in the medium term."

For further information please contact:

Lavendon Group plc

A meeting for investors and analysts will be held today at 9.30am at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. A copy of the presentation and audio webcast will be available at www.lavendongroup.com later today.

Next Trading Update

The Group's next scheduled announcement of financial information will be its third quarter Interim Management Statement in November 2013.

Notes to Editors

Lavendon Group is the European and Middle East market leader in the rental of powered access equipment. The quality and diversity of its hire fleet, coupled with the professionalism and accessibility of its depot network, provides an exceptional product range for customers.

Powered access equipment is designed to enable people to work safely, productively and comfortably at height. It can be used in a comprehensive range of applications, both inside and outside buildings and structures.

The Group has operations in the United Kingdom, Germany, Belgium, France, Bahrain, India, Kuwait, Oman and Qatar, Saudi Arabia and the United Arab Emirates. The equipment fleet totals 19,800 units and the Group employs over 1,600 people.

CHAIRMAN'S STATEMENT

The Group has made further good progress in the first six months of 2013, with our results in line with the Board's expectations for the period.

This progress has driven a continued improvement in our profitability from relatively stable revenues. Our overall capital base has remained broadly in line with last year, with its allocation continuing to be refined through redeployment and investment into those markets and products that offer more attractive returns. The combination of the improved trading performance and a better utilised capital base has delivered a 50 basis points ("bps") year on year improvement in our key performance metric - return on capital employed ("ROCE").

Our trading performance has been delivered notwithstanding the impact of the severity of the winter months on activity levels in our key sectors, and the weak economic environment that continues to prevail within our European markets. However, the Group's geographic diversity and the improved resilience of our businesses derived from the effective implementation of our three year business plan, has ensured that the Group has made good progress in the first half.

As ever, improvement in the financial performance of our individual business units is being achieved at differing rates of momentum and in some cases the current rate of progress is being hampered by market conditions. However, we are improving our efficiency and management practices in each of our businesses, and starting to benefit from the deployment of our upgraded IT platform that provides enhanced flexibility and functionality to manage asset utilisation and returns. We are confident that these improvements in our operational capability will support the future development of the Group and deliver substantial shareholder value over the medium term.

Return on Capital Employed

The Group's ROCE demonstrated further year on year improvement during the period, reaching 10.5% at the half year, compared to 10.0% at the 2012 half year. The calculation of ROCE has been based on Group operating profits before exceptional items for the 12 months to 30 June 2013 and the average of the opening and closing capital employed in this period of £299.5 million (2012: £302.5 million). It is expected that the Group's ROCE will show further improvement during the second half of the year, moving us closer to our aim of returning and maintaining the Group's ROCE to be above our weighted average cost of capital of 11% across the business cycle.

Dividend

The Board is declaring an interim dividend of 1.15 pence per share, an increase of 53% over the previous year (2012: 0.75 pence per share). This will be paid on 18 October 2013 to shareholders on the register at 6 September 2013.

The increased dividend reflects the improved profitability of the Group, our confidence in the future and our continued recognition that dividends are an important element in delivering shareholder value. It remains the Board's intention to progressively increase dividend distributions over time to a level that is covered 3-4 times by earnings. The speed of progress towards this aim will reflect and balance the Group's investment needs and funding requirements as we move through the business cycle.

Operational and Capital Efficiency Programmes

Our three year plan to improve our operational efficiency and achieve annualised benefits of £5.0 million by the end of 2013 is now almost complete. As at 30 June 2013, annualised benefits of £4.6 million had been secured, and we comfortably expect the balance of £0.4 million to accrue in the second half of the year. We are now turning our attention to the scope and development of the next phase of our efficiency programmes, in particular looking to quantify the timing of potential benefits available to determine priorities. These programmes will form part of our continuous business improvement cycle, as we seek ever greater efficiency to drive increased operational leverage within our businesses. We expect to be in a position to set out our new efficiency programme targets at the time we announce our full year results for 2013.

The efficient use of the Group's capital remains a core focus of the Board. During the first half of the year, we continued to deploy additional capital into our Middle East operation to meet growing demand and largely completed the disposal of surplus machines from the Group's rental fleet. Going forward, our disposal programme will be centred on the sale of retired units that are being replaced as part of our capital expenditure plans. The scale of our current fleet replacement plans continues to provide opportunities to reshape both the mix profile of our rental fleet and its deployment within our operational businesses. The on-going reconfiguration of our rental fleet will improve the overall revenue generating capacity within the Group, and this will play an important part in increasing financial returns when market conditions improve in Europe.

