12 December, 2006
Second Quarter and Half Year Results to 31 Oct 2006
Ashtead Group plc, the world’s second largest equipment rental group serving principally the US and UK non-residential construction markets, announces its half year and second quarter results:
Unaudited results for the half year and second quarter ended 31 October 2006
|£m||£m||At actual rates of exchange||At constant rates of exchange|
|Underlying profit before taxation*||54.4||40.2||+35%||+40%|
|Underlying earnings per share* - basic||7.4p||6.4p||+16%||+20%|
|- cash tax||11.5p||9.7p||+18%||+22%|
|(Loss)/profit before taxation||(30.6)||40.5||-||-|
* Underlying profit and earnings per share are stated before exceptional items, amortisation of acquired intangibles and non-cash fair value remeasurements of embedded derivatives in long term debt.
- Record underlying first half Group profit
- Significant growth in revenue and underlying operating profit in all divisions
- NationsRent acquisition completed on 31 August:
- Sunbelt now the second largest equipment rental company in the US
- Two month contribution from former NationsRent stores added c$110m (£58.9m) to revenue
- All first phase integration milestones have been met
- Acquisition of Lux Traffic Controls by A-Plant completed on 16 October
- Interim dividend raised 10% to 0.55p per share
Ashtead’s chief executive, Geoff Drabble , commented:
“The first half saw a good performance in all three operating divisions where a combination of strong markets and continued market share gains resulted in growth in rental revenues and operating profits. Following the acquisition of NationsRent in the second quarter, the combined management team has met all our initial targets and has already established the combined regional operating structure, introduced Sunbelt ’s performance monitoring and reward systems, merged the two computer systems and eliminated duplicated central functions.
We are encouraged by both the strong underlying performance of our business and by the strategic development of the Group following the acquisitions of NationsRent and Lux. Ongoing favourable market conditions, supported in the US by the continuing shift from ownership to rental, allow the Board to view the second half with confidence.”
Ashtead’s Chairman, Chris Cole added:
“As George Burnett our former chief executive retires, on behalf of the Board, shareholders and staff, I offer him our thanks for his determined and successful leadership and send him our best wishes for a long and happy retirement. This is also our first results statement since the sad and unexpected death of Cob Stenham who chaired the Group for the past three years and whose guidance during a critical period in the Group’s development is greatly appreciated.”
|Chris Cole||Chairman||020 7314 5000|
|Geoff Drabble||Chief executive||01372 362300|
|Ian Robson||Finance director|
|Brian Hudspith||Maitland||020 7379 5151|
Each of the Group’s three divisions performed strongly in the first half. Group revenue increased by 34.6% to £422.3m including approximately $110m (£58.9m) from the acquired NationsRent profit centres. Underlying operating profit rose 34.9% to £82.7m whilst underlying profit before tax grew by 35.2% to £54.4m from last year’s £40.2m. After exceptional items, non-cash fair value remeasurements of embedded derivatives in long term debt and amortisation of acquired intangibles, there was a loss before tax for the half year of £30.6m but a profit after taxation of £13.0m due to a tax credit of £43.6m. This includes a tax credit of £25.4m on the exceptional items and a one-time tax credit of £37.3m relating to previously unrecognised UK tax losses. As a result, basic earnings per share were 2.7p (2005 - 6.5p). Underlying earnings per share were 7.4p compared to 6.4p a year ago. On a cash tax basis, underlying earnings per share were 11.5p (2005 - 9.7p).
Review of six month trading performance
|Sunbelt in $m**||597.0||406.8||230.3||159.4||135.2||96.0|
|Sunbelt in £m**||319.5||226.1||123.3||88.6||72.3||53.4|
|Group central costs||-||-||(4.0)||(3.0)||(4.0)||(3.0)|
|Net financing costs||(28.3)||(21.1)|
|Underlying profit before tax||54.4||40.2|
* Before exceptional items
** Includes two months’ contribution from the acquired NationsRent profit centres
The Group measures its performance and that of its divisions using their profit before exceptional items (which are material, non-recurring items), fair value remeasurements of embedded derivatives in long term debt and amortisation of acquired intangibles. This measure of profitability is referred to throughout this report as “underlying profit”. As a result of the NationsRent acquisition there are a significant number of these items which are described in full later in this statement. The following sections concentrate on the underlying performance of the Group and the three trading divisions.
