3 March, 2006
Third Quarter & Nine Month Results to 31 Jan 2006
Ashtead Group plc, the equipment rental group serving the US and UK construction, industrial and homeowner markets, announces record results for the nine months and third quarter ended 31 January 2006.
|Third quarter||Nine months|
|Profit before tax and exceptional items||12.8||(0.1)||53.0||18.2|
- Record third quarter revenues and profits
- Sunbelt’s nine months operating profit before exceptionals rises 62.6% to $138.4m (2005 - $85.1m)
- A-Plant’s nine months operating profit rises 14.7% to £10.0m (2005 - £8.7m)
- Restructuring of sales force drives 6.1% increase in A-Plant’s Q3 revenues
- Market conditions in the United States expected to remain strong
- c£18m pension deficit to be fully funded in March 2006
Ashtead’s chief executive, George Burnett, commented:
“We are pleased to report a strong performance in our seasonally weak third quarter. Favourable conditions continued in all Sunbelt’s markets and drove third quarter revenue growth of 31.0%. The new sales structure at A-Plant introduced at the start of the current financial year began to deliver its planned benefits with revenue growth of 6.1% in the third quarter. And Ashtead Technology also continued to trade strongly with third quarter revenues up 31.1%. As we announced on 24 November 2005, the third quarter also saw a £11.3m exceptional receipt on settlement of a longstanding legal claim in the US .
With the nine month profits nearly three times last year’s level, continuing strong trading conditions at Sunbelt and at Ashtead Technology, enhanced by the ongoing shift from ownership to rental, and an encouraging return to revenue and profit growth in A-Plant, the Board continues to look forward with confidence.”
|Cob Stenham||Non-executive chairman||020 7299 5562|
|George Burnett||Chief executive|
|Ian Robson||Finance director||01372 362300|
|Brian Hudspith||Maitland||020 7379 5151|
The Group achieved a record nine month performance. Revenue increased by 19.6% to £476.3m. The nine month profit before tax and exceptional items of £53.0m was almost three times last year’s £18.2m. After a net exceptional credit of £9.5m, the nine month pre-tax profit was £62.5m. Basic earnings per share were 8.8p before and 10.3p after exceptional items compared to 2.5p a year ago. On a cash tax basis, earnings per share before exceptional items were 13.9p (2005 – 5.4p).
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 nine months trading performance
|Sunbelt in $m||616.0||501.6||236.1||171.8||138.4||85.1|
|Sunbelt in £m||345.6||271.6||132.5||93.0||77.7||46.1|
|Group central costs||-||-||(5.1)||(4.8)||(5.2)||(4.8)|
|Profit before tax & exceptionals||53.0||18.2|
* in 2006 before exceptional items
Reflecting the Group’s operational gearing, the 19.6% revenue increase resulted in a 31.3% increase in EBITDA before exceptional items to £170.3m and an increase of 63.9% in operating profit before exceptional items to £85.4m. Measured at constant exchange rates, to eliminate the translation effect of the strengthening US dollar, revenue grew 16.7%, EBITDA before exceptional items grew 27.9%, operating profit before exceptional items grew 58.7% and profit before tax and exceptional items grew 175%. These improvements were reflected in the Group’s margins. EBITDA margins grew from 32.6% to 35.8% and operating margins rose from 13.1% to 17.9%.
In the nine months to 31 January 2006 revenue grew 22.8% to $616.0m. This was achieved through increased investment in the rental fleet which was on average 10% larger than a year ago and by significant increases in rental rates which were increased approximately 12% in strong market conditions. Average utilisation remained high at 71% compared to 70% in the prior year. Revenue growth was broadly based with all regions and all major product areas trading ahead of last year. As we reported in December, last summer’s hurricanes are estimated to have added around 2% to revenues. In a strong trading environment where US non-residential construction rose 6.4% in the 12 months to end January, 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 62.6% to $138.4m, representing a margin of 22.5% (2005 – 17.0%).
Sunbelt invested $195.6m in the nine months to maintain the quality of its rental fleet and reduce its age as well as for growth. This included the opening of five new greenfield stores. A further sixteen new general equipment rental stores have been acquired this year for a consideration of approximately $100m. In August Sunbelt disposed of 12 west coast specialist scaffold locations for $24.3m generating an exceptional disposal profit of $6.0m (£3.4m). The new stores continue Sunbelt’s strategy of clustering stores in major metropolitan markets. Additional infill acquisition opportunities are under consideration but Sunbelt also continues to pursue organic growth. 18.9% of the total nine month revenue growth of 22.8% was delivered by stores open throughout both periods.
In the third quarter, which benefited from milder than usual weather conditions, Sunbelt delivered revenue growth of 31.0% and growth in operating profit before exceptional items of 87.5%.
