Notes to the financial statements

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Notes to the financial statements

Bespokeattachmentsfor a wide rangeof industries,demonstrate ourforward thinking,and the depthof our experience.Lavendon Group hasrecently established aConsulting and TechnicalSolutions Group.The Group’s key aim is todifferentiate the business as theexpert in specialist advice andtechnical support for working atheight. The Group promotes theuse of attachments whichprovide additional safety for theuser and facilitate the safehandling of pipework and claddingfrom the platform basket.Strategy and business objectivesAs the Group’s trading performancestabilised during 2010, we undertook anintensive review of our future businessstrategy to ensure that this reflected themarket conditions and economicenvironment that can be expected in themedium term. Although the Group’s financialposition has strengthened over the past twoyears, through a combination of free cashgeneration and the issue of new equity,we envisage that the general availability ofcapital will become more limited in the shortto medium term. Consequently, generatingsuperior returns on capital deployed will becrucial in differentiating the Group’sperformance and investment case againstother investment alternatives.The review of our strategy has confirmed thatour focus should change from one largelybased on a long-term goal of attaining leadingnational coverage in all of our markets, to onewhere our operating structure is configuredfor the best market opportunities in eachcountry or region. Consequently, in certaincountries, our objective is to be leader inthose homogeneous service market subsectors(geographies, customer groups orproject types) where we can average anacceptable return on capital employedthrough a typical five-seven year economiccycle. This shift in strategic emphasis will see aprogressive move in capital employed awayfrom structurally low-return to structurallyhigher-return areas of activity over the nexttwo to three years.The Board will monitor progress against thisrevised strategic goal by reference to thekey performance indicators previouslyreported, although greater emphasis will beplaced on the return on capital employedwith the objective of increasing this to alevel above the Group’s average cost ofcapital over an economic cycle. Theseindicators are summarised below for theperiod 2006 to 2010:2006 2007 2008 2009 2010Revenue 1 (£m) 131.6 193.0 259.8 226.9 225.4Underlying EBITDAmargin 2 (%) 29.1 33.2 37.5 35.4 31.1Underlying operatingprofit margin 3 (%) 10.1 15.8 17.9 13.7 11.0Debt to underlyingEBITDA ratio 4 2.58 2.92 3.13 2.26 2.00Return on CapitalEmployed 5 (%) 7.6 11.5 11.1 6.8 6.6Employeeturnover 6 (%) 25 20 26 31 15Definitions1 Revenue = revenue as per the Group income statement.Revenues shown in the table have been restated in accordancewith IAS 16 (amendment) ‘Property, plant and equipment’. Thisamendment requires proceeds derived from the sale of rentalassets to be included in revenue.2 EBITDA margin = Underlying EBITDA as a percentage ofrevenue. Underlying EBITDA is defined as earnings beforeinterest, tax, depreciation, amortisation and exceptional items,where all figures are as per the Group financial statements.3 Operating profit margin = Underlying operating profit as apercentage of revenue. Underlying operating profit is definedas operating profit before amortisation charges andexceptional items, where all figures are as per the Groupincome statement.4 Debt to EBITDA ratio = the Group’s total net debt divided byunderlying EBITDA. Net debt is as per the Group financialstatements, and underlying EBITDA is as defined in definition2 above.5 Return on capital employed = operating profit beforeexceptional items as a percentage of capital employed.Operating profit before exceptional items as per the Groupincome statement. Capital employed being the aggregate ofthe average of the Group’s opening and closing net assets andnet debt, as per the Group financial statements.6 Employee turnover = number of employees leaving as apercentage of total workforce on an annualised basis. All staffdepartures are included within the calculation, includingrestructures and redundancies. (Source: internal data).The table demonstrates the increasingstability in the Group’s financial position.Revenues have remained stable overall,whilst the decline in underlying EBITDA andoperating margins was heavily weightedtowards the first half of the year where theimpact of severe winter weather in Europewas considerable.The Group’s underlying EBITDA margin,whilst declining during the year, remainedhealthy and enabled operational cash flows,after settling interest, tax and investmentcommitments, to reduce the Group’s netdebt levels by £41.8 million in the year.The debt to underlying EBITDA ratio hasreduced to 2.00 times from 2.26 times atthe end of 2009, reflecting this focus oncash generation in the year. The debt tounderlying EBITDA ratio calculated inaccordance with our bank facility agreement(using consistent exchange rates for boththe calculation of underlying EBITDA andnet debt) was 1.99 times. The Group’s capitalinvestment plans for 2011 have been set at alevel that should again enable free cash tobe generated and further progress made inreducing debt levels.Employee turnover has decreased to 15%from 31% in the prior year, principally as aresult of a lower level of restructuring withinthe business as markets started to stabilise.The ‘normalised’ employee turnover, afterremoving the impact of restructuring,reduced to 8% from 9% in 2009, continuingthe progress we have made in recent yearsin developing a stable and experiencedemployee base.Lavendon Group plc 2010 7


Operating and financial reviewContinued“With stability in markets and careful investment in highreturn assets and geographies the Group is well set tomake progress towards improving its return on capitalperformance to sustainably acceptable levels.”Alan MerrellGroup Finance DirectorFinancial performance in 2010A summary of the Group’s financialperformance for 2010, at both constantcurrency exchange rates and actualexchange rates, with a comparison against2009, is set out in the table below:2010 at 2009£million (unless stated otherwise) 2009 FX rates 2010Revenue 226.9 228.3 225.4Underlying EBITDA 80.4 71.3 70.2Underlying operating profit 31.1 24.9 24.7Underlying profit before tax 13.9 13.1 13.1Underlying profit after tax 10.7 9.8 9.7Statutory profit/(loss)after tax (43.4) 8.1 8.0Earnings per Share (pence) 19.16 5.97 5.94Statutory earnings/(loss)per share (pence) (77.45) 4.92 4.90All figures shown in the above table and described as ‘Underlying,’are figures per the Group financial statements before amortisationcharges and exceptional itemsGroup revenues were £225.4 million for theyear (2009: £226.9 million), a marginal declineat actual exchange rates and an increase of 1%at exchange rates consistent with 2009. Thesplit of these revenues between the variouscountries of operation, compared to 2009, isshown below (all figures in £’millions).The Group’s revenues are principally derivedfrom the rental of its equipment fleet, butalso include revenues from the sale ofnew equipment and from the disposal ofex-rental fleet units. The split of revenuesbetween each of these channels is shownin the table below:Rental revenue is shown net of anydiscounts and value added tax, but includesincome generated from the transportationof equipment, provision of fuel, charging ofdamage waiver fees and the sale of spareparts. The income derived from the rental ofmachines is determined by the interplayof several factors: size of rental fleet; mix ofmachine types within the fleet; utilisationof the fleet; and rental rates achieved.The importance, or weighting, of each ofthese factors can change by week or bymonth as the year progresses, due tonormal seasonal patterns of demand, or tochanging customer workloads. As the belowtable shows, rental revenues for the yearreduced by 2% to £207.7 million (2009:£212.8 million), with all of this declineoccurring in the first half of the year and areturn to revenue growth of 3% beingdelivered in the second half.The sale of ex-rental fleet units increasedduring the year to £13.5 million (2009:£8.8 million), largely offsetting the declinein rental revenues, as the Group disposedof the surplus equipment that was identifiedduring the restructuring of the Group’sbusiness in 2009. As this ‘one-off’ disposalprogramme is now complete, this level ofrevenue from the disposal of ex-fleet unitsis likely to decrease during 2011.The Group’s costs are largely fixed in naturewithin the short to medium term, withsignificant movements in the cost base,outside of acquisitions, mainly beingdetermined by either depot openings andclosures, or fleet expansion or contraction.2009 2010Sale Sale of Sale Sale ofRental of new ex-fleet Total Rental of new ex-fleet TotalCountry revenue equipment equipment sales revenue equipment equipment salesUK 100.7 1.0 4.7 106.4 100.8 0.7 10.5 112.0Germany 50.7 – 1.5 52.2 46.0 – 1.3 47.3Belgium 12.3 0.7 1.4 14.4 12.6 0.6 0.1 13.3France 12.2 – 0.2 12.4 15.0 – 0.4 15.4Spain 8.5 0.5 0.4 9.4 7.0 0.4 0.5 7.9Middle East 28.4 3.1 0.6 32.1 26.3 2.5 0.7 29.5212.8 5.3 8.8 226.9 207.7 4.2 13.5 225.48 Lavendon Group plc 2010


This feature of our business amplifies the effectof any small movements in revenue on theunderlying profitability of the Group, as thereis little associated increase or decrease in ourcost base in the short term. This impact isoften referred to as “operational leverage”.The two main cost areas of the business areemployee costs and depreciation. During 2010,employee costs reduced to £57.6 million(2009: £58.4 million), and as a percentage ofrevenue, these costs marginally reduced to25.6% (2009: 25.7%). Depreciation costsreduced to £45.5 million in the year (2009:£49.4 million), with the percentage of revenuereducing to 20.2% (2009: 21.8%) due to thereduction in the size of the Group’s rental fleet.The Group’s underlying EBITDA for the yeardeclined to £70.2 million (2009: £80.4 million),due to the reduction in rental revenues in thefirst half of the year, with margins declining to31.1% from 35.4% in 2009. The return torevenue growth in the second half of the year,enabled both the second half underlyingEBITDA generated and the margins earned toincrease over the same corresponding periodin 2009. Underlying operating profits fell to£24.7 million (2009: £31.1 million), withmargins reducing to 11.0% from 13.7% in theprior year. After amortisation charges, theGroup produced an operating profit of£22.3 million (2009: £27.5 million).Using currency exchange rates consistentwith 2009, the Group’s underlying EBITDAand operating profits reduced to £71.3million and £24.9 million respectively.Amortisation costs were £2.4 million for theyear (2009: £3.5 million) and there were noexceptional items incurred during the year(2009: £52.3 million).Net interest charges for the year, reduced to£11.7 million (2009: £17.1 million), due toGroup revenue2009UKGermanyBelgiumFranceSpainMiddle East£106.4m£52.2m£14.4m£12.4m£9.4m£32.1mthe reduction in the net debt levels of theGroup in both 2009 and 2010. After interestcosts, the Group’s underlying profit beforetax was £13.1 million (2009: £13.9 million).After amortisation charges, the Groupproduced a profit before tax of £10.7 millionand there were no exceptional items(2009: profit of £10.4 million beforeexceptional items and a loss before tax afterexceptional items of £47.8 million). With aneffective tax rate of 25% (2009: 23%), theGroup’s underlying profit after tax was£9.7 million (2009: £10.7 million). Afteramortisation charges, the Group produced aprofit after tax of £8.0 million (2009: profitof £7.2 million before exceptional items anda loss before tax after exceptional items of£43.4 million).The Group’s underlying earnings per sharewere 5.94 pence per share (2009: 19.16pence), and reflect a three-fold increasein the Group’s average issued sharecapital following the issue of new sharesin the Group’s Firm Placing & Placingand Open Offer in December 2009.After amortisation charges, the Group’searnings per share were 4.90 pence(2009: earnings of 14.79 pence beforeexceptional items and a loss of 77.45pence after exceptional items).The Group is proposing a final dividend of0.67 pence per share, an increase of 12%over the final dividend for 2009 and makinga total dividend for the year of 1.00 pence(2009: 1.60 pence). Following the year onyear increase in the number of shares inissue, the proposed total dividend willdistribute £1.6 million to shareholders for2010, an increase of 13% over the amountdistributed for 2009. The final dividend, ifapproved, will be paid on 3 May 2011 toshareholders on the register at the closeof business of 11 March 2011.Group revenue2010UKGermanyBelgiumFranceSpainMiddle East£112.0m£47.3m£13.3m£15.4m£7.9m£29.5mCash flow, investment,acquisitions and financingA summary of the Group’s cash flows forthe year is shown in the chart on page 11.During the year, the Group generated£62.4 million of cash from operations, aftermovements in working capital but prior tothe purchase and sale of rental assets(2009: £72.6 million).A total of £14.7 million was invested in themaintenance and expansion of the Group’sfixed asset base (2009: £12.9 million).This investment was almost entirely fundedby the sale of surplus and retired assets,which generated £14.0 million in cash(2009: £10.7 million). After movements inamounts owed to equipment suppliers atthe beginning and end of the year of£0.3 million, the net capital expenditure forthe year was £0.9 million as shown in thechart on page 11. The amount owed toequipment suppliers at the end of the yearwas £1.5 million. The total cash outflow,prior to offsetting disposal proceeds, of£15.0 million (being the investment of£14.7 million together with the movementin amounts owing to equipment suppliers of£0.3 million) differs from the total amountdisclosed in the ‘Group cash flow statement’as ‘Purchase of rental fleet’ and ‘Purchaseof property, plant and equipment’ by£5.4 million, which represents the valueof assets funded by hire purchase financeand which is disclosed separately in the‘Reconciliation of net cash flow tomovement in net debt’.In addition to the investment in themaintenance and expansion of the Group’sfixed asset base, a total of £7.8 million waspaid in deferred consideration relating tothe acquisition of The Platform Companyin 2008. This payment was partly fundedby an issue of 1,303,567 ordinary shares,to the vendors of the business acquired,that raised £1.0 million.The control of capital expenditure duringthe year enabled the Group to generatesignificant free cash flow, which whencombined with a favourable foreignexchange movement of £5.3 million, enabledthe Group to reduce its net debt level at theyear-end to £140.3 million (2008: £182.1million). This reduced level of debt is wellsupported by operational cash flows.The Group’s banking facilities expire inSeptember 2013 and comprise of an £80million multi-currency revolving credit facilityLavendon Group plc 2010 9


10 Lavendon Group plc 2010


Operating and financial reviewContinuedAudi R8 Spyder:0- 60 mph in 3.6sec.NationwidePlatforms scissorlift: 0-10mtrs (32ft)in 55 secs. Putthem together andyou have one of themost memorableadverts of 2010.£’millions200180160140120100806040200182.1Opening debt62.4Operating cash0.9Capex16.1Interest/tax1.5Dividends7.8Deferred consideration0.4Share issue proceeds5.3FX and non-cashmovement140.3Closing debtPowered access is increasingly used innon-construction activities allowing thegroup to diversify profits across otherindustry sectors.Depicted in the images above and oppositethere are two Nationwide Platform’s liftsbeing used during the filming of Audi’s‘Mirror, Signal, Outmanoeuvre’ televisionadvert for its new R8 Spyder model.The makers of the advert, hired a mixtureof electric scissor and boom lifts for theshoot, which took place at the ExcelCentre in London’s Docklands.The machines were used to supportlighting rigs and camera equipment while,10 metres below, the R8 car was filmedmanoeuvring through 21 other seeminglychaotically driven rogue vehicles.In addition to supporting lighting andcameras, the platforms allowed thecustomer to choreograph the track ofeach vehicle from above to increasethe dramatic effect.and €87.5 million of amortising and bulletterm loans. In 2011, a repayment of€11.3 million is due on the amortising termfacility. At the end of the year, the Grouphad £66.4 million of headroom withinthese facilities. This headroom issupplemented by hire purchase andleasing credit lines that are available to theGroup. The Group remains fully compliantwith its bank covenants.The Group’s net assets increased by 3% to£180.1 million (2009: £174.4 million), withnet assets per share increasing to £1.10(2009: £1.07). The main movements in thebalance sheet were: depreciation ofproperty, plant and equipment (net ofinvestments made during the year);reduction in stock levels due to the sale ofassets held for resale; an increase in tradeand other receivables due to the recovery inrevenues in the second half of the year; areduction in cash balances following theapplication of the proceeds from the equityissue in December 2009 being applied toreduce bank borrowings in January 2010; areduction in trade and other payables mainlydue to the payment during the year of thefinal deferred consideration obligation thatimpacts the Group’s debt levels and paymentof fees associated with the equity issue; andrevised banking facilities in December 2009and a reduction to the Group’s gross debtfollowing repayments from operationalcash flows in the year.The Group has exposure to movementsin interest rates on its borrowings. Thisexposure is managed by a combination offixed and floating interest rate agreements.This allows the Group to mitigate theimpact of interest rate fluctuations byallowing some benefit from rate reductions,whilst offering some protection against raterises. At the year-end, the fixed rate elementof borrowings was 66%, an increase overthe previous year-end fixed rate element of53% as funds raised from issuing new equityin December 2009 were applied in January2010 in reducing variable rate bankborrowings. Based on the year-end mix andquantum of borrowings, a movement inEuro interest base rates of 0.25% wouldincrease or decrease the Group’s annualinterest cost by approximately £128,000,whilst a similar movement in Sterling baserates would increase or decrease annualcosts by £3,000.Going concernAfter making appropriate enquiries, thedirectors have formed a judgement, at thetime of approving the accounts, that theGroup can have a reasonable expectationthat adequate resources will be available forit to continue its operations for theforeseeable future, and consequently it isappropriate to adopt the going concernprinciple in the preparation of the financialstatements. In forming this judgement, thedirectors have reviewed the Group’s budgetLavendon Group plc 2010 11


Operating and financial reviewContinuedfor 2011 and forecast for 2012 (includingdownside sensitivity scenarios), cash flowforecasts, contingency planning, thesufficiency of banking facilities and forecastcompliance with banking covenants.Review of performanceby countryA summary of the revenues and operatingprofit by each business unit is given below:UnderlyingRevenues operating profit*2009 2010£’millions 2009 2010 2009 Margin 2010 MarginUK 106.4 112.0 12.4 11.7% 11.3 10.1%Germany 52.2 47.3 3.6 6.9% 1.3 2.7%Belgium 14.4 13.3 3.1 21.5% 2.4 18.0%France 12.4 15.4 0.5 4.0% 1.1 7.2%Spain 9.4 7.9 0.1 1.1% 0.0 0.0%Middle East* 32.1 29.5 11.4 35.5% 8.6 29.2%226.9 225.4 31.1 13.7% 24.7 11.0%* Middle East includes the results of operations in Bahrain,Qatar, Saudi Arabia and the United Arab Emirates.All figures shown in the above table are before amortisationcharges and exceptional items.We have structured the Group so that eachcountry of operation is viewed as a separatereporting profit centre, supported by centralGroup service functions. Each operation hasits own management team responsible fordelivering agreed performance targets.The performance of each operation issummarised below, with all financial figuresbeing underlying numbers quoted beforeamortisation charges and exceptional items.UKTotal revenues increased by 5% during theyear to £112.0 million (2009: £106.4 million),with rental revenues being broadly flatagainst the previous year whilst the sales ofnew and used equipment doubled.The UK’s rental revenue performance wasinfluenced by the disruption caused by thesevere weather during the first quarter ofthe year and the flow-through effect ofpricing pressures seen in 2009. Through theyear rental demand progressively increased,from both major and smaller accounts, andthe UK produced year-on-year revenuegrowth for the second half of the year of5%. Demand from non-constructioncustomers continued to out-perform theconstruction sector, although constructionrevenues moved into year-on-year growthacross the second half of 2010.As demand improved across the year, ourkey focus has been on increasing rentalprices, and, by the end of the year, discountlevels had improved by around 7%. This willremain an area of focus through 2011.Although pricing pressures have squeezedmargins, particularly in the first half of theyear, cost savings initiatives taken in 2009and close management of operating costsduring the year enabled the UK to deliveran underlying operating profit of £11.3million (2009: £12.4 million). This decline inunderlying operating profits was whollyweighted to the first half, with second halfunderlying operating profits being around£1.0 million ahead of the prior year.As a consequence of the revenue mixchange away from rental revenues, marginsdeclined to 10.1% from 11.7% in theprevious year.GermanyOur German business was severely affectedby a very poor start to the year, most acutein the construction sector, where first halfrevenues were consistently in excess of 20%down on the prior year. This was principallycaused by the extreme weather, with frozenground conditions lasting into April in someparts of the country. We also believe thatthe full impact of the economic crisis onconstruction activities was seen later inGermany than in the UK. By year-end the runrate of year-on-year decline in constructionrevenues in Germany had reduced to below5%. After being adversely affected byweather during January and February nonconstructionrevenues remained solidthroughout the remainder of the year, withyear-on-year growth rates averaging 8%between February and December.Total revenues fell by 9.4% to £47.3 million(2009: £52.2 million), which was almostentirely attributable to rental revenues. Inthe absence of further material cost savingswithin the current operational structure thisrevenue decline led directly to a reductionin underlying operating profits to £1.3 million(2009: £3.6 million), with margins falling to2.7% (2009: 6.9%).BelgiumOur Belgian business performed solidly in amarket where demand was sluggish throughthe first three quarters of the year. Totalrevenues fell by 7.6%, although underlyingrental revenues actually increased by 2% to£12.6 million (2009: £12.3 million). This waspartly achieved through a shift in business infavour of non-construction activities, whilstPowered access isextensively used fornon-constructionapplications frommedia and filmingto buildingmaintenance.The above picture was taken during thefilming of the most recent Harry Potterfilm. For this action sequence some40 telescopic booms were used toprovide appropriate lighting on a closedsection of road.Lavendon companies have suppliedpowered access equipment during theproduction of many well know filmsincluding earlier movies in the Harry Potterseries. The machines are used to buildand support set structures, arrangescenery and decoration, provideelevated platforms for filming as well assupport lighting gantries exactly wherethey are required.The image on the opposite page depictsone of the larger truck mounted platformsfrom the EPL Skylift fleet. Here theplatform is being used to facilitatemaintenance and inspection around the“Rose” window of York Minster.Powered access is particularly suited tosuch applications, providing both a safeworking environment at considerableheights and easy and expedient accessto the most remote parts of suchhistoric buildings.12 Lavendon Group plc 2010


Lavendon Group plc 2010 13


14 Lavendon Group plc 2010


Operating and financial reviewContinuedLavendon’s QualityHealth & Safety andEnvironment teamlaunched its nationalworking at heightforum. The eventbrought together over80 representativesfrom leadingcustomers, tradeassociations andgovernment safetyagencies.“I was very pleased to be able toparticipate in Lavendon's Work at HeightSeminar. Lavendon's willingness toengage with their customers and developsolutions to particular problems is to beapplauded. It's only with this kind ofcommitment and pooling of knowledgeand resource that we can continue toimprove safety on site. There is no oneparty who can define the problems andcome up with all the ideas.”Joy Jones – Principle Inspector, HSE“ASDA recently trialled Lavendon as asingle source supplier for powered accessand manual handling attachments at anew £7 million project. Their appointmentsaved both time and money due toLavendon’s expert knowledge. Throughknowing what stage each part of the sitewas at, at any one time, they were ableto supply the correct machine with thecorrect manual handling attachmentfirst time.Anything providing a safer system ofwork for operators working on an ASDAsite, or of course any site, is a massivepositive in my book. Lavendon are to beapplauded for setting up the Workingat Height Best Practice Forum and I willcertainly be promoting it and of courseattending in the future.”Clive Johnson – Health and SafetyEnvironmental Manager for ASDAconstruction revenues recovered by yearendafter a weak, weather affected, first half.Underlying operating profits fell to £2.4 million(2009: £3.1 million), which was almost entirelyattributable to a reduced profit contributionfrom our Belgian-based equipment tradingbusiness, as they concentrated on thedisposal of those surplus assets that had beenidentified for disposal and the subject of anexceptional write-down in 2009. Belgium’sunderlying operating profit margin was18.0% (2009: 21.5%).FranceOur French business grew strongly in 2010 asa result of improving availability and servicelevels in existing depots as well as theopening of a new depot in Marseille at thestart of the second quarter. The market inFrance has historically been dominated bygeneralist rental businesses, but it appearsthat, as elsewhere in Europe, the focus andservice differentiation offered by a workingat height specialist is appreciated by mediumand large users, and consequently this hasenabled us to grow our market share in agenerally lacklustre market. Total revenuesgrew by 23.4% to £15.4 million (2009: £12.4million) with virtually all of this growth beingderived from rental revenues.Market price pressures, which were extremein the earlier part of the year, together withthe drag of start-up costs from the newdepot opening, meant that growth in rentalrevenues did not translate into aproportionate growth in underlying operatingprofits, which grew by just £0.6 million to£1.1 million (2009: £0.5 million). By year-end,price discounts had been improved around3% from those at the start of the year and nofurther depot openings are planned for 2011.SpainOur Spanish business has performed wellin the face of continued difficult marketconditions. The International PoweredAccess Federation (IPAF) estimates themarket has almost halved in size between2008 and 2010. Revenues in our Spanishbusiness fell by 16% to £7.9 million (2009:£9.4 million), with rental revenues falling18% to £7.0 million (2009: £8.5 million).Cost savings actions (including the transfer offleet to feed the opening of the Marseilledepot in France) enabled the impact of the£1.5 million revenue decline to be limited toa modest reduction in underlying operatingprofits of £0.1 million to a breakevenposition (2009: profit of £0.1 million).It seems clear that, despite having a wellmanaged and cash generative business,the outlook for the Spanish economyand market remains challenging for theforeseeable future. Against this background,the Group will continue to look at ways ofimproving the returns made on capital that iscurrently deployed in the Spanish market.Middle EastThe Middle East has been our area ofgreatest disappointment during 2010,relative to original expectations for the year.It is clear that although our business in theregion, outside of Dubai, was slower to beaffected by the global economic crisis,decisions taken to defer, refinance or cancelprojects across the region has impacted ourrate of growth in 2010.The region is characterised by large, longterm(12-24 months is not untypical)petrochemical and infrastructure projectsand as this long-term project profileprotects activity levels going into a crisis (aswitnessed by our continued strong tradingin 2009) it makes the region slower toemerge into growth during the recovery.Nonetheless, strong oil commodity pricesand generally robust public finances meanthat the market fundamentals are strongand our market position is undiminished.We will proceed with caution in terms ofinvestment and predicting a return torevenue growth, until we see firm physicalevidence that stronger demand patternsare well established.Total revenues for the region fell to £29.5million (2009 £32.1 million) with rentalrevenues representing £2.1 million of thedecline. Within a relatively fixed cost basethis translated directly to a decline inunderlying operating profit to £8.6 million(2009: £11.4 million), with margins reducedbut still healthy at 29.2% (2009: 35.5%).We have taken steps to strengthen ourmanagement in the region in preparationfor a resumption in project activities andremain confident that our business in theregion and surrounding countries will bea significant contributor to the Group infuture years.Equipment salesLavendon Sales, which principally operatesout of Belgium, was again instrumental inallowing us to dispose of some 3,000 exrentalunits during the year to developinggeographical markets, end users andinternational dealers, generating cashproceeds of £13.5 million (2009: £8.8 million).Lavendon Group plc 2010 15


