5 September, 2006
First quarter results for the three months ended 31 July 2006
Ashtead Group plc, the equipment rental group serving principally the US and UK non-residential construction markets, announces its results for the quarter ended 31 July 2006.
Unaudited first quarter results for the three months ended 31 July 2006
Continued strong growth in the US ahead of the NationsRent acquisition
Underlying profit before taxation*
Profit before taxation
|Underlying earnings per share* - basic||4.1p||2.0p|
|- cash tax||4.7p||3.7p|
* Underlying profit before tax and earnings per share are stated before non-cash fair value remeasurements related to embedded derivatives in long term debt and exceptional items.
- Group underlying pre-tax profit of £24.3m (2005 - £12.3m)
- Sunbelt’s operating profit up 48.6% to $57.1m (2005 - $38.4m)
- A-Plant’s operating profit up 25.7% to £4.5m (2005 - £3.6m)
- US market conditions remain favourable
- NationsRent acquisition completed on 31 August 2006
Ashtead’s chief executive, George Burnett, commented:
“Sunbelt again delivered a strong performance with first quarter dollar revenue up 25.3% and operating profit up 48.6% driven by strong growth in its key non-residential construction market, the ongoing shift from ownership to rental in the US and market share gains. In the UK A-Plant also grew strongly with first quarter revenue up 13.3% and operating profit up 25.7%, trends we anticipate continuing as they reflect last year’s sales force reorganisation.
With the completion of the NationsRent acquisition, we now have more than 450 stores in America with revenues in excess of $1.4bn, making us number three in the US and number two globally by revenue. Our detailed integration plans are now being implemented and we aim to have the new combined regional and district structure in place before the end of September.
With the continuing strength of our core non-residential market in the US and the completion of the NationsRent acquisition the Group expects to continue to make good progress.”
|Cob Stenham||Non-executive chairman, Ashtead Group plc||020 7299 5562|
|George Burnett||Chief executive, Ashtead Group plc|
|Ian Robson||Finance director, Ashtead Group plc||01372 362300|
|Brian Hudspith||Maitland||020 7379 5151|
The Group’s strong performance continued in the first quarter with revenue up 20.5% to £175.7m and underlying pre-tax profit of £24.3m, nearly twice last year’s £12.3m. Sunbelt again delivered a good performance with first quarter dollar revenue up 25.3% reflecting strong growth in its key non-residential construction market, increasing market share and the continuing shift from ownership to rental in the US. Sunbelt’s operating profit grew 48.6% in the quarter. The improvements in A-Plant’s performance, following last year’s reorganisation of its sales force, continued and Ashtead Technology also exceeded significantly last year’s first quarter performance.
After a non-cash charge of £15.4m in respect of fair value remeasurements of embedded derivatives in long term debt and £0.3m of exceptional post acquisition integration expenses, the profit before tax was £8.6m (2005 - £13.6m).
First quarter underlying earnings per share more than doubled to 4.1p (2005 - 2.0p) whilst basic earnings per share after exceptional items and fair value remeasurements related to embedded derivatives in long term debt were 0.2p (2005 – 2.4p). Underlying earnings per share on a cash tax basis were 4.7p (2005 - 3.7p).
Review of first quarter trading
|Sunbelt in $m||234.0||186.8||93.2||68.9||57.1||38.4|
|Sunbelt in £m||126.3||103.3||50.3||38.1||30.8||21.2|
|Group central costs||-||-||(1.6)||(1.4)||(1.6)||(1.4)|
|Net financing costs||(10.7)||(12.1)|
|Underlying profits before tax||24.3||12.3|
* in 2006 before exceptional items
In 2005 share based remuneration costs previously treated as central items have been reallocated to operating segments in order to be consistent with the treatment of these costs in 2006
Reflecting the Group’s operational gearing, the 20.5% revenue increase produced a 27.2% increase in EBITDA to £65.0m and a 43.5% increase in operating profit to £35.0m (in each case before exceptional items of £0.3m). Measured at constant rates of exchange, revenue grew 22.5%, EBITDA grew 29.5% and operating profit rose 46.5%. These improvements were reflected in the Group’s margins. EBITDA margins grew from 35.0% to 37.0% and operating margins rose from 16.7% to 19.9%. Group return on investment** (measured on a last twelve months basis) rose from 13.6% a year ago to 18.9% at 31 July 2006.
** Underlying operating profit divided by LTM average net tangible assets before deferred tax.
In the quarter to 31 July 2006 revenue grew 25.3% to $234.0m reflecting growth of approximately 7% in rental rates and a 17% increase in the average fleet size. Average first quarter utilisation increased slightly from approximately 70% to 71%. Revenue growth continued to be broadly based with all regions and major product areas trading ahead of last year. Organic growth was strong with an increase in same store revenues for the period of 21.3%.