Financial Results

The Group's rental revenue for the six months to 30 June 2013 increased by 1% to £108.1 million (2012: £106.6 million), with this growth being offset by a decline of £2.6 million in the sale of new and ex-rental fleet equipment, leaving the Group's total revenue down 1% at £113.6 million (2012: £114.5 million). The rental revenue performance reflects strong growth in the Middle East and France being offset by softer market conditions in the UK, Germany and Belgium. Using constant exchange rates, rental revenues were stable with 2012 while total revenues declined by 2% year on year.

Underlying operating profits increased by 2% to £13.9 million (2012: £13.6 million) with margins improving to 12.2% (2012: 11.9%). This performance reflects continued strong profit growth in the Middle East and margin enhancement in our continental European businesses, combining to offset a profit decline in the UK. Using exchange rates consistent with 2012, the Group's underlying operating profits were £13.5 million (2012: £13.6 million).

The increased trading profits, combined with a further reduction in underlying net interest costs to £2.8 million (2012: £4.1 million), enabled the Group's underlying profit before tax to increase by 17% to £11.1 million (2012: £9.5 million). This improved profitability, together with the underlying effective tax rate reducing to 22% (2012: 23%), produced an underlying profit after tax increase of 18% to £8.6 million (2012: £7.3 million) and a 17% increase in underlying earnings per share to 5.21 pence (2012: 4.45 pence). Using exchange rates consistent with 2012, underlying profit before tax increased by 13% to £10.7 million (2012: £9.5 million), while underlying profit after tax increased by 14% to £8.4 million (2012: £7.3 million) with earnings per share increasing by 13% to 5.03 pence (2012: 4.45 pence).

During the first half, the Group incurred a total exceptional post-tax charge of £0.6 million (2012: £2.4 million) relating to ongoing restructuring charges principally within our UK and German businesses. Amortisation charges for the first six months of the year remained at £1.7 million. After exceptional and amortisation charges, the Group's operating profit was £11.4 million (2012: £10.8 million). The Group's profit before tax was £8.6 million (2012: £5.0 million) and the Group's profit after tax was £6.8 million (2012: £4.0 million), with earnings per share of 4.07 pence (2012: 2.44 pence).

Cash Flow

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were £34.2 million (2012: £34.1 million), with EBITDA margins improving to 30.2% (2012: 29.8%). Following an increase in cash outflows relating to the planned purchase of rental fleet to £26.9 million (2012: £12.6 million) and with the growth in revenues in the Middle East driving an increase in the absorption of working capital, cash generated from operations for the first half was £4.8 million (2012: £21.6 million). After the payment of interest and tax, net cash used by operations was £3.0 million (2012: net cash generated from operations: £12.2 million).

Investment

A total of £27.4 million (2012: £20.8 million) was invested in the Group's rental fleet and operational infrastructure, partly funded by the disposal of surplus and retired assets that generated £4.9 million (2012: £6.1 million). After reflecting movements in amounts owing to equipment suppliers at the beginning and end of the period, this investment resulted in a net cash outflow relating to capital expenditure of £24.6 million (2012: £8.4 million).

Our planned investment programme for 2013 will total £53 million and involves: a further substantial refreshment of our European rental fleet; continued expansion of our fleet in the Middle East; on-going development of our BlueSky range of machine attachments and the implementation of our upgraded IT platform across the Group. This investment programme has been more weighted towards the first six months of the year than in recent years, driven by the growing demand in the Middle East. At 30 June 2013, the Group's fleet size was in line with the previous year end at 19,800 rental machines. Our fleet refreshment programme will continue during the second half of the year, targeting the removal of under-utilised assets and replacing them with higher demand assets. This will see a relative shift in our fleet mix across the year towards smaller units, as we look to meet the growing demand for this particular product group.