Operating and financial reviewContinuedFuture developmentsOur markets have largely stabilised in 2010,with the exception of the Middle East wherewe still await a return to year on yearrevenue growth (this market was also the lastto enter a period of year-on-year revenuedecline). The impact of extreme winterweather conditions on our trading acrossEurope was substantial during 2010,reducing revenues across the first quarterand in the month of December. This impact,along with weaker than anticipated demandin the Middle East, meant that our originalexpectations for the year were not delivered.As we moved towards the end of 2010, theGroup’s European markets were allexperiencing year on year growth on amonthly basis. Against this background, andto ensure that the Group’s strategy for futuredevelopment was aligned with the economicand market outlook in the medium term, weundertook, with the assistance of externalconsultants, a review of our business plansand assessed the scope for operationalimprovements to our business performance.Based on the findings of these reviews,we will look to focus our efforts on thosemarkets where through the retention orachievement of market leading positions,we could expect good quality growth inrevenues. Consequently, over time, ourcapital deployment will migrate to thesemarkets to ensure that the Group’s overallreturns on capital are maximised.Our investment programme for 2011 will bea total of £15.0 million, net of any disposalproceeds, which should enable the Group’snet debt levels to further reduce during theyear. This level of investment for the year,together with planned future expenditure,will provide a well-invested and maintainedfleet, which is capable of continuing to gainmarket share. Based on our plans, the Group’srental fleet can be refreshed and enhancedfrom operating cash flows as we go forward,without the need to re-leverage the Group’sbalance sheet or raise new equity.With stability in markets and careful investmentin high return assets and geographies theGroup is well set to make progress towardsimproving its return on capital performance tosustainably acceptable levels.RisksThe Group has a structured process toidentify and prepare mitigation strategiesfor business risks. A formal risk register hasbeen prepared through an exerciseperformed by the members of the GroupExecutive Committee and the Group’sinternal auditors. The register details therisks identified, the allocation of executiveaccountabilities and finally current andplanned future mitigation strategies. TheGroup Executive Committee and the AuditCommittee have approved the risk register.There are risks and uncertainties inherentin our business that may affect futureperformance. Some of these factors havealready been discussed, but others are listedbelow and are amongst those that we thinkcould cause the Group’s actual results todiffer materially from those expected orthose produced historically.CompetitionThe powered access industry is highlycompetitive and highly fragmented.Numerous competitors, ranging fromnational operators to smaller multi-regionalor independent companies, serve many ofthe markets in which the Group operates.The Group is generally able to compete onthe basis of quality and breadth of service,expertise, reliability, and the price, size, mixand relative attractiveness of its poweredaccess fleet. During the year, the Group haspro-actively sought to strengthen its marketpositions, by developing consultativecapabilities which seek to differentiate ouroffering to customers, to mitigate the impactof increased competition should it occur.Reduction in demand by customersA large portion of the Group’s customer baseconsists of customers from the commercialconstruction and industrial sectors. Adownturn in commercial construction orindustrial activity, or a decline in thedesirability of powered access equipment,may decrease the demand for poweredaccess equipment, or depress the hire ratesthat the Group can charge for its units.The key factors which may cause atemporary or long-term downturn in thecommercial construction and industrialsectors are as follows:• A slow-down in the economies withinwhich the Group operates; and/or• A significant increase in interest rates orother factors affecting end customerdemand/investment; and/or• A restriction on the availability of financeto fund construction projects; and/orAs Europe’s leadingtraining provider,Lavendon hashelped with thedesign anddevelopmentof a number ofpowered accesssafety courses.Training and safety• Whether you need your operatorstrained to higher safety standards,or you are a manager whospecifies and supervisesoperators, we have a number ofcourses to suit your individualneeds. Each year more than20,000 individuals are trainedby one of more than 40experienced powered accesstraining specialists.• A training course quickly enablesoperators to save time, achievedifficult access more easily whileusing safe practices.16 Lavendon Group plc 2010


Lavendon Group plc 2010 17


Operating and financial reviewContinued• Over-capacity in the businesses that drivethe demand for commercial constructionor industrial equipment.Whilst a downturn in the commercialconstruction and industrial sectors could havea material adverse effect on the Group’sbusiness, we are actively managing ourexposure to these sectors and are focusingour efforts on widening the Group’s customerbase into other less cyclical areas. In addition,in recent years, we have increased the Group’sgeographic spread of profits and cash flowsto reduce the impact that country specificeconomic fluctuations would have on theGroup’s overall performance.SeasonalityThe Group is subject to changes in demandpatterns during the year caused by seasonalfactors. Construction activity tends toincrease in the summer months and duringperiods of prolonged mild weather, whilstdecreasing during the winter months andextended periods of adverse weather. Inaddition, due to the timing of public holidaysin Europe, there are more invoicing days inthe second half of the year. Furthermore, theGroup’s trading is weighted towards themonths of September, October, Novemberand early December as the Group’scustomers seek to complete work ahead ofthe year end and onset of winter. Should theGroup experience a prolonged period ofadverse weather, it could have a materialadverse effect on the Group’s business.Retention of senior managementand employeesThe Group depends on its seniormanagement team and a stable experiencedworkforce. Although it is not anticipated thatmembers of the management team will belost or replaced, or that employee turnoverwill increase sharply, the disruption causedby either of these events happening couldadversely affect the Group’s business untilsuitable replacements are found. The Groupregularly reviews remuneration packages andaims to offer competitive salaries andattractive short- and long-term incentiveschemes, including the use of shareincentive plans where appropriate.Access to capital/additional financeThe Group requires capital for, amongstother things, purchasing powered accessmachines to replace existing machines thathave reached the end of their useful life andfor growth through increasing the scale ofthe existing rental fleet, by establishing newdepots and operations, or completingacquisitions. If the cash that the Groupgenerates from its business, together withcash that it may borrow or has borrowedunder its credit facilities, is not sufficient inthe long term to fund its capitalrequirements, additional debt and/or equityfinancing will be required. If such additionalfinancing were not available to fund theGroup’s capital requirements, revenue andcash flow could decrease, potentially havinga material adverse effect on the Group.The Group aims to ensure that it has thenecessary equity base and sufficient bankingand other credit facilities available to supportits development plans. We believe that thecombination of the Group’s equity base andthe strong cash flows generated by thebusiness, together with the credit linesavailable from banks and other institutions,will provide adequate funding for ourforeseeable needs.Currency and interestrate fluctuationsAlthough the Company is a UK companythat reports in pounds sterling, in 2010 theGroup derived approximately 37 per cent.and 13 per cent. of its revenue in Euros andMiddle Eastern currencies, respectively.A significant amount of its assets, liabilitiesand costs are also denominated in Euros.These overseas results are translated at theapplicable exchange rate, which fluctuatesfrom time to time.Fluctuations in the value of the Euro orMiddle Eastern currencies in relation to thepound sterling may have a significant impacton the Company’s financial condition andresults of operations as reported in poundssterling. This has been illustrated to a degreein 2010 where, due to the year on yearmovement in foreign exchange rates, theGroup’s revenues were reduced by £2.9million, and underlying operating profitswere reduced by £0.2 million.Currency fluctuations can also have asignificant impact on the Group balancesheet, particularly total shareholders’ funds,when the financial statements of the non-UKsubsidiaries are translated into poundssterling. The translation of the assets andliabilities of the Group’s non-UK businesses atthe relevant balance sheet date results in therecognition of foreign exchange translationgains or losses. The Group balance sheet isaffected by movements in the sterling valueof its net investments in its non-UKbusinesses and the sterling value of itsconsolidated net debt.The Group is also exposed to interest rate riskon its floating rate debt. Fluctuations ininterest rates may affect the interest expenseon existing debt and the cost of newfinancings. The Group utilises interest rateswap agreements to manage and mitigate itsexposure to changes in the interest rates.Legal proceedingsThe nature of the Group’s business exposesit to claims for personal injury or propertydamage resulting from the use of thepowered access equipment that the Grouprents or sells. The Group carries insurancecovering a wide range of potential claims.The Board believes that the level ofinsurance is sufficient to cover existingand future claims.Changes in tax legislation orinterpretationThe Group is exposed to the risk presentedby changes in tax legislation and theinterpretation and enforcement of suchlegislation. The Group’s activities are subjectto tax at various rates, computed inaccordance with relevant legislation andpractice. Action by governments to increasetax rates or to impose additional taxes couldreduce the profitability of the Group. Incommon with many companies, the Grouphas structured its intra-Group financingarrangements in what the Directors believeto be a tax efficient manner. Should taxauthorities dispute and successfully challengethe interpretation of tax legislation used inthese arrangements or there are revisions totax legislation or to the interpretation of suchlegislation then these could have a materialeffect on the Group’s business.Political, legal andregulatory developmentsThe Group is subject to various legal andregulatory regimes. Future global political,legal or regulatory developments concerningthe activities carried out by the Group andthe arena in which the business operatesmay affect the Group’s ability to operateand operate profitably in the affectedjurisdictions. Should the Group’s businessesfail to comply with applicable legal andregulatory requirements, or become unableto operate due to a deteriorating politicalclimate, this may result in a financial lossor restriction on the Group’s ability tooperate its business.Environment and safetylaws and regulationsThe Group’s operations, like those of othercompanies engaged in similar business,18 Lavendon Group plc 2010


equire the handling, use, storage anddisposal of certain regulated materials.As a result, the Group is subject to therequirements of UK and Europeanenvironmental and occupational health andsafety laws and regulations. These regulatesuch matters as waste water, storm water,solid and hazardous wastes and materialsand air quality. Under such laws andregulations, the Group may be liable for,amongst other things, the cost ofinvestigating and remediating contamination(regardless of fault) and for fines andpenalties for non-compliance. The Group’soperations generally do not raise significantenvironmental risks, but the Group does usehazardous materials to clean and maintainequipment, dispose of solid and hazardouswaste and waste water from equipmentwashing, and store and dispense petroleumproducts from storage tanks located atsome of its locations. The Group hasrigorous procedures to manage thedisposal of these materials.The Group also operates in an industrywhere safety is a key consideration for boththe well being of our employees andcustomers that hire our equipment. Failureto comply with regulatory requirements orto meet customer expectations with regardto the provision of safe equipment couldresult in litigation, financial penalties anddamage to the reputation of the Group.As far as the Board is currently aware,there are no pending or likely litigation,remediation or compliance costs relating toeither environmental or safety issues thatwill have a material adverse effect on theGroup. However, it is not possible to becertain as to the potential financial impacton the Group if adverse environmentalconditions or safety concerns arediscovered or environmental or safetyrequirements become more stringent.If the Group were required to incurmaterial environmental compliance orremediation costs that are not currentlyanticipated, the Group’s results would beadversely affected.Business IT system availabilityAn interruption to the availability of theGroup’s IT systems could have a materialimpact on the Group’s communication,ability to service customer needs,maintenance of adequate records andoverall financial performance.In order to mitigate this risk, the Group isengaged in a continuous improvementprogramme to upgrade and harmonise itsoperational, business and accountingprocesses across all territories. The Groupemploys system and software programmingprofessionals to maintain the Group’s ITinfrastructure and develop systems to meetthe business requirements. In addition thegroup has a fully formed and tested disasterrecovery programme in place to protectagainst major systems failure.Corporate responsibilityPrinciples and managementWe aim to conduct our business in a sociallyresponsible manner and actively promote aculture based on four key principles:• Performance: valuing and rewarding theattainment of business goals• Integrity: being reliable, ethical, honest andstraightforward in our relationships withcustomers, staff, shareholders and suppliers• Process-orientation: encouraging aculture where business challenges areresolved constructively and permanentlyand “fire-fighting” is avoided• Initiative: encouraging staff to takeownership of business opportunities andto proactively collaborate in theirpersonal developmentThese principles are, in turn, reflected in a setof management values, which have beenadopted by the Board and seniormanagement of the business as the guide tohow we endeavour to run our business:• We provide a safe working environment• We aspire to be a motivated,professional team• We treat everyone with respect• We invest time and resources to developeach employee to their full potential• We behave like responsible co-owners ofthe business• We care about customers andcolleagues alike• We are easy to do business with• We deliver on our promises, bothoperational and financialResponsibility for all aspects of CorporateResponsibility rests with the Board, but in orderto involve staff fully in the decision-makingprocess, a Corporate and Social Responsibility(“CSR”) Forum was established. This forum actsas a steering committee for the organisation,evaluating opportunities and providingdirection for CSR activities and awarenesscampaigns. Engagement with major customersis starting to provide consistent objectives inareas such as energy reduction targeting andCO2 calculators for MEWPS.Our CSR objectives for the next decade areshown on page 20.EnvironmentOur principal environmental impacts arethe emissions of the vehicles we operateand the energy and water use in ouroffices and depots.In 2009, we started a project to measureour controllable emissions and have usedexternal consultants to calculate how thesetranslate into CO 2 equivalents. We nowcapture this data for all Lavendon operatingbusiness units. We have set a target forreducing our controllable emissions by10% over the next two years, based oncomparable levels of activity, and will seekto identify greater reduction targets overa longer time horizon once the potentialscope if fully established.We recycle 94% of our waste in the UK,including oil, batteries, paper/cardboard,plastics and glass, and incinerate allhazardous waste.In 2011 we will implement programmes toreduce the environmental impact of ouroffices. We will be looking to increase ourlevel of sustainable and recyclable officesupplies and reduce electricity use viaa ‘switch-off’ campaign, where, amongstother actions, smart meters will be usedto manage electricity consumption andprogrammed use of appliances, such as airconditioningsystems, will be reviewed.EmployeesThe safety of our employees is of paramountimportance. All serious accidents are reporteddirectly to the Chief Executive, together withmitigation plans to avoid similar accidents infuture. We have robust procedures in placeacross the Group to minimise safety risks andincidents, these include:• Regular risk assessments of commonactivities and hazardsLavendon Group plc 2010 19


Our corporate social responsibility objectivesfor the next decade are:MarketplaceKey performance indicators 2010 2012 MilestoneBefore 2020Customers using CO 2Statement 0 5 50Customers using anticrushingdevices 2 15 50Customers using energyreducing attachments/enhancements 0 50 500EnvironmentKey performance indicators 2010 2012 Milestone Before 2020Energy UK CO 2 footprint established 10% reduction in utility use 50% reduction in utility useWaste TechX depots recycling 95% All depots recycling 97% 99% of all waste divertedfrom landfillVehicle emissions Baseline established 20% reduction vs. 2010 50% reduction vs. 2010CRC (Carbon Reduction Established all stakeholder Shadow CRC compliance Voluntary registrationCommitment – UK only) exposure to current legislation criteriaElimination of breakdowns 2010 baseline established 50% reduction £100k of benefit intothe communityThe following annual consumption data has been captured inorder to set baselines for the above reduction targets:2010Gas and Electricity (kWh):kWh 7,396,748Energy/turnover (mWh/£m) 354Water (m 3 ) 45,290Average CO 2 emissions per vehicle:Cars 152Service Vans 20520 Lavendon Group plc 2010


Operating and financial reviewContinued• Comprehensive training on safe useof vehicles and equipment for all staffwho operate themIn 2009, we initiated a campaign – “SafetyStarts with You” in the UK, which has seenquantifiable reductions in accidents and theassociated costs associated with them. Weengage all our employees through nationalsafety representatives and the completionof Quality, Health and Safety Environmental(QHSE) Diaries. The Diary requires therecording of daily safety-related procedures,which amounts to some 34 hours ofproactive ‘local’ effort every week in eachdepot. As recognition of this programme,we were awarded a RoSPA Silver Award.In 2010 the award was upgraded to Gold,thus making Lavendon Group plc the onlyspecialist equipment hire company in oursector to be awarded this prestigious status.Best practice in health, safety andenvironmental management is built into aGroup-wide internal depot accreditationprocess called TechX. This processautomatically qualifies successful locationsfor ISO 14001 accreditation. We will havedelivered this programme across all depotswithin the Group by 2012.Our approach to health and safety of ouremployees includes the increasingly accuratereporting of lost time accidents involvingemployees from across the Group to theChief Executive. In 2010 there were 60incidents (2009: 19 incidents*) that involvedemployees taking any time off work. Basedon an average number of employees in theyear of 1,629, a normal working day of 8hours and working year of 250 days, theaverage hours worked per incident wasaround 54,300 hours. (2009: one incidentper 179,000 hours*).* Now that improved reporting has been rolled outacross the Group, year-on-year comparisons to 2009are not on a like-for-like basis.As reported in the section on strategic goalsand objectives our underlying rate of labourturnover is 8% (2009: 9%), meaning that ourcore workforce has an average tenure ofover ten years.Customers and suppliersA key feature of our business is that weenable people to work safely at height, andconsequently we place a high priority inminimising safety risks in the operation ofour equipment. To support this aim we;• Subject all machines to defined,rigorous and documented checks beforebeing allowed to be placed on hire witha customer• Provide extensive tailored trainingprogrammes for customers and/or theircontractors in the safe operation of ourequipmentWe also hold regular meetings of seniorengineering staff from across the Group todiscuss the safety aspects of individualequipment types, feeding back comments orsuggestions to equipment manufacturers,and research alternative methods to improvethe safety of working with and handlingmaterials at height.In 2009, we hosted the industry’s first‘Health and Safety Seminar’ attended byover 100 customers and RoSPA (RoyalSociety for the Prevention of Accidents),IPAF (International Powered AccessFederation) and the HSE (Health & SafetyExecutive). We launched a series ofinitiatives at the event, the most importantof which focussed on ‘daily operatorchecks’ and ‘familiarisation of MEWPS(Mobile Elevated Working Platforms)’.In 2010, this event was repeated butrenamed ‘Working at Height Best PracticeDay’. On this occasion the HSE was joinedby customers who had previouslypartnered with Lavendon on some themost prestigious major projects in the UK.A series of workshops were held duringthe event and customers volunteered tojoin ‘working parties’ set to focus on‘safety-based innovation’ and ‘trainingtransformation’.One of our corporate goals is to strive tosupport our customers in educating theirstaff on the importance of safe workingmethods. We therefore request our ChiefExecutive is notified of accidents involvingour customers. In 2010 there were nineaccidents reported across the Group(2009: one, UK only).CommunityIn 2010 we established a communityinvolvement committee, which formallyevaluates and filters requests for supportfrom local community projects and charities.The committee aims to support thecommunities in which we operate throughthree principal strands:• Small grants programme. We make grantsto local charities and local branches ofnational charities. Expenditure under thisprogramme totalled £15,755 (2009:£13,360) in the year• Personal community involvement. Weencourage staff to play active roles involunteering within their local community.To support this we run a selectivefundraising match programme, wherebythe Group will add to sums raised byemployees for local charities. AdditionallyLavendon is involved, through the 2012Olympic legacy programme, in providingwork experience and employmentopportunities for young people in lessadvantaged parts of East London• Donations and loans of equipment.We make donations or loans of ourequipment, where this can make acontribution to the effectiveness of acommunity programme.Kevin AppletonChief ExecutiveAlan MerrellGroup Finance Director1 March 2011Lavendon Group plc 2010 21


Remuneration reportAuditable informationThe Remuneration Report has been audited by PricewaterhouseCoopers LLP as required by Schedule 8 to the Companies Act 2006.Under Part 3 of the schedule, the following sections of the Remuneration Report are subject to audit: Directors’ remuneration;Directors’ interests; Long term equity incentives; and Directors’ pension entitlement. The other elements including the Members of theRemuneration Committee, Remuneration policy, Performance related pay, Directors’ service contracts, and the Company performancecomparative chart are unaudited.Members of the Remuneration CommitteeThe Remuneration Committee (the ‘Committee’) comprises the three non-executive directors of the Company, Jan Åstrand (Chairman ofthe Committee), Tim Ross and Andrew Wood. All members of the Committee are considered to be independent by the Company. Theterms of reference for the Committee are available on the Lavendon Group website (www.lavendongroup.com).Remuneration policyThe Committee is responsible for determining the remuneration packages of the executive directors of the Group, and advising whereappropriate on the remuneration policies relating to the Group’s senior management below Board level. In doing so, the Committee aimsto ensure that:i. the Group’s executive directors are appropriately rewarded for their contributions to the Group;ii. account is taken of their individual responsibility and performance;iii. the remuneration packages reflect current market conditions in order to attract, retain and motivate executive directors of a high quality;iv. rewards are linked to the Group’s performance so that the interests of the executive directors are aligned with those of theCompany’s shareholders; andv. the Company complies with the Code of Best Practice set out in the Listing Rules of the UK Listing Authority.During the year, the Committee were advised by Aon Hewitt, a leading firm of executive remuneration consultants, on its currentremuneration policy and the remuneration packages of the Company’s executive directors.Directors’ remunerationThe emoluments of the individual directors for the year were as follows:Salary Benefits Performance related Total Pensionand fees in kind payments remuneration contributions2010 2009 2010 2009 2010 2009 2010 2009 2010 2009£000 £000 £000 £000 £000 £000 £000 £000 £000 £000Executive directors:Kevin Appleton 270 270 20 20 – – 290 290 68 68Alan Merrell 200 200 16 23 – – 216 223 50 50470 470 36 43 – – 506 513 118 118Chairman and non-executive directors:David Hollywood* 63 55 – – – – 63 55 – –John Gordon** – 20 – – – – – 20 – –John Standen 44 38 – – – – 44 38 – –Tim Ross 38 38 – – – – 38 38 – –Jan Åstrand*** 1 – – – – – 1 – – –Andrew Wood*** 1 – – – – – 1 – – –147 151 – – – – 147 151 – –Total directors’ emoluments 617 621 36 43 – – 653 664 118 118* David Hollywood retired as the Company’s Chairman on 30 September 2010 and was succeeded by John Standen.** John Gordon retired as the Company’s Chairman on 23 April 2009 and was succeeded by David Hollywood.*** Jan Åstrand and Andrew Wood were appointed as non-executive directors on 20 December 2010.22 Lavendon Group plc 2010


Amounts shown as salary and fees relate to base salary in the case of executive directors and fees in the case of the Chairman and thenon-executive directors. Benefits in kind relate principally to company cars, fuel for private motoring, private health insurance anddisability cover.The Board has determined the fees payable for the Chairman and the non-executive directors with reference to current marketconditions and after consultation with external advisors.Consistent with 2009 and 2010, it has been agreed that there will be no adjustment to the base salary of the executive directors in 2011.These salaries will next be reviewed in January 2012.Performance related payThe targeted composition for achievement of full performance related pay of each director’s remuneration is as follows:Base salaryand feesPerformance relatedKevin Appleton 40% 60%Alan Merrell 40% 60%John Standen 100% 0%Tim Ross 100% 0%Jan Åstrand 100% 0%Andrew Wood 100% 0%Under the annual performance related pay scheme for executive directors, both Kevin Appleton and Alan Merrell can earn bonuspayments of between 0% to 150% of base salary, dependent upon the financial performance of the Group during the year. Specifically,for 2010, the Group had to achieve a profit before tax and exceptional items that was above a base target of £11.0 million, before anybonus payments would start to accrue. If the actual performance was a profit before tax and exceptional items of £24.0 million or above,then the maximum threshold of 150% of base salary would be payable. For actual performance between the base target and themaximum threshold, any bonus payable would be prorated on a straight-line basis. For any bonus earned, an element (between 1% and37.5% depending on the amount earned) would be deferred for one year, and would only be paid if the Group’s profit before tax andexceptional items in the following year did not deteriorate over that achieved in 2010. The Group did not achieve its financial targets forthe year and therefore no performance related payments are due to Kevin Appleton or Alan Merrell for 2010.Directors’ service contractsIn keeping with recommended practices under the UK Corporate Governance Code (the “Code”), the Group’s policy on executivedirectors’ service contracts is that no notice period of employment should exceed twelve months duration and that contractualtermination payments must not exceed the notice period in the directors’ service contracts at the time of termination.The executive directors have service contracts with the Company and the Chairman and non-executive directors have letters ofappointment, which in the case of the non-executive directors, are for a period of three years. Details of the service contracts and lettersof appointment are given below:Contract Unexpired Notice Contractualdate term period termination paymentsKevin Appleton 1 January 2002 Rolling contract 12 months 12 months current salaryAlan Merrell 26 May 1998 Rolling contract 6 months 6 months current salaryJohn Standen 30 September 2010 Rolling contract 3 months NoneTim Ross 1 October 2008 9 months Fixed term NoneJan Åstrand 20 December 2010 36 months Fixed term NoneAndrew Wood 20 December 2010 36 months Fixed term NoneLavendon Group plc 2010 23


Remuneration reportContinuedCompany performanceThe chart below shows the Company’s performance, measured by ‘Total Shareholder Return’, compared to the FTSE Small Cap Indexexcluding Investment Trusts (the ’Index’) for the five years ended 31 December 2010. The Company considers the Index to be the mostmeaningful comparison of historic share price performance in assessing the Company against an index of similarly sized businesses.400300Total shareholder return reflects the theoretical growth invalue of a shareholding over the period assuming that grossdividends are reinvested to purchase additional shares atthe closing price applicable on the ex-dividend date.Index200100031 Dec 05 31 Dec 06 31 Dec 07 31 Dec 08 31 Dec 09 31 Dec 10Lavendon Group – Total Return Index FTSE Small Cap Index – Total Return IndexDirectors’ interestsThe interests of the directors in the ordinary share capital of the Company are shown below:Beneficial number of shares31 December 2010 31 December 2009Kevin Appleton 259,635 259,635Alan Merrell 142,762 142,762John Standen 50,000 34,375Tim Ross 98,230 98,230Jan Åstrand 56,983 –Andrew Wood – –During the year the following share transactions were undertaken by the directors:i. On 5 March 2010 John Standen sold 4,062 Ordinary shares at 69.5 pence and subsequently acquired 4,062 Ordinary shares at70.25 pence for the purposes of transferring part of his holding in the Company into a personal ISA.ii. On 2 July 2010 Alan Merrell sold 14,000 Ordinary shares at 58.75 pence and subsequently acquired 14,000 Ordinary shares at59.15 pence for the purposes of transferring part of his holding in the Company into a personal ISA.iii. On 27 August 2010 John Standen purchased 15,625 Ordinary shares in the Company at 46.0 pence per share.At the time of Jan Åstrand’s appointment to the Board as a non-executive director, he was already the beneficial holder of 56,983Ordinary Shares in the Company, that he had previously purchased in earlier years.To facilitate the alignment of interests with those of the Company’s shareholders, it is the Company’s policy that Executive Directors mustbuild a shareholding in the Company, over time, equal to 100% of annual salary.All directors’ interests are beneficially held. There has been no change in the directors’ interests in the ordinary share capital of theCompany between 31 December 2010 and 1 March 2011.Long term equity incentivesThe Company has operated two long-term equity incentive schemes for the executive directors during 2010:i. 1996 Unapproved Executive Share Option SchemeThe awards granted under this Scheme are detailed in the table below, and are subject to performance conditions which require a rangeof earnings per share growth targets to be met. The Scheme is now closed and no further awards will be made.24 Lavendon Group plc 2010