Sunbelt’s revenue improvement reflected market share gains and growth in non-residential construction activity, up 15.8% in the 12 months to end July according to figures published by the US Department of Commerce, as well as the continued shift from ownership to rental. Sunbelt’s operating profit was up 48.6% in the first quarter from $38.4m to $57.1m, representing a margin of 24.4% (2005 - 20.6%). Last year’s acquisitions continue to perform well. Sunbelt continued its investment programme to enable it to take advantage of the strong market conditions in the US with $123.7m invested in its rental fleet in the quarter (2005 - $64.8m).
A-Plant continued its recent improvement with revenue growing by 13.3% to £43.9m. This was achieved from a fleet which on average was approximately 4% larger than last year. Average first quarter utilisation increased strongly from approximately 64% to 69%. Rental rates remained broadly similar to those of Q4 2006 but were approximately 3% below the first quarter of last year. A-Plant’s revenue improvement reflected a good UK construction market and market share gains. First quarter operating profit grew 25.7% to £4.5m (2005 - £3.6m), representing a margin of 10.2% (2005 - 9.2%).
Ashtead Technology achieved strong growth in first quarter revenues which rose 43.5% from £3.8m to £5.5m, reflecting principally increased offshore exploration and construction activity. Operating profit rose 29.7% from £1.0m to £1.3m.
Capital expenditure and net debt
In light of the strong US market conditions and the improvements in A-Plant, the Group invested significantly for growth at the start of the seasonally strong summer period. Capital expenditure for the quarter was £110.5m of which £100.4m was on the rental fleet (2005 - £61.5m in total). £70.1m of the fleet expenditure was for growth with the remainder being spent to replace existing equipment. First quarter disposal proceeds were £11.7m (2005 - £10.9m) generating a profit on disposal of £2.2m (2005 - £2.2m).
Net debt at 31 July 2006 was £499.3m, an increase of £5.7m since 30 April 2006 reflecting seasonal trends but a reduction of £19.2m since 31 July 2005. At constant exchange rates the increase since year end was £11.4m. The ratio of net debt to EBITDA reduced to 2.1 times.
The NationsRent acquisition
The NationsRent acquisition was completed on 31 August 2006. Following announcement of the acquisition in mid July we developed detailed plans for the integration of NationsRent. Prior to closing NationsRent’s store managers and sales staff were briefed on Sunbelt’s operating methods, sales techniques and incentives and, now that the acquisition has closed, the new combined regional and district structure will be implemented during September. Execution of the detailed integration plan to combine the two back office functions and deliver the integration cost savings has also begun.
The acquisition was financed through the £152m rights issue and through debt. Existing share holders subscribed for 96.2% of their rights and the balance was successfully placed in the market on 29 August. In relation to the debt, $550m of new ten year second priority senior notes were raised carrying an interest rate of 9% per annum and a new five year $1.75bn first priority asset-based bank loan was arranged. The new asset-based facility carries an initial interest rate of LIBOR plus 175bp and is on substantially similar terms to the Group’s existing $800m asset-based facility which was repaid at closing.
On closing of the acquisition on 31 August the enlarged Group had pro-forma debt of approximately £990m comprising approximately £546m under the asset based senior credit facility, $250m of 8.625% 2015 notes, $550m of 9% 2016 notes and approximately £23m of finance lease indebtedness. Availability under the new asset based facility was approximately $430m, substantially in excess of the $125m level above which the facility effectively carries no quarterly financial performance covenants. At the same date the weighted average maturity of the Group’s debt facilities was 7 years with the earliest significant maturity being in August 2011. The weighted average interest cost of these facilities (including non-cash amortisation of deferred debt raising costs) is approximately 8%, most of which is tax deductible in the US where the tax rate is 39%.
The ratio of pro-forma debt to EBITDA at closing (based on Ashtead’s LTM EBITDA through 31 July 2006 of £238.6m combined with NationsRent’s LTM EBITDA less gains through June 2006 and the pro-forma £20m of central overhead savings, a combined total pro-forma LTM EBITDA of £331.9m) was 3.0 times. The Board considers that these facilities and the rights issue funding provide the Group with an appropriate balance sheet structure to deliver the integration and the future development of the enlarged Group.
Our core market in the US – non-residential construction – is forecast to continue its recent growth, with demand for our services also being supported by the continuing structural shift from ownership to rental. The completion of the NationsRent acquisition strengthens our position in this growing market. Consequently the Board expects the Group to continue to make good progress.
George Burnett (chief executive), Ian Robson (finance director) and Geoff Drabble (chief executive designate) will host a presentation to equity analysts at 9.30 am today at the offices of JPMorgan Cazenove at 20 Moorgate and a conference call for bondholders at 3.00pm this afternoon (10.00am Eastern Standard Time). 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 presentation concludes.