Net Debt

The Group's net debt at 30 June 2013 was £109.0 million (2012: £98.3 million), reflecting the timing of the Group's capital expenditure programme and an adverse foreign exchange movement of £3.1 million. Adjusting for the un-amortised costs relating to the Group's US Private Placement of £0.7 million, the Group's reported net debt position at 30 June 2013 was £108.3 million (2012: £97.4 million). The corresponding debt to equity ratio remained at 52% (2012: 52%), with a net debt to pre-exceptional EBITDA ratio (calculated on a rolling 12 month basis) of 1.40 times (2012: 1.32 times). The Group continues to operate well within its banking covenants and has significant additional liquidity available from its combined finance facilities. Based on our investment plans, and subject to foreign exchange movements, we expect our net debt position at the end of this year to be broadly in line with that at 31 December 2012.

Review of Business Operations

Where revenues and revenue growth percentages are given in the 'Review of Business Operations', they relate to rental revenues only and exclude revenues derived from the sale of new and ex-rental fleet equipment. The split of revenues by country between rental revenues and revenues from the sale of new and ex-rental fleet equipment is given in the segmental analysis note to the interim financial information.

UK

During the first half, the UK's rental revenues declined by 6% to £49.1 million (2012: £52.4 million), reflecting a weather-affected start to the year and subdued demand from the commercial and infrastructure construction sectors.

With a lower level of major construction project work available, we have seen some pricing pressure in the market, with year on year pricing declining by around 1%. Our volumes have been marginally ahead of prior year levels, although these reflect a shift in the mix of fleet on hire towards smaller units, resulting in a lower rate of revenue per hire.

The continued development of our value adding BlueSky products and services, that improve safety and efficiency, is facilitating further market share gains with our major customers, which is countering some of the pricing pressures seen elsewhere in the market. Our resilience to these pricing tensions has also been supported by the implementation, at the end of last year, of the Group's new upgraded IT platform, which provides greater capability to manage yields and utilisation of the rental fleet.

Although recent sentiment regarding the UK economy has been more encouraging, we are not assuming a significant improvement in market conditions in the near term. Consequently our efforts will remain focussed on improving revenue performance through structuring our work-winning resources in the most effective manner to maintain and grow our market share. At the same time, opportunities to further improve our operating efficiency will be explored to ensure our UK business model is flexible and able to demonstrate significantly enhanced operating leverage as market conditions improve.

It is encouraging to note that the impact of the £3.3 million decline in the UK's rental revenues was mitigated in part by the improved operating efficiency delivered over the past two years, such that underlying operating profits only reduced by £1.1 million to £6.1 million (2012: £7.2 million), with margins declining to 11.8% (2012: 12.7%).

Continental Europe

Euro rental revenues from the Group's Continental European operations (Germany, France and Belgium) declined by 4% in the first half, which once converted to Sterling declined by 1% to £37.3 million (2012: £37.7 million). Underlying operating profits increased to £3.6 million (2012: £3.5 million).

Germany

German Euro revenues declined by 6% in the first half and after conversion to Sterling showed a decline of 4% to £20.8 million (2012: £21.5 million).

The revenue performance reflects the previously reported volume disruption in the first quarter, caused by a prolonged period of adverse weather, and a year on year pricing decline of 6% as the business consciously became more price competitive to drive utilisation levels. The actions taken on pricing enabled volumes to recover quickly as weather conditions improved, and they were consistently ahead of the prior year volumes throughout the second quarter.

Whilst a key focus area has been volume growth, particularly in the second quarter as we sought to increase market share, importantly the business has continued to drive operational efficiencies and manage its capital base. The strong progress made to date in improving Germany's ROCE performance has continued, with a further year on year improvement of 80 bps to 9.8% being delivered at the half year. The business is now moving into its traditionally stronger trading months, where we expect volumes to further improve and for margins to benefit from the more efficient restructured cost base. With effect from 1 July 2013, the business implemented the Group's new IT platform (replacing six legacy systems), which will support the drive for further efficiencies over the balance of this year and into 2014. Although further significant reductions in the capital base of our German business are not planned (the fleet reduction programme is now complete), we expect the improving trend in ROCE performance to continue through the second half of the year.

The progress made in improving the efficiency of the business delivered stable underlying operating profits of £1.3 million on lower revenues, with margins improving to 6.1% (2012: 5.6%).

France

Our French business has performed well in the first half, with Euro revenues increasing by 6% and, after conversion to Sterling, increasing by 10% to £10.0 million (2012: £9.1 million).

The revenue growth is a result of improved utilisation of an increased fleet with broadly stable pricing, driving further market share gains in a market which is relatively flat and showing little sign of recovery.