Share optionsNumber Options Options Number Optionof shares granted during lapsed during of shares Issued price per1 Jan 2010 the year the year 31 Dec 2010 capital ordinary share Earliest date Latest dateDate granted Note No. No. No. No. % pence exercisable exercisableKevin Appleton:27 Feb 2002 (i) 451,877 – – 451,877 0.28 146.0 27 Feb 2005 27 Feb 201214 Oct 2003 (iii) 277,973 – 277,973 – – 108.0 14 Oct 2006 14 Oct 2010729,850 – 277,973 451,877 0.28Alan Merrell:27 Feb 2002 (i) 138,986 – – 138,986 0.08 146.0 27 Feb 2005 27 Feb 201214 Oct 2003 (ii) 78,402 – 78,402 – – 108.0 14 Oct 2006 14 Oct 201014 Oct 2003 (iii) 130,077 – 130,077 – – 108.0 14 Oct 2006 14 Oct 2010347,465 – 208,479 138,986 0.081,077,315 – 486,452 590,863 0.36The market price of the Company’s shares at 31 December 2010 was 115.75 pence; the range of market prices during the year wasbetween 44.25 pence and 120.00 pence. No options were exercised by the directors during the year.ii. 2006 Long Term Incentive PlanUnder the Long Term Incentive Plan, the Company is able to make annual awards up to 100% of base salary each year (150% of basesalary in the first year of the Plan). The performance period for each annual award is three years with no retesting available. Theperformance measures are either a combination of ‘Total Shareholder Return’ and ‘Earnings per Share’ targets, or ‘Total ShareholderReturn’ as a sole measure. The awards granted under this Plan to the executive directors are detailed in the table below:Long Term Incentive PlanAwards Awards Awards Awards Awardsgranted at granted during exercised lapsed during granted at1 Jan 2010 the year during the year the year 31 Dec 2010Note No. No. No. No. No. Vesting dateKevin Appleton (iv) 58,275 – – (58,275) – 25 Apr 2010(v) 119,130 – – – 119,130 23 Apr 2011(vi) 164,177 – – – 164,177 23 Apr 2012(vii) – 325,301 – – 325,301 30 Apr 2013341,582 325,301 – (58,275) 608,608Alan Merrell (vi) 46,673 – – (46,673) – 25 Apr 2010(v) 88,245 – – – 88,245 23 Apr 2011(vi) 121,613 – – – 121,613 23 Apr 2012(vii) – 240,964 – – 240,964 30 Apr 2013256,531 240,964 – (46,673) 450,822598,113 566,265 – (104,948) 1,059,430Notes:(i) The options granted to Alan Merrell and Kevin Appleton on 27 February 2002 were exceptional grants made by deed (all other options have been granted under the termsof the Lavendon Group 1996 Unapproved Executive Share Option Scheme). The options will not be exercisable unless growth in pre-exceptional earnings per share (“EPS”)exceeds growth in the Retail Price Index (“RPI”) over the performance period by at least an average of 8 per cent per annum in the case of Alan Merrell’s option and 3 percent per annum in the case of Kevin Appleton’s option. The options will be exercisable in full if growth in pre-exceptional EPS exceeds growth in RPI by at least an averageof 12 per cent per annum in the case of Alan Merrell’s option, and 6 per cent per annum in the case of Kevin Appleton’s option. Each option will be exercisable on astraight-line basis between nil and 100% between the two applicable percentage targets. The performance target will be measured over an initial period of three financialyears and may be achieved in each successive year thereafter provided that the period over which the performance target is measured will be extended to include eachadditional successive year up to the tenth anniversary of grant and the target will always be measured from the fixed base of the financial year preceding the year of grant.Lavendon Group plc 2010 25


Remuneration reportContinued(ii) The option will not be exercisable unless growth in pre-exceptional EPS exceeds growth in RPI over the performance period by an average of 3 per cent per annum.The option will be exercisable in full if annual growth in pre-exceptional EPS exceeds growth in RPI by an average of at least 6 per cent. The option will be exercisable on astraight-line basis between nil and 100% between the two percentage targets. The performance target will be measured over an initial three-year period and to the extentthat it has not been met, will be retested annually over 0-4 years and 0-5 years, measured from the fixed base of the financial year immediately prior to grant. The optionwill lapse to the extent that the target has not been achieved by the end of the fifth year. There is a two year period over which options can be exercised on becomingexercisable, therefore the options remain exercisable until the seventh anniversary of their date of grant. These options lapsed on 14 October 2010.(iii) The options will not be exercisable unless compound growth in pre-exceptional EPS over the performance period is at least an average of 20 per cent per annum. Theoptions will be exercisable in full if compound growth in pre-exceptional EPS is at least an average of 30 per cent per annum. The options will be exercisable on a straightlinebasis between nil and 100% between these two percentage targets. The performance target will be measured over an initial three-year period and, to the extent that ithas not been met, will be retested annually over 0-4 years and 0-5 years, measured from the fixed base of the financial year immediately prior to grant. The options willlapse to the extent that the target has not been achieved by the end of the fifth year. There is a two year period over which options can be exercised on becomingexercisable, therefore the options remain exercisable until the seventh anniversary of their date of grant. These options lapsed on 14 October 2010.(iv) The awards are subject to performance conditions. The vesting of 50% of the awards will be based on the Company’s ‘TSR’ performance and the vesting of the other halfwill be based on the Company’s ‘EPS’ performance. EPS will be measured by reference to the fully diluted EPS as disclosed in the audited annual financial statementsadjusted to exclude unusual or non-recurring items at the discretion of the Remuneration Committee. The vesting of the TSR-related half of the awards will require theCompany’s TSR performance over a single three-year period to be at least £5.00 for 7.5% of the awards to vest, increasing on a straight line basis to 50% of the awardsvesting if the share price is a least £7.00. The EPS-related element will require the Company’s EPS in 2009 to be at least equal to 14.39p for 7.5% of the awards to vest andgreater than or equal to 25.18p for 50% of the awards to vest. Neither the TSR or EPS performance conditions were achieved and therefore no awards were granted.(v) The awards are subject to performance conditions. The vesting of 50% of the awards will be based on the Company’s ‘TSR’ performance and the vesting of the other halfwill be based on the Company’s ‘EPS’ performance. EPS will be measured by reference to the fully diluted EPS as disclosed in the audited annual financial statementsadjusted to exclude unusual or non-recurring items at the discretion of the Remuneration Committee. The vesting of the TSR-related half of the awards will require theCompany’s TSR performance over a single three-year period to be at least £5.00 for 7.5% of the awards to vest, increasing on a straight line basis to 50% of the awardsvesting if the share price is a least £7.50. The EPS-related element will require the Company’s EPS in 2010 to be at least equal to 30.22p for 7.5% of the awards to vest andgreater than or equal to 44.61p for 50% of the awards to vest.(vi) The awards are subject to performance conditions. The vesting of 50% of the awards will be based on the Company’s ‘TSR’ performance and the vesting of the other halfwill be based on the Company’s ‘EPS’ performance. EPS will be measured by reference to the fully diluted EPS as disclosed in the audited annual financial statementsadjusted to exclude unusual or non-recurring items at the discretion of the Remuneration Committee. The vesting of the TSR-related half of the awards will require theCompany’s TSR performance over a single three-year period to be at least £2.00 for 7.5% of the awards to vest, increasing on a straight line basis to 50% of the awardsvesting if the share price is a least £4.00. The EPS-related element will require the Company’s EPS in 2011 to be at least equal to 33.10p for 7.5% of the awards to vest andgreater than or equal to 48.92p for 50% of the awards to vest.(vii) The awards are subject to a performance condition. The vesting of 100% of the awards will be based on the Company’s ‘TSR’ performance relative to the performance ofthe FTSE Small Cap Index excluding Investment Trusts (the “Index”). The vesting of the awards will require the Company’s TSR performance over a single three-year periodto be at least equal to the performance of the Index for 15% of the awards to vest, increasing on a straight line basis to 100% of the awards vesting if the TSR performanceis 60% or more above the performance of the indexDirectors’ pension entitlementThe Company contributed 25% of Kevin Appleton’s and Alan Merrell’s base salaries to individual executive pension schemes.The contributions payable for 2010 totalled £67,500 and £50,000 (2009: £67,500 and £50,000) for Kevin Appleton and Alan Merrellrespectively. Both pension schemes are defined contribution schemes.Jan ÅstrandChairman of the Remuneration Committee1 March 201126 Lavendon Group plc 2010


Directors’ reportThe directors present their report and financial statements of the Group for the year ended 31 December 2010.Principal activitiesThe principal activity of the Group is the rental of powered access equipment. Powered access equipment is used to provide temporaryaerial access for people in a broad range of applications: in industrial repair and maintenance; construction; telecommunications; outsidebroadcasting; sign erection; and highway maintenance. These activities are undertaken both in the UK and overseas.Review of the businessThe Group is required to set out in this report a fair review of the business of the Group during the financial year ended 31 December 2010and of the position of the Group as at 31 December 2010, together with a description of the principal risks and uncertainties facing theGroup (known as a ‘Business Review’). The information that fulfils the requirements of the Business Review can be found in the followingsections of the Operating and Financial Review: Business and market overview on page 6; Review of performance by country on pages 12to 15; Risks on pages 16 to 19; and Corporate responsibility on pages 19 and 21 which are incorporated in this report by reference.Financial resultsThe financial results for the year are set out in the Group income statement on page 42. The Group profit for the year of £8,043,000 (2009:loss of £43,448,000) will be transferred to reserves. The position at the end of the year is set out in the Group balance sheet on page 43.DividendIn addition to the interim dividend of 0.33 pence per share paid during the year, the directors recommend a final dividend for the year of0.67 pence per share (2009: interim dividend of 1.00 pence per share (restated 0.99 pence per share), final dividend of 0.60 pence pershare) (see note 11).DirectorsThe present directors of the Company are shown on page 34. Information on the directors’ interests in the ordinary shares of theCompany during 2010 is set out in the Remuneration Report on pages 22 to 26.No director has, or has had, any beneficial interest in any transaction of significance, which has been effected by any Group company atany time during the year.The Company has maintained insurance throughout the year to cover all directors against liabilities in relation to the Company and itssubsidiary undertakings.EmployeesThe Group pursues a policy of employee communication through regular team briefings and newsletters. Personal employee developmentis encouraged through the provision of relevant training towards industry accredited certification and licences. Employee involvement inthe financial performance of the Group is encouraged through a comprehensive range of well-established profit share programmes.It is the policy of the Group that disabled people, whether registered or not, should receive full and fair consideration for all job vacanciesfor which they are suitable applicants. Employees who become disabled during employment will be retained wherever possible andretrained if necessary. The Group is prepared to modify procedures or equipment wherever this is practicable, to allow full use to bemade of an individual’s abilities.The Board has issued a statement of business operations and culture detailing the Group’s commitment to ensuring that all employeescomply with all applicable laws and regulations, support a culture of honesty and integrity, conduct operations in an ethical andprofessional manner, and act at all times to prevent impropriety, discrimination, bribery and corruption. The Board also operates anindependent whistle-blowing system across the Group’s operations to allow employees to raise matters that they feel should beaddressed by the Group.Non-current assetsDuring the year the Group’s total capital expenditure on non-current assets amounted to £14,685,000 (2009: £12,889,000). Details of thisexpenditure, and all other non-current asset movements, are set out in notes 12 and 13 to these financial statements.Lavendon Group plc 2010 27


Directors’ reportContinuedIssue of share capitalBy resolutions passed at the Annual General Meeting on 22 April 2010 the directors were generally and unconditionally authorised for thepurposes of Section 551 of the Companies Act 2006 (the “Act”), to exercise all the powers of the Company to allot shares and grantrights to subscribe for, or convert any security into, shares:(a) up to an aggregate nominal amount (within the meaning of Section 551(3) and (6) of the Act) of £543,003 (such amount to bereduced by the nominal amount allotted or granted under (b) below in excess of such sum); and(b) comprising equity securities (as defined in Section 560 of the Act) up to an aggregate nominal amount (within the meaning ofSection 551(3) and (6) of the Act) of £1,086,006 (such amount to be reduced by any allotments or grants made under (a) above) inconnection with or pursuant to an offer by way of a rights issue in favour of holders of ordinary shares in proportion (as nearly aspracticable) to the respective number of ordinary shares held by them on the record date for such allotment (and holders of anyother class of equity securities entitled to participate therein or if the directors consider it necessary, as permitted by the rights ofthose securities), but subject to such exclusions or other arrangements as the directors may consider necessary or appropriate to dealwith fractional entitlements, treasury shares, record dates or legal, regulatory or practical difficulties which may arise under the lawsof, or the requirements of any regulatory body or stock exchange in any territory or any other matter whatsoever,These authorisations expire at the conclusion of the next Annual General Meeting of the Company to be held on 20 April 2011, and thedirectors are reproposing that renewal should be sought. Such proposals are set out as resolutions 9 and 10 in the Notice of the Annual GeneralMeeting on pages 87 to 92. Details of movements in share capital during the year are set out in note 24 to the Group’s financial statements.In addition, the directors have been given power pursuant to Sections 570(1) and 573 of the Companies Act 2006 (the “Act”) to:(a) allot equity securities (as defined in Section 560 of the Act) of the Company for cash pursuant to the authorisation conferred by thatresolution; and(b) sell ordinary shares (as defined in Section 560(1) of the Act) held by the Company as treasury shares for cash, as if Section 561 ofthe Act did not apply to any such allotment or sale, provided that this power shall be limited to the allotment of equity securities forcash and the sale of treasury shares:i. in connection with or pursuant to an offer of or invitation to acquire equity securities (but in the case of the authorisation grantedunder (b) above, by way of a rights issue only) in favour of holders of ordinary shares in proportion (as nearly as practicable) to therespective number of ordinary shares held by them on the record date for such allotment or sale (and holders of any other class ofequity securities entitled to participate therein or if the directors consider it necessary, as permitted by the rights of thosesecurities) but subject to such exclusions or other arrangements as the directors may consider necessary or appropriate to dealwith fractional entitlements, treasury shares, record dates or legal, regulatory or practical difficulties which may arise under the lawsof or the requirements of any regulatory body or stock exchange in any territory or any other matter whatsoever; andii. in the case of the authorisation granted under (a) above (or in the case of any transfer of treasury shares), and otherwise thanpursuant to paragraph (i), up to an aggregate nominal amount of £81,451.These authorities expire (unless renewed, varied or revoked) at the conclusion of the Annual General Meeting to be held on 20 April 2011.During the year, the Company issued an aggregate of 1,643,860 ordinary shares (2009: 116,640,071 ordinary shares) of 1 pence each:1,303,567 shares were issued to the vendors of The Platform Company which was acquired in April 2008, 335,275 shares were issuedunder the Share Incentive Plan and 5,018 shares were issued following the exercise of options under the Lavendon Group 1996 CompanyShare Option Plan.Share option schemesThe Company established two share option schemes on admission of its ordinary shares to the Official List of the London StockExchange on 10 October 1996, namely:i. the Lavendon Group 1996 Company Share Option Plan (the ‘Employee Scheme’); andii. the Lavendon Group 1996 Unapproved Executive Share Option Scheme (the ‘Executive Scheme’).Options were granted under the terms of the schemes on the day following the announcement of the Group’s interim and annualfinancial results each year at an option price equal to the mid-market quoted share price derived from the London Stock Exchange DailyOfficial List at the close of trading on the preceding day. No further share options will be issued under these schemes, as the schemeswere closed on reaching their tenth anniversary on 10 October 2006.28 Lavendon Group plc 2010


The value of options granted to any individual during a year was subject to an individual limit such that the aggregate exercise price of alloptions granted during a year could not exceed 200 per cent of basic annual salary in the case of a director, or 100 per cent in the caseof any other employee.Options were granted subject to the following performance targets:The Employee SchemeAn option would be exercisable in full if growth in pre-exceptional earnings per share (“EPS”) exceeded growth in the Retail Price Index(“RPI”) over the performance period by an average of at least 3 per cent per annum.The Executive SchemeAn option would not be exercisable unless growth in pre-exceptional EPS exceeded growth in the RPI over the performance period by anaverage of at least 3 per cent per annum. The option would be exercisable in full if growth in EPS exceeded growth in the RPI by anaverage of at least 6 per cent per annum. The option would be exercisable on a straight line basis between these two percentage levels.All performance targets are measured over an initial three year period and to the extent that they are not met, will be retested. In thecase of an option granted in the period to 31 August 2003, the target may be achieved on a three-year rolling basis up to the tenthanniversary of grant in the case of the Employee Scheme, and the seventh anniversary in the case of the Executive Scheme. Any optionsgranted after this date will be capable of being retested annually over 0-4 years and 0-5 years, provided that the target will always bemeasured from the fixed base of the financial year immediately prior to grant and the option will lapse to the extent that the target hasnot been achieved by the end of the fifth year. There is a two year period over which options can be exercised. The options remainexercisable until the seventh anniversary of their date of grant.Details of options granted to executive directors are disclosed separately in the Remuneration Report on pages 22 to 26.Details of all other share options granted under the terms of the schemes, that still have options exercisable at 31 December 2010,are shown below:OptionsOrdinary share Option price exercised Options Options not Optionsoptions Issued share per ordinary since date lapsed since exercisable at exercisable atgranted capital share of grant date of grant 31 Dec 2010 31 Dec 2010Date granted No. % Pence No. No. No. No.i. The Employee Scheme14 March 2001 57,796 0.03 367.0 4,115 52,845 – 8366 September 2001 119,605 0.07 150.0 28,799 87,357 – 3,44926 February 2002 158,603 0.10 146.0 59,691 95,433 – 3,4795 September 2002 316,044 0.19 92.0 102,636 207,439 – 5,9695 March 2003 398,944 0.24 65.0 170,746 222,813 – 5,3855 September 2003 257,548 0.16 98.0 99,052 154,818 – 3,67814 October 2003 65,272 0.04 108.0 30,820 29,437 – 5,0153 March 2004 190,741 0.12 115.0 93,617 92,883 – 4,2418 September 2004 339,397 0.21 86.0 130,387 157,937 – 51,0738 March 2005 144,525 0.09 114.0 7,062 87,783 – 49,6807 September 2005 207,462 0.13 136.0 1,768 113,724 – 91,9707 March 2006 143,891 0.09 178.0 – 78,694 – 65,1975 September 2006 149,140 0.09 192.0 – 67,836 – 81,3042,548,968 1.56 728,693 1,448,999 – 371,276ii.The Executive Scheme3 March 2004 224,608 0.14 115.0 69,820 93,473 – 61,3158 September 2004 90,341 0.05 86.0 20,848 69,493 – –314,949 0.19 90,668 162,966 – 61,315No options were granted in the current year as the above schemes are now closed.Lavendon Group plc 2010 29


Directors’ reportContinuedShare incentive planDuring 2007 the Company established a Share Incentive Plan (‘the SIP’).The SIP is a UK HM Revenue & Customs (“HMRC”) approved plan under which the Company can provide share benefits in a taxadvantaged way to all its UK employees on the same terms. Details of the shares issued under the SIP are detailed in note 25.The SIP allows the Company to either give “free shares” to employees or provide a facility for employees to purchase shares from theirpre-tax salary. Shares purchased by employees may be supplemented by the Company with additional free “matching shares”.OperationThe board of directors of the Company (the “Board”) supervises the operation of the SIP.The SIP comprises the following three elements and the Board may decide which element to offer to eligible employees:(a) “Free Shares” are ordinary shares in the Company (“Shares”) which may be allocated to an employee.The market value of Free Shares allocated to any employee in any tax year may not exceed £3,000 or such other limit as may bepermitted by the relevant legislation. Free Shares may be allocated to employees equally, on the basis of salary, length of service orhours worked, or on the basis of performance, as permitted by legislation.(b) “Partnership Shares” are Shares an employee may purchase out of their pre-tax earnings.The market value of Partnership Shares which an employee can purchase in any tax year may not exceed £1,500 (or 10% of theemployee’s salary, if lower), or such other limit as may be permitted by the relevant legislation. The funds used to purchasePartnership Shares will be deducted from the employee’s pre-tax salary.(c) “Matching Shares” are free Shares which may be allocated to an employee who purchases Partnership Shares.The Board may allocate Matching Shares to an employee who purchases Partnership Shares up to a maximum of two MatchingShares for every one Partnership Share purchased (or such other maximum ratio as may be permitted by the relevant legislation).The same Matching Share ratio will apply to all employees who purchase Partnership Shares under the SIP on the same occasion.An award of Shares may not be made under the SIP later than ten years after shareholder approval of the SIP.EligibilityEmployees of the Company and any designated participating subsidiary who are UK resident taxpayers are eligible to participate. TheBoard may allow non-UK tax resident taxpayers to participate. The Board may require employees to have completed a qualifying periodof employment of up to 18 months in order to be eligible to participate. All eligible employees must be invited to participate.Retention of sharesThe trustee of the SIP trust will award Free Shares and Matching Shares to employees and hold those Shares on behalf of theparticipants. Free Shares and Matching Shares must usually be retained by the trustee of the SIP trust for a period of between three andfive years after award. The trustee will acquire Partnership Shares on behalf of participants and hold those Shares on behalf of theparticipants. Employees can withdraw Partnership Shares from the SIP trust at any time.The Board may decide that awards of Free Shares and/or Matching Shares will be forfeited if participants cease to be employed by acompany in the Company’s Group within three years from the grant of those awards unless they leave by reason of death, injury,disability, redundancy, retirement on or after reaching age 50, or the business or company for which they work ceases to be part of theCompany’s Group. In any of those cases, the participants will be required to withdraw their Shares from the SIP.If an employee ceases to be employed by the Company’s Group at any time after acquiring Partnership Shares, he will be required towithdraw the Shares from the SIP trust.30 Lavendon Group plc 2010


Corporate eventsIn the event of a general offer being made to shareholders, participants will be able to direct the trustees how to act in relation totheir Shares. In the event of a corporate reorganisation any Shares held by participants may be replaced by equivalent shares in a newholding company.Dividends on shares held by the trustee of the SIPAny dividends paid on Shares held by the trustee of the SIP on behalf of participants may be either used to acquire additional Shares foremployees (“Dividend Shares”) or distributed to participants.Rights attaching to sharesAn employee will be treated as the beneficial owner of Shares held on his behalf by the trustee of the SIP.Any Shares allotted under the SIP will rank equally with Shares then in issue except for rights attaching to such Shares by reference to arecord date prior to their allotment.Overall SIP limitsThe SIP may operate over new issue Shares, treasury Shares or Shares purchased in the market.In any ten calendar year period, the Company may not issue (or grant rights to issue) more than 10 per cent of the issued ordinary sharecapital of the Company under the SIP and any other employee share plan adopted by the Company.Treasury Shares will count as new issue Shares for the purpose of this limit unless institutional investor bodies decide that they neednot count.Variation of capitalIn the case of a variation in the share capital of the Company, Shares held in the SIP will be treated in the same way as other shares.Alterations to the SIPThe Board may, at any time, amend the SIP in any respect, provided that the prior approval of shareholders is obtained for anyamendments that are to the advantage of participants in respect of the rules governing eligibility, limits on participation, the overall limitson the issue of Shares or the transfer of treasury Shares, the basis for determining a participant’s entitlement to, and the terms of, Sharesto be acquired and the adjustment of awards.The requirement to obtain prior shareholder approval will not, however, apply to any minor alteration to benefit the administration of theSIP, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control, or regulatory treatment for anyparticipant or any company in the Company’s Group.GeneralAwards made under the SIP are not transferable other than to the participant’s personal representatives in the event of their death.No benefits received under the SIP will be pensionable.Lavendon Group plc 2010 31


Directors’ reportContinuedSubstantial shareholdingsAt 1 March 2011 the following interests in the ordinary share capital of the Company had been notified:Name% interestPrudential plc 14.62Artemis Investment Management Limited 9.95Aberforth Partners LLP 5.81SVG Investment Management Limited 5.61Gartmore Investment Limited 5.13Legal & General Group plc 3.92Strategic Equity Capital plc 3.28Aviva plc 3.12Charitable donationsDonations amounting to £15,755 (2009: £13,360) were made during the year. There were no donations to political parties duringthe year (2009: £nil).Policy on payment of suppliersThe Company’s creditor payment period at 31 December 2010 was nil days (2009: nil) as the Company had no trading activities.Corporate governanceThe information that fulfils the requirements of a corporate governance statement in accordance with rule 7.2 of the Disclosure Rules &Transparency Rules can be found in the Corporate Governance Report on pages 35 to 39 and in this Directors’ Report.Environmental, social and community mattersThis information is detailed in the Operating and Financial Review on pages 6 to 21.AuditorsPricewaterhouseCoopers LLP (“PwC”) have been the Company’s auditors since the Group’s flotation in 1996, with the Group audit partnerchanging by rotation, most recently in 2008. During 2010, the Company’s Audit Committee reviewed the effectiveness of the auditorsand recommended to the Board that a resolution to re-appoint PwC be proposed at the Annual General Meeting. Consequently aresolution to reappoint PwC as auditors to the Company will be proposed at the Annual General Meeting together with a resolutionauthorising the Director’s to fix their remuneration.A review of PwC’s effectiveness will be undertaken in 2011 following completion of the 2010 year end audit. The Audit Committee willcontinue to keep under review the independence and objectivity of the Company’s external auditors. There are no contractualobligations restricting the Company’s choice of external auditor.By order of the BoardAlan MerrellSecretary1 March 201132 Lavendon Group plc 2010


Statement of directors’ responsibilitiesThe directors are responsible for preparing the Annual Report, the Remuneration Report and the Group and the Parent Companyfinancial statements in accordance with applicable law and regulations.Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have preparedthe Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EuropeanUnion, and the Parent Company financial statements in accordance with applicable law and United Kingdom Accounting Standards(United Kingdom Generally Accepted Accounting Practice). Under company law the directors must not approve the financialstatements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of theprofit or loss of the Group for that period.In preparing these financial statements, the directors are required to:• select suitable accounting policies and then apply them consistently;• make judgements and estimates that are reasonable and prudent;• state that the Group financial statements comply with IFRSs as adopted by the European Union and with regard to the ParentCompany financial statements that applicable UK Accounting Standards have been followed, subject to any material departuresdisclosed and explained in the financial statements; and• prepare the Group and Parent Company financial statements on the going concern basis unless it is inappropriate to presume thatthe Group will continue in business, in which case there should be supporting assumptions or qualifications as necessary.The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’stransactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable themto ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006 and, as regards the Groupfinancial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and theGroup and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.The directors are responsible for the maintenance and integrity of the Group’s website. Legislation in the United Kingdom governingthe preparation and dissemination of financial statements may differ from legislation in other jurisdictions.Each of the directors, whose names and functions are listed in the Directors and advisers section of the Annual Report confirms that,to the best of their knowledge:• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU and the Parent Companyfinancial statements which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice, give atrue and fair view of the assets, liabilities, financial position and loss of the Group and the Company; and• the Directors’ report includes a fair review of the development and performance of the business and the position of the Group,together with a description of the principal risks and uncertainties that it faces.So far as the directors are aware, there is no relevant audit information of which the Company’s auditors are unaware and they havetaken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information andto establish that the Company’s auditors are aware of that information.By order of the BoardAlan MerrellSecretary1 March 2011Lavendon Group plc 2010 33


