1 January, 2004
Interim Results for the 6 months ended 31 October 2003
Read and download the interim results for the 6 months ended 31 October 2003
Ashtead Group is one of the world's leading equipment outsourcers. The Group comprises: Sunbelt Rentals, the fourth largest equipment rental company in the United States; A-Plant, a market leader in the rental of non-operated equipment in the UK; and Ashtead Technology, a world leader in the rental of electronic survey and inspection equipment to the offshore oil and gas industry.
- Improving trading conditions and operating performance in US businesses
- Continued refocusing at A-Plant creating annualised cost savings of c£15 million partially offsetting the effects of the turnover reduction in the first half
- Profit before goodwill, exceptionals and tax of £11.1 million (2002: £14.7 million)
- After exceptional items of £15.1m mainly related to the Group’s banking arrangements and goodwill amortisation of £4.5m, the loss before tax was £8.5m (2002: loss of £6.6m) Earnings per share of 2.4p (2002: 3.2p) based on the profit before goodwill amortisation and exceptional items, less a notional 30 per cent tax charge. Under FRS 14 the loss per share is 3.4p (2002 – 1.6p)
- Free cash flow* in the first half of £27.8 million (2002: £7.4 million) and £59.3 million in the last twelve months
- Total net debt including the debtors’ securitisation at 31 October of £575.5 million (31 October 2002: £649.6 million)
* Cash inflow from operations before exceptional items less net capital expenditure, interest (excluding exceptional interest) and tax
Chief executive George Burnett said:
“During the six months ended 31 October 2003 the Group completed the independent review of its accounting issues in the US and secured the ongoing support of its banks to January 2005; returned to profit before exceptional charges mainly related to the Group’s banking arrangements; and continued to generate significant net free cash flow and to pay down debt. By disposing of three non-core businesses for 5 times EBITDA, A-Plant has completed its restructuring programme leaving its management free to concentrate on taking the business forward. While a weak dollar will continue to reduce reported sterling debt and turnover levels, the effect on profitability will be more modest. The Board is encouraged by the improved performance in its US businesses, particularly since the equipment rental industry tends to see late cycle recovery. The favourable indicators regarding the current strength of the US economic recovery enables the Board to take a more optimistic view of prospective trading conditions in 2004 and beyond.”
During the six months ended 31 October 2003 the Group completed the independent review of its accounting issues in the US and secured the ongoing support of its banks to January 2005; returned to profit before exceptional charges mainly related to the Group’s banking arrangements; and continued to generate significant net free cash flow and to pay down debt.
Group profit before goodwill amortisation, exceptional charges and tax was £11.1 million (2002: £14.7 million) and the FRS 3 loss after exceptional items and goodwill amortisation was £8.5 million (2002: £6.6 million). Based on profits before goodwill and exceptional items and a notional 30% tax charge), earnings per share were 2.4p (2002: 3.2p). The actual tax payable is estimated to be only £0.1 million. The FRS 14 loss per share was 3.4p (1.6p). Net free cash flow was £27.8 million compared with £7.4 million in 2002 making a total of £59.3 million over the last 12 months. Total net debt including the debtors’ securitisation was £575.5 million (2002: £649.6 million). Sterling turnover, profit and debt figures were all reduced due to the weakness of the dollar.
US - Sunbelt Rentals
Total dollar revenues increased by $1.2 million (0.4%) to $293.6 million and divisional profit1 by $0.4 million (1.0%) to $41.3 million. The weakness of the dollar however was such that this underlying growth was translated in sterling terms into a decline in turnover of 5.7% and in operating profit of 5.6% against the same period in the previous year. Year on year rental revenues grew on an increasing scale throughout the period reflecting improved rental rates, while utilisation levels gradually improved to match 2002 levels by October. The net effect was a 1.7% increase in rental revenues over the prior year in Quarter 1, rising to a 4.8% increase in Quarter 2. The lower rate of growth in total revenues reflected lower consumable sales, and lower erection and dismantling income in the Group’s scaffolding business.
1 Operating profit before exceptional items and goodwill amortisation
A comparison of these figures with our peer group in the US indicates that we continued to outperform in terms both of growth in rental revenues and in margin levels. This quarterly analysis also gave encouraging evidence of a general upturn in the US equipment rental market which supplements other improving indicators such as the level of non residential construction, which is now showing year on year growth for the first time in nearly three years.
