Financial News

The first sign of warm weather and the arrival of July usually signal the start of caravanning season. And this year, caravan park operators across the country are seeing a greater flurry of activity than usual because of the recession.

Like the traders who followed in the footsteps of Marco Polo 700 years ago, Britons are rediscovering the attractions of the caravan as cash-strapped holidaymakers choose budget breaks at British resorts.

Bourne Leisure, the country's largest operator with 35 sites, says bookings for peak summer holidays have been up by 30 per cent during the past four weeks.

The increase in business dovetails with recent figures published by the National Caravan Council, the trade body that represents the UK caravan industry.

As UK airports report falling passenger numbers, the NCC (Stockholm: NCC-A.ST - news) says bookings for both touring caravan pitches and caravan holiday home rentals in the country are up by about 25 per cent compared with last year.

"Holidaymakers are searching for really good value this year, and they are reassured by the fact that with a caravan in the UK, they can control expenditure and avoid the costly eurozone," said John Lally, NCC's director-general.

Although environmental concerns about the CO2 emissions produced by aircraft have contributed to a caravanning renaissance in recent years, price appears to be the main driver behind the upturn in trade.

While a two-week holiday in Malaga (MLG.TO - news) could cost a family of four up to £3,000 in travel, accommodation and transfers, a caravan holiday in south Wales would set the same family back as little as £800. Costs would be even less if the family already owns a caravan and only rents a pitch.

The willingness to holiday in the UK has been helped by forecasts of a hot summer this year, the weakness of sterling, and cheaper fuel. Retailers such as Halfords already report rising sales of camping equipment, bikes and barbecues.

But not all segments of the £6bn-a-year caravan industry have benefited from the rise of "stay-cationers".

While holidays sales have been buoyant, sales of caravans themselves fell heavily last year and have shown little sign of rebounding this year.

According to the European Caravan Federation, sales of caravans fell 42 per cent in the UK during the first quarter of this year, compared with a 29 per cent drop seen across Europe.

"People might be staying at home but that does not mean they are rushing out to buy new caravans," says Mark Firmin, a restructuring partner at KPMG.

"It's like any other big ticket item. The business is dependent on people borrowing their money or realising value from their properties. Plus, there is still nervousness [about] unemployment and people will be reluctant to splurge £20,000 on a new caravan now, especially given that credit is still hard to come by at the moment."

Last year Avondale Coachcraft, a maker and designer of caravans, was put into administration after a sharp decline in sales. Cosalt (LSE: CSLT.L - news) , the Hull-based manufacturing conglomerate, had to sell its lossmaking caravan manufacturing business as a result of the economic downturn.

Companies acquired by private equity groups during the boom years have been feeling the strains of their debt burden,

Park Resorts, acquired by GI Partners for £440m in 2007 in a highly leveraged deal, is understood to be in talks with its lenders to restructure its debt, although a company representative has denied this.

More recently, Discover Leisure (LSE: DISL.L - news) , the Aim-listed caravan retailer, narrowly avoided administration through a company voluntary arrangement in May.

Mr Firmin, who oversaw the process, said the company was caught out last summer by the sharp drop in demand for caravans.

As the group had to place and pay for its orders several months in advance, the low demand meant it ended up with £10m worth of excess stock.

"It's similar to what happened to a lot of high street retailers during the second half of last year really," he says.

The difference is that, unlike clothes, people don't buy caravans all year round.

Unable to sell its vehicles during the peak summer months, Discover was forced to carry the stock into winter, when there is no demand. And when spring did come, it had to reduce prices aggressively to get rid of the stock.

That had a material impact on the group's profitability and by April, it was operating very close to its banking facilities.

As part of the CVA, the group has closed down its nine most unprofitable sites to concentrate on the remaining five. Its unsecured lenders have also agreed to take a haircut to their loans and accept a repayment of 22p to the pound.

Trading remains tough for the company. In the six months to March 1, Discover's pre-tax loss widened from £1.8m to £9.5m on turnover that fell 21 per cent to £40.7m.

But the company reports sales of used vehicles are holding up better than sales of new vehicles, and the rate of decline in the new-build market may be slowing.