The restructuring of A-Plant’s sales force undertaken in the first half contributed to a strong third quarter performance with revenues increasing by 6.1%. Third quarter operating profits were £1.1m compared to last year’s £0.1m. As a result A-Plant’s nine months revenue was £118.9m compared to £117.6m last year. Rental rates, average fleet size and utilisation for the nine months were all at similar levels to those of last year.
A-Plant’s sales operations are now structured to serve the differing requirements of national, regional and local customers in a more focused way. Senior sales management resources have been increased as has the size of the sales force to ensure that A-Plant can address the needs of a UK construction market which continues to show solid growth. The emphasis placed by customers on Health & Safety continues to increase and is driving increased outsourcing activity coupled with a need for the rental equipment provider to be able to monitor and measure its performance across a range of key performance indicators. These trends are benefiting A-Plant which, with its national presence and sophisticated IT systems, is one of only a few national providers able to meet customers’ needs. Revenues from its largest customers continue to grow and represented 40% of the total in the period.
Careful management of operating expenses continued. These increased by 1.4% reflecting principally the full year impact of cost reduction measures taken last year. As a result A-Plant’s nine months operating profit grew 14.7% to £10.0m (2005 - £8.7m), representing a margin of 8.4% (2005 - 7.4%).
Ashtead Technology’s performance continued recent trends with nine month revenue up 32.6% to £11.8m (2005 - £8.9m) and operating profit up 40.5% to £2.9m (2005 - £2.1m). This reflects increased investment by the oil majors which is delivering higher offshore exploration and construction activity as well as continued growth in Ashtead Technology’s on-shore environmental business. We also invested in the third quarter in enlarging the US sales force and opened a new environmental rental location in Chicago in November. The positive market trends are expected to continue.
In addition to the trading results discussed above, operating profit as reported in the consolidated income statement includes £14.3m of net exceptional profits. These comprise the £11.3m received when Sunbelt settled its litigation with Head & Engquist, a £3.4m profit on disposal of Sunbelt’s 12 scaffold stores on the US west coast and in Texas less £0.4m of post acquisition integration costs. 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 also included as an exceptional item within finance costs.
Overall for the nine months the effective accounting tax rate on the profit before exceptional items was unchanged since the half year at 38%. The cash tax rate remains low at 2%. Although the Group’s cash tax rate is likely to remain well below the accounting rate, the recent increases in Sunbelt’s profitability together with the H&E litigation receipt make it likely that the cash tax rate will rise into double digits in 2006/7.
The Board has determined to fully fund the UK pension plan deficit on an ongoing actuarial basis before the end of the year. This will involve payment of approximately £18m to the plan with the exact amount depending on the plan actuary’s final recommendation which is expected shortly. Payment of this amount, the majority of which will be funded from the H&E litigation receipt, will have no significant effect on the Group’s income statement but will reduce future payments to the plan.
Capital expenditure and net debt
Capital expenditure in the nine months was £173.0m of which £158.5m was invested in the rental fleet (2005 - £92.1m in total) with the increased expenditure mainly directed towards expanding Sunbelt’s rate of growth. £62.1m of the fleet expenditure was for growth with the remainder spent to replace existing equipment. Disposal proceeds were £35.9m (2005 - £25.2m) generating a profit on disposal of £5.5m (2005 - £3.6m).
As indicated in December gross capital expenditure for the current financial year is expected to be approximately £220m. 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 £110m of the £220m gross expenditure will be for growth. To take advantage of the continuing strong markets, particularly in the US , we anticipate that capital expenditure for the year to 30 April 2007 will be approximately £250m.
Net debt at 31 January 2006 was £497.4m, an increase of £15.1m since 30 April 2005 but largely unchanged since 31 January 2005. At constant exchange rates the increase since year end was only £2.2m with debt lowered by £11.3m in the past year. Availability under the asset based loan facility was $292m at 31 January 2006 ($157m at 30 April 2005).
In November we finalised an amendment to our asset based senior credit facility which increased the amount of the facility, extended its maturity and reduced its cost. Based on the results announced today, the Group has now reduced its leverage to the level at which the lowest interest rate available under the amended facility applies and accordingly interest on revolver borrowings under the facility will now be at the rate of LIBOR plus 150bp.
Current trading and outlook
With the nine month profits nearly three times last year’s level, continuing strong trading conditions at Sunbelt and at Ashtead Technology enhanced by the ongoing shift from ownership to rental and an encouraging return to revenue and profit growth in A-Plant, the Board continues to look forward with confidence.
There will be a conference call for equity analysts at 10.00am today and a further conference call for bondholders this afternoon at 3.00pm. For further details please contact Emma Burdett at Maitland on 020 7379 5151 or the Company at 01372 362300. A simultaneous webcast of the equity analysts’ presentation will be available via the Company's website at www.ashtead-group.com and there will also be a recorded playback available from shortly after the call finishes.