At actual rates of exchange the Group delivered a 34.6% increase in first half revenue, a 33.0% increase in EBITDA before exceptional items and an increase of 34.9% in underlying operating profit to £82.7m. Measured at constant exchange rates, to eliminate the translation effect of the weakening US dollar, revenue grew 38.4%, EBITDA before exceptional items grew 37.0%, underlying operating profit grew 39.5% and the underlying profit before tax grew 40.1%. Reflecting the inclusion of the lower margin NationsRent business, EBITDA margins declined slightly from 37.1% to 36.7% whilst operating margins were virtually unchanged at 19.6%. Return on investment for the 12 months ended 31 October 2006 rose to 18.2% (2005 - 15.2%)
Sunbelt ’s revenue growth again reflected growth in non-residential construction activity which grew 16% in the 12 months to 31 October 2006 according to figures published by the US Department of Commerce as well as the continuing shift from ownership to rental. In the six months to 31 October 2006 revenue grew 46.8% to $597.0m. This growth was achieved through increased investment in the rental fleet which, excluding the acquired NationsRent assets, was on average approximately 18% larger than a year ago and by rental rates which were approximately 3% higher than in the first half of last year. Average fleet utilisation remained unchanged at 72%. Additionally the acquired NationsRent business contributed approximately $110m (£58.9m) to first half revenues in the two month period since its acquisition.
Revenue growth was broadly based with all regions and all major product areas continuing to trade ahead of last year. This good performance is compared against a prior year period which benefited from significant hurricane related activity. Sunbelt ’s operating profit before exceptional items and intangible asset amortisation was up 40.8% to $135.2m (2005 - $96.0m), representing a margin of 22.6% (2005 - 23.6%).
Continuing recent progress, in the six months ended 31 October 2006, A-Plant’s revenues increased 14.9% to £91.5m (2005 - £79.7m), well ahead of a market which independent commentators report is growing at around 3.5% per annum. This was achieved through investment in the rental fleet which was 5% larger than a year ago, increasing average utilisation to 69% (2005 - 65%) and maintaining rental rates at similar levels to last year. The strong revenue growth delivered an increase in operating profit of 28.3% to £11.1m (2005 - £8.6m), representing a margin of 12.1% (2005 - 10.8%).
As a result of the improvement in performance, the Board approved A-Plant’s first large acquisition in more than seven years. The purchase of Lux Traffic Controls Limited on 16 October 2006 for £15.5m makes A-Plant the market leader in traffic management solutions in the UK . As A-Plant continues to develop, the Board anticipates investing in both organic growth and selected acquisitions in areas of the market where good returns are foreseen. A-Plant’s success was also recognised when it was recently made Plant Hirer of the Year 2006 by Contracts Journal in its annual Construction Industry Awards.
Ashtead Technology continued to grow strongly with first half revenue up 41.7% to £11.3m (2005 - £8.0m) and operating profit up 44.4% to £3.3m (2005 - £2.3m). This reflects increased investment by the oil majors which is delivering higher offshore exploration and construction activity as well as ongoing growth in Ashtead Technology’s on-shore environmental business. The positive market trends are expected to continue and an eighth North American on-shore store is expected to open in Philadelphia in the second half.
The NationsRent acquisition
The integration is progressing well with the two regional and district management teams merged and all the former NationsRent stores migrated onto Sunbelt ’s monthly paid profit share programme. The combination of the Sunbelt and NationsRent point of sale and back office computer systems was achieved ahead of plan at the beginning of November and the former NationsRent head office in Fort Lauderdale was closed on schedule in early December. These steps have also enabled us to validate the $37m of savings we targeted from bringing the two companies’ regional and head office structures together and we continue to be on track to deliver annual savings of at least $37m in the first full financial year.
The next phase of the integration is to improve the time and dollar utilisation of the combined business. This will be achieved by fully deploying Sunbelt’s reward systems amongst the former NationsRent employees to help drive improved performance and by reshaping the acquired fleet to contain a greater proportion of higher returning assets in line with the Sunbelt model. This will require additional gross capital expenditure of approximately $150m at NationsRent in the current financial year but will generate in the region of $90m of additional proceeds from the equipment sold.
Exceptional items, amortisation of acquired intangibles and fair value remeasurements
Exceptional items, amortisation of acquired intangibles and fair value remeasurements relating to embedded derivatives in long term debt totalling £85.0m were incurred in the first half, mostly relating to the acquisition of NationsRent. Whilst these factors have led to a significant pre-tax loss being incurred in the first half, these costs, with the exception of amortisation of acquired intangibles, are non-recurring and fully tax deductible.