Directors and advisersDirectorsJohn Standen, aged 62, Non-Executive Chairman and Chairman of the Nomination Committee.John is a Durham graduate and is a member of the Securities Institute. He spent the majority of his career in corporate finance and wasChief Executive of Corporate Finance for BZW from 1993 to 1995. He retired from Barclays plc in 1998 and has since been a nonexecutiveChairman or Director of a number of quoted companies. He is currently non-executive Chairman of Biome Technologies plcand, in a voluntary capacity, Chairman of the Council of the University of Hull.Kevin Appleton, aged 50, Chief Executive.Kevin has been Group Chief Executive since 2002, having spent most of his previous working life in the international transport andlogistics industry, including NFC (now Exel Logistics/DHL) and FedEx (formerly Caliber) Logistics from 1993 to 2000, based first in the USand then in the Netherlands. Immediately prior to joining Lavendon he ran a business restructuring exercise for private equity owners ofa manufacturing business.Alan Merrell, aged 50, Group Finance Director.Alan has been Group Finance Director since May 1998. He qualified as a Chartered Accountant in 1984. Prior to joining the Group he hadspent the previous 12 years in the transportation industry with TNT Post Group where he held a number of financial roles, both in the UKand overseas, before becoming Finance Director for its international business operation.Tim Ross, aged 62, Non-Executive Director, Senior Independent Director and a member of the Audit, Remuneration and Nomination Committees.Tim is a solicitor and past director of George Wimpey plc, with extensive experience of construction, building materials and relatedindustries. He is currently Chairman of Hargreaves Services plc and Superglass Holdings plc and a non-executive director of May GurneyIntegrated Services plc and other private companies.Jan Åstrand, aged 63, Non-Executive Director, Chairman of the Remuneration, a member of the Audit and Nomination Committees.Jan is a Swedish national. He is currently a Non-Executive Director of Northgate Plc. He was previously Chairman of CRC Group plc untilJanuary 2007, and prior to this, he was Chairman of Car Park Group AB in Stockholm and also Senior Independent Director of PHS GroupPlc. From 1994 to 1999 he was President and Chief Executive of Axus (International) Inc. (previously known as Hertz Leasing International),and from 1989 to 1994 he was Vice President, Finance and Administration and Chief Financial Officer of Hertz (Europe) Ltd.Andrew Wood, aged 59, Non-Executive Director, Chairman of the Audit Committee and a member of the Remuneration andNomination Committees.Andrew is currently a Non-Executive Director and Chairman of the Audit Committee of Berendsen Plc. He was previously Group FinanceDirector of BBA Aviation Plc, from which he retired in April 2010, and prior to this he was Group Finance Director of Racal Electronics Plc.He is a chartered management accountant.Secretary and Registered OfficeAlan Merrell, 15 Midland Court, Central Park, Lutterworth, Leicestershire LE17 4PNAdvisersAuditorsPricewaterhouseCoopers LLP, Cornwall Court, 19 Cornwall Street, Birmingham B3 2DTSolicitorsStephenson Harwood, One, St Paul’s Churchyard, London, EC4M 8SHEversheds, 115 Colmore Row, Birmingham B3 3ALBankersBank of Scotland, 1 Bede Island Road, Bede Island Business Park, Leicester LE2 7EAJoint brokersAltium Capital Limited, 5 Ralli Courts, Manchester M3 5FTInvestec Bank plc, 2 Gresham Street, London EC2V 7QPFinancial AdviserInvestec Bank plc, 2 Gresham Street, London EC2V 7QPHawkpoint Partners Limited, 41 Lothbury, London EC2R 7AERegistrarsCapita Registrars Limited, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TUPublic RelationsFinancial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB34 Lavendon Group plc 2010


Corporate governance reportThe directors believe as a Board that their principal function is to deliver sustainable wealth to the Group’s shareholders, and that thisshould be delivered within a framework of compliance with the principles of good corporate governance, in so far as is practicable andappropriate for a public company of its size. The application of corporate governance procedures within the Group and the extent ofcompliance with the June 2008 Combined Code and the new UK Corporate Governance Code (the”Code”) is summarised below;LeadershipThe Board currently comprises a non-executive chairman, two executive directors and three non-executive directors.The Board directors provide the Group with experience and knowledge from a range of industry, financial and commercial backgrounds.This combination of skills and experience assists the Board in any decision making process and in the development of business strategy.Biographical details of each director, including current directorships held in other non-Group companies, are detailed on page 34 of thefinancial statements.The Group maintains a schedule of matters reserved for decision by the Board, including the release of a number of corporate andstatutory disclosures, approval of major operating strategies and acquisitions, composition of relevant Committees and managementstructures, and matters relating to ethical, health and safety concerns.The directors lead, manage and control the Group through regular Board meetings during the year. Relevant papers are circulated to allmembers of the Board in advance of each meeting, and the quantity and focus of such information is reviewed on an ongoing basis.Directors provide feedback to management to enable the reporting formats and content of Board papers to be enhanced, and makeindividual enquiries of management for clarification on issues whenever necessary.The Group appoints key executive positions throughout the business to provide strong local management teams. These managementteams are tasked with delivering the operational strategy of the Group for their market and the expected financial performance. Themanagement teams report directly to executive Board directors through the Group Executive Committee, which meets on a regular basisto discuss key operational issues and monitor business unit performance.The roles of Chairman and Chief Executive Officer are separated, with John Standen holding the office of Chairman and Kevin Appletonthe position of Chief Executive Officer. John Standen became the Company’s Chairman on 30 September 2010, succeeding DavidHollywood who retired from the Board on that date.On 20 December 2010, Andrew Wood and Jan Åstrand were appointed to the Board as non-executive directors, with Andrew Woodbecoming Chairman of the Audit Committee with immediate effect and Jan Åstrand becoming Chairman of the RemunerationCommittee with effect from 1 January 2011.Tim Ross is the Group’s Senior Independent Director, and he has informed the Board that he will retire at the forth-coming AnnualGeneral Meeting on 20 April 2011. Following Tim’s retirement, Jan Åstrand will become the Group’s Senior Independent Director.During 2010, the Board held 12 formal meetings. The attendance of each director at these meetings is shown in the table below:Director J Standen D Hollywood K Appleton A Merrell T Ross J Åstrand A WoodAttended 12 7* 12 12 11 – –Apologies given – – – – 1 – –* David Hollywood retired as the Company’s Chairman on 30 September 2010The Chairman holds separate meetings, at least annually, with the non-executive directors in order to review the contributions andperformance of all individuals comprising the Board.Minutes of Board meetings are agreed by all directors, ensuring that an accurate record is made of all relevant matters.The Company reviews conduct and liability issues as part of its annual risk review and mitigates these exposures through Directors andOfficer’s insurance cover where appropriate.Lavendon Group plc 2010 35


Corporate governance reportContinuedEffectivenessBoard balance, independence and commitmentThe three non-executive directors constitute in excess of one half, excluding the Chairman, of the Board. The non-executive directorsprovide a strong and independent monitor on the performance of both the Group and its executive management.The Board believes that the non-executive directors are independent within the guidance of the Code as they have not been previouslyemployed by the Group, do not currently and have not had a material business relationship with the Company, are remunerated on afixed fee basis only, do not have close family ties with the Company’s advisers, directors or senior employees, do not hold crossdirectorships with the other directors nor have other significant links with other directors, do not represent significant shareholders andhave not served on the Board for more than nine years. Their backgrounds in industry and finance make them suitably qualified toperform their duties as members of the Board and as members of the Audit, and Remuneration and Nomination Committees.The executive directors, Kevin Appleton and Alan Merrell, do not hold non-executive directorships outside of the Company. Neither theChairman nor non-executive directors currently hold other roles that are considered to impair or conflict with their abilities to fulfill theirduties to the Company.Appointments to the BoardThe Nomination Committee is chaired by the Company’s Chairman, John Standen, with the three non-executive directors, Jan Åstrand,Tim Ross and Andrew Wood as members. The Committee has written terms of reference, which are published on the Group’s website(www.lavendongroup.com), and meets at least once a year. The principal responsibilities of the Committee are to consider and reviewthe structure and composition of the Board and its committees, identification and consideration of candidates for appointment to theBoard, re-election of Board members retiring by rotation and succession planning in general. All Committee members are consideredto be independent.During 2010, the Nomination Committee held two formal meetings. The attendance of each director at these meetings is shown inthe table below:Director J Standen T Ross J Åstrand A WoodAttended 2 2 – –Apologies given – – – –The appointment of John Standen as Chairman of the Company during the year, following the resignation of David Hollywood, was madeafter due consideration by the Board of his experience of chairmanship roles with other public listed companies, together with hisknowledge of the Group’s business and history.The appointment of Jan Åstrand and Andrew Wood as non-executive directors of the Company was made following an external search,undertaken by an unconnected third party search consultancy, to identify suitable candidates.Information and professional developmentThe Group allows directors to take professional and independent advice as may be necessary in carrying out their duties. Directors alsoattend training courses, when appropriate, to ensure they remain up to date with the latest developments and legal requirements whichimpact their individual responsibilities.The joint role of Finance Director and Company Secretary, held by Alan Merrell, ensures that the directors have ready access to theCompany Secretary in all relevant matters and that compliance with Board procedures is maintained.Performance evaluationIn previous years the Board has undertaken an annual review of its performance. For 2010, this review has been rescheduled to April2011 to enable the Company’s new non-executive directors to become familiar with the Board’s procedures, allowing them to contributemore fully to the performance review. The review is facilitated by directors completing detailed appraisals on matters relevant to theBoard, its Committees and director performance, from which action plans are developed, where necessary, to address areas identifiedfor improvement.36 Lavendon Group plc 2010


Re-electionIn accordance with the Articles of Association of the Company, all directors are subject to election at the Company’s first Annual GeneralMeeting following their appointment, and all are required to seek re-election at intervals of no more than three years. This year KevinAppleton, Jan Åstrand and Andrew Wood will seek re-election and their biographical details and the Annual General Meeting particularsare detailed on page 34 and on pages 87 to 92 of the financial statements respectively.The Board is in the process of being refreshed with new non-executive directors, and the Company is currently completing itscommunication of its future business plans to shareholders. Consequently, it is not felt appropriate, at this stage, for all directors to seekre-election at the forthcoming Annual General Meeting. This recommended practice will, however, be kept under review.AccountabilityFinancial and business reportingThe directors and auditors set out their respective responsibilities for preparing and reviewing the financial statements in the Statement ofdirectors’ responsibilities on page 33 and in the Independent auditors’ report on page 41 of the financial statements. The Group’s strategy fordelivering sustained value over the longer term is set out in the “Operating and Financial Review” on pages 6 to 21, which also incorporates theGroup’s review on the appropriateness of adopting the going concern principle in preparing the financial statements for 2010.Risk management and internal controlThe Board maintains a system of internal controls within the Group to provide them with reasonable, but not absolute, assurance of thereliability of the financial information used both within the business and for external publication, as well as safeguarding the assets of theGroup against unauthorised use or disposition.Although no system of internal controls can provide absolute assurance against material misstatement, loss or mismanagement of theGroup’s assets, the systems in place are designed to identify to the Board matters which require attention on a timely basis so that theymay be considered and dealt with appropriately.The Board has reviewed the effectiveness of the systems of internal control that were in operation during the past financial year, andthese are summarised under the following headings:• Control environmentThere is a clearly defined organisational structure that allows the Group’s objectives to be planned, communicated, executed,controlled and monitored. The Group employs suitably qualified staff so that the appropriate level of authority can be delegated toensure the efficient management of the business. The main UK operating subsidiary is accredited with the Investors in People awardin recognition of its achievements in supporting a culture of ability and progression for its staff.• Identification and evaluation of business risks and control objectivesThe identification and evaluation of both financial and non financial business risks facing the Group is reviewed annually by the Board aspart of the approval of the annual operating budget for the forthcoming year. During this process the effectiveness of its internal controlsin safeguarding against these risks is considered, and where necessary additional controls are introduced or existing controls are enhanced• Information systemsThe management information systems provide the Group with relevant and timely reports from which both the Board and seniormanagement can monitor the performance of the business. Budgets and prior year data provide the Board and senior managementwith comparative information with which to assess and monitor the performance of the various activities of the Group. Operationalperformance statistics are reviewed against a range of measures including competitive benchmarks and historical trends. The Grouphas continued to invest in developing and enhancing these information systems during the year, to ensure that the information isprovided in the most efficient manner.• Main control proceduresDefined controls and procedures are embedded throughout the organisation and reflect the delegated authority from the Board,cover the preparation and review of financial and operational information, the setting of appropriate authority levels, the segregationof duties and the defining of procedures for seeking and obtaining approval for major transactions and organisational changes.• MonitoringThe executive directors have significant involvement in the day-to-day management of the Group’s activities and are, therefore, ableto monitor the control procedures at an operational and financial level. A Group Executive Committee, comprising the two executivedirectors and direct reports from the operating subsidiaries and business functional units within the Group, meets regularly to ensurethe efficient communication and control of information and processes.Lavendon Group plc 2010 37


Corporate governance reportContinuedThe Group maintains an internal audit function, which undertakes a programme of financial audits across the Group. During 2010, theprovision of internal audit services to the Group was transferred to Grant Thornton UK LLP. Following Grant Thornton’s appointment,the Group has held two risk workshops where the process to identify and evaluate business risks was reviewed to assist in thedevelopment of focused audit programmes for 2011. The internal audit reports are addressed to, and reviewed by, the Audit Committee,and appropriate actions, if required, agreed. In addition, the Group’s operations are subject to regular Quality and Health & Safety audits.Any reportable control weaknesses identified by the Group’s external auditors are discussed with the Audit Committee, and reportscirculated to the relevant executive directors.Audit Committee and AuditorsThe Audit Committee Chairman is Andrew Wood, with Tim Ross and Jan Åstrand as members. The Committee’s main responsibilities andactivities are set out in a separate Audit Committee Report on page 40 of the financial statements. The Committee has written terms ofreference, which are published on the Group’s website (www.lavendongroup.com). All Committee members are considered tobe independent.During 2010 the Audit Committee held four formal meetings. The attendance of each director at these meetings (and the occasions atwhich the Group’s external auditors attended) is shown in the table below:Group’s externalDirector D Hollywood J Standen T Ross J Åstrand A Wood auditorsAttended 2* 4** 4 – – 2Apologies given – – – – – –* David Hollywood ceased to be a member of the Audit Committee on his retirement as the Company’s Chairman on 30 September 2010** John Standen ceased to be a member of the Audit Committee on the appointment of Andrew Wood and Jan Åstrand as non-executive directors of the CompanyThe Audit Committee considers it is currently complying in full with the relevant provisions of the Code.RemunerationThe Remuneration Committee Chairman is Jan Åstrand, having succeeded Tim Ross with effect from 1 January 2011. Both Tim Ross andAndrew Wood are members of the Committee. The Committee has written terms of reference, which are published on the Group’swebsite (www.lavendongroup.com). All Committee members are considered to be independent.The Remuneration Committee considers it is currently complying in full with the relevant provisions of the Code and outlines itsprocedures and guidelines in a separate Remuneration Report on pages 22 to 26 of the financial statements. Details of the directors’remuneration and interests in shares during 2010 are included within the Remuneration Report. The Committee annually invitesshareholders to vote on the Remuneration Report at the Company’s Annual General Meeting.During 2010, the Remuneration Committee held two formal meetings. The attendance of each director at these meetings is shown inthe table below:Director D Hollywood J Standen T Ross J Åstrand A WoodAttended 1* 2** 2 – –Apologies given – – – – –* David Hollywood ceased to be a member of the Remuneration Committee on his retirement as the Company’s Chairman on 30 September 2010** John Standen ceased to be a member of the Remuneration Committee on the appointment of Andrew Wood and Jan Åstrand as non-executive directors of the CompanyNon-executive directors hold appointments for a term of three years, and their fees are determined by the Board following externalbenchmarking. The reappointment of non-executive directors is addressed after giving due consideration to their qualifications,continuing independence, performance and willingness to accept reappointment.The terms and conditions of appointment of the non-executive directors are available for inspection at the Company’s registered officeand during the Annual General Meeting each year.38 Lavendon Group plc 2010


Relations with shareholdersDialogue with institutional shareholdersThe directors hold a series of meetings with institutional investors after the publication of the Group’s annual and interim financial resultseach year. Meetings are also held during the year with both existing and prospective shareholders, to provide the opportunity tounderstand the Group’s operations and strategy in greater detail.The Chairman maintains a regular dialogue with major shareholders in relation to strategy and corporate governance issues, and nonexecutivedirectors are available to meet major shareholders as required. In particular, the Senior Independent Director, Tim Ross, is availableto meet major shareholders in the Company, to allow any concerns to be raised independently from the Board. In addition, the nonexecutivedirectors ensure that they are available for questions from individual shareholders on the day of the Annual General Meeting.The Board retains two Stockbrokers to ensure a regular flow of relevant information is made available to both current and prospectiveshareholders and to facilitate feedback to assist the Board in understanding the issues and concerns of its shareholders.The Annual General Meeting and shareholder communicationsThe majority of the Company’s share capital continues to be held by institutional investors. Whilst the Company does not include aformal presentation at the Annual General Meeting for smaller private shareholders, the Company maintains a website:www.lavendongroup.com, which publishes financial results, formal announcements, and a number of corporate governance documentsfor review by current and potential shareholders.Analysis of shareholders at 31 DecemberNumber of shareholdersNumber of shares held2010 2009 2010 2009No. of shares No. No. No. ‘000 No. ‘000< - 5,000 741 750 1,003 9915,001 to 50,000 232 236 3,807 3,753> 50,000 134 144 159,706 158,1281,107 1,130 164,516 162,872The directors announce the proxy vote on all resolutions at the Annual General Meeting, after the show of hands for each resolution.The overall voting for each resolution is publicly announced following the completion of the Annual General Meeting.It continues to be the Company’s policy to ensure that Annual General Meeting resolution proposals remain segregated when voting issuesare substantially separate issues. Details of the Annual General Meeting date, venue and the agenda are disclosed on pages 87 to 92.The Company believes that private shareholders gain benefit from having the full Board, including the Chairmen of the Audit, andRemuneration and Nomination Committees, available at the Annual General Meeting to answer individual questions or concerns aboutthe Group’s performance and strategy.Statement of compliance with the Code under listing rule 9.8.6RIn accordance with the guidance of the UK Listing Authority, the Board has formally reviewed its internal control procedures as requiredby the Code.With the exception of assessing the Board performance evaluation delayed until 2011, the directors believe that the Group is complyingwith all current areas of best practice as detailed in the Code.Lavendon Group plc 2010 39


Report of the Audit CommitteeMembers and qualifications of the Audit CommitteeThe Audit Committee comprises the Company’s three independent non-executive directors, Andrew Wood as Chairman, Tim Ross andJan Åstrand. The Committee’s Chairman, Andrew Wood, is a chartered management accountant with over 15 years experience, as GroupFinance Director of FTSE 250 companies. The biographies of each of the members of the Committee are set out on page 34. TheCompany believes that the Audit Committee has the necessary, recent and relevant financial experience, accounting knowledge andresources to fulfil its duties competently.Terms of referenceThe Audit Committee has written terms of reference which are reviewed annually and published on the Company’s website(www.lavendongroup.com).The Committee’s principal responsibilities are to:• Monitor and review the integrity of the Group’s financial statements and any announcements related to the Group’s performance• Review significant accounting judgements made and issues raised by the external auditors relating to the financial statements• Review the Group’s accounting policies annually to ensure they remain relevant and comply with best practice• Review the performance of the internal audit function, its scope of work, performance and findings• Monitor the continuing independence of the external auditors and make appropriate policy recommendations to the Board• Approve the level of audit related fees and determine and communicate policy to the Board relating to procurement of non-auditrelated assignments from the external auditorsIn addition, the Committee, together with the Board, reviews the Group’s perceived areas of business risk and the controls in place tomanage and mitigate these risks.Performance of the Audit CommitteeThe Committee had formal contact with the Group’s external auditors at two meetings during the year where the interim and annualfinancial statements were reviewed, and an assessment of the scope, strategy and findings of the external audit made. At these meetings,audit findings were discussed and appropriate actions, where necessary, agreed. The Audit Committee confirmed with the external auditorsthat they had received all necessary information for completion of their assignments. At each meeting, the external auditors were askedwhether they wished to bring any matters to the attention of the Committee without the Executive Directors being present.During the year, the Committee oversaw the programme of internal audit on the Group’s operations, reviewing reports produced andagreeing appropriate actions where required. Towards the end of the year, the Committee recommended to the Board the appointmentof Grant Thornton UK LLP as providers of internal audit services to the Group.To enable employees to raise genuine matters of impropriety or concern relating to financial or other issues, the Committee maintains anindependent reporting procedure through which employee concerns can be raised. This procedure provides feedback to all employees ofmatters raised and actions taken.During 2010 PricewaterhouseCoopers LLP have formally confirmed their independence and willingness to continue as auditors to the Group.The Audit Committee has a formal policy relating to the procurement of non-audit related work from the Group’s external auditors. Thispolicy is reviewed annually and permits the engagement of external auditors, without the prior approval of the Committee, for non-auditservices where the fees will not exceed 50% of the annual audit fee for the Group, and where the services relate to advice on theinterpretation of accounting regulations, taxation and treasury services and other matters that have relevance to the external audit function.The policy specifically prohibits engaging external auditors to make management decisions or provide management services, acting as anadvocate in litigation, investment banking services, internal audit services of a recurring nature, the design and implementation of financialand risk management systems and executive search services. After reviewing the level of fees relating to the provision of non-audit servicesand the nature of that work, the Committee believes that PricewaterhouseCoopers LLP remains independent of the Group.Andrew WoodChairman of the Audit Committee1 March 201140 Lavendon Group plc 2010


Independent auditors’ reportto the members of Lavendon Group plcWe have audited the group financial statements of Lavendon Group plc for the year ended 31 December 2010 which comprise theGroup income statement, the Group statement of comprehensive income, the Group balance sheet, the Group cash flow statement, theGroup statement of changes in equity and the related notes. The financial reporting framework that has been applied in their preparationis applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.Respective responsibilities of directors and auditorsAs explained more fully in the Statement of directors’ responsibilities set out on page 33, the directors are responsible for the preparationof the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express anopinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed byour prior consent in writing.Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurancethat the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed;the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.Opinion on financial statementsIn our opinion the Group financial statements:• give a true and fair view of the state of the group’s affairs as at 31 December 2010 and of its profit and cash flows for the year then ended;• have been properly prepared in accordance with IFRSs as adopted by the European Union; and• have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the lAS Regulation.Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Directors’ Report for the financial year for which the group financial statements are preparedis consistent with the group financial statements.Matters on which we are required to report by exceptionWe have nothing to report in respect of the following:Under the Companies Act 2006 we are required to report to you if, in our opinion:• certain disclosures of directors’ remuneration specified by law are not made; or• we have not received all the information and explanations we require for our auditUnder the Listing Rules we are required to review:• the directors’ statement, set out on pages 11 and 12, in relation to going concern;• the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008Combined Code specified for our review; and• certain elements of the report to shareholders by the Board on directors’ remuneration.Other matterWe have reported separately on the parent company financial statements of Lavendon Group plc for the year ended 31 December 2010and on the information in the Directors’ Remuneration Report that is described as having been audited.Matthew Mullins (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory Auditors, Birmingham1 March 2011Lavendon Group plc 2010 41


Group income statementfor the year ended 31 December 20102010 2009AmortisationAmortisationcharges andcharges andexceptionalexceptionalUnderlying items Total Underlying items TotalNotes £’000 £’000 £’000 £’000 £’000 £’000Revenue 225,377 – 225,377 226,886 – 226,886Cost of sales (143,487) (143,487) (140,022) (16,108) (156,130)Gross profit 81,890 – 81,890 86,864 (16,108) 70,756Operating expenses (57,185) (2,356) (59,541) (55,809) (39,702) (95,511)Operating profit/(loss) 4 24,705 (2,356) 22,349 31,055 (55,810) (24,755)Interest receivable 8 16 – 16 45 – 45Interest payable 8 (11,670) – (11,670) (17,168) (5,874) (23,042)Profit/(loss) before taxation 13,051 (2,356) 10,695 13,932 (61,684) (47,752)Taxation on profit/(loss) 9 (3,312) 660 (2,652) (3,183) 7,487 4,304Profit/(loss) for the year 9,739 (1,696) 8,043 10,749 (54,197) (43,448)Earnings/(loss) per share– basic 10 5.94p 4.90p 19.16p (77.45p)– diluted 10 5.94p 4.90p 18.69p (77.45p)All of the Group’s trading activities relate to continuing activities.Group statement of comprehensive incomefor the year ended 31 December 20102010 2009£’000 £’000Profit/(loss) for the year 8,043 (43,448)Other comprehensive incomeCash flow hedges net of tax 373 (476)Currency translation differences (2,665) (6,092)(2,292) (6,568)Total comprehensive income for the yearattributable to owners of the Company 5,751 (50,016)The notes on pages 46 to 77 form an integral part of these financial statements.42 Lavendon Group plc 2010


Group balance sheetas at 31 December 20102010 2009Notes £’000 £’000AssetsNon-current assetsGoodwill 12 79,448 81,483Other intangible assets 12 5,244 7,436Property, plant and equipment 13 249,529 290,410334,221 379,329Current assetsInventories 14 4,113 10,992Trade and other receivables 15 49,921 48,139Cash and cash equivalents 16 13,391 75,98667,425 135,117LiabilitiesCurrent liabilitiesFinancial liabilities – borrowings 20 (43,973) (44,181)Trade and other payables 17 (29,308) (42,089)Current tax liabilities 18 (14,766) (11,399)(88,047) (97,669)Net current (liabilities)/assets (20,622) 37,448Non-current liabilitiesFinancial liabilities – borrowings 20 (109,673) (213,867)Financial liabilities – derivative financial instruments 21 (2,160) (2,741)Deferred tax liabilities 23 (21,622) (25,748)(133,455) (242,356)Net assets 180,144 174,421Shareholders’ equityOrdinary shares 24 1,645 1,629Share premium 104,395 103,258Capital redemption reserve 4 4Other reserves (4,031) (1,739)Retained earnings 78,131 71,269Total equity 180,144 174,421The financial statements on pages 42 to 77 were approved by the Board of Directors on 1 March 2011 and were signed on its behalf by:John StandenChairmanAlan MerrellGroup Finance DirectorThe notes on pages 46 to 77 form an integral part of these financial statements.Lavendon Group plc 2010 43


