7 July, 2005
Fourth quarter and full year results to 30 April 2005
Ashtead Group plc, the equipment rental group serving the US and UK construction, industrial and homeowner markets, announces its results for the fourth quarter and year ended 30 April 2005.
Audited results for the year ended 30 April 2005 and unaudited results for the fourth quarter
- Group full year pre-tax profit before goodwill of £25.3m (2004* - £7.6m)
- Group full year pre-tax profit of £16.4m (2004 – loss of £33.1m)
- Group Q4 pre-tax profit before goodwill of £4.4m (2004* - £3.1m)
- Group Q4 pre-tax profit of £2.1m (2004 - loss of £10.0m)
- Sunbelt full year profit** up 48% to $108.2m (2004 - $73.3m)
- A-Plant full year profit** nearly trebled to £11.7m (2004 - £4.0m)
- Debt further reduced by £53.6m from cash flow despite 73% increase in capital expenditure to £125.5m***
- Proposed capital reorganisation announced today
* in 2004, also before exceptional items
** Sunbelt’s and A-Plant’s profit comprises their operating profit before goodwill amortisation and, in 2004, exceptional items
*** excluding lease capitalisation effects
Ashtead’s chief executive, George Burnett, commented:
“Strong performances by all three of our divisions drove a significant recovery in the Group’s full year results. In the US, Sunbelt’s profits rose 48% on revenues up 15% as it continued to take market share in improving trading conditions. In the UK , A-Plant delivered a near trebling of profits and a substantially improved return on capital. Technology is now also benefiting strongly from increased investment in offshore oil exploration globally with its profits up 26% to £3.4m.
The capital reorganisation announced today will provide, when finalised, a stable and appropriate long-term platform for the Group’s future development. It will complete the renewal of all the Group’s debt facilities and extend the average debt maturity to 7 years. The Board also expects the reorganisation will enable it to propose to shareholders the resumption of dividends in respect of the year ending 30 April 2006.
In the US, the key private non-residential construction market is strong and is forecast to remain so. In addition, the shift from ownership to rental continues. The outlook for Sunbelt therefore remains encouraging. Overall, UK markets continue to be stable. A-Plant’s focus remains on improving returns and growing market share. Technology should benefit from increased investment in oil exploration and production. Accordingly, the Board anticipates reporting further progress in the coming year.”
There will be a presentation to equity analysts at 9.30am this morning at the offices of JPMorgan Cazenove, 20 Moorgate, London, EC2R 6DA. A simultaneous audio webcast of this 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.
Strong performances by all three of our divisions drove a significant recovery in the Group’s results. In the US, Sunbelt’s profits rose 48% on revenues up 15% as it continued to take market share in improving trading conditions. In the UK , A-Plant delivered a near trebling of profits and a substantially improved return on capital. Technology is now also benefiting strongly from increased investment in offshore oil exploration globally with its profits up 26% to £3.4m.
For the year to 30 April 2005, Group profit before tax, goodwill amortisation and, in 2004, exceptional items increased to £25.3m from £7.6m in 2004 (£6.2m at constant exchange rates). After goodwill amortisation and exceptional items, pre-tax profits were £16.4m compared with last year’s loss of £33.1m. Cash tax earnings per share were 7.6p (2004 – 2.4p). After goodwill amortisation and, in 2004, exceptional items, and the accounting tax charge, basic earnings per share were 0.7p in 2005 compared to the loss of 10.8p in 2004.
The fourth quarter profit before tax, goodwill amortisation and, in 2004, exceptional items was £4.4m (2004 – £3.1m). After goodwill amortisation and exceptional items, the pre-tax profit for the quarter was £2.1m compared with the loss of £10.0m in 2004.
Review of trading
|Turnover*||Divisional operating profit**|
|Sunbelt in $m||661.1||572.8||108.2||73.3|
|Sunbelt in £m||355.0||333.1||58.1||42.4|
|Group central costs||-||-||(5.9)||(4.9)|
|Profit before tax **||25.3||7.6|
* In 2004, before exceptional items.
** Before goodwill amortisation and, in 2004, exceptional items.
Despite an 8% year on year decline in the US dollar, Group turnover increased by 4.7% to £523.7m and divisional operating profit by 52.3% to £67.3m. The underlying growth, measured at constant exchange rates, was greater with turnover up 10.4% and divisional operating profit up 64.0%. The Group’s divisional operating profit margin also improved significantly from 8.8% to 12.9%. The Group’s return on operating capital employed (excluding goodwill) increased to 12.6% (2004 – 7.4%).