To support this increased customer demand and enlarged fleet, additional resource has been invested in the business in the first half, which in the short term has constrained the margins generated from the revenue growth. However, as the business moves through the second half of the year, we expect this effect to unwind and for any revenue growth to translate into higher incremental profits for the business. Underlying operating profits increased by 14% to £1.0 million (2012: £0.9 million) with margins improving to 10.0% (2012: 9.6%).

Belgium

Belgium's Euro rental revenues in the first half declined by 11%, and after conversion to Sterling showed a decline of 8% to £6.5 million (2012: £7.1 million).

The disappointing revenue performance in the period was driven by a combination of lower volumes and a more competitive pricing environment, reflecting the on-going difficult trading conditions in the Belgian market. In response, the business has reduced its fleet size (through transfer to other Group operations or by the disposal of surplus machines) and has lowered its overhead costs to reflect these current trading conditions.

As a result of the actions taken by the business in response to these market conditions, underlying operating profits and margins remained broadly stable at £1.2 million and 16.2% respectively (2012: £1.3 million and 16.2%).

Middle East

Over the first half, our Middle East business has continued to grow strongly against the ever more demanding comparative performance of the prior year. Local currency rental revenues increased by 30%, and after conversion to Sterling showed an increase of 32% to £21.8 million (2012: £16.4 million).

The revenue growth has been driven by both increased volumes and pricing, particularly in Saudi Arabia where we have seen double-digit price improvements over the last 12 months. This growth has been supported by additional investment during the period to expand the fleet size by some 250 machines across the region at a cost of £13.0 million. The timing and scale of this planned investment was both earlier and greater than in recent years, and was undertaken to ensure the fleet increase was in place to meet the expected growth in demand over the second half of the year.

During the first half, we also established an operation in India, as we believe this market represents a sizable opportunity that can be developed over time through investment in response to growing demand for the use of powered access. At June 2013, the business was operating a fleet of 120 units from a single depot.

As opportunities continue to emerge in the region, we anticipate deploying further capital over the coming months to ensure we benefit from the attractive returns that remain available in the market.

The strong revenue growth has increased underlying operating profits by 39% to £6.5 million (2012: £4.7 million), with the already robust margins improving further to 29.2% (2012: 27.5%).

Summary and Outlook

During the first half of 2013 the Group has continued to make good progress, with profitability, margins and ROCE all improving.

Our initial three year programme of targeted self-help measures will be comfortably achieved by the end of this year. These measures have been a major driver of the improved financial performance of the Group over the last three years. The scope to further enhance revenues, margins and operating leverage through new self-help measures is currently being assessed as part of our planning process, and we intend to set ourselves new targets for delivery over the next three years that will further improve the Group's approach and performance.

Our investment plans for 2013 are again expected to be funded from our annual cash flows, maintaining the Group's comfortable borrowing levels and robust capital structure. This investment programme is principally directed towards the expansion of both our French and Middle East businesses and the replacement of almost 1,500 machines in the European rental fleet.

The Board's key priority remains to further improve the Group's ROCE and then maintain it above our weighted average cost of capital over the business cycle. We will continue to focus on ensuring that the efficiency improvements delivered to date are fully leveraged, whilst identifying and exploiting other potential areas for revenue and productivity gains. At the same time, the disciplined management of our capital base will continue to ensure we are agile in responding to changes in market demand, deploying resources in support of our market positions and developing growth opportunities as they arise. In particular, we will allocate additional capital to our Middle East business during the second half of the year, as we believe that the returns available in that market continue to be attractive.

Trading since the half year has remained in line with the Board's expectations, and, whilst recognising the continuing economic uncertainty, the Board believes that the Group remains well positioned to deliver the Board's expectations for 2013 and substantial shareholder value in the medium term.

Note: Underlying operating profits, profit before and after tax are stated before amortisation charges, exceptional items and movements in the fair value of financial derivatives.

Group income statement

 (i) Non-underlying is defined as amortisation charges, exceptional items and fair value movements on financial derivatives.

Note: All of the above relate to continuing operations.

Group statement of comprehensive income

Note: All of the above relate to continuing operations.