Group cash flow statementfor the year ended 31 December 20102010 2009Notes £’000 £’000Cash flows from operating activities:Profit/(loss) for the year 8,043 (43,448)Taxation charge/(credit) 9 2,652 (4,304)Net interest expense 8 11,654 22,997Amortisation, depreciation and impairment 4 47,841 95,572Gain on sale of non-fleet property, plant and equipment 4 (231) (568)Other non-cash movements 511 9Purchase of rental fleet (7,902) (4,747)Net decrease in working capital 5,317 11,179Cash generated from operations 67,885 76,690Net interest paid (12,851) (19,339)Taxation paid (3,215) (1,118)Net cash generated from operating activities 51,819 56,233Cash flows from investing activities:Acquisition of subsidiaries (net of cash acquired) (6,798) (7,122)Purchase of non-fleet property, plant and equipment (1,686) (2,473)Proceeds from sale of non-fleet property, plant and equipment 559 1,943Net cash used by investing activities (7,925) (7,652)Cash flows from financing activities:Drawdown of loans 24,080 13,235Repayment of loans (87,999) (25,388)Repayment of principal under hire purchase agreements (40,411) (43,423)Settlement of loan notes – (1,160)Repayment of guaranteed debt – (5,617)Equity dividends paid 11 (1,520) (1,246)Proceeds from equity shares issued 141 80,955Fees of capital raising (656) (4,198)Net cash (used by)/generated from financing activities (106,365) 13,158Net (decrease)/increase in cash and cash equivalents before exchange differences (62,471) 61,739Effects of exchange rates (124) (427)Net (decrease)/increase in cash and cash equivalents after exchange differences (62,595) 61,312Cash and cash equivalents at start of year 75,986 14,674Cash and cash equivalents at end of year 16 13,391 75,986Reconciliation of net cash flow to movement in net debt 2010 2009Notes £’000 £’000Net (decrease)/increase in cash (62,595) 61,312Decrease in debt 19 104,330 61,179Change in net debt resulting from cash flows 41,735 122,491Non cash items:Amortisation of bank arrangement fees 19 – (1,906)New hire purchase and finance lease agreements 19 (5,358) (9,078)Currency translation differences on net debt 19 5,430 11,383Movement in net debt in the year 41,807 122,890Net debt at 1 January (182,062) (304,952)Net debt at 31 December (140,255) (182,062)The notes on pages 46 to 77 form an integral part of these financial statements.44 Lavendon Group plc 2010


Group statement of changes in equityfor the year ended 31 December 2010For the year ended 31 December 2010Attributable to owners of the CompanyCapital Cash flow NetShare Share redemption Translation hedge investment Retainedcapital premium reserve reserve reserve hedge reserve earnings Total£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at 1 January 2010 1,629 103,258 4 17,856 (1,929) (17,666) 71,269 174,421Comprehensive income:Profit for the year – – – – – – 8,043 8,043Cash flow hedges, net of tax – – – – 373 – – 373Currency translation differences – – – (2,100) – (565) – (2,665)Total comprehensive income – – – (2,100) 373 (565) 8,043 5,751Transactions with owners:Share based payments – – – – – – 511 511Tax movement on share based payments – – – – – – (172) (172)Shares issued 16 1,137 – – – – – 1,153Dividends paid in the year – – – – – – (1,520) (1,520)Total transactions with owners 16 1,137 – – – – (1,181) (28)Balance at 31 December 2010 1,645 104,395 4 15,756 (1,556) (18,231) 78,131 180,144For the year ended 31 December 2009Attributable to owners of the CompanyCapital Cash flow NetShare Share redemption Translation hedge investment Retainedcapital premium reserve reserve reserve hedge reserve earnings Total£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at 1 January 2009 462 101,961 4 25,533 (1,453) (19,251) 40,514 147,770Comprehensive income:Loss for the year – – – – – – (43,448) (43,448)Cash flow hedges, net of tax – – – – (476) – – (476)Currency translation differences – – – (7,677) – 1,585 – (6,092)Total comprehensive income – – – (7,677) (476) 1,585 (43,448) (50,016)Transactions with owners:Share based payments – – – – – – 9 9Tax movement on share based payments – – – – – – (38) (38)Shares issued 1,167 1,297 – – – – 79,676 82,140Dividends paid in the year – – – – – – (1,246) (1,246)Fees of capital raising – – – – – – (4,198) (4,198)Total transactions with owners 1,167 1,297 – – – – 74,203 76,667Balance at 31 December 2009 1,629 103,258 4 17,856 (1,929) (17,666) 71,269 174,421In 2009, under the authority given to the directors at the Extraordinary General Meeting on 7 December 2009, the Company issued115,472,199 new ordinary shares by way of a Firm Placing and a Placing and Open Offer at a price of 70.0p per share. The Firm Placingand the Placing and Open Offer raised net proceeds of £76,633,000 after costs of £4,198,000. As part of the Firm Placing and the Placingand Open Offer, the Company entered into an arrangement with a subsidiary availing itself of statutory merger relief for not recordingshare premium under Section 612 of the Companies Act 2006. The nominal value of new ordinary shares issued of £1,155,000 wascredited to share capital, the costs of £4,198,000 were charged to retained earnings and the remaining consideration of £79,676,000 wasrecorded as a merger reserve. This merger reserve was transferred to retained earnings following receipt of the share proceeds asqualifying consideration prior to the 31 December 2009 year end.The notes on pages 46 to 77 form an integral part of these financial statements.Lavendon Group plc 2010 45


Notes to the financial statementsfor the year ended 31 December 20101. Principal accounting policiesGeneral informationLavendon Group plc (‘the Company’ or with its subsidiaries ‘the Group’) is the European market leader in the rental of powered accessequipment operating a fleet of 21,000 machines through a network of 100 active depots located in Belgium, France, Germany, Spain,the UK and a number of countries in the Middle East.The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK.The address of the registered office is 15 Midland Court, Central Park, Lutterworth, Leicestershire LE17 4PN.Basis of preparationThe Group financial statements have been prepared in accordance with EU endorsed International Financial Reporting Standards(“IFRS’s”) and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.The Group financial statements have been prepared, on a going concern basis, under the historical cost convention as modified byfinancial assets and liabilities (including derivative instruments) at fair value through the profit or loss. A summary of the more significantGroup accounting policies is set out below.The Parent Company has not adopted International Financial Reporting Standards. Its results, reported under UK GAAP, are detailed onpages 79 to 85.The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates andassumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amountsof revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of theamount, event or actions, actual results ultimately may differ from those estimates.ConsolidationThe consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings. All intragrouptransactions, balances, income and expenses are eliminated on consolidation.The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measuredas the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assetsacquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisitiondate. The excess of the cost of acquisition over the fair value of the identifiable net assets acquired is recorded as goodwill.Subsidiary undertakings include all entities where a controlling interest is held by the Group or, in the case of the Middle East, where theGroup has the right to give directions with respect to the operating and financial policies and as a result is considered to have control ofthe entities.The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effectivedate of acquisition or up to the effective date of disposal, as appropriate.Details of the principal subsidiaries of the Group are given in note 4 of the Parent Company financial statements on page 82.Impact of new accounting standards(a) The following new accounting standards and amendments to standards are mandatory for the first time for the financial yearbeginning 1 January 2010:i. IFRS 3 (revised), ‘Business combinations’, and consequential amendments to IAS 27, ‘Consolidated and separate financial statements’,IAS 28, ‘Investments in associates’, and IAS 31, ‘Interests in joint ventures’, are effective prospectively to business combinations forwhich the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.The revised standard continues to apply the purchase method to business combinations but with some significant changescompared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, withcontingent payments classified as debt subsequently re-measured through the statement of comprehensive income. All acquisitioncosts are expensed.46 Lavendon Group plc 2010


1. Principal accounting policies continuedii.IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is nochange in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies theaccounting treatment when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss isrecognised in profit or loss. IAS 27 (revised) has had no impact on the current period.(b) The following standards and amendments to existing standards have been published and are mandatory for the Group’s accountingperiods beginning on or after 1 January 2010 or later periods:i. IFRIC 17, ‘Distribution of non-cash assets to owners’ (effective on or after 1 July 2009). The interpretation was published inNovember 2008. This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cashassets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets areclassified as held for distribution only when they are available for distribution in their present condition and the distribution ishighly probable.ii.iii.IFRIC 9, ‘Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement’, effective1 July 2009. This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated froma host contract when the entity reclassifies a hybrid financial asset out of the ‘fair value through profit or loss’ category. Thisassessment is to be made based on circumstances that existed on the later of the date the entity first became a party to thecontract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity isunable to make this assessment, the hybrid instrument must remain classified as at fair value through profit or loss in its entirety.IFRIC 16, ‘Hedges of a net investment in a foreign operation’ effective 1 July 2009. This amendment states that, in a hedge of anet investment in a foreign operation, qualifying hedging instruments may be held by any entity or entities within the Group,including the foreign operation itself, as long as the designation, documentation and effectiveness requirements of IAS 39 thatrelate to a net investment hedge are satisfied. In particular, the Group should clearly document its hedging strategy because ofthe possibility of different designations at different levels of the group.iv. IAS 38 (amendment), ‘Intangible assets’, effective 1 January 2010. The amendment clarifies guidance in measuring the fair valueof an intangible asset acquired in a business combination and permits the grouping of intangible assets as a single asset if eachasset has similar useful economic lives.v. IAS 1 (amendment), ‘Presentation of financial statements’. The amendment clarifies that the potential settlement of a liabilityby the issue of equity is not relevant to its classification as current or non current. By amending the definition of current liability,the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defersettlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact thatthe entity could be required by the counterparty to settle in shares at any time.vi.IAS 36 (amendment), ‘Impairment of assets’, effective 1 January 2010. The amendment clarifies that the largest cash-generating unit(or group of units) to which goodwill should be allocated for the purposes of impairment testing is an operating segment, as definedby paragraph 5 of IFRS 8, ‘ Operating segments’ (that is, before the aggregation of segments with similar economic characteristics).vii. IFRS 2 (amendments), ’Group cash-settled share-based payment transactions’, effective form 1 January 2010. In addition toincorporating IFRIC 8, ’Scope of IFRS 2’, and IFRIC 11, ’IFRS 2 – Group and treasury share transactions’, the amendments expandon the guidance in IFRIC 11 to address the classification of group arrangements that were not covered by that interpretation.viii. IFRS 5 (amendment), ‘Non-current assets held for sale and discontinued operations’. The amendment 5 specifies the disclosuresrequired in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifiesthat the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair presentation) and paragraph 125(sources of estimation uncertainty) of IAS 1.None of the above have had a significant impact on the Group financial statements.Lavendon Group plc 2010 47


Notes to the financial statementsContinued1. Principal accounting policies continued(c) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2010 and notadopted early. The group’s and parent entity’s assessment of the impact of these new standards and interpretations is set out below:IFRS 9, ‘Financial instruments’, issued in November 2009. This standard is the first step in the process to replace IAS 39, ‘Financialinstruments: recognition and measurement’. IFRS 9 introduces new requirements for classifying and measuring financial assets.The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet beenendorsed by the EU.The group is yet to assess IFRS 9’s full impact. However, initial indications are that it may have a limited impact on the treatment anddisclosure of any interest rate swap agreements in place on adoption.Revised IAS 24 (revised), ‘Related party disclosures’, issued in November 2009. It supersedes IAS 24, ‘Related party disclosures’, issuedin 2003. IAS 24 (revised) is mandatory for periods beginning on or after 1 January 2011. Earlier application, in whole or in part, ispermitted. However, the standard has not yet been endorsed by the EU.The revised standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entitiesto disclose details of all transactions with the government and other government-related entities. The group will apply the revised standardfrom 1 January 2011. When the revised standard is applied, the group and the parent will need to disclose any transactions between itssubsidiaries and its associates.IAS32 (amendment) ‘Classification of rights issues’. Issued in October 2009. The amendment applies to annual periods beginning onor after 1 February 2010. Earlier application is permitted. The amendment addresses the accounting for rights issues that aredenominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issuesare now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to beaccounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 ‘Accounting policies, changesin accounting estimates and errors’. The group will apply the amended standard from 1 January 2011. It is not expected to have anyimpact on the Group or parent entity’s financial statements.IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’, effective 1 July 2010. The interpretation clarifies the accountingby an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor ofthe entity to extinguish all or part of the financial liability (debt for equity swap). It requires a gain or loss to be recognised in profit orloss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equityinstruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments should bemeasured to reflect the fair value of the financial liability extinguished. The group will apply the interpretation from 1 January 2011,subject to endorsement by the EU. It is not expected to have any impact on the group or the parent entity’s financial statements.IFRIC 14 (amendments) ‘Prepayments of a minimum funding requirement’. The amendments correct an unintended consequence ofIFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without theamendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions.This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annualperiods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliestcomparative period presented. The group will apply these amendments for the financial reporting period commencing on 1 January2011. It is not expected to have any impact on the Group or parent entity’s financial statements.Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods andservices provided to customers outside of the Group, stated net of returns and value added and other sales taxes.Revenue from rental fleet hire is recognised on a daily basis over the period of hire when the Group can reliably measure the likely flow ofeconomic benefits. Other revenue, including the sale of ex-rental fleet equipment, is recognised as at the point at which the goods orservices are provided.48 Lavendon Group plc 2010


1. Principal accounting policies continuedSegmental reportingOperating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. Thechief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, hasbeen identified as the Group Board that makes strategic decisions.The operating segments are the main geographic areas in which the Group operates. These are the United Kingdom, Belgium, France,Germany, Spain and the Middle East.Foreign currenciesFunctional and presentational currencyThe consolidated financial statements are presented in Sterling, which is the Company’s functional and presentational currency. Itemsincluded in the financial statements of each of the Group’s entities are measured using the currency of the primary economicenvironment in which the entity operates (the functional currency).Transactions and balancesTransactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transaction. At each balance sheet date,monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rate prevailing at the balance sheet date.Translation differences on monetary items are taken to the income statement with the exception of differences on transactions that aresubject to effective cash flow or net investment hedges which are recorded in equity. Translation differences on non-monetary items arereported as part of the fair value gain or loss and are included in either equity or the income statement as appropriate.Group companiesThe results and financial position of overseas Group entities are translated into Sterling as follows:• assets and liabilities are translated at the closing rate at the date of that balance sheet; and• income and expenses are translated at the average exchange rate for the period.On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and othercurrency instruments designated as hedges of such investments, where effective, are taken to equity. Tax charges and credits attributableto those exchange differences are also taken directly to equity. When a foreign operation is sold, such exchange differences arerecognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of aforeign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate.Joint venturesThe Group’s interests in jointly controlled entities are accounted for using the equity method of accounting. Where material the Groupdiscloses its share of the revenue and the operating profits on the face of the income statement. The Group also discloses its share ofthe gross assets and liabilities on the face of the balance sheet. At 31 December 2010 the balances relating to joint ventures were notdisclosed separately in the financial statements because they were not material.Financial instrumentsThe Group classifies its financial instruments in the following categories: financial assets and liabilities at fair value through profit or lossand loans, receivables and other liabilities. The classification depends on the purpose for which the financial instruments were acquired.Management determines the classification of its financial instruments at initial recognition and re-evaluates this position at eachreporting date.Financial assets and liabilities at fair value through profit or lossFinancial assets and liabilities at fair value through profit or loss include financial instruments held for trading and those assets designatedat fair value through profit or loss. A financial instrument is classified in this category if it is acquired principally for the purpose of sellingor repurchasing in the short term or if it is a financial asset so designated by management on initial recognition. Derivative financialinstruments are included as held for trading unless they are designated as hedges. Items in this category are classified as current assets orcurrent liabilities if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.Lavendon Group plc 2010 49


Notes to the financial statementsContinued1. Principal accounting policies continuedLoans, receivables and other liabilitiesLoans, receivables and other liabilities are non-derivative financial assets with fixed or determinable payments that are not quoted in anactive market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading thereceivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date,which are classified as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet.Gains and losses arising from changes in the fair value of financial assets at fair value through profit or loss are included in the incomestatement in the period in which they arise. Loans and receivables are carried at amortised cost using the effective interest rate method.The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets isimpaired. Impairments of such financial assets are recorded in the income statement.Trade receivablesTrade receivables are amounts due from customers for equipment rental or other products or services performed in the ordinary course ofbusiness. If collection is expected in one year or less they are classified as current assets. If not, they are classified as non-current assets.Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest ratemethod, less provision for impairment.A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collectall amounts due according to the original terms of receivables. The amount of the provision is recognised in the income statement.The cost of unrecoverable trade receivables is recognised in the income statement immediately.Borrowings and borrowing costsAll loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with theborrowing. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and theredemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.Borrowing costs are expensed in the period in which they are incurred, except for issue costs. Issue costs arising from a modification of aborrowing facility are amortised over the period of the borrowing or until the facility is considered to be “extinguished” at which point anyunamortised costs are recognised immediately in the income statement along with any associated issue costs of replacement facilities.Accounting for derivative financial instruments and hedging activitiesDerivative financial instruments are recognised at fair value on the date a contract is entered into and are subsequently re-measured attheir fair value at each balance sheet date.The method of recognising the resulting gain or loss depends on whether the derivative financial instrument is designated as a hedginginstrument, and if so, the nature of the item being hedged. The Group designates certain derivative financial instruments as:• cash flow hedges – hedges of floating interest rate transactions; or• net investment hedges – hedges of net investments in foreign operations.The Group documents the relationship between hedging instruments and hedged items at the hedge inception, as well as its riskmanagement objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both athedge inception and on an ongoing basis, of whether the derivative financial instruments that are used in hedging transactions are highlyeffective in offsetting changes in fair values or cash flows of hedged items. Movements on the hedging reserves in equity are shown inthe Group Statement of Changes in Equity.Cash flow hedgesThe effective portion of changes in the fair value of derivative financial instruments that are designated and qualify as cash flow hedgesare recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.50 Lavendon Group plc 2010


1. Principal accounting policies continuedAmounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss (forinstance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in therecognition of a non-financial asset or a liability, the gains and losses previously deferred in equity are transferred from equity andincluded in the initial measurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge nolonger meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and isrecognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longerexpected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.Net investment hedgesAny gain or loss on the hedging instrument relating to the effective portion of the hedge of a net investment in a foreign operation isrecognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains andlosses accumulated in equity are included in the income statement when the foreign operation is disposed of.Non-hedging derivativesChanges in the fair value of any derivative financial instrument that does not qualify for hedge accounting are recognised immediately inthe income statement.Fair value estimationThe fair value of financial instruments traded in organised active financial markets is based on quoted market prices at the close ofbusiness on the balance sheet date. The quoted market price used for financial assets held by the Group is the mid market price.The fair value of financial instruments for which there is no quoted market price is determined by a variety of methods incorporatingassumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similarinstruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value forthe remaining financial instruments.The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The nominal value lessestimated credit adjustments of trade receivables and payables are assumed to approximate to their fair values. The fair value of financialliabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group forsimilar financial instruments.LeasesFinance leasesLeases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as financeleases. Finance leases are capitalised at the lease inception at the lower of the fair value of the leased asset and the present value of theminimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate onthe finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in financial liabilities –borrowings. The interest element of the finance cost is charged to the income statement over the lease period so as to produce aconstant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired underfinance leases is depreciated over the shorter of the useful life of the asset and its lease term.Operating leasesLeases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease.Incentives from lessors are recognised as a systematic reduction of the charge over the periods benefiting from the incentives.ProvisionsProvisions are recognised when:• the Group has a present legal or constructive obligation as a result of past events; and• it is more likely than not that an outflow of resources will be required to settle the obligation; and• the amount has been reliably estimated.Lavendon Group plc 2010 51


Notes to the financial statementsContinued1. Principal accounting policies continuedProvisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflowwill be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if thelikelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are recordedseparately in the financial statements where material.If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-taxrate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Wherediscounting is used, the increase in the provision due to the passage of time is recognised as an interest expense.Where the Group expects amounts to be received in relation to a provision, the reimbursement is recognised as a separate asset when itsreceipt is considered certain.Property, plant and equipmentProperty, plant and equipment are stated at delivered cost less accumulated depreciation and any provision for impairments in value.Additional transportation costs incurred to move existing fleet between operating segments are expensed in the year in which they areincurred. Depreciation is provided on a straight-line basis to write off the cost, less the estimated residual value, of property, plant andequipment over their estimated useful lives. Estimated useful lives and residual values are as follows:Useful livesResidual valuesShort leasehold properties – amortised over the period of lease nilRental fleet – 7 to 13 years 5-20%Office fixtures and equipment – 3 to 4 years nilMotor vehicles – 3 to 5 years nilResidual values are reassessed annually.GoodwillGoodwill is the excess of the fair value of the consideration payable for an acquisition over the fair value of the Group’s share ofidentifiable net assets of a subsidiary acquired at the date of acquisition. Fair values are attributed to the identifiable assets, liabilities andcontingent liabilities that existed at the date of acquisition, reflecting their condition at that date. Adjustments are made where necessaryto bring the accounting policies of acquired businesses into alignment with those of the Group.Goodwill is stated at cost less any impairment. Goodwill is not amortised but is tested annually for impairment or more frequently if thereare indications that goodwill might be impaired. An impairment charge is recognised for any amount by which the carrying value ofgoodwill exceeds its fair value.Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold, allocated wherenecessary on the basis of relative fair value.Intangible assetsIntangible assets acquired as part of an acquisition of a business are capitalised separately from goodwill, if those assets are separable andtheir fair value can be measured reliably. Intangible assets acquired separately from the acquisition of a business are capitalised at cost.Certain costs incurred in the developmental phase of an internal project are capitalised as intangible assets provided that a number of criteriaare satisfied. These include the technical feasibility of completing the asset so that it is available for use or sale, the availability of adequateresources to complete the development and to use or sell the asset and how the asset will generate probable future economic benefit.Intangible assets recognised on acquisitionIntangible assets recognised on acquisition are detailed in note 12. They are estimated to have asset lives in the range of 1 to 6 years andare amortised on a straight-line basis accordingly.Computer softwareAcquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.Computer software licences are held at cost and are amortised on a straight line basis over 3 to 5 years.52 Lavendon Group plc 2010


1. Principal accounting policies continuedCosts that are directly associated with the production of identifiable and unique software products controlled by the Group, and that willgenerate economic benefits beyond one year, are recognised as intangible assets. Computer software development costs recognised asassets are amortised on a straight line basis over 3 to 5 years. Costs associated with developing or maintaining computer softwareprogrammes are recognised as an expense as incurred.Trademarks and licencesTrademarks and licences are carried at cost and are amortised on a straight-line basis over a period of up to 5 years.Impairment of property, plant and equipment, goodwill and intangible assetsAssets that have an indefinite useful life are not subject to amortisation but are tested annually for impairment. Assets that are subject toamortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment,assets are grouped at the lowest levels for which there are separately identifiable cash flows (operating segments). In assessing the valuein use, the estimated future cash flows of the operating segments are discounted to their present value using a discount rate that reflectscurrent market assessments of the time value of money and associated risks.The directors consider that an operating segment is generally an individual country of operation.Employee benefit costsThe Group operates several defined contribution pension schemes, the assets of which are held separately from those of the Group.A defined contribution plan is a pension plan under which the Group pays fixed contributions into an independently administered fund.The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay allemployees the benefits relating to employee service in the current and prior periods. The cost of providing these benefits, recognised inthe income statement, comprises the amount of contributions payable to the schemes in respect of the year.Following the acquisition of the Gardemann group of companies in 2006, the Group now has an obligation to a single ex-employee of theGardemann group under a defined benefit pension scheme. The scheme is unfunded, but a full provision of £147,117 (2009: £146,071),based on an actuarial valuation, is included in the Group’s balance sheet under accruals. Given the immateriality of this single obligationto the Group as a whole, management do not consider the full disclosure required by IAS19 “Retirement Benefits” to be appropriatein this instance.The Group provides no other post-retirement benefits to its employees.Dividend distributionDividend distributions to Lavendon shareholders are recognised in the Group’s financial statements in the period in which the dividendsare approved, or when paid in the case of an interim dividend.InventoriesInventories, comprising ex-rental fleet equipment available for sale, third party equipment purchased for resale, machine spare parts andconsumables, are stated at the lower of cost and net realisable value. The cost basis used within the Group is a ‘First In First Out’ or FIFObasis. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.Taxation including deferred taxProvision for taxation is made at the current rate.Deferred taxation is provided in full, using the liability method, on differences arising between the tax bases of assets and liabilities andtheir carrying amounts in the consolidated financial statements. However, if the deferred taxation arises from initial recognition of anasset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nortaxable profit or loss, it is not accounted for. Deferred taxation is calculated using tax rates that are expected to apply when the relateddeferred taxation asset is realised or the deferred taxation liability is settled.Lavendon Group plc 2010 53


Notes to the financial statementsContinued1. Principal accounting policies continuedDeferred taxation assets are recognised to the extent that it is probable that future taxable profit will be available against which theamounts can be utilised.Deferred taxation is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing ofthe reversal of the temporary difference is controlled by the Group, and it is probable that the temporary difference will not reverse in theforeseeable future.Share based paymentThe Group operates a number of equity settled, share based compensation plans.The fair value of the employee services received under such plans is recognised as an expense in the income statement. Fair value isdetermined by use of the Black Scholes Option Pricing Model for share option schemes and in the case of share matching plans and thelong-term incentive plan, by use of a Monte Carlo simulation. The amount to be expensed over the vesting period is determined byreference to the fair value of share incentives, excluding the impact of any non-market vesting conditions. Non-market vesting conditionsare considered as part of the assumptions about the number of share incentives that are expected to vest. At each balance sheet date,the Group revises its estimates of the number of share incentives that are expected to vest. The impact of the revision on originalestimates, if any, is recognised in the income statement, with a corresponding adjustment to equity, over the remaining vesting period.Share-based transactions involving treasury shares or involving Group entities (for example, options over the Parent Company’s shares)are accounted for as equity-settled share-based payment transactions in the stand-alone accounts of the Parent Company and theGroup. This does not have an impact on the Group’s financial statements.Cash and cash equivalentsCash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with originalmaturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the GroupBalance Sheet. For the purposes of the Group Cash Flow Statement, cash and cash equivalents are as defined above, net of outstandingbank overdrafts.Key assumptions and estimatesSignificant estimates have been used in respect of the calculation of the residual values of property, plant and equipment, the calculation of anyimpairment to the carrying value of goodwill, the valuation of intangible assets recognised on acquisition, and the trade receivables provision.The residual values and useful lives of property, plant and equipment are estimated based on management’s historic experience of disposals ofsuch used equipment and their judgement of the current market conditions.Goodwill is tested for impairment on an annual basis or more frequently if there are indications that goodwill might be impaired. The recoverableamounts of the goodwill are calculated on a discounted cash flow basis using estimating long-term growth rates and appropriate discount rates,based on historic trends adjusted for management’s estimates of future prospects. Other intangible assets are tested for impairment if there areindications they might be impaired. Full details of the assumptions used are given in Note 12.The value of intangible assets recognised on acquisition is calculated based on the weighted average cost of capital of the Group, adjusted forthe specific risks associated with the intangible assets valued in isolation. The fair value of intangible assets has been arrived at after consultationwith professional valuers.The trade receivables provision is based on management’s best estimate of the recoverability of specific customer balances, after taking intoaccount the recent payment experience, underlying economic climate and discussions with key customers.Exceptional itemsThe Group defines exceptional items to be those that, by virtue of their nature, size or frequency, warrant separate disclosure in thefinancial statements in order to better understand the underlying performance of the Group. These include, but are not limited to, costsof reorganisation and restructuring, impairment of non-current assets, significant one-off financing costs and significant one-off claims.54 Lavendon Group plc 2010