Sunbelt performed strongly in the year with both rental rates and utilisation rising substantially. Turnover grew 15.4% to $661.1m (2004 - $572.8m) reflecting growth of approximately 8% in average rental rates and an increase in average utilisation from 65.1% to 69.0%. There was also a modest return to growth in its average fleet size, arising almost entirely from fourth quarter capital expenditure. Turnover growth was broadly based with all regions and all major product areas trading ahead of last year.
In the fourth quarter, turnover increased 11.5% to $159.5m (2004 - $143.1m), a good performance bearing in mind that quarterly comparatives are now with a period last year which had already started to benefit from the recovery in non-residential construction. Rental rates grew 7% in the quarter. The new profit centres opened in the first half continued to progress and further new locations in Miami and Phoenix were opened in the fourth quarter.
Sunbelt’s turnover improvement reflected market share gains and growth in private non-residential construction activity (which rose 5.3% in the year to April 2005 according to figures published by the US Department of Commerce) as well as the continued shift from ownership to rental. Sunbelt’s divisional operating profit was up 16.3% in the fourth quarter from $20.2m to $23.5m. Sales of used rental equipment were concentrated in the fourth quarter of last year giving rise to an unusually high incidence of gains on disposal. Excluding this and the lease capitalisation effect explained below, the underlying rate of growth in divisional operating profit was 37.0%. For the year as a whole Sunbelt’s divisional operating profit grew 47.6% to $108.2m representing a margin of 16.4% (2004 – 12.8%).
Investments to enhance the network of stores and the mix of our business continue. The acquisition of 5 stores in the Miami area for consideration of $1.7m at an EBITDA multiple of 2.5 times from HSS RentX announced in May together with our plan to open approximately 10 new general tool and equipment stores across the US on a greenfield basis in the coming financial year will increase fleet investment in higher return areas. Additional infill acquisition opportunities are also under consideration to increase further our share in attractive markets.
We anticipate generally strong trading conditions in Sunbelt’s key US non-residential market in coming years. According to the Dodge Analytics Division of McGraw-Hill Construction, a leading industry research source, US non-residential construction spending is projected to grow by 6.6%, 9.5% and 7.3% in 2005, 2006 and 2007, respectively. This compares with their estimate of 3.9% growth in 2004.
A-Plant has seen significant benefits this year from the refocusing programme completed in January 2004. Although total turnover for the year rose only marginally to £156.3m from £155.9m in 2004, when 2003/4 non-core disposals are excluded same store turnover grew by 5.2%. This growth was achieved despite a fleet size which was approximately 4.1% smaller than in the equivalent period last year. Increases in utilisation from 59.9% to 64.9% and growth in rental rates of approximately 2% increased A-Plant’s efficiency. The growth in rental rates in the fourth quarter was approximately 7%.
As a result of these improvements, A-Plant’s fourth quarter divisional operating profit was £3.2m, more than double the £1.5m earned in 2004 and its full year profit virtually trebled to £11.7m (2004 - £4.0m), representing a margin of 7.5% (2004 – 2.6%). The initiative announced earlier this year to increase further returns through continuing investment in tool hire equipment is on track with 8 additional locations already carrying the tool hire range. Over the course of the next twelve months the tool hire range will be introduced to a further 18 plant locations.
A-Plant’s major account business continues to benefit from the breadth of its product offering and its geographic coverage. As a result its top 100 customers provided 35% of A-Plant’s revenue in the year. New five-year contracts were agreed in the year with Balfour Beatty Utilities Limited, McNicholas plc and Skanska UK plc, with the latter being a two-year extension to an existing three-year agreement. Most recently we have been awarded a new five year sole supply contract by Birse Group plc for all their plant and tool requirements. Together these new contracts are estimated to secure revenues of more than £50m over the next five years.
