9 September, 2005
First quarter results for the three months ended 31 July 2005
Ashtead Group plc, the equipment rental group serving the US and UK construction, industrial and homeowner markets, announces first quarter results for the three months ended 31 July 2005.
Unaudited first quarter results for the three months ended 31 July 2005
- Sunbelt’s operating profit up 51% to $38.6m (2004 - $25.6m)
- A-Plant’s operating profit up 23% to £3.7m (2004 - £3.0m)
- Group pre-tax profit of £12.3m (2004 - £4.9m)
- Capital reorganisation announced in July successfully concluded
- Strong market conditions in US continue
- Admitted to the FTSE 250 effective 19 September 2005
Ashtead’s chief executive, George Burnett, commented:
“Sunbelt again delivered a strong performance with first quarter dollar revenue up 16.6% reflecting strong growth in its key non-residential construction market, increasing market share and the shift from ownership to rental in the US . As a result of this growth Sunbelt’s operating profit grew 51% in the quarter. A-Plant and Ashtead Technology both also exceeded last year’s first quarter performance by more than 20%.
We anticipate that Sunbelt, which now accounts for around three-quarters of the Group’s profits, and Ashtead Technology, will continue to perform strongly. A-Plant’s rate of growth is expected to slow from the 23% achieved in the first quarter reflecting the continued competitiveness of the UK market. The recently completed capital reorganisation has strengthened our balance sheet and provides us with substantial flexibility to take advantage of the strong US market. The Board therefore looks forward to a successful outcome to the year.”
|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 performed strongly in the first quarter with revenue up 12.3% to £145.9m and pre-tax profit of £12.3m, 2.5 times last year’s £4.9m. Sunbelt again delivered a good performance with first quarter dollar revenue up 16.6% reflecting strong growth in its key non-residential construction market, increasing market share and the shift from ownership to rental in the US. As a result of this growth Sunbelt’s operating profit grew 50.8% in the quarter. A-Plant and Ashtead Technology both also exceeded last year’s first quarter performance by more than 20%. The impact of changes in exchange rates in the quarter was insignificant.
Cash tax earnings per share were 3.7p (2004 - 1.5p) and, after the accounting tax charge, basic earnings per share were 2.0p (2004 - 0.4p).
For the first time this quarter the Group is reporting its results under international accounting standards. Full details of the impact of this change on previously reported results for the year ended 30 April 2005 are included in the separate statement available on the Company’s website, www.ashtead-group.com but the overall effect has been generally small.
Review of first quarter trading
|Sunbelt in $m||186.8||160.2||69.0||54.2||38.6||25.6|
|Sunbelt in £m||103.3||87.9||38.2||29.7||21.3||14.1|
|Group central costs||-||-||(1.6)||(1.8)||(1.6)||(1.8)|
|Profit before tax||12.3||4.9|
As a result of the Group’s operational gearing the 12.3% revenue increase resulted in a 22.5% increase in EBITDA to £51.1m and an increase of 52.5% in operating profit to £24.4m. These improvements were reflected in the Group’s margins. EBITDA margins grew from 32.1% to 35.0% and operating margins rose from 12.3% to 16.7%.
Recently published figures show that, in the year to 31 December 2004, the US rental market grew by 10% to approximately $26.4 billion. During the same period the top ten players, including Sunbelt, grew 8.9% while Sunbelt itself achieved a 14.7% revenue increase. This strong performance has continued in 2005. In the quarter to 31 July 2005 revenue grew 16.6% to $186.8m reflecting strong growth of approximately 11% in rental rates and a 5% increase in the average fleet size. Utilisation decreased slightly from 70.7% to 70.4%. Revenue growth was broadly based with all regions and all major product areas trading ahead of last year.
Sunbelt’s revenue improvement reflected market share gains and growth in non-residential construction activity as well as the continued shift from ownership to rental. Sunbelt’s operating profit was up 50.8% in the first quarter from $25.6m to $38.6m, representing a margin of 20.7% (2004 - 16.0%).
Sunbelt continued its investment programme to enable it to take advantage of the strong market conditions in the US . $65m was invested in its rental fleet in the quarter, two new greenfield stores were opened and a further ten rental stores have now been acquired since year-end for a total consideration of approximately $29m. Sunbelt also disposed of 12 west coast specialist scaffold locations shortly after the quarter end for an estimated consideration of $24m. The new stores continue Sunbelt’s strategy of clustering major markets to ensure that these are covered in depth. These steps are in line with our strategy to focus on growth markets and, based on the last 12 months performance, the net effect of the transactions is EBITDA positive. Additional infill acquisition opportunities remain under consideration but Sunbelt also continues to emphasise organic growth. 14.0% of the total first quarter revenue growth of 16.6% was delivered by stores open throughout both periods.