Additionally A-Plant’s improving profitability and the restructuring of our internal corporate structure to finance the acquisition has led us to recognise, as an exceptional profit, a deferred tax credit of £37.3m in respect of previously unrecognised accumulated UK tax losses. These items are summarised in the table below.
|Cash amounts paid at closing:|
|‘Make-whole’ paid to redeem the NationsRent bonds, including costs||25.6|
|‘Make-whole’ paid to redeem the Ashtead sterling bonds, including costs||16.7|
|Non cash items|
|Write off of deferred financing costs on debt repaid at closing||10.6|
|Amortisation of acquired intangibles (mainly the NationsRent name)||2.8|
|Fair value remeasurements of embedded derivatives in long term debt||15.4|
|Integration costs to deliver the $37m (£20m) of integration savings||13.0|
|Other cash exceptional costs including rebranding costs||0.9|
|Total pre-tax costs||85.0|
|Deferred tax credit on the pre-tax costs||(25.4)|
|Recognition in deferred tax of previously unrecognised UK tax losses||(37.3)|
|Net exceptional items, amortisation of acquired intangibles and|
|fair value remeasurements after tax||22.3|
Additionally, further exceptional costs of £10m - £15m will be incurred in the second half mostly relating to the rebranding of the acquired locations and fleet. There will also be additional non-cash intangible amortisation of approximately £9m. No further exceptional costs related to the NationsRent acquisition are expected to be incurred after April 2007 whilst the intangible amortisation expense will reduce in 2007/8 to £2-3m annually.
The tax deductibility of the exceptional items outlined above, together with the estimated $127m of acquired tax losses in NationsRent which are available for use in the next two years mean that the Group is not now expected to pay significant amounts of cash tax in either the US or the UK until the 2008/9 financial year. From an accounts perspective, the estimated tax rate on underlying profit (comprised mostly of deferred tax) for the half year is 35% and is expected to remain around this level depending on the future mix of US and UK profits.
Capital expenditure and net debt
Capital expenditure in the six months was £192.4m (2005 - £131.3m) of which £173.0m was invested in the rental fleet with the increased expenditure directed mainly towards expanding Sunbelt ’s fleet prior to the NationsRent acquisition. £101.8m of the fleet expenditure was for growth with the remainder spent to replace existing equipment. Total disposal proceeds were £28.0m (2005 - £24.5m) generating a profit on disposal of £4.6m (2005 - £4.2m).
Full year gross capital expenditure, including the NationsRent fleet reconfiguration expenditure outlined above, is now expected to amount to approximately £375m gross and approximately £275m net. Fleet age at 31 October 2006 was 33 months for Sunbelt and 30 months at A-Plant, in line with or below that of most of our major competitors. We expect to have concluded our two year programme of above depreciation fleet replacement spend to reduce fleet age by 30 April 2007. Accordingly we anticipate replacement capital expenditure will reduce in the year to 30 April 2008.
Net debt at 31 October 2006 increased to £993.9m (2005 - £515.6m) due to the NationsRent acquisition. The ratio of debt to pro forma EBITDA* was 2.9 times at 31 October 2006. Availability under the new $1.75bn asset based loan facility was $478m at 31 October 2006 ($283m at 30 April 2006).
* Pro forma EBITDA for the 12 months to 31 October 2006 was £337.7m (including NationsRent’s pre-acquisition EBITDA calculated excluding its profit on used equipment sales and the £20m ($37m) of central overhead savings)
The Board has decided to increase the interim dividend by 10% to 0.55p per share (2005 – 0.5p per share) which will be paid on 28 February 2007 to shareholders on record on 9 February 2007.
Current trading and outlook
The Board is encouraged both by the strong underlying performance of the business and by the strategic development of the Group following the acquisitions of NationsRent and Lux. Following the NationsRent acquisition, substantially all our debt is drawn in dollars which reduces the translation impact on our profits of changes in dollar exchange rates. Ongoing favourable market conditions, supported in the US by the continuing shift from ownership to rental, allow the Board to view the second half with confidence.
A presentation to equity analysts will take place at 9.30am today at the offices of JP Morgan Cazenove at 20 Moorgate, London while there will be a conference call for bondholders this afternoon at 3.00pm (GMT). A simultaneous webcast of the equity analysts’ presentation will be available via the Company's website at www.ashtead-group.com as will a copy of the slides for the presentation. There will also be a recorded playback available from shortly after the presentation concludes.