For the year as a whole, turnover grew 9.7% to £12.4m (2004 - £11.3m) and divisional operating profit rose 25.9% to £3.4m (2004 - £2.7m). The first UK environmental rental store was opened in Hitchin at the beginning of the year and the US environmental rentals expansion continued with the opening of a new store in Atlanta last October. Both stores developed well in their first year. Ashtead Technology also substantially improved its performance in the fourth quarter with revenues up 45.8% from £2.4m to £3.5m in the quarter. The fourth quarter divisional operating profit increased from £0.5m to £1.3m continuing the early signs of recovery in its offshore markets seen in the third quarter.
Capital expenditure and net debt
Capital expenditure in the year was £157.8m. This included £32.3m resulting from our decision to reclassify certain leases (mainly relating to our delivery vehicle fleet) previously accounted for as operating leases as capital leases. Treating these leases as capital leases increased reported capital expenditure and finance lease debt. It also resulted in the reclassification of lease payments of £7.8m from EBITDA to depreciation (£6.7m) and interest (£1.4m) thus reducing pre-tax profits by £0.3m.
Excluding this lease effect, capital expenditure rose from £72.3m in 2004 to £125.5m of which £120.0m was on the rental fleet. Capital expenditure was increased significantly in the year to enable Sunbelt to take advantage of the improving economic conditions in the US. £27.2m of the fleet expenditure was for growth with the remainder being spent to replace existing equipment. Expenditure on A-Plant’s rental fleet was also increased from £29.8m to £35.4m as its performance improved. Disposals amounted to £37.6m (2004 - £32.6m) in the year, generating a profit on disposal of £7.1m (2004 - £5.2m) at a margin of 23.2% (2004 – 19.0%) above book value. The markets we use for disposing of used rental equipment continue to be healthy. In the coming year capital expenditure is expected to increase to approximately £160m.
Cash tax payments were again minimal and are expected to remain so.
On a like for like basis, underlying net debt at 30 April 2005 was £467.4m, a reduction of £59.3m from last year’s £526.7m principally reflecting the pay down of debt from cash flow generated in the last twelve months of £53.6m (2004 - £53.6m). This underlying net debt figure ignores the non-cash impact of the lease capitalisation discussed above which increased reported year end net debt by £25.8m to £493.2m. £82.0m ($156.7m) was available under the new first priority senior debt facility based on the April 2005 borrowing base.
EBITDA for the year was £169.7m (2004 - £147.0m before exceptional items). Conversion of EBITDA into net cash inflow from operations was again high at 97.1% (2004 – 95.2% before exceptional items). As a result of both the growth in EBITDA and the net paydown of debt from cash flow in the year of £53.6 million, the ratio of net debt to EBITDA improved from 3.6 times a year ago to 2.9 times at 30 April 2005.
We have also announced today a placing and open offer of 73,350,352 new ordinary shares at 95.5p per share to raise approximately £66.2m after issue costs. The purpose of the placing and open offer in conjunction with the substantially concurrent issue of $250m of new senior secured notes is to provide the finance to enable the Company to redeem early the outstanding 5.25% convertible loan note, due 2008 held by Rentokil Initial plc and also to reduce interest costs by exercising the option to redeem early the maximum 35% of the £120m 12% senior secured notes, due 2014. Full details of these transactions which are interconditional are provided in the separate announcement released today.
Assuming a successful completion, all of our debt facilities will have been refinanced since April 2004 and the pro forma average maturity of our debt at 30 April 2005 will be approximately 7 years. Additionally, so long as we maintain availability of more than $50m on our asset based senior debt facility (availability was $156.7m based on the April 2005 borrowing base), none of these debt facilities is subject to quarterly financial performance covenants.
JPMorgan Cazenove were appointed on 28 June 2005 as joint brokers to the Company alongside Evolution Securities Limited.
Current trading and outlook
Last year’s momentum has continued into the current year. Group turnover for the two months ended 30 June 2005 was up 12.5% over the previous year. Sunbelt’s revenues in dollars rose 17% in the same period.
The capital reorganisation announced today will provide a stable and appropriate long-term platform for the Group’s future development. It completes the renewal of all the Group’s debt facilities and extends the average debt maturity to 7 years. The Board also expects the reorganisation will enable it to propose to shareholders the resumption of dividends in respect of the year ending 30 April 2006.
 Cash tax earnings per share comprises earnings before goodwill amortisation, exceptional items and deferred tax divided by the weighted average number of shares in issue. Cash tax earnings per share is considered to be a relevant measure of earnings per share for the Company as the deferred tax liability is not expected to crystallise in the foreseeable future