In geographic terms, four of Sunbelt’s five regions were ahead of the same period in the previous year in terms of turnover and contribution while the fifth, the West Coast, has showed considerable progress in the second quarter although still remaining below the same period in the previous year. In terms of product, the pump and power division has shown particularly strong growth, while general tool and aerial work platforms have also made good progress. Scaffolding, where trading conditions have been particularly difficult, has seen an improved performance in recent months.
Capital expenditure was $28.2 million, less than half the prior year figure of $57.4 million. In sterling terms capital expenditure was £16.6 million against £36.7 million in 2002.
UK - A-Plant
A-Plant continued its refocusing strategy which since 1 May 2002 has seen the rationalisation of its five support offices into one corporate office and the closure of 39 profit centres. Also, in the past six months the non-core businesses of Big Air and Mast Climbing were disposed of generating total proceeds of £5.0 million and, earlier this month, Ireland was sold for an estimated consideration of £12.1m. The average EBITDA multiple for these disposals was 5 times. In the six months we also sold a number of surplus properties which generated further proceeds of £1.1 million. There was a non-cash charge of £2.9 million in the six months in connection with the refocusing programme which is now substantially complete.
Although annualised cost savings of around £15 million have now been achieved in A-Plant, these were not sufficient to offset the reduction in turnover in the six month period from £95.1 million to £83.5 million with the result that divisional profit fell from £9.7 million in 2002 to £5.6 million in 2003. Capital expenditure remained under tight control. £19.5 million was spent in the period (2002: £16.8 million) while £10.9 million was generated in proceeds from the sale of used rental assets.
A-Plant has now achieved its strategic goal of having three significant businesses with a clear product focus – Main Plant, Tool Hire Shops and Specialist Products. No further material disposals of non-core activities are anticipated. Although turnover declined on a same-store basis by 5.7% in the six month period, major account customers continue to increase in importance to A-Plant. Its top 100 customers accounted for 31.5% of turnover in the period, providing a solid core of customer support at a time when the US accounting issue and its consequences in the UK were an unwelcome distraction to the A-Plant business.
Offshore and Environmental - Ashtead Technology
Ashtead Technology, our offshore and environmental business, achieved divisional profit ahead of the same period last year in constant currency terms, but in line with last year at £2.1 million in sterling terms. Market conditions in the offshore market were generally difficult throughout the period but the on-shore environmental business in North America, aided by the introduction of rental products already carried by our offshore profit centres, showed encouraging growth given the economic background.
The Group produced a net cash inflow from operations during the period of £80.9 million (2002: £90.4 million) which as a result of lower capital expenditure payments and higher proceeds from disposals resulted in a net free cash flow of £27.8 million compared with £7.4 million in 2002. Debtor days were 55 against 56 in the previous year. Total payments for capital expenditure were £50.8 million (2002: £73.5 million) while £14.2 million was generated from assets sold giving a gain of £1.8 million (2002: loss of £0.3 million). Total debt including the securitisation of debtors stood at £575.5 million (2002: £649.6 million). In addition to any benefits from the weak dollar it is anticipated that debt levels will continue to be reduced through the generation of free cash flow.
On 30 May 2003, the Group’s bankers waived the default which had arisen as a result of accounting problems in Sunbelt and agreed to the extension of the Group’s banking facilities to 28 January 2005. We continue to examine options for refinancing these facilities and remain confident, particularly given the favourable indicators we are seeing regarding the strength of the US economic recovery, that we will be able to do so well before January 2005. However, clearly there can be no guarantee that we will be able to refinance and, as time progresses, other options to facilitate repayment of those facilities will of course be considered in parallel.
Current Trading and Outlook
In November and December Sunbelt continued to achieve the level of year on year growth in dollar rental revenues seen in the second quarter and an improvement in its comparative sales, and erection and dismantling incomes. A-Plant’s like-for-like turnover figures were in line with those achieved in the first half. Ashtead Technology continued to suffer from weak offshore markets in Aberdeen and Singapore but experienced good growth both onshore and offshore in its North American businesses.
A-Plant has completed its restructuring programme leaving its management free to concentrate on taking the business forward. While a weak dollar will continue to reduce reported sterling debt and turnover levels, the effect on profitability will be more modest. The Board is encouraged by the improved performance in its US businesses, particularly since the equipment rental industry tends to see late cycle recovery. The favourable indicators regarding the current strength of the US economic recovery enables the Board to take a more optimistic view of prospective trading conditions in 2004 and beyond.