2. Segmental analysisThe Group’s chief operating decision maker (the “CODM”) is the Group Board, comprising the two executive directors and direct reportsfrom the operating subsidiaries and business functional units in the Group. The Group Board reviews the Group’s internal reporting inorder 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.The primary profit measure used by the CODM is the underlying operating profit.Year ended 31 December 2010UK Germany Belgium France Spain Middle East Group£’000 £’000 £’000 £’000 £’000 £’000 £’000Rental revenue 100,888 46,035 12,551 14,977 6,962 26,288 207,701Sale of new equipment 671 – 589 – 440 2,503 4,203Sale of ex-rental equipment 10,482 1,244 188 360 483 716 13,473Total revenue 112,041 47,279 13,328 15,337 7,885 29,507 225,377Underlying operating profit 11,345 1,296 2,366 1,096 6 8,596 24,705Amortisation (1,361) (305) (649) (6) (29) (6) (2,356)Operating profit/(loss) 9,984 991 1,717 1,090 (23) 8,590 22,349Interest receivable 16Interest payable (11,670)Profit before taxation 10,695Taxation (2,652)Profit for the year 8,043Assets 192,392 75,163 44,519 28,834 17,789 42,949 401,646Liabilities before group funding (91,527) (14,818) (10,449) (5,499) (9,488) (3,775) (135,556)Net assets before group funding 100,865 60,345 34,070 23,335 8,301 39,174 266,090Group funding (85,946)Net assets 180,144Capital expenditure 4,523 2,397 206 2,520 154 4,885 14,685Depreciation 20,097 10,564 2,637 3,373 1,980 6,834 45,485Exceptional impairment of property,plant and equipment – – – – – – –Amortisation of intangible assets 1,361 305 649 6 29 6 2,356Exceptional impairment of goodwilland intangible assets – – – – – – –NoteThe assets and depreciation charge shown for the Middle East operation includes rental equipment owned by the UK operation, but which is used by and costed to the Middle Eastoperation. The inclusion of the assets and depreciation charge in the Middle East more accurately reflects the commercial nature of the arrangement and the reporting to the CODM.The information disclosed for the UK operation includes certain centralised Group costs, assets and liabilities which may relate to the operation and financing of overseas subsidiaries.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.Group funding represents the value of external borrowings held by Lavendon Group plc on behalf of the Group.Lavendon Group plc 2010 55


Notes to the financial statementsContinued2. Segmental analysis continuedYear ended 31 December 2009UK Germany Belgium France Spain Middle East Group£’000 £’000 £’000 £’000 £’000 £’000 £’000Rental revenue 100,719 50,717 12,279 12,184 8,518 28,364 212,781Sale of new equipment 931 – 732 – 478 3,167 5,308Sale of ex-rental equipment 4,727 1,470 1,369 240 402 589 8,797Total revenue 106,377 52,187 14,380 12,424 9,398 32,120 226,886Underlying operating profit 12,280 3,618 3,119 503 141 11,394 31,055Amortisation (1,769) (513) (870) (30) (331) (6) (3,519)Exceptional items (16,775) (10,218) (9,916) (1,447) (13,935) – (52,291)Operating (loss)/profit (6,264) (7,113) (7,667) (974) (14,125) 11,388 (24,755)Interest receivable 45Interest payable (23,042)Loss before taxation (47,752)Taxation 4,304Loss for the year (43,448)Assets 282,879 90,665 52,865 27,222 21,981 38,834 514,446Liabilities before group funding (127,840) (21,527) (14,698) (5,978) (13,581) (2,924) (186,548)Net assets before group funding 155,039 69,138 38,167 21,244 8,400 35,910 327,898Group funding (153,477)Net assets 174,421Capital expenditure 7,028 3,182 868 956 48 807 12,889Depreciation 22,706 11,192 2,954 3,399 2,710 6,424 49,385Exceptional impairment of property,plant and equipment 8,969 433 – 1,178 1,311 – 11,891Amortisation of intangible assets 1,769 513 870 30 331 6 3,519Exceptional impairment of goodwilland intangible assets – 9,016 10,180 – 11,581 – 30,777NoteThe assets and depreciation charge shown for the Middle East operation includes rental equipment owned by the UK operation, but which is used by and costed to the Middle Eastoperation. The inclusion of the assets and depreciation charge in the Middle East more accurately reflects the commercial nature of the arrangement and the reporting to the CODM.The information disclosed for the UK operation includes certain centralised Group costs, assets and liabilities which may relate to the operation and financing of overseas subsidiaries.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.Capital expenditure includes the property, plant and equipment from the acquisition of the trade and certain assets of EPL Access Limited from administration in August 2009.Group funding represents the value of external borrowings held by Lavendon Group plc on behalf of the Group.56 Lavendon Group plc 2010


3. Exceptional items and amortisationExceptional items and amortisation incurred during the period are set out below:2010 2009£’000 £’000Exceptional costs of sale:– plant and machinery impairment (i) – 11,626– restructuring costs (ii) – 4,482– 16,108Exceptional operating expenses:– goodwill impairment (iii) – 27,322– other intangible assets impairment (iv) – 3,455– restructuring costs (ii) – 5,141– property impairment – 265– 36,183Exceptional interest payable:– accelerated amortisation of bank arrangement fees (v) – 5,874Total exceptional items – 58,165Amortisation 2,356 3,519Total exceptional items and amortisation 2,356 61,684Notes(i) A number of rental units in Belgium, France, Germany, Spain and the UK had been identified for disposal and their net book values had been written down to fair value lesscosts to sell with reference to current market prices (see also note 13).(ii) Restructuring costs related to the Group’s trading operations in Germany, Spain and the UK and principally related to employee termination costs, transport and storage ofrental machines, depot closure costs and associated professional fees.(iii) The goodwill impairment related to the Group’s goodwill for Belgium, Germany and Spain (see note 12).(iv) The other intangible asset impairment related to the other intangible assets acquired on the acquisition of dk Rental in Belgium and Spain (see note 12).(v) All capitalised issue costs had been written off in the prior year in accordance with IAS39 paragraph AG62.4. Operating profit/(loss)2010 2009£’000 £’000Operating profit/loss is arrived at after charging:Amortisation of intangible assets (note 12) 2,356 3,519Depreciation (note 13) 45,485 49,385Exceptional impairment – property, plant and equipment (note 13) – 11,891Exceptional impairment – intangible assets (note 12) – 3,455Exceptional impairment – goodwill (note 12) – 27,322Staff costs (note 7) 57,577 58,367Redundancy costs (note 7) – 2,976Fees paid to auditors (note 5) 760 1,120Hire of plant and machinery 2,847 2,166Operating leases – property 7,243 6,978Operating leases – other 5,708 5,671And after crediting:Profit on disposal of property, plant and equipment (231) (568)Operating expenses comprises £15,519,000 of selling and distribution costs (2009: £16,740,000) and £44,022,000 of administrativeexpenses (2009: £78,771,000).Lavendon Group plc 2010 57


Notes to the financial statementsContinued5. Auditor remunerationServices provided by the Group’s auditor and its associates are as follows:2010 2009£’000 £’000Audit servicesFees payable to Company’s auditor for the audit of the Parent Company and consolidated accounts 146 158Fees payable to Company’s auditor and its associates for other services:– the audit of the Company’s subsidiaries pursuant to legislation 165 213– tax services 413 755– other services pursuant to legislation 36 189614 1,157760 1,315Tax services incorporate both compliance and advisory services. Due to the international nature of the Group, its tax affairs can crossjurisdictions and involve complex structures. Given the auditors considerable experience and knowledge of the Group’s structure andhistory, it is deemed expedient to use their tax servicesIn 2009 a further £195,000 was paid for work as reporting accountants to the Group’s Firm Placing and Placing and Open Offer which wasannounced on 19 November 2009. This was debited directly to retained earnings.6. Directors’ emoluments and interest in sharesDetails of directors’ emoluments and interest in shares are included in the Remuneration Report on pages 22 to 26.7. Employee informationThe average monthly number of employees (including executive directors) employed during the year analysed by category was:2010 2009NumberNumberOperations 939 961Selling and distribution 490 513Administration 200 2261,629 1,700Aggregate payroll costs for the above employees (including executive directors) were:2010 2009£’000 £’000Wages and salaries 49,337 50,596Social security costs 7,015 7,062Other pension costs 714 700Share based payments 511 9Aggregate payroll costs before exceptional items 57,577 58,367Exceptional items – redundancy costs – 2,97657,577 61,34358 Lavendon Group plc 2010


7. Employee information continuedKey management compensation2010 2009£’000 £’000Salaries and short-term employee benefits 2,051 1,637Post-employment benefits 170 161Share based payments 172 (34)2,393 1,7642010 2009NumberNumberAverage headcount 13 9The key management compensation given above relates to executive directors and senior management from the UK and overseas operations.8. Interest receivable and payable2010 2009£’000 £’000Interest receivable:– bank interest 16 45Interest payable:– interest on bank loans and overdraft (7,009) (9,843)– interest on hire purchase and finance lease agreements (4,348) (6,388)– interest on discounted deferred consideration (313) (370)– amortisation of bank arrangement fees – (567)Total interest payable before exceptional items (11,670) (17,168)Exceptional interest payable:– accelerated amortisation of bank arrangement fees (note 3) – (5,874)Total interest payable (11,670) (23,042)Net interest payable (11,654) (22,997)Lavendon Group plc 2010 59


Notes to the financial statementsContinued9. TaxationAnalysis of taxation charge/(credit) for the year:2010 2009£’000 £’000Corporation taxation:– current year 7,215 1,806– adjustment in respect of prior years (782) (8)Total current tax 6,433 1,798Deferred taxation:– current year movement on deferred tax (3,314) (6,150)– adjustment in respect of prior years (327) –– taxation movement on share based payments (140) 48Taxation 2,652 (4,304)The taxation charge on the underlying profit is £3,312,000 (2009: £3,183,000). The taxation credit on amortisation charges andexceptional items is £660,000 (2009: £7,487,000).In addition to the amount credited to the income statement, tax of £172,000 (2009: charge of £38,000) in respect of share basedpayments was credited directly to reserves. This represents the recognition of a deferred tax asset which is in excess of the credit to theincome statement for share based payments.No provision has been made in the financial statements for any tax liability which may arise upon future distributions of profit to theUnited Kingdom from overseas subsidiaries.Reconciliation of taxationThe tax charge/(credit) for the year is lower (2009: higher) than the standard rate of corporation tax in the UK of 28% (2009: 28%).The differences are explained below:2010 2009£’000 £’000Profit/(loss) before taxation 10,695 (47,752)Profit/(loss) at standard rate of corporation tax in the UK: 28% (2009: 28%) 2,995 (13,371)Adjustments to tax in respect of prior years – current tax (782) (8)Adjustments to tax in respect of prior years – deferred tax (327) –Effect of overseas tax rates 432 (1,319)Expenses not deductible for tax purposes 40 1,044Impairment of goodwill – 7,650Additional tax losses recognised – (353)Effect on deferred tax due to the tax rate change in the UK (629) –Tax losses not recognised 870 1,140Timing differences on which deferred tax is not provided 53 9132,652 (4,304)The standard rate of corporation tax in the UK is 28%. Accordingly, the company's UK profits for this accounting period are taxed at aneffective rate of 28%. From 1 April 2011 the UK corporation tax rate will change to 27% (substantively enacted on 22 June 2010).Further annual reductions of 1% are expected until 1 April 2014, until the corporation tax rate reaches 24%. The impact of reducingthe corporation tax rate on deferred tax balances will be accounted for in the period when any rate change is substantively enacted.60 Lavendon Group plc 2010


10. Earnings per shareReconciliations of the earnings and weighted average number of shares used in the calculations are set out below:Weightedaverage numberPer shareProfit of shares amountYear ended 31 December 2010 £’000 (in millions) penceBasic profit per shareProfit for the year 8,043 164.0 4.90Effect of dilutive securitiesDeferred shares –Diluted profit per share 8,043 164.0 4.90Underlying earnings per shareBasic 9,739 164.0 5.94Diluted 9,739 164.0 5.94Weightedaverage numberPer share(Loss)/profit of shares amountYear ended 31 December 2009 £’000 (in millions) penceBasic loss per shareLoss for the year (43,448) 56.1 (77.45)Effect of dilutive securitiesDeferred shares 1.4Diluted loss per share (43,448) 57.5 (77.45)Underlying earnings per shareBasic 10,749 56.1 19.16Diluted 10,749 57.5 18.69The potentially dilutive securities are not included in the 2009 calculation, as they were not dilutive to the loss per share in that year.Earnings per share are calculated on the 164,011,025 weighted average number of ordinary shares in issue for the year ended31 December 2010 (year ended 31 December 2009: 56,148,882).Diluted earnings per share assumes conversion of all potential dilutive ordinary shares which arise from share incentive scheme awardsgranted to employees, where the exercise price is less than the average market price of the Company’s ordinary share capital duringthe year. The effect of this dilution is to increase the weighted average number of ordinary shares to 164,011,436 (year ended31 December 2009: 57,464,165).Underlying earnings per share is presented to exclude the impact of amortisation charges and exceptional items in the year and theirassociated tax effect. The Directors believe that underlying earnings per share provides additional relevant information about underlyingbusiness performance.Lavendon Group plc 2010 61


Notes to the financial statementsContinued11. Dividends2010 2009£’000 £’000Final dividend paid in respect of 2009 of 0.60p per 1p ordinary share(2008: 1.67p (restated as 1.65p)) 977 773Interim dividend paid in respect of 2010 of 0.33p per 1p ordinary share(2009: 1.00p (restated as 0.99p)) 543 4731,520 1,246The directors are proposing a final dividend in respect of the financial year ended 31 December 2010 of 0.67 pence per ordinary sharewhich will distribute an estimated £1,102,000 of shareholders’ funds. It will be paid on 3 May 2011 to those shareholders who are on theregister at 11 March 2011, subject to approval at the Company’s Annual General Meeting.Following the bonus element of the capital raising on 8 December 2009 the dividends paid per share have been restated for all dividendspaid prior to this date.12. Intangible assetsFor the year ended 31 December 2010Non-current intangible assetsIntangiblesTotalrecognised Computer intangibleGoodwill on acquisitions software Trademarks assets£’000 £’000 £’000 £’000 £’000CostAt 1 January 2010 110,475 19,295 4,217 200 23,712Exchange movements (3,445) (542) (99) – (641)Additions – – 318 – 318Disposals – – (1,103) – (1,103)At 31 December 2010 107,030 18,753 3,333 200 22,286Amortisation and impairmentAt 1 January 2010 28,992 12,489 3,587 200 16,276Exchange movements (1,410) (397) (91) – (488)Charge for the year – 2,012 344 – 2,356Disposals – – (1,102) – (1,102)At 31 December 2010 27,582 14,104 2,738 200 17,042Net book amountAt 31 December 2010 79,448 4,649 595 – 5,244Intangibles recognised on acquisitions comprises brand names, customer relationships and non-compete agreements.62 Lavendon Group plc 2010


12. Intangible assets continuedFor the year ended 31 December 2009Non-current intangible assetsIntangiblesTotalrecognised Computer intangibleGoodwill on acquisitions software Trademarks assets£’000 £’000 £’000 £’000 £’000CostAt 1 January 2009 114,149 19,937 4,182 200 24,319Exchange movements (3,674) (642) (139) – (781)Additions – – 182 – 182Disposals – – (8) – (8)At 31 December 2009 110,475 19,295 4,217 200 23,712Amortisation and impairmentAt 1 January 2009 – 6,000 3,396 200 9,596Exchange movements 1,670 (165) (121) – (286)Charge for the year – 3,199 320 – 3,519Exceptional impairment 27,322 3,455 – – 3,455Disposals – – (8) – (8)At 31 December 2009 28,992 12,489 3,587 200 16,276Net book amountAt 31 December 2009 81,483 6,806 630 – 7,436Goodwill acquired in a business combination was allocated, at date of acquisition, to the operating segments that benefited from thatbusiness combination. The Directors consider that an operating segment is generally an individual country of operation.The allocation of the goodwill by operating segment is shown in the table below:Goodwill2010 2009£’000 £’000Operating segmentsUnited Kingdom 40,941 40,941Belgium 20,714 21,850Germany 17,793 18,692Spain – –Total 79,448 81,483Goodwill is tested annually for impairment, or more frequently if there are indications that goodwill might be impaired. For the purpose ofdetermining potential goodwill impairment, recoverable amounts are determined from value in use calculations using cash flow projectionsbased on financial plans covering a five year period. The growth rate assumptions used in the plans are based on past performance andmanagement’s expectations of market developments. The growth rate assumptions used to determine the cash flows beyond the five yearperiod is 2.5% (2009: 2.0%). The pre-tax interest rate used to discount the projected cash flows for all operating segments is 11% (2009: 11%).The goodwill exceptional impairment charges total £nil (year ended 31 December 2009: £27,322,000). In 2009 the goodwill exceptionalimpairment charges by country were Belgium £8,896,000, Germany £9,016,000 and Spain £9,410,000.The impairment review for Germany has identified headroom of £10,649,000 (2009: £5,700,000) against the carrying value of the assets.If the pre-tax rate used to discount the projected cash flows is increased by 1% to 12% then no additional impairment charge would berequired (2009: additional impairment charge of £886,000) in Germany. If the terminal growth rate is decreased by 1% to 1.5% then nofurther additional impairment would be required for any of the remaining operating segments. The directors consider that no reasonablypossible change in any of the key assumptions would cause the recoverable amount of any of the operating segments at 31 December2010 to fall below their carrying value.The other intangibles exceptional impairment charge is £nil (year ended 31 December 2009: £3,455,000). In 2009, the other intangiblesexceptional impairment charges by country were Belgium £1,284,000 and Spain £2,171,000. The impairment in Spain was determined byvalue in use calculations as set out for goodwill above and resulted in the total impairment of the Spanish intangible assets. The impairmentin Belgium was in relation to a specific asset that is not considered to have any ongoing value following the restructured Group operations.Lavendon Group plc 2010 63


Notes to the financial statementsContinued13. Property, plant and equipmentShortOfficeleasehold Rental Motor fixtures andproperties fleet vehicles equipment Total£’000 £’000 £’000 £’000 £’000CostAt 1 January 2010 1,576 433,346 7,186 19,129 461,237Exchange movements 35 (10,960) (47) (479) (11,451)Additions 112 12,999 229 1,027 14,367Disposals (305) (17,207) (1,453) (3,196) (22,161)Net transferred from inventories – 533 – – 533At 31 December 2010 1,418 418,711 5,915 16,481 442,525Depreciation and impairmentAt 1 January 2010 1,105 148,905 5,756 15,061 170,827Exchange movements 35 (6,021) 11 (399) (6,374)Charge for the year 214 43,197 608 1,466 45,485Disposals (276) (12,187) (1,437) (2,914) (16,814)Net transferred from inventories – (128) – – (128)At 31 December 2010 1,078 173,766 4,938 13,214 192,996Net book valueAt 31 December 2010 340 244,945 977 3,267 249,529ShortOfficeleasehold Rental Motor fixtures andproperties fleet vehicles equipment Total£’000 £’000 £’000 £’000 £’000CostAt 1 January 2009 1,382 540,347 2,635 12,072 556,436Reclassification – (14,097) 7,277 6,820 –Exchange movements – (15,479) (513) (844) (16,836)Additions 54 6,725 835 1,402 9,016Recognised on acquisitions 140 3,551 – – 3,691Disposals – (22,405) (3,048) (321) (25,774)Transferred to inventories – (65,296) – – (65,296)At 31 December 2009 1,576 433,346 7,186 19,129 461,237Depreciation and impairmentAt 1 January 2009 790 185,130 924 7,750 194,594Reclassification – (12,132) 5,975 6,157 –Exchange movements – (6,183) (351) (548) (7,082)Charge for the year 50 46,489 1,068 1,778 49,385Exceptional impairment (see note 3) 265 11,568 8 50 11,891Disposals – (18,209) (1,868) (126) (20,203)Transferred to inventories – (57,758) – – (57,758)At 31 December 2009 1,105 148,905 5,756 15,061 170,827Net book valueAt 31 December 2009 471 284,441 1,430 4,068 290,410During 2009 the Group reclassified certain assets between rental fleet, motor vehicles and office fixtures and equipment,to more accurately reflect the nature of the assets.64 Lavendon Group plc 2010


13. Property, plant and equipment continuedAssets held under hire purchase agreements and finance leases have the following net book value:2010 2009£’000 £’000Cost 136,274 145,099Aggregate depreciation (34,515) (35,161)Net book value 101,759 109,93814. Inventories2010 2009£’000 £’000Ex-rental fleet equipment available for resale 618 7,538Spares 2,845 2,746Consumables 370 429Third party equipment purchased for resale 280 2794,113 10,99215. Trade and other receivables2010 2009Amounts falling due within one year £’000 £’000Trade receivables 51,193 48,109Less: provision for impairment of trade receivables (4,633) (4,035)Trade receivables – net 46,560 44,074Other receivables 442 479Prepayments and accrued income 2,919 3,58649,921 48,1392010 2009Reconciliation of movement in the provision for impairment of trade receivables £’000 £’000Opening impairment provision 4,035 4,635Exchange movements (94) (313)Utilised (955) (1,052)Charged 1,651 1,251Released (4) (486)Closing impairment provision 4,633 4,03516. Cash and cash equivalents2010 2009£’000 £’000Cash at bank and in hand 13,391 75,986Lavendon Group plc 2010 65


Notes to the financial statementsContinued17. Trade and other payables2010 2009Amounts falling due within one year £’000 £’000Trade payables 12,330 9,685Capital creditors 1,490 1,822Other taxation and social security 3,644 3,337Other payables 149 305Deferred consideration – 7,738Accruals and deferred income 11,695 19,20229,308 42,089Capital creditors arise from the extended credit terms agreed on purchases of powered access equipment for the rental fleet.Deferred consideration is an amount payable to vendors of the business acquired during 2008, which fell due for payment in 2010 alongwith associated interest, and was settled by £6,798,000 in cash and the issue of 1,303,567 shares.18. Current tax liabilities2010 2009£’000 £’000Corporation tax 14,766 11,39919. Analysis of changes in net debt during the yearAt Currency At1 January Non translation 31 December2010 Cash flows cash items differences 2010£’000 £’000 £’000 £’000 £’000Cash and cash equivalents 75,986 (62,471) – (124) 13,391Bank debt due within one year (7,193) 6,374 (9,649) 350 (10,118)Bank debt due after one year (146,729) 57,545 9,649 3,225 (76,310)Guaranteed deferred consideration (4,060) – – – (4,060)Hire purchase and finance lease liabilities (100,066) 40,411 (5,358) 1,855 (63,158)(258,048) 104,330 (5,358) 5,430 (153,646)Net debt (182,062) 41,859 (5,358) 5,306 (140,255)Non-cash movements comprise the reclassification of bank debt due within one year and after one year, and new finance leasesentered into during the year.66 Lavendon Group plc 2010


20. Financial liabilities – borrowings2010 2009Current £’000 £’000Bank loans 10,118 7,193Guaranteed deferred consideration 4,060 –Hire purchase and finance lease liabilities 29,795 36,98843,973 44,181Guaranteed deferred consideration of £4,060,000 is payable on 1 April 2011 which is guaranteed by the Group’s bankers and is classifiedas part of the Group’s net debt.2010 2009Non-current £’000 £’000Bank loans 76,310 146,729Guaranteed deferred consideration – 4,060Hire purchase and finance lease liabilities 33,363 63,078109,673 213,867Bank loans are repayable as follows:2010 2009£’000 £’000In one year or less 10,118 7,193Between one and two years 13,704 10,123Between two and five years 62,606 136,60686,428 153,922Unamortised issue costs – –86,428 153,922The bank loans are secured by both fixed and floating charges on the assets of the Group.21. Financial instrumentsNumerical financial instruments disclosures are set out below. Additional disclosures are set out in note 22 relating to risk management.AssetsLiabilities£’000 £’000At 31 December 2010Interest rate swaps – cash flow hedge – 2,160At 31 December 2009Interest rate swaps – cash flow hedge – 2,741In accordance with IAS39 ‘Financial Instruments: recognition and measurement’, the Group has reviewed all contracts for embeddedderivatives that are required to be accounted for separately if they meet certain requirements set out in IAS39. No contracts requiringseparate accounting were identified that would have a material effect on the financial statements.Lavendon Group plc 2010 67


Notes to the financial statementsContinued21. Financial instruments continuedValuation hierarchyThe table below shows the financial instruments carried at fair value by valuation method.2010 2009Level 1 Level 2 Level 3 Level 1 Level 2 Level 3£000 £000 £000 £000 £000 £000LiabilitiesDerivative financial instruments– interest rate swaps – 2,160 – – 2,741 –The level 2 valuations are derived from Lloyds TSB Corporate Markets and Bank of Scotland Markets models, and are based on mid-marketlevels as of the close of business on 31 December 2010.Fair value gains of £518,000 (2009: loss of £660,000) relating to interest rate swaps have been recognised in equity. Interest rate swapcash flows are paid/received on a quarterly basis. Interest rate swaps are valued on a marked to market (‘MTM’) basis by establishedfinancial institutions.The notional principal amount of the outstanding interest rate swap contracts at 31 December 2010 and 31 December 2009 were£10,000,000 and €43,000,000.At 31 December 2010 the EURIBOR fixed interest rates secured by the interest rate swap contracts ranged from 3.62% to 4.25%,compared to the 1m EURIBOR floating interest rate at the year end of 0.782%. The fair value of the difference between fixed and floatinginterest rates is deferred in equity where hedging is effective and will reverse in the income statement during the next 21 months.At 31 December 2010 the LIBOR fixed interest rate secured by the interest rate swap contract was 4.09%, compared to the 1m LIBORfloating interest rate at the year end of 0.5925%. The fair value of the difference between fixed and floating interest rates is deferred inequity where hedging is effective and will reverse in the income statement during the next 13 months.Hedge of net investment in foreign entitiesThe Group has euro denominated borrowings which are designated as hedges of the net investment in its subsidiaries in Belgium, France,Germany and Spain. The foreign exchange loss on translation into sterling of £565,000 (2009: gain of £1,585,000) relating to thesehedged borrowings has been recognised in the net investment hedge reserve where hedging is effective. No ineffectiveness has beencharged to the income statement in the year (2009: £nil).Primary financial instruments held or issued to finance the Group’s operations:2010 2009Book value Fair value Book value Fair value£’000 £’000 £’000 £’000Cash and cash equivalents (note 16) (i) 13,391 13,391 75,986 75,986Short term borrowings (note 20) (43,973) (44,922) (44,181) (45,505)Trade and other payables (note 17) (i) (29,308) (29,308) (42,089) (42,089)Trade and other receivables (note 15) (i) 49,921 49,921 44,553 44,553Long term borrowings (note 20) (109,673) (110,294) (213,867) (215,433)(119,642) (121,212) (179,598) (182,488)Note:(i) Due to the short term nature of these assets and liabilities, it is considered that there is no material difference between the book value and fair value.68 Lavendon Group plc 2010