Group balance sheet

Group statement of cash flows

Group statement of changes in equity

For the six months ended 30 June 2013 (unaudited)

For the six months ended 30 June 2012 (unaudited)

Group statement of changes in equity

For the year ended 31 December 2012 (audited)

Notes to the interim financial information (unaudited)

1. This condensed consolidated interim financial information has been prepared in accordance with the Disclosure and Transparency Rules and with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The same accounting policies, presentation, methods of computation, significant judgements and the key sources of estimation uncertainties are followed in the condensed consolidated interim financial information as applied in the Group's audited financial statements for the year ended 31 December 2012 which were prepared in accordance with IFRS's as adopted by the European Union, with the exception of new standards and interpretations that were only applicable from the beginning of the current financial year and taxes on income in the interim period which are accrued using the tax rates that would be applicable to total expected annual profit or loss.

The following accounting standards, amendments and interpretations were effective for the first time in the interim financial information for the period ended 30 June 2013 and have been adopted in the interim financial information:

-Amendment to IAS 1, 'Financial statement presentation' regarding other comprehensive income

- IFRS 13, 'Fair value measurement'

The group has included the disclosures required by these standards and amendments in the interim financial information.

The following standards are also effective for the period ended 30 June 2013, however have no material impact on the interim financial information:

- Amendment to IAS 12, 'Income taxes' on deferred tax

- Amendment to IFRS 7, 'Financial instruments: Disclosures', on offsetting financial assets and financial liabilities

- Annual improvements 2011

New or revised accounting standards and interpretations issued by 30 June 2013 but not yet effective are listed below:

- IFRS 9 'Financial instruments' − classification and measurement- Amendment to IAS 36, 'Impairment of assets'- Amendments to IFRS 10, Consolidated financial statements'

- IAS 27 (revised 2011) 'Separate financial statements'-Amendment to IAS 32, 'Financial instruments: Presentation', on offsetting financial assets and financial liabilities  

The directors do not consider that any standards or interpretations issued by International Accounting Standards Board (IASB) that are yet to become effective will have a significant impact on the financial statements for the year ending 31 December 2013.

The financial information for the year ended 31 December 2012 is extracted from the Annual Report and Accounts for that period, which have been delivered to the Registrar of Companies. The Auditors' report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The condensed consolidated interim financial information does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The condensed consolidated interim financial information for the six months ended 30 June 2013 and the comparatives to 30 June 2012 are unaudited, but have been reviewed by the Auditors.

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, the directors continue to adopt the going concern basis in preparing this condensed consolidated interim financial information.

The condensed consolidated interim financial information was approved for issue on 30 August 2013.

Certain statements in this interim report are forward-looking. Although the directors believe that the expectations reflected in these forward-looking statements are reasonable, they can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The directors make no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. The principal risks and uncertainties affecting the Group are summarised in note 17.

2. Segmental analysis

The internal reporting arrangements for Lavendon Group plc comprises of five operating segments based on the geographical locations of UK, Germany, Belgium, France and Middle East and one non operating Corporate cost centre. The Corporate cost centre comprises the Group directorate, statutory compliance and Group administrative functions and holds the Group's bank borrowing facilities.

The Group's chief operating decision maker ("CODM") is the Group Board. The Group Board reviews the Group's internal reporting in order to monitor and assess performance of the operating segments for the purpose of making decisions about allocation of resources. Performance is evaluated based on actual results compared to agreed targets and performance in prior periods.

Six months ended 30 June 2013 (unaudited)

From 1 January 2013 the assets, liabilities and operating costs associated with BlueSky have been included within Corporate items, as it is believed that this is a more appropriate allocation given its role as a Group function effective from that date. The amortisation and carrying value of the related intellectual property, which is presented as part of the UK in the comparative segmental disclosures, is June 2012: £817,000 and £7,368,000; December 2012: £1,853,000 and £6,501,000. 

Note:Inter segment trading is not significant and therefore has been eliminated in the analysis presented above, so that only trading between the Group and external third parties is represented.

Six months ended 30 June 2012 (unaudited)

Note:

The depreciation charge shown for the Middle East operation includes rental equipment owned by the UK operation for the first half of the year, but which were used by and costed to the Middle East operation. The inclusion of the depreciation charge in the Middle East more accurately reflects the commercial nature of the arrangement and the reporting to the CODM. The associated assets were transferred to the Middle East in June 2012.