Since the end of the quarter, Sunbelt has been involved in the clean-up efforts on the US Gulf Coast following hurricane Katrina. Sunbelt’s two stores in the immediately affected area experienced only minor damage and none of their staff were hurt. As regards the impact on our revenues of the clean-up and reconstruction work, Sunbelt’s pump and power business (16 of Sunbelt’s 208 stores) shipped equipment from as far afield as Baltimore and Charlotte into the affected area as it did following 2004’s Florida hurricane damage last September and is currently experiencing high utilisation. We anticipate that this will increase pump and power’s revenue and that the Mobile general tool store will also experience strong demand during both the immediate clean-up and longer-term reconstruction phase.
In a continued competitive market, A-Plant’s revenue of £38.8m was similar to last year’s £39.0m but was achieved from a fleet which on average was approximately 3% 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 in the first quarter was approximately 5% whilst average utilisation decreased from 65.6% to 63.6%.
Against this market background, careful management of costs continued and these declined 1.9% year over year mainly reflecting the full year impact of measures taken last year. Although A-Plant’s first quarter operating profit grew to £3.7m (2004 - £3.0m), representing a margin of 9.5% (2004 - 7.7%), given the continued competitiveness of the UK market A-Plant is not expected to continue this rate of growth in the second quarter.
Commencing at the start of the quarter, A-Plant launched a programme to reorganise the management of its sales force onto a national basis to improve further the level of service to its many large national and regional customers and to provide easier access for all our customers to the Company’s wide range of specialist and general equipment.
Ashtead Technology’s performance continued the trend established in the second half of last year with first quarter revenues up 26.7% from £3.0m to £3.8m and operating profit up 42.9% from £0.7m to £1.0m. This performance reflects the recent increases in investment by the oil majors which is delivering higher offshore exploration and construction activity as well as continued growth in our on-shore environmental business. These trends are expected to continue.
Capital expenditure and net debt
Capital expenditure in the three months was £61.5m of which £55.4m was on the rental fleet (2004 - £34.4m in total) with the increased expenditure focussed mainly to enable Sunbelt to take advantage of the improving economic conditions in the US . £28.2m of the fleet expenditure was for growth with the remainder being spent to replace existing equipment. First quarter disposal proceeds were £10.9m (2004 - £7.1m) generating a profit on disposal of £2.2m (2004 - £1.1m).
Net debt at 31 July was £518.5m, an increase of £36.2m since 30 April 2005 reflecting seasonal trends but a reduction of £5.7m since 31 July 2004. At constant exchange rates the increase since year end was £21.5m with debt lowered by £14.1m in the past year.
The capital reorganisation closed shortly after the quarter end on 3 August and is therefore not reflected in the July balance sheet or in the net debt levels discussed above. In the capital reorganisation the Group raised approximately £70m from the equity placing and open offer as well as $250m of new second lien 8.625% senior secured notes due 2015. The proceeds of the placing and the debt issue were applied to redeem early, at an approximate 11% discount, the £134m convertible loan note and to redeem £42m of the 12% second priority senior secured loan notes due 2014. After payment of transaction costs, the remaining £26.5m of funds raised were applied to reduce outstandings under our asset based debt facility.
On a pro forma basis, net debt at 31 July adjusted for the effects of the subsequent closing of the capital reorganisation is £467.0m and the ratio of adjusted net debt to trailing twelve months EBITDA is 2.6 times. This compares with a peak ratio of over 4 times at April 2003. Pro forma availability under the asset based facility at 31 July was over £125m ($220m).
Completion of the capital reorganisation means that the Group’s debt facilities are now committed for a weighted average period of approximately 6.5 years and carry a weighted average interest rate of approximately 7.5%. Following the recent strong share price growth and the £70m equity offering, debt now funds just under half the Group’s enterprise value.
Following approval by shareholders at the extraordinary general meeting of the Company held on 1 August of the resolution to cancel the amount standing to the credit of the share premium account, High Court of Justice approval of the cancellation was received on 24 August. Accordingly of the total amount cancelled of £163.8m, £93.8m has been credited to a special non-distributable reserve whilst the balance of £70m has been credited to the Company’s profit and loss account reserve.
This step and the finalisation of the capital reorganisation now mean that the legal formalities necessary for the resumption of dividends in the current financial year have been completed.
Current trading and outlook
We anticipate that Sunbelt, which now accounts for around three-quarters of the Group’s profits, and Ashtead Technology, will continue to perform strongly. A-Plant’s rate of growth is expected to slow from the 23% achieved in the first quarter reflecting the continued competitiveness of the UK market. The recently completed capital reorganisation has strengthened our balance sheet and provides us with substantial flexibility to take advantage of the strong US market. The Board therefore looks forward to a successful outcome to the year.
There will be a meeting for equity analysts at the offices of JPMorgan Cazenove at 20 Moorgate at 9.30am this morning and a conference call at 4.00pm this afternoon (11.00am Eastern Standard Time) for debt investors. A simultaneous webcast of the equity analysts presentation will be available through the Company’s website, www.ashtead-group.com and there will also be a recorded playback available from shortly after the call finishes.