21. Financial instruments continuedThe fair values are based on cash flows discounted using a rate based on LIBOR plus 325 basis points and EURIBOR plus 325 basis points.Maturity of financial liabilitiesThe maturity profile of the carrying amount of the Group’s financial liabilities at 31 December, contractual undiscounted, was as follows:Trade Guaranteed Hire Otherand other Bank deferred purchase & non-currentpayables loans consideration finance leases liabilities Total2010 £’000 £’000 £’000 £’000 £’000 £’000Within 1 year or on demand 29,308 10,118 4,060 29,795 – 73,281Between 1 and 5 years – 76,310 – 33,363 – 109,67329,308 86,428 4,060 63,158 – 182,954Trade Guaranteed Hire Otherand other Bank deferred purchase & non-currentpayables loans consideration finance leases liabilities Total2009 £’000 £’000 £’000 £’000 £’000 £’000Within 1 year or on demand 42,089 7,193 – 36,988 – 86,270Between 1 and 5 years – 146,729 4,060 63,078 – 213,86742,089 153,922 4,060 100,066 – 300,137Financial liabilities by currency2010 2009Euro Sterling Euro Sterlingdenominated denominated Total denominated denominated Total£’000 £’000 £’000 £’000 £’000 £’000Trade and other payables 8,085 21,223 29,308 10,762 31,327 42,089Bank loans 75,428 11,000 86,428 130,922 23,000 153,922Guaranteed deferred consideration - 4,060 4,060 – 4,060 4,060Hire purchase and finance leases 27,342 35,816 63,158 38,804 61,262 100,066Other non-current liabilities – – – – – –110,855 72,099 182,954 180,488 119,649 300,137Borrowing facilitiesThe Group has the following undrawn committed borrowing facilities available at 31 December in respect of which all conditionsprecedent had been met at that date:FloatingFixedrate rate 2010 2009£’000 £’000 £’000 £’000Expiring in less than 1 year 2,000 – 2,000 2,000Expiring in more than 1 year and less than 5 years 64,392 – 64,392 27,40066,392 – 66,392 29,400Lavendon Group plc 2010 69


Notes to the financial statementsContinued21. Financial instruments continuedThe minimum lease payments under hire purchase and finance leases fall due as follows:2010 2009£’000 £’000Not later than one year 32,815 43,780Later than one year but not more than five years 35,436 64,46168,251 108,241Future finance charges on hire purchase and finance leases (5,093) (8,175)Present value of hire purchase and finance lease liabilities 63,158 100,066The Group enters hire purchase and finance leases on standard five year terms, requiring full repayment of the principal amounts over theterm of the agreement.22. Financial risk managementCapital risk managementThe Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to providereturns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the overall cost of capital.There were no changes in the Group’s approach to capital risk management during the year.Consistent with other companies in the rental industry, the Group monitors capital on the basis of return on capital employed and theratio of net debt to equity.2010 2009£’000 £’000Total borrowings (note 19) 153,646 258,048Less: cash and cash equivalents (note 16) (13,391) (75,986)Net debt 140,255 182,062Total equity 180,144 174,421Debt to equity ratio 78% 104%The ratio of net debt to equity decreased during the year, as a result of the Group’s net debt levels reducing. The principal cause of thesemovements was the reduction in net debt by the application of operational cash flows.The Group has exposure to the following principal risks:• market risk;• credit risk; and• liquidity risk.The Group’s overall risk management policy aims to minimise the potential adverse effects of financial markets on the Group’s financialperformance. The Group uses derivative financial instruments to hedge certain risk exposures.Risk management is carried out centrally by the Group except for customer credit risk which is the responsibility of each operational entity.70 Lavendon Group plc 2010


22. Financial risk management continued1. Market riskMarket risk is the risk that the Group’s income, or its financial instruments, will be affected by changes in market prices, for example interestrates or foreign exchange rates. The Group has exposure to interest rate risk on its financial liabilities. The risk is managed by a combinationof interest rate swaps and fixed rate hire purchase and finance lease agreements. Interest rate risk is presented in the Operating andFinancial Review on page 18.The Group also has exposure to movements in foreign exchange rates. This risk is minimised through the use of foreign currencyborrowings and net investment hedging. The effect on the Group’s 2010 results due to movements in foreign exchange rates ispresented in the Operating and Financial Review on page 8.2. Credit riskCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractualobligations. Such risk arises principally from the Group’s receivables from customers, cash and bank balances, and interest rate swaps.The Group’s maximum exposure to credit risk is shown in the table below:2010 2009£’000 £’000Cash and cash equivalents (note 16) 13,391 75,986Trade and other receivables (note 15) 49,921 48,139Interest rate swaps – –63,312 124,125Cash and cash equivalentsSurplus cash is held in current and deposit accounts with established financial institutions. All the financial institutions have at least aMoody’s credit rating of Baa.Trade and other receivablesThe management of credit risk exposure to customers is the responsibility of each operation who have formal credit policies in place tomitigate this risk. The credit policies require that the credit worthiness of a customer is assessed prior to trading and that the level ofexposure to that customer remains within agreed credit limits. To support these policies, the Group maintains certain levels of creditinsurance for its main operating subsidiaries.The Group’s only exposure to concentrations of credit risk is to geographic and industry sector risk. As set out in the Operating andFinancial Review on page 6 the construction sector is an important market and particularly sensitive to pricing levels. This exposure isactively managed with efforts being focused on widening the Group’s customer base to other sectors.No individual customer makes up more than 2% of revenue (2009: 2%).Analysis of trade receivablesThe ageing of trade receivables at the reporting date was:Gross Impairment Gross Impairment2010 2010 2009 2009£’000 £’000 £’000 £’000Not past due 26,863 5 23,907 4Less than 1 month past due 9,988 19 10,965 901 to 3 months past due 5,641 136 6,978 6733 to 6 months past due 3,094 941 3,955 1,796More than 6 months past due 5,607 3,532 2,304 1,47251,193 4,633 48,109 4,035The Group defines impaired receivables to include those in legal hands or that are unrecoverable due to financial difficulties. Over 90% ofaccounts receivable that are more than 6 months past due but not impaired are covered by credit insurances.Lavendon Group plc 2010 71


Notes to the financial statementsContinued22. Financial risk management continuedThe carrying amount of the Group’s trade and other receivables are denominated in the following currencies:2010 2009£’000 £’000Sterling 21,124 21,394Euros 16,421 15,259Middle East currencies 12,376 11,48649,921 48,1393. Liquidity riskLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group aims to achieve a balancebetween certainty of funding and a flexible, cost effective borrowing structure. The Group has committed bank facilities of £80 millionand €87.5 million which finally mature in September 2013. This is supplemented by hire purchase and finance lease facilities. The Groupaims to ensure that there are sufficient funds or credit lines available to supplement cash flows generated from trading to meet knownobligations in the next twelve months. An analysis of liquidity risk, being the maturity of financial liabilities and the undrawn committedborrowing facilities is presented in note 21.The Group’s financial liabilities are analysed in note 20.23. Deferred tax liabilitiesThe movement on the deferred tax account is shown below:2010 2009£’000 £’000At 1 January 25,748 32,518Credited to income statement (3,012) (6,150)Effect of the tax rate change in the UK (629) –Share based payments – (credited)/debited to the income statement (140) 48Share based payments – (credited)/debited to equity (172) 38Cash flow hedge 154 (185)Currency translation differences (327) (521)At 31 December 21,622 25,748The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS12)during the year are shown on page 73. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offsetand there is an intention to settle the balances net.During the year, a deferred tax asset has been recognised based on brought forward tax losses of £23,456,000 (2009: £30,926,000losses), which in the opinion of the directors are more likely than not to be realised.There are unrecognised deferred tax assets relating to trading losses in overseas operations. The losses which have not been recognisedamount to £31,427,000 (2009: £29,074,000).72 Lavendon Group plc 2010


23. Deferred tax liabilities continuedDeferred tax liability/(asset)Share based Accelerated tax Cash flow Tax Intangiblepayments depreciation hedge losses assets Total£’000 £’000 £’000 £’000 £’000 £’000At 1 January 2010 (110) 34,006 (767) (9,426) 2,045 25,748Adjustment in respect of prior years (30) (687) 30 360 – (327)(Credited)/debited to income statement (140) (3,489) – 1,417 (613) (2,825)Effect of the tax rate change in the UK – (598) – – (31) (629)Amounts taken directly to equity (172) – 154 – – (18)Currency translation differences – (738) – 451 (40) (327)At 31 December 2010 (452) 28,494 (583) (7,198) 1,361 21,622Share based Accelerated tax Cash flow Tax Intangiblepayments depreciation hedge losses assets Total£’000 £’000 £’000 £’000 £’000 £’000At 1 January 2009 (196) 38,298 (582) (9,357) 4,355 32,518Adjustment in respect of prior years – 206 – (206) – –Debited/(credited) to income statement 48 (3,641) – (353) (2,156) (6,102)Amounts taken directly to equity 38 – (185) – – (147)Currency translation differences – (857) – 490 (154) (521)At 31 December 2009 (110) 34,006 (767) (9,426) 2,045 25,748Certain deferred tax assets and liabilities have been offset as they arise in the same jurisdiction and there is an intention to settle thebalances net. The following is the analysis of the deferred tax balances prior to offset for financial reporting purposes:2010 2009£’000 £’000Deferred tax liabilities 30,556 36,345Deferred tax assets (8,934) (10,597)21,622 25,74824. Called up share capital2010 2009£’000 £’000Allotted, called up and fully paid:164,516,316 (2009: 162,872,456) ordinary shares of 1p each 1,645 1,629Reconciliation of movement in ordinary shares2010 2009Number £’000 Number £’000At 1 January 162,872,456 1,629 46,232,385 462Shares issued in the year 1,303,567 13 116,357,199 1,164Allotted under Long Term Incentive Plan – – 97,357 1Allotted under share option schemes 5,018 – – –Issued and allotted under the SIP 335,275 3 185,515 2At 31 December 164,516,316 1,645 162,872,456 1,629Lavendon Group plc 2010 73


Notes to the financial statementsContinued25. Share based paymentsThe Group operates five equity settled compensation plans:• the Lavendon Group 1996 Company Share Option Plan (the “Employee Scheme”);• the Lavendon Group 1996 Unapproved Executive Share Option Scheme (the “Executive Scheme”);• the Lavendon Group Share Matching Plan 2005 (the “Plan”);• the Lavendon Group Long Term Incentive Plan (the “LTIP”); and• the Lavendon Group Share Incentive Plan (the “SIP”).The total charge for the year relating to the five equity settled compensation plans was £511,000 (2009: £9,000), all of which related to equitysettled share based payment transactions. After deferred tax credited/debited to the income statement, the total charge was £371,000(2009: £57,000).Share option schemesThe Company established two share option schemes on 10 October 1996. The Company has made periodic grants of options under bothschemes, details of which are given in the Directors’ Report on pages 27 to 32. Both the Employee Scheme and the Executive Schemeclosed in October 2006. Consequently no further awards have been made since that date.The fair value of the share options is based on historic volatility of the share price over the last five years. The expected life is the averageexpected period to exercise. The risk free rate of return is the yield on zero coupon UK government bonds of a term consistent with theassumed option life.A reconciliation of the option movements over the year to 31 December 2010 is shown below:2010 2009Weighted averageWeighted averageexercise priceexercise priceNumber (pence) Number (pence)Outstanding at 1 January 1,564,826 131.7 1,226,185 183.50Outstanding at 1 January (restated) 1,564,826 131.7 1,704,274 132.0Forfeited (536,354) 110.1 (139,448) 135.7Exercised (5,018) 65.0 – –Outstanding at 31 December 1,023,454 143.3 1,564,826 131.7Exercisable at 31 December 1,023,454 143.3 1,564,826 131.7A full analysis of all the above options is given in the Directors’ Report and Remuneration Report on pages 29 and 25 respectively.The weighted average share price during the period for options exercised over the year was 65p (2009: nil pence).Long term incentive planThe Lavendon Group Long Term Incentive Plan (“the LTIP”) was approved at the Company’s Annual General Meeting on 28 April 2006.Under the LTIP, participants are granted awards in the form of a conditional allocation of ordinary shares in the Company or a nil costoption. Awards will normally vest on or following the third anniversary of grant once the applicable performance conditions have beensatisfied. For awards issued prior to 31 December 2009, the vesting of 50% of each award will be based on the Company’s totalshareholder return (“TSR”) performance and the vesting of the other half of the award will be based on the Company’s Earnings Per Share(“EPS”) performance. For options issued on or after 31 December 2009, the award is based on the TSR performance relative to the returnon the FTSE Small Cap Index – excluding Investment Trusts. Following the capital raising on 8 December 2009 the EPS performancemeasure was adjusted. The TSR performance measure was unadjusted.74 Lavendon Group plc 2010


25. Share based payments continuedGrants made in 2008For grants made in 2008, the performance condition will require the Company’s EPS in 2010 to be at least equal to 30.22p (restated) for7.5% of the awards to vest and greater than or equal to 44.61p (restated) for 50% of the awards to vest. The awards will vest on a straightline basis between these minimum and maximum thresholds. EPS will be measured by reference to the fully diluted EPS as disclosed in theaudited annual financial statements adjusted to exclude unusual or non-recurring items at the discretion of the Remuneration Committee.The vesting of the TSR-related half of the 2008 awards will require the Company’s TSR performance over a single three year period to be atleast £5.00 for 7.5% of the awards to vest, increasing on a straight line basis to 50% of the awards vesting if the share price is at least £7.50.The actual share price performance of the Company will be adjusted to take into account the impact of dividends and any capital adjustments.Grants made in 2009For grants made in 2009, the performance condition will require the Company’s EPS in 2011 to be at least equal to 33.10p for 7.5% ofthe awards to vest and greater than or equal to 48.92p for 50% of the awards to vest. The awards will vest on a straight line basisbetween these minimum and maximum thresholds. EPS will be measured by reference to the fully diluted EPS as disclosed in the auditedannual financial statements adjusted to exclude unusual or non-recurring items at the discretion of the Remuneration Committee.The vesting of the TSR-related half of the 2009 awards will require the Company’s TSR performance over a single three year period to be atleast £5.00 for 7.5% of the awards to vest, increasing on a straight line basis to 50% of the awards vesting if the share price is at least £7.50.The actual share price performance of the Company will be adjusted to take into account the impact of dividends and any capital adjustments.Grants made in 2010For grants made in 2010, the performance condition is based on the Group’s TSR performance relative to the performance of the FTSE SmallCap Index excluding Investment Trusts (the “Index”) over the vesting period. The vesting of the awards will require the Company’s TSRperformance over a single three year period to be at least equal to that of the Index for 15% of the awards to vest, increasing on a straight linebasis to 100% of the awards vesting if the TSR exceeds the index by 60% or more. The actual share price performance of the Company will beadjusted to take into account the impact of dividends and any capital adjustments.The assumptions used to calculate the fair value of the awards made in 2010 are detailed below:TSRShare price at grant date (pence) 89No. of employees 46Rights granted 4,396,138Vesting period (years) 3Award pricing modelMonte Carlo% expected to vest 85%Fair value of award (pence) 40.8pLavendon Group plc 2010 75


Notes to the financial statementsContinued25. Share based payments continuedShare Incentive Plan (“The SIP”)In November 2007 the Group introduced the Lavendon Group plc Share Incentive Plan.335,275 SIP shares (2009: 185,515) were issued during the year of which 133,068 shares were SIP matching shares (2009: 73,338). Thefair values are calculated by applying the following models:Share Incentive Plan – Black-Scholes option pricing model:Share pricePrice at date of grantExercise priceNil pence per shareExpected share price volatility 65% - 69%Expected share price volatility is estimated by calculating the annualised daily volatility of the share price over the preceding three years.Expected dividendsBased on historical dividend yieldRisk-free interest 3.61% - 4.35%Levels of early exercises and lapses are estimated using historical averages.26. Related party transactionsThe following transactions were carried out with joint ventures:2010 2009£’000 £’000Sales of goods and services to related parties: with joint ventures 37 44Purchase of goods and services from related parties: with joint ventures 80 125Sales and purchases to and from joint ventures were carried out on commercial terms and conditions at market prices.Year end balances arising from sales and purchases of goods and services are as follows:2010 2009£’000 £’000Accounts receivable from related parties: with joint ventures 5 23Accounts payable to related parties: with joint ventures – –27. Leasing commitments – minimum lease payments under operating leases2010 2009Land &Land &buildings Other buildings Other£’000 £’000 £’000 £’000Commitments under non-cancellable operating leases expiring:Within one year 6,347 4,127 6,816 4,789Later than one year and less than five years 13,961 3,782 12,722 6,032After five years 8,392 35 7,801 –28,700 7,944 27,339 10,82176 Lavendon Group plc 2010


28. Capital commitments2010 2009£’000 £’000Capital expenditure that has been contracted for by the Group but has not yetbeen provided for in the financial statements at 31 December 12 2,07629. Contingent liabilitiesThe Group has no significant contingent liabilities at 31 December 2010 (2009: nil).30. Joint ventureIn April 2009 the Construction Site Solutions Limited Liability Partnership (CSS LLP), a consortium consisting of Hewden Stuart plc,Lavendon Group plc, Speedy Hire plc and The BSS Group plc was granted a licence from Olympic Delivery Agency to supply plant andbuilders merchant products to on site contractors. Each consortium member has a 25% stake in CSS LLP.CSS LLP is incorporated in the United Kingdom and qualifies as a joint venture under IFRS and has been accounted for using the equitymethod. At 31 December 2010 the balances relating to the joint venture were not separately disclosed in the financial statementsbecause they were not material. The following amounts represent the Group’s 25% share of income, expenses, assets and liabilities ofCSS LLP for the years ended 31 December 2009 and 2010.2010 2009£’000 £’000Income 67 125Expenses (117) (74)Non-current assets 91 119Current assets 78 270Total assets 169 389Current liabilities (43) (62)Non-current liabilities – –Total liabilities (43) (62)Net assets 126 327There were no contingent liabilities relating to the CSS LLP joint venture, incurred either jointly with the other venturers or for which theGroup is liable for in relation to another venturer at 31 December 2010 (2009: nil).The capital commitments relating to the CSS LLP joint venture at 31 December 2010 were nil (2009: £314,000).Lavendon Group plc 2010 77


Independent auditors’ reportto the members of Lavendon Group plcWe have audited the parent company financial statements of Lavendon Group plc for the year ended 31 December 2010 which comprisethe company balance sheet and the related notes. The financial reporting framework that has been applied in their preparation isapplicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).Respective responsibilities of directors and auditorsAs explained more fully in the Directors’ Responsibilities Statement set out on page 33 the directors are responsible for the preparationof the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit andexpress an opinion on the parent company financial statements in accordance with applicable law and International Standards onAuditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed byour prior consent in writing.Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonableassurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes anassessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistentlyapplied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overallpresentation of the financial statements.Opinion on financial statementsIn our opinion the parent company financial statements:• give a true and fair view of the state of the company’s affairs as at 31 December 2010;• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and• have been prepared in accordance with the requirements of the Companies Act 2006.Opinion on other matters prescribed by the Companies Act 2006In our opinion:• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and• the information given in the Directors’ Report for the financial year for which the parent company financial statements are prepared isconsistent with the parent company financial statements.Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been receivedfrom branches not visited by us; or• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement withthe accounting records and returns; or• certain disclosures of directors’ remuneration specified by law are not made; or• we have not received all the information and explanations we require for our audit.Other matterWe have reported separately on the group financial statements of Lavendon Group plc for the year ended 31 December 2010.Matthew Mullins (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory Auditors, Birmingham1 March 201178 Lavendon Group plc 2010


Company balance sheet(prepared in accordance with UK GAAP)as at 31 December 20102010 2009Notes £’000 £’000Fixed assetsInvestments 4 193,746 193,235Current assetsDebtors 5 179,675 193,541Cash at bank and in hand 574 65,445180,249 258,986Creditors: amounts falling due within one year 6 (47,089) (50,702)Net current assets 133,160 208,284Total assets less current liabilities 326,906 401,519Creditors: amounts falling due after more than one year 7 (76,310) (146,729)Net assets 250,596 254,790Capital and reservesCalled up share capital 9 1,645 1,629Share premium account 10 104,395 103,258Capital redemption reserve 10 4 4Profit and loss account:– distributable reserves 10 82,119 87,977– non-distributable reserves 10 62,433 61,922Total shareholders’ funds 11 250,596 254,790The financial statements on pages 79 to 85 were approved by the Board of Directors on 1 March 2011 and were signed on its behalf by:John StandenChairmanAlan MerrellGroup Finance DirectorThe notes on pages 80 to 85 form an integral part of these financial statements.Lavendon Group plc 2010 79


Notes to the Company’s financial statementsfor the year ended 31 December 20101. Principal accounting policiesThe financial statements have been prepared in accordance with the Companies Act 2006 and applicable Accounting Standards in theUnited Kingdom (UK GAAP). The principal accounting policies and estimation techniques have been applied consistently and are setout below:Basis of accountingThe financial statements are prepared in accordance with the historical cost convention.Adoption of new accounting standardsNo new Financial Reporting Standards (“FRS’s”) were adopted during the year.Foreign currenciesTransactions denominated in foreign currencies are translated into the functional currency at the exchange rates ruling at the time of thetransactions. With the exception of exchange movements on foreign currency borrowings which hedge the cost of investment inoverseas subsidiaries, all other foreign exchange gains or losses are dealt with through the profit and loss account.Fixed asset investmentsInvestments are included at cost stated at the historical sterling value at the time of investment other than where overseas investmentsare hedged by foreign currency borrowings in which case the investment is included at cost, restated at the year end sterling value at thebalance sheet date and any exchange movement is taken to reserves. Where appropriate, the carrying values of fixed asset investmentsare measured by reference to their discounted future operational cash flows, or their imputed resale value, and provision is made for anydiminution in value where necessary.Share based paymentsThe Company operates a number of equity settled, share based compensation plans on behalf of the Group.The fair value of the employee services received under such plans is recognised as an expense in the profit and loss account. Fair value isdetermined by use of the Black Scholes Option Pricing Model for share option schemes and the Share Incentive Plan, and in the case ofShare Matching Plan and the Long-Term Incentive Plan, by use of a Monte Carlo simulation. The amount to be expensed over the vestingperiod is determined by reference to the fair value of share incentives, excluding the impact of any non-market vesting conditions. Nonmarketvesting conditions are considered as part of the assumptions about the number of share incentives that are expected to vest. Ateach balance sheet date, the Company revises its estimates of the number of share incentives that are expected to vest. The impact ofthe revision on original estimates, if any, is recognised in the profit and loss account, with a corresponding adjustment to equity, over theremaining vesting period.Share-based transactions involving treasury shares or involving Group entities (for example, options over the Parent Company’s shares)are accounted for as equity-settled share-based payment transactions in the stand-alone accounts of the Parent Company and theGroup.Dividend distributionDividend distributions to Lavendon shareholders are recognised in the Company’s financial statements in the periods in which thedividends are approved, or when paid in the case of an interim dividend.Borrowings and borrowing costsAll loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with theborrowing. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and theredemption value is recognised in the profit and loss account over the period of the borrowings.Borrowing costs are expensed in the period in which they are incurred, except for issue costs, which are amortised over the expectedperiod of the borrowing to the profit and loss account.Interest costs are recorded in the profit and loss account in the period to which they relate.80 Lavendon Group plc 2010


1. Principal accounting policies continuedTrade debtorsTrade debtors are recognised and carried at original invoice amount less provision for impairment. A provision for impairment of tradedebtors is established when there is objective evidence that the Company will not be able to collect all amounts due according to theoriginal terms of debtor. The amount of the provision is recognised in the profit and loss account.The cost of unrecoverable trade debtors is recognised in the profit and loss account immediately.Trade creditorsWhen a financial liability is recognised initially, the Company measures it at its fair value plus, in the case of a financial asset or financialliability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financialasset or financial liability. After initial recognition, the Company measures all financial liabilities at amortised cost using the effectiveinterest rate method.TaxationThe tax expense represents the sum of the tax currently payable and deferred tax.The tax currently payable is based on taxable profit for the year. Taxable profit can differ from net profit/loss as reported in the profit andloss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes itemsthat are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been enacted orsubstantively enacted by the balance sheet date.Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in thefinancial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balancesheet liability method.2. Profit for the financial yearAs permitted by Section 408 of the Companies Act 2006, the parent Company’s profit and loss account has not been presented in thesefinancial statements. The parent Company’s loss after tax for the financial year was £4,338,000 (2009: loss of £10,980,000).3. Employee informationThe Company has no employees. Non-executive directors of the Company are employed under service contacts. Full details regardingtheir remuneration are disclosed in the Remuneration Report on pages 22 to 26.Lavendon Group plc 2010 81


Notes to the Company’s financial statementsContinued4. Fixed asset investments2010 2009Interests in subsidiary undertakings £’000 £’000CostAt 1 January 193,235 193,226Additions – contribution to subsidiary undertakings in respect of share based payments 511 9At 31 December 193,746 193,235Interests in subsidiary undertakingsThe Company, which is the holding company of the Group, has the following principal subsidiaries, unless stated otherwise:Voting rights andCountry of Issued and fully paid shares held byName incorporation Principal activity share capital The Company A subsidiaryLavendon Holdings Limited United Kingdom Investment holding company 28,051,902 ordinary shares of £1 each 100%Zooom Holdings United Kingdom Investment holding company 29,031,531 ordinary shares of £1 each 100%(UK) Limited2,157,569 irredeemable preferenceshares of £0.01 each 100%Lavendon Access Services United Kingdom Investment holding company 3 ordinary shares of £1 each 100%(International) Limited329,455 irredeemable preferenceshares of £0.01 each 100%Lavendon Holdings Germany Investment holding company €917,499 100%(Deutschland) GmbHLavendon Access Services United Kingdom Rental of specialist powered 250,000 ordinary shares(UK) Limited access equipment of £1 each 100%Panther Platform United Kingdom Rental of specialist powered 175 ordinary shares of £1 each 100%Rentals Limitedaccess equipmentGardemann Arbeitsbuhnen Germany Rental of specialist powered €25,565 100%GmbHaccess equipmentLavendon Access Services France Rental of specialist powered 1,562,500 ordinary shares 100%SAS access equipment of €16 eachLavendon Access Services Spain Rental of specialist powered 550,500 ordinary shares 100%SLU access equipment of €10 eachRapid Access BV (i) Netherlands Investment holding company 40,001 ordinary shares of NLG1 each 100%Zooom Holdings Belgium Investment holding company €100,000 100%(Belgium) N.V.dk Rental N.V. Belgium Rental of specialist powered 1,443,731 ordinary shares of 100%access equipment€1 eachRapid Access LLC (ii) United Arab Rental of specialist powered 300 ordinary shares 49%Emirates access equipment of Dhs1,000 eachRapid Access (Bahrain) Bahrain Rental of specialist powered 200 ordinary shares 49%WLL (iii) access equipment of BD100 eachAll of the above subsidiaries are included in the consolidated financial statements of the Group.Notes:(i) The denomination and value of the share capital of Rapid Access BV remains in the pre euro currency of Netherlands Guilders (NLG) at 31 December 2010.(ii) Rapid Access BV has a 49% interest in the shares of Rapid Access LLC. The Company has a right to give directions with respect to the operating and financial policies ofRapid Access LLC and is considered to have control and as such treats Rapid Access LLC as a wholly owned subsidiary for the Group’s accounting purposes.(iii) Lavendon Access Services (International) Limited has a 49% interest in the shares of Rapid Access (Bahrain) WLL. The Company has a right to give directions with respect tothe operating and financial policies of Rapid Access (Bahrain) WLL and is considered to have control and as such treats Rapid Access (Bahrain) WLL as a wholly ownedsubsidiary for the Group’s accounting purposes.82 Lavendon Group plc 2010