Inter segment trading is not significant and therefore has been eliminated in the analysis presented above, so that only trading between the Group and external third parties is represented.

Year ended 31 December 2012 (audited)

Note:

The depreciation charge shown for the Middle East operation includes rental equipment owned by the UK operation for the first half of the year, but which were used by and costed to the Middle East operation. The inclusion of the depreciation charge in the Middle East more accurately reflects the commercial nature of the arrangement and the reporting to the CODM. The associated assets were transferred to the Middle East in June 2012.

Inter segment trading is not significant and therefore has been eliminated in the analysis presented above, so that only trading between the Group and external third parties is represented.

3. Exceptional items, amortisation and movement in fair value of financial derivatives

Exceptional items, amortisation and movement in fair value of derivatives incurred during the period are set out below:

Notes

(i) Restructuring costs during the current and previous periods principally relate to the ongoing reorganisation of the UK and German operations. 

(ii) Relates to movement in fair value of interest rate swaps that were not designated as cash flow hedges.

(iii) Fees incurred on bank refinancing.

4. Discontinued operations

During 2011 the Group's Spanish operation was closed and accordingly it was presented as a discontinued operation.

The Spanish operation did not trade during 2012 or 2013, and therefore there are no revenues, exceptional items or profits/ (losses) to report. Cash flows for discontinued operations are set out below:

The cash flow of discontinued operations includes cash flows from intra-group transactions.

5. Finance income and expense

6. Taxation on profit/(loss)

Analysis of charge for the period:

The tax charge on underlying profits is based on the estimated effective tax rate for the whole period.

Changes to the UK corporation tax rates were announced in the 2012 Autumn Statement and the March 2013 Budget. These changes will further reduce the main rate of UK corporation tax to 21% from 1 April 2014 and to 20% from 1 April 2015. These changes had not been substantively enacted at the interim balance sheet date and therefore their impacts are not included in these financial statements.

The reductions to the main rate of corporation tax were both enacted as part of Finance Act 2013 on 17 July 2013. The overall effect of these changes, if applied to the deferred tax balance at the interim balance sheet date, would be to reduce the deferred tax liability by £1,396,000.

7. Earnings per share

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:

Note: The above relates to continuing operations.

Earnings per share is calculated on the 166,002,985 ordinary shares in issue for the six months ended 30 June 2013 being the weighted average number of ordinary shares in issue (six months ended 30 June 2012: 164,935,477; year ended 31 December 2012: 164,990,033).

The Lavendon Group 2010 Long Term Incentive Plan vested on 30 April 2013. Under that scheme 2,812,871 shares were issued during the period. Diluted underlying earnings per share assumes conversion of all potential dilutive ordinary shares which arise from share incentive scheme awards granted to employees where the performance criteria has been met as at the end of the period and where the exercise price is less than the average market price of the Company's ordinary share capital during the period. The effect of this dilution is to increase the weighted average number of ordinary shares to 167,618,584 (six months ended 30 June 2012: 167,903,743; year ended 31 December 2012: 169,167,889).

Underlying earnings per share is presented to exclude the impact of exceptional items, amortisation charges and movements in fair value of derivatives in the period and their associated tax effect. The directors believe that underlying earnings per share provides additional relevant information about underlying business performance.

8. Dividends

The directors are declaring an interim dividend of 1.15 pence per ordinary share which will distribute an estimated £1,909,000 of shareholders' funds. It will be paid on 18 October 2013 to shareholders who are on the register at 6 September 2013.

9. Intangible assets

Goodwill acquired in a business combination was allocated, at date of acquisition, to the cash generating unit that benefited from that business combination. The directors consider that a cash generating unit is generally an individual country of operation.

The allocation of goodwill by operating segment is shown in the table below:

During 2012 the group altered the way in which it manages and operates the sale of ex-rental fleet. Following this change £4,600,000 of goodwill previously associated with Belgium was re-allocated to the UK.

Goodwill is tested annually for impairment or more frequently if there are indications that goodwill might be impaired. For the purpose of determining potential goodwill impairment, recoverable amounts are determined from value in use calculations using cash flow projections based on financial plans as set out in the financial statements for the year ended 31 December 2012. The next goodwill impairment review will be performed at 31 December 2013. Management do not consider there to be any indications of impairment as at 30 June 2013.

10. Property, plant and equipment

11. Inventories

12. Analysis of changes in net debt