12 December, 2005
Second quarter & half year results to 31 Oct 2005
Ashtead Group plc, the equipment rental group serving the US and UK construction, industrial and homeowner markets, announces its results for the half year and second quarter ended 31 October 2005.
RECORD first HALF Profits & DIVIDEND PAYMENTS RESUMED
Unaudited results for the half year and second quarter ended 31 October 2005
- Group Q2 profit before exceptional items & tax increases from £13.4m to £27.9m
- Group H1 profit before exceptional items & tax increases from £18.3m to £40.2m
- After exceptional items of £1.9m, the H1 profit before tax is £38.3m (2004 - £18.3m)
- Sunbelt’s H1 operating profit before exceptional items rises 53.7% to $96.4m (2004 - $62.7m)
- A-Plant’s H1 operating profit is up 3.5% to £8.9m (2004 - £8.6m)
- Market conditions in the United States expected to remain favourable
- Payment of dividends resumed - interim dividend of 0.5p per share declared
Ashtead’s chief executive, George Burnett, commented:
“ Sunbelt achieved substantial first half profit growth by maintaining last year’s record levels of utilisation on a fleet which was on average 7% larger than a year ago and by continuing to grow its market share. Although A-Plant’s profit growth was more modest, it did achieve improved return on capital year on year through rigorous cost control. Ashtead Technology took advantage of the strong offshore market to record a 67% profit increase.
I am pleased that the strength of the Group’s first half performance, our confidence in the outlook and the completion of the capital reorganisation has enabled the Board to announce the resumption of dividend payments to shareholders for the first time since 2002.
With interim profits more than double those of last year, continuing strong trading conditions at Sunbelt and Ashtead Technology and a stable position at A-Plant, the Board looks forward with confidence.”
|Cob Stenham||Non-executive chairman||020 7299 5562|
|George Burnett||Chief executive|
|Ian Robson||Finance director||01372 362300|
|Brian Hudspith||The Maitland Consultancy||020 7379 5151|
The Group achieved a record first half performance with revenue up 14.2% to £313.8m and a first half profit before tax and exceptional items of £40.2m, more than double last year’s £18.3m. After net exceptional items of £1.9m, the first half pre-tax profit was £38.3m. Exchange rates were similar in both periods and consequently currency translation changes did not have a significant effect on reported performance.
Basic earnings per share were 6.9p before and 6.5p after exceptional items compared to 2.8p a year ago. On a cash tax basis, earnings per share before exceptional items were 10.6p (2004 – 5.5p). An interim dividend of 0.5p per share will be paid on 28 February 2006.
The Group now reports its results under international financial reporting standards (IFRS) and comparatives have been restated accordingly. Full details of the migration to IFRS are included in the separate statement published on 20 September 2005 and available on the Company’s website at www.ashtead-group.com.
Review of first half trading performance
|Sunbelt in $m||406.8||342.0||159.8||120.2||96.4||62.7|
|Sunbelt in £m||226.1||188.1||88.9||66.1||53.6||34.5|
|Group central costs||-||-||(3.5)||(3.3)||(3.5)||(3.3)|
|Profit before tax||40.2||18.3|
* in 2005 before exceptional items
As a result of Sunbelt’s performance in particular and reflecting the Group’s operational gearing, the 14.2% revenue increase resulted in a 25.0% increase in EBITDA before exceptional items to £116.4m and an increase of 48.8% in operating profit before exceptional items to £61.3m. These improvements were reflected in the Group’s margins. EBITDA margins grew from 33.9% to 37.1% and operating margins rose from 15.0% to 19.5%.
In the six months to 31 October 2005 revenue grew 18.9% to $406.8m. This was achieved through increased investment in the rental fleet which was 7% larger than a year ago and by significant increases in rental rates which grew approximately 10%. Average utilisation remained at last year’s record level of 72% despite the increased investment. Revenue growth was broadly based with all regions and all major product areas trading ahead of last year. In a strong trading environment where US non-residential construction rose 7.4% in the 12 months to end October according to figures published by the US Department of Commerce, Sunbelt continued to take market share. Sunbelt’s operating profit before exceptional items was up 53.7% to $96.4m, representing a margin of 23.7% (2004 – 18.3%).
In the second quarter Sunbelt was actively involved in the clean-up efforts on the US Gulf Coast and in Florida following hurricanes Katrina, Rita and Wilma. No Sunbelt store suffered significant damage from the hurricanes and none of its staff was hurt. Sunbelt also incurred no significant costs for lost or damaged rental equipment. Although we now expect that the impact of the clean-up and reconstruction work on the current financial year will be more significant than the impact we have seen from storms and natural disasters in earlier years, hurricane related revenues are still anticipated to account for only around 2% of Sunbelt’s full year revenues.