5. Debtors2010 2009£’000 £’000Amounts falling due within one year:Amounts owed by subsidiary undertakings 179,597 193,382Other debtors 78 159179,675 193,5416. Creditors: amounts falling due within one year2010 2009£’000 £’000Amounts owed to subsidiary undertakings 35,484 37,399Bank loans 9,636 6,748Accruals and deferred income 1,969 6,55547,089 50,7027. Creditors: amounts falling due after more than one year2010 2009£’000 £’000Bank loans 76,310 146,729Bank loans are repayable as follows: 2010 2009£’000 £’000– In one year or less 9,636 6,748– Between one and two years 13,704 10,123– Between two and five years 62,606 136,60685,946 153,477Unamortised issue costs – –85,946 153,477The Group’s banking facilities are secured on the majority of the Group’s assets both in the UK and overseas. The Group’s bank margin as at31 December 2010 was 325 basis points over LIBOR or EURIBOR depending upon the currency of the loan.Further detail in respect of bank loans is included in note 20 to the Group financial statements on page 67.8. Provisions for liabilities and chargesThe Company had no deferred tax liability at 31 December 2010 (2009: £nil).Lavendon Group plc 2010 83


Notes to the Company’s financial statementsContinued9. Called up share capital2010 2009£’000 £’000Allotted, called up and fully paid:164,516,316 (2009: 162,872,456) ordinary shares of 1p each 1,645 1,629Details of movements in share capital are given in note 24 to the Group financial statements on page 73.10. Share capital and reservesShare Capital Distributable Non-distributableShare premium redemption profit and loss profit and losscapital account reserve account account Total£’000 £’000 £’000 £’000 £’000 £’000At 1 January 2010 1,629 103,258 4 87,977 61,922 254,790Loss for the year – – – (4,338) – (4,338)Share based payments – – – – 511 511Dividends paid in the year – – – (1,520) – (1,520)Shares issued 16 1,137 – – – 1,153At 31 December 2010 1,645 104,395 4 82,119 62,433 250,596Non-distributable profit and loss reserves relate to profits made on disposal of investments to other Group companies. Total profit andloss account reserves for the Company amount to £144,552,000 (2009: £149,899,000).11. Reconciliation of movement in total shareholders’ funds2010 2009£’000 £’000Loss after taxation for the year (4,338) (10,980)Share based payments 511 9Dividends paid in the year (1,520) (1,246)Shares issued 1,153 2,464Shares issued under capital raising – 79,676Fees of capital raising – (4,198)(4,194) 65,725Total opening shareholders’ funds 254,790 189,065Total closing shareholders’ funds 250,596 254,79084 Lavendon Group plc 2010


12. Related party transactionsThe Company is exempt under the terms of Financial Reporting Standard 8, “Related party disclosures” from disclosing related partytransactions with entities that are part of the Group or investees of the Group.13. Capital commitmentsThe Company has no capital commitments at 31 December 2010 (2009: £nil).14. Contingent liabilitiesThe Company is party to an unlimited cross guarantee to secure the bank facilities of its UK and German subsidiary undertakings, whichamounted to £nil at 31 December 2010 (2009: £nil).The Company is also party to guarantees totalling £43,852,000 at 31 December 2010, in respect of deferred consideration obligations,hire purchase and finance lease agreements of subsidiary companies (2009: £65,120,000).15. Cash flow statementThe Company is exempt from the requirement to publish a cash flow statement because a consolidated cash flow statement for theGroup has been presented on page 44.Lavendon Group plc 2010 85


Group five year financial historyRestated(vi)2010 2009 2008 2007 2006Note £million £million £million £million £millionTurnover 225.4 226.9 259.8 193.0 131.6Trading profit (EBITDA):– before exceptional items (i) 70.2 80.4 97.3 64.1 38.3– after exceptional items (i) 70.2 70.8 93.7 61.6 38.3Depreciation 45.5 49.4 50.8 33.6 25.0Amortisation 2.4 3.5 4.3 1.8 0.7Total depreciation and amortisation 47.8 52.9 55.1 35.4 25.7Exceptional cost of sales – 16.1 – – –Exceptional operating expenses – 36.2 3.6 2.5 –Exceptional interest payable – 5.9 – – –Total exceptional items (i) – 58.2 3.6 2.5 –Operating profit/(loss):– before amortisation charges and exceptional operating items (ii) 24.7 31.1 46.4 30.5 13.4– after amortisation charges and exceptional operating items (ii) 22.3 (24.7) 38.5 26.2 12.7Pre-tax profit/(loss):– before amortisation charges and exceptional items (i) 13.1 13.9 30.4 23.2 8.4– after amortisation charges and exceptional items (i) 10.7 (47.8) 22.5 18.9 7.7Cash generated from operations 67.9 76.7 74.8 58.5 36.9Capital expenditure 14.7 12.9 59.0 50.0 35.5Net borrowings (iii) 140.3 182.1 305.0 185.7 99.0Shareholders' funds 180.1 174.4 147.8 119.4 94.2StatisticsTrading profit (EBITDA) margin:– before exceptional items (i) 31.1% 35.4% 37.5% 33.2% 29.1%– after exceptional items (i) 31.1% 31.2% 36.1% 31.9% 29.1%Depreciation and amortisation (as % of turnover) 21.2% 23.3% 21.2% 18.3% 19.5%Operating profit/(loss) margin:– before amortisation charges and exceptional operating items (ii) 11.0% 13.7% 17.9% 15.8% 10.2%– after amortisation charges and exceptional operating items (ii) 9.9% (10.9%) 14.8% 13.6% 9.7%Pre-tax profit/(loss) margin:– before amortisation charges and exceptional items (i) 5.8% 6.1% 11.7% 12.0% 6.4%– after amortisation charges and exceptional items (i) 4.7% (21.1%) 8.7% 9.8% 5.9%Earnings/(loss) per share – basic (iv) 4.90p (77.45p) 37.43p 35.48p 17.78pUnderlying earnings/(loss) per share – basic (v) 5.94p 19.16p 50.55p 45.12p 19.37pDebt/equity ratio 78% 104% 206% 156% 105%Notes:(i) Exceptional items represents the total of exceptional cost of sales, exceptional operating expenses and exceptional interest payable.(ii) Exceptional operating items represent the total exceptional cost of sales and exceptional operating expenses.(iii) Net borrowings represent bank, hire purchase and other indebtedness, less cash at bank and in hand.(iv) Basic earnings per share has been restated for the impact of the capital raising comprising of a Firm Placing and a Placing and Open Offer completed on 8 December 2009.(v) Underlying earnings per share – basic has been restated for the impact of the capital raising comprising of a Firm Placing and a Placing and Open Offer completed on8 December 2009. Underlying earning per share – basic is stated before amortisation charges and exceptional items. The impact of taxation on the amortisation chargesfor 2005-2007 has been calculated using a rate of 30%.(vi)All figures have been restated for IAS16 (amendment), ‘Property, plant and equipment’ (and consequential amendment to IAS7, ‘Statement of cash flows’)(effective from 1 January 2009).86 Lavendon Group plc 2010


Notice and agenda of annual general meetingThis document is important and requires your immediate attention. If you are in any doubt as to what action to take, you shouldconsult your stockbroker, solicitor, accountant or other appropriate independent professional adviser authorised under the FinancialServices and Markets Act 2000. If you have sold or otherwise transferred all your shares in Lavendon Group plc, please forward thisdocument and the accompanying form of proxy to the person through whom the sale or transfer was effected, for transmission to thepurchaser or transferee.A form of proxy for the Annual General Meeting is enclosed. Whether or not you intend to be present at the meeting, please complete theform of proxy and return it in accordance with the instructions printed on it so as to reach the Company’s registrar no later than 11.30 a.m.on 18 April 2011. Alternatively, you can register your proxy vote electronically if you are a CREST member, by using the service provided byEuroclear. Further details are given in note 3. Completion and return of the form of proxy will not prevent you from attending and voting atthe meeting in person, should you so wish.The Board of Lavendon Group plc considers all of the proposed resolutions to be in the best interests of the shareholders and accordinglyrecommends that shareholders vote in favour of all of the resolutions proposed as they intend to do in respect of their own beneficial holdings.Notice is hereby given that the Annual General Meeting of Lavendon Group plc will be held at Financial Dynamics, Holborn Gate,26 Southampton Buildings, London WC2A 1PB on 20 April 2011 at 11.30 a.m. to consider and, if thought fit to pass, the following resolutions.It is intended to propose resolutions 10 and 11 as special resolutions. All other resolutions will be proposed as ordinary resolutions.1. To receive the accounts for the financial year ended 31 December 2010, together with the reports of the directors and auditors thereon.2. To declare a final dividend of 0.67 pence per ordinary share in respect of the year ended 31 December 2010.3. In accordance with article 105 of the Company’s Articles of Association, to re-appoint Kevin Appleton, who is submitting himself forre-appointment, as a director of the Company.4. In accordance with article 109 of the Company’s Articles of Association, to re-appoint Andrew Wood, who is submitting himself forre-appointment, as a director of the Company.5. In accordance with article 109 of the Company’s Articles of Association, to re-appoint Jan Åstrand, who is submitting himself forre-appointment, as a director of the Company.6. To re-appoint PricewaterhouseCoopers LLP as auditors of the Company.7. To authorise the directors to set the remuneration of the auditors.8. To approve the directors’ remuneration report for the financial year ended 31 December 2010.9. That the directors be generally and unconditionally authorised for the purposes of Section 551 of the Companies Act 2006 (the “Act”),to exercise all the powers of the Company to allot shares and grant rights to subscribe for, or convert any security into, shares:(a) up to an aggregate nominal amount (within the meaning of Section 551(3) and (6) of the Act) of £548,504 (such amount to bereduced by the nominal amount allotted or granted under (b) below in excess of such sum); and(b) comprising equity securities (as defined in Section 560 of the Act) up to an aggregate nominal amount (within the meaning ofSection 551(3) and (6) of the Act) of £1,097,008 (such amount to be reduced by any allotments or grants made under (a) above)in connection with or pursuant to an offer by way of a rights issue in favour of holders of ordinary shares in proportion (as nearlyas practicable) to the respective number of ordinary shares held by them on the record date for such allotment (and holders of anyother class of equity securities entitled to participate therein or if the directors consider it necessary, as permitted by the rights ofthose securities), but subject to such exclusions or other arrangements as the directors may consider necessary or appropriate todeal with fractional entitlements, treasury shares, record dates or legal, regulatory or practical difficulties which may arise under thelaws of, or the requirements of any regulatory body or stock exchange in any territory or any other matter whatsoever,these authorisations to expire at the conclusion of the next Annual General Meeting of the Company (or if earlier on 31 May 2012),(save that the Company may before such expiry make any offer or agreement which would or might require shares to be allotted orrights to be granted, after such expiry and the directors may allot shares, or grant rights to subscribe for or to convert any security intoshares, in pursuance of any such offer or agreement as if the authorisations conferred hereby had not expired).Lavendon Group plc 2010 87


Notice and agenda of annual general meetingContinued10. That, subject to the passing of resolution 9 set out in the notice of the 2011 Annual General Meeting of the Company, the directorsbe given power pursuant to Sections 570(1) and 573 of the Companies Act 2006 (the “Act”) to:(a) allot equity securities (as defined in Section 560 of the Act) of the Company for cash pursuant to the authorisation conferred bythat resolution; and(b) sell ordinary shares (as defined in Section 560(1) of the Act) held by the Company as treasury shares for cash,as if Section 561 of the Act did not apply to any such allotment or sale, provided that this power shall be limited to the allotment ofequity securities for cash and the sale of treasury shares:(i)in connection with or pursuant to an offer of or invitation to acquire equity securities (but in the case of the authorisation grantedunder resolution 9(b), by way of a rights issue only) in favour of holders of ordinary shares in proportion (as nearly as practicable)to the respective number of ordinary shares held by them on the record date for such allotment or sale (and holders of any otherclass of equity securities entitled to participate therein or if the directors consider it necessary, as permitted by the rights of thosesecurities) but subject to such exclusions or other arrangements as the directors may consider necessary or appropriate to dealwith fractional entitlements, treasury shares, record dates or legal, regulatory or practical difficulties which may arise under the lawsof or the requirements of any regulatory body or stock exchange in any territory or any other matter whatsoever; and(ii) in the case of the authorisation granted under resolution 10(a) above (or in the case of any transfer of treasury shares), andotherwise than pursuant to paragraph (i) of this resolution, up to an aggregate nominal amount of £82,276,and shall expire at the conclusion of the next Annual General Meeting of the Company (or, if earlier, on 31 May 2012), save that theCompany may before such expiry make any offer or agreement that would or might require equity securities to be allotted, or treasuryshares to be sold, after such expiry and the directors may allot equity securities, or sell treasury shares in pursuance of any such offeror agreement as if the power conferred hereby had not expired.11. That, a general meeting of the Company (other than an annual general meeting) may be called on less than 14 clear day’s notice.12 That, in accordance with Sections 366 and 367 of the Companies Act 2006 (the “Act”), the Company and all companies which aresubsidiaries of the Company during the period when this resolution has effect be and are hereby authorised to:(a) make political donations to political parties or independent election candidates up to a total aggregate amount of £10,000;(b) make political donations to political organisations (other than political parties) up to a total aggregate amount of £10,000; and(c) incur political expenditure up to a total aggregate amount of £20,000,during the period beginning with the date of the passing of this Resolution and ending at the conclusion of the Annual General Meetingof the Company in 2012.For the purpose of this Resolution, “political donations”, “political organisations”, “political parties” and “political expenditure” have themeanings given to them in section 363 to 365 of the Act.By order of the boardAlan MerrellCompany Secretary1 March 2011Registered Office:15 Midland Court, Central Park, Lutterworth, Leicestershire LE17 4PNRegistered in England and Wales No. 0277189188 Lavendon Group plc 2010


Notes1. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that in order to have the right toattend and vote at the Annual General Meeting (and also for the purpose of determining how many votes a person entitled to attendand vote may cast), a person must be entered on the register of members of the Company at 6.00 p.m. on 18 April 2011 or, in theevent of any adjournment, at 6.00 p.m. on the date which is two days before the day of the adjourned meeting. Changes to entries onthe register of members after this time shall be disregarded in determining the rights of any person to attend or vote at the meeting.2. A member is entitled to appoint another person as his proxy to exercise all or any of his rights to attend, to speak and to vote at theAnnual General Meeting. A member may appoint more than one proxy in relation to the meeting, provided that each proxy isappointed to exercise the rights attached to a different share or shares held by him. A proxy need not be a member of the Company.A form of proxy for the meeting is enclosed. To appoint more than one proxy you may photocopy this form.To be valid any proxy form or other instrument appointing a proxy must be received by post or by hand (during normal business hoursonly) by our registrar Capita Registrars, Proxy Department, 34 Beckenham Road, Beckenham, BR3 4TU. Votes must be received no laterthan 11.30 a.m. on 18 April 2011. If you are a CREST member, see note 3 below.Completion of a form of proxy, or other instrument appointing a proxy or any CREST Proxy Instruction will not preclude a memberattending and voting in person at the meeting if he/she wishes to do so.Shareholders wishing to vote online should visit www.capitashareportal.com and follow the instructions.3. Alternatively, if you are a member of CREST, you may register the appointment of a proxy by using the CREST electronic proxyappointment service. Further details are contained below:CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for theAnnual General Meeting and any adjournment(s) thereof by using the procedures, and to the address, described in the CREST Manual(available via www.euroclear.com/CREST) subject to the provisions of the Company's articles of association. CREST personal membersor other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to theirCREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CRESTProxy Instruction”) must be properly authenticated in accordance with Euroclear UK and Ireland Limited's (“Euroclear”) specificationsand must contain the information required for such instructions, as described in the CREST Manual. The message, regardless ofwhether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must,in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA 10) by the latest time(s) for receipt of proxyappointments specified in the notice of the Annual General Meeting. For this purpose, the time of receipt will be taken to be the time(as determined by the time stamp applied to the message by the CREST Applications Host) from which the issuer's agent is able toretrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxiesappointed through CREST should be communicated to the appointee through other means.CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear does not makeavailable special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation tothe input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CRESTpersonal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting serviceprovider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by anyparticular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) are referred,in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the UncertificatedSecurities Regulations 2001.Lavendon Group plc 2010 89


Notice and agenda of annual general meetingContinuedNotes continued4. Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoyinformation rights (a “Nominated Person”) may have a right, under an agreement between him/her and the member by whom he/shewas nominated, to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting. If a NominatedPerson has no such proxy appointment right or does not wish to exercise it, he/she may have a right, under such an agreement, to giveinstructions to the member as to the exercise of voting rights.The statement of the above rights of the members in relation to the appointment of proxies does not apply to Nominated Persons.Those rights can only be exercised by members of the Company.5. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of itspowers as a member provided that they do not do so in relation to the same shares.6. Any member attending the Annual General Meeting has the right to ask questions. The Company must cause to be answered any suchquestion relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfereunduly with the preparation for the meeting or involve the disclosure of confidential information, (b) the answer has already beengiven on a website in the form of an answer to a question, or (c) it is undesirable in the interests of the Company or the good order ofthe meeting that the question be answered.7. Copies of executive directors' service agreements and copies of the terms and conditions of appointment of non-executive directorsare available for inspection at the Company's registered office during normal business hours from the date of this notice until the closeof the Annual General Meeting (Saturdays, Sundays and public holidays excepted) and will be available for inspection at the place ofthe meeting for at least 15 minutes prior to and during the meeting.8. A copy of this notice, and other information required by Section 311A of the Companies Act 2006, can be found atwww.lavendongroup.com.9. Under Section 527 of the Companies Act 2006 (the “Act”), members meeting the threshold requirements set out in that section havethe right to require the Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company'saccounts (including the auditor's report and the conduct of the audit) that are to be laid before the Annual General Meeting; or (ii) anycircumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accountsand reports were laid in accordance with Section 437 of the Act, (in each case) that the members propose to raise at the AnnualGeneral Meeting. The Company may not require the members requesting any such website publication to pay its expenses incomplying with Sections 527 or 528 of the Act. Where the Company is required to place a statement on a website under Section 527of the Act, it must forward the statement to the Company's auditor not later than the time when it makes the statement available onthe website. The business which may be dealt with at the meeting includes any statement that the Company has been required underSection 527 of the Act to publish on a website.10. As at 1 March 2011 (being the last practicable date prior to the publication of this notice) the Company's issued share capitalconsists of 164,551,329 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at that dateare 164,551,329.11. You may not use any electronic address (within the meaning of Section 333(4) of the Companies Act 2006) provided in this Notice ofMeeting (or in any related documents) to communicate with the Company for any purposes other than those expressly stated.90 Lavendon Group plc 2010


Explanatory notes to the ResolutionsResolution 1: Reports and AccountsThis is a standard resolution common to all annual general meetings. The directors are required to present to shareholders at the AnnualGeneral Meeting the financial statements for the year ended 31 December 2010, together with the reports of the directors and auditorsthereon. Any shareholder who has not made an election to receive the annual report in hard copy may access it on the Company’s website(www.lavendongroup.com), or may obtain a copy on application to the Company Secretary at the address shown above.Resolution 2: DividendsThis is a standard resolution common to all annual general meetings where a dividend is being proposed to be paid. The final dividendcannot exceed the amount recommended by the directors. If approved by shareholders, the final dividend will be paid on 3 May 2011 tothose shareholders on the register as at 11 March 2011.Resolution 3: Re-appointment of DirectorKevin Appleton will retire and being eligible will stand for re-election by the shareholders. The Board recommends to shareholders there-election of the above director. The Board confirms that in making this recommendation, the Nomination Committee has given carefulconsideration to the Board’s balanced skills, knowledge and experience and is satisfied that the director putting himself for re-election hassufficient time to discharge his duties effectively, taking into account his other commitments.Resolution 4: Re-appointment of DirectorHaving been appointed to the Board since the 2010 annual general meeting, Andrew Wood will retire and being eligible will stand for reelectionby the shareholders. The Board recommends to shareholders the re-election of the above director. The Board confirms that inmaking this recommendation, the Nomination Committee has given careful consideration to the Board’s balanced skills, knowledge andexperience and is satisfied that the director putting himself for re-election has sufficient time to discharge his duties effectively, taking intoaccount his other commitments.Resolution 5: Re-appointment of DirectorHaving been appointed to the Board since the 2010 annual general meeting, Jan Åstrand will retire and being eligible will stand forre-election by the shareholders. The Board recommends to shareholders the re-election of the above director. The Board confirms that inmaking this recommendation, the Nomination Committee has given careful consideration to the Board’s balanced skills, knowledge andexperience and is satisfied that the director putting himself for re-election has sufficient time to discharge his duties effectively, takinginto account his other commitments.Resolutions 6 and 7: The AuditorsCompany law requires Lavendon Group plc, at each general meeting at which accounts are laid, to appoint auditors who will remain inoffice until the next general meeting at which accounts are laid. Resolution 6, therefore, proposes to re-appoint PricewaterhouseCoopersLLP as auditors of Lavendon Group plc and Resolution 7 authorises the directors to agree to the auditors’ remuneration.Resolution 8: Remuneration ReportThe directors are seeking approval of the shareholders for the directors’ remuneration report for the financial year ended on31 December 2010. The resolution is an advisory vote, as permitted by law, and no entitlement to remuneration is made conditionalon the resolution being passed. The Remuneration Report is set out in full on pages 22 to 26 to in the annual report of the Companyfor the year ended 31 December 2010.Lavendon Group plc 2010 91


Notice and agenda of annual general meetingContinuedExplanatory notes to the Resolutions continuedResolution 9Your directors may allot shares and grant rights to subscribe for, or convert any security into, shares only if authorised to do so byshareholders. The authority granted at the last Annual General Meeting of the Company is due to expire at this year’s Annual GeneralMeeting. Accordingly, resolution 9 will be proposed as an ordinary resolution to grant new authorities to allot shares and grant rights tosubscribe for, or convert any security into, shares (a) up to an aggregate nominal amount of £548,504 and (b) in connection with a rightsissue up to an aggregate nominal amount (reduced by allotments under part (a) of the resolution) of £1,097,008.These amounts represent approximately 33.3 per cent. and approximately 66.7 per cent. respectively of the total issued ordinary sharecapital of the Company as at 1 March 2011, the latest practicable date prior to publication of this notice. If given, these authorities willexpire at the Annual General Meeting in 2012 or on 31 May 2012, whichever is the earlier.Your directors have no present intention of issuing shares pursuant to this authority.As at the date of this notice the Company holds no treasury shares.Resolution 10Your directors also require a power from shareholders to allot equity securities or sell treasury shares for cash and otherwise than toexisting shareholders pro rata to their holdings. The power granted at the last Annual General Meeting of the Company is due to expire atthis year’s Annual General Meeting. Accordingly, resolution 10 will be proposed as a special resolution to grant such a power. Apart fromoffers or invitations in proportion to the respective number of shares held, the power will be limited to the allotment of equity securitiesand sales of treasury shares for cash up to an aggregate nominal value of £82,276 (being five per cent. of the Company’s issued ordinaryshare capital at 1 March 2011, the latest practicable date prior to publication of this notice). If given, this power will expire on 31 May 2012or at the conclusion of the Annual General Meeting in 2012, whichever is the earlier. Your directors will have due regard to institutionalguidelines in relation to any exercise of this power, in particular the requirement for advance consultation and explanation before makingany non pre-emptive cash issue pursuant to this resolution which exceeds 7.5 per cent. of the Company’s issued share capital in any rollingthree year period.Resolution 11Resolution 11 is a resolution to allow the Company to hold general meetings (other than annual general meetings) on 14 days’ notice.The flexibility offered by this resolution will be used where, taking into account the circumstances, the directors consider this appropriate inrelation to the business to be considered at the meeting.Resolution 12Resolution 12 is designed to deal with rules on political donations and expenditure contained in Part 14 of the Companies Act 2006 (the“Act”) (sections 362 to 379). Under section 378 of the Act, a company may not make donations to a political party, or other politicalorganisation, or to an independent election candidate of more than £5,000 in total, or incur any political expenditure, without firstobtaining shareholder approval.It is the Company’s policy not to make contributions to political parties. There is no intention to change that policy. What constitutes a“political donation”, a “political party”, a “political organisation” or “political expenditure” under the Act is not clear, as the legislation iscapable of wide interpretation and may have the effect of covering a number of normal business or charitable activities that would not bethought to be political donations in the usual sense. To avoid any possibility of inadvertently contravening the Act, the Board considers thatit would be prudent to follow the procedure specified in the Act to obtain shareholder approval for the Company and its subsidiaries tomake political donations to incur political expenditure in the forthcoming year until the conclusion of the annual general meeting of theCompany in 2012. This authority will not be used to make any political donations as that expression would normally be understood.92 Lavendon Group plc 2010


Reliable,responsive,punctual,proactive,friendly andconsistent.Our Group is founded oncommon values that arerelevant wherever we’reworking. We believe inbeing reliable, responsive,punctual, proactive,friendly and consistent.Above all, we believe ingetting the job done.That’s the central idea thatour brand communicates,in any language.Designed and produced by fourthquarterThe paper used in this document containsmaterials sourced from responsiblymanaged and sustainable commercialforests, certified in accordance with theFSC (Forest Stewardship Council).


15 Midland CourtCentral ParkLutterworthLeicestershireLE17 4PNTel: 01455 558874Fax: 01455 559569Registered in England No. 2771891Scan the QR code above with your mobile telephoneto be taken to the Investor pages on our website.Our Annual Report 2010 is available in both printedform and on the Investors section of the Lavendonwebsite at www.lavendongroup.com. We vieweffective communication with our shareholders asa key requirement and we would welcome feedbackon either the printed or electronic versions of theAnnual Report.www.lavendongroup.com

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