Sunbelt invested $151.8m in the first half to maintain the quality of its rental fleet and reduce its age as well as for growth. This included the opening of three new greenfield stores. A further fifteen new general equipment rental stores have been acquired in the first half for a consideration of approximately $100m. In August Sunbelt also disposed of 12 west coast specialist scaffold locations for approximately $24m generating an estimated disposal profit of $5.4m (£3.0m) which is included in exceptional items. The new stores continue Sunbelt’s strategy of clustering major metropolitan markets. Additional infill acquisition opportunities are under consideration but Sunbelt also continues to emphasise organic growth. 17.3% of the total first half revenue growth of 18.9% was delivered by stores open throughout both periods.
In a continued competitive market, A-Plant’s first half revenue of £79.7m compares to £80.6m last year but was achieved from a fleet which on average was approximately 2% smaller than last year. This reflected the year on year effect of last year’s downsizing of the business which has now been concluded. The growth in rental rates was approximately 3% whilst average utilisation decreased from 66% to 65%.
Careful management of operating expenses continued and these declined 0.8% year over year reflecting principally the full year impact of measures taken last year. A-Plant’s first half operating profit grew 3.5% to £8.9m (2004 - £8.6m), representing a margin of 11.2% (2004 - 10.7%).
During the first half a major restructuring of A-Plant’s sales operations was introduced with a view to serving, in a more focussed way, the differing requirements of national, regional and local customers. Senior sales management resources have been increased as has the size of the sales force with the cost of this investment being largely funded by administrative savings elsewhere. In November, A-Plant returned to delivering year on year revenue growth.
Ashtead Technology’s performance continued the trend established in the second half of last year with revenues up 33.3% to £8.0m (2004 - £6.0m). This reflects increased investment by the oil majors which is delivering higher offshore exploration and construction activity as well as continued growth in Technology’s on-shore environmental business. These trends are expected to continue. As a result Technology’s first half operating profit grew 66.9% to £2.3m (2004 - £1.4m).
In addition to the trading results discussed above, operating profit as reported in the consolidated income statement below includes £2.9m of exceptional items. These comprise a £3.0m estimated profit on disposal of Sunbelt’s 12 scaffold stores on the US west coast and in Texas less £0.1m of post acquisition integration costs. Additionally the £4.8m net cost of last summer’s capital reorganisation, mainly relating to the 12% premium payable on the £42m of sterling senior secured notes redeemed early out of the proceeds of the equity placing, is included as an exceptional item within finance costs.
Overall for the first half, following the capital reorganisation and related internal restructuring of our US financial structure, the effective accounting tax rate on the profit before exceptional items has fallen to a more normal 38% compared to the very high effective accounting tax rates seen in recent years. The cash tax rate remains low at 5%. Although the Group’s cash tax rate is likely to remain well below the accounting rate, the rapid increase in Sunbelt’s profitability together with the $20.1m receipt discussed below from the Head & Engquist litigation now make it probable that the cash tax rate will rise into double digits in 2006/7.
Capital expenditure and net debt
Capital expenditure in the six months was £131.3m of which £120.0m was invested in the rental fleet (2004 - £69.1m in total) with the increased expenditure directed towards expanding Sunbelt’s rate of growth. £53.8m of the fleet expenditure was for growth with the remainder spent to replace existing equipment. Disposal proceeds were £24.5m (2004 - £15.5m) generating a profit on disposal of £4.2m (2004 - £2.5m).
Reflecting current strong market conditions, we now expect that gross capital expenditure for the year as a whole will be approximately £220m, an increase of £40m over our previous guidance. After anticipated disposal proceeds of approximately £55m (including those earned from the scaffold sale which have been reinvested in general equipment), net capital expenditure is anticipated to be approximately £165m. Approximately £100m of the £220m gross expenditure will be for growth.
Net debt at 31 October 2005 was £515.6m, an increase of £33.3m since 30 April 2005 but still a reduction of £3.4m since 31 October 2004. At constant exchange rates the increase since year end was £19.6m with debt lowered by £12.4m in the past year. Availability under the asset based loan facility was $271m at 31 October 2005 ($157m at 30 April 2005).
Amended asset based loan facility
On 14 November 2005, amended terms were agreed with the syndicate of lenders who make available the Group’s first priority asset based senior secured loan facility to, inter alia, increase the amount, extend the maturity and reduce the cost of the facility. The amended facility provides us with substantial flexibility for continued investment in the Group’s development.
Following the amendment the weighted average financing cost of our borrowings (including amortisation of deferred debt raising costs) is currently approximately 8% and their weighted average maturity is approximately 6.5 years.
Head & Engquist Equipment LLC (H&E) litigation
As announced on 24 November, Sunbelt and H&E have settled their litigation with H&E paying to Sunbelt the sum of $20.1m (£11.7m). The proceeds of the settlement were applied to reduce borrowings under the Group’s asset based revolver and will be recognised as an exceptional profit in the third quarter.
In light of the strong trading performance in the first half, its confidence in the outlook and following the successful capital reorganisation, the Board is pleased to be able to announce today the resumption of dividend payments. Accordingly an interim dividend of 0.5p per share will be paid on 28 February 2006 to shareholders on the register on 17 February 2006.
Current trading and outlook
With interim profits more than double those of last year, continuing strong trading conditions at Sunbelt and Ashtead Technology and a stable position at A-Plant, the Board looks forward with confidence.