11 December, 2007
Unaudited results for the half year and second quarter ended 31 October 2007
Read and download the half year and 2nd quarter results for the Ashtead Group. You can also view the latest webcast.
Strong growth in second quarter and first half profits and earnings
|Second quarter||Half year|
|Underlying operating profit1||65.2||47.7||+37%||114.9||82.7||+39%|
|Underlying profit before taxation1||46.0||30.1||+53%||76.7||54.4||+41%|
|Underlying earnings per share1|
|- cash tax||7.3p||6.9p||+5%||12.1p||11.5p||+6%|
|Profit/(loss) before taxation||45.6||(39.2)||n/a||75.7||(30.6)||n/a|
|Basic earnings per share||5.3p||2.3p||n/a||8.5p||2.7p||n/a|
|Interim dividend per share||n/a||n/a||n/a||0.825p||0.55p||+50%|
1. Basis of preparation
The condensed financial statements for the six months ended 31 October 2007 were approved by the directors on 10 December 2007. They have been prepared in accordance with International Financial Reporting Standards ('IFRS') (including International Accounting Standard (IAS) 34, Interim Financial Reporting) and the accounting policies set out in the Group's Annual Report and Accounts for the year ended 30 April 2007. They are unaudited and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The statutory accounts for the year ended 30 April 2007 were prepared in accordance with relevant IFRS and have been mailed to shareholders and filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement under section 237 of the Companies Act 1985.
The exchange rates used in respect of the US dollar are:
|Average for the six months ended 31 October||2.01||2.08|
|At 31 October||1.87||1.91|
- The successful integration of NationsRent with Sunbelt in the US and the repositioning of A-Plant in the UK have driven strong first half profit growth with:
- Sunbelt's underlying operating profit up 27% to $196.6m
- A-Plant's underlying operating profit up 41% to £16.5m
- Underlying earnings per share improved by 20% in the first half and by 46% in the second quarter
- Leverage in the middle of our 2-3 times EBITDA target range and expected to reduce next year
- Dividend rebased with 50% rise in the interim dividend to 0.825p per share and a similar increase expected in the final dividend
- Share buy-back of up to the authorised level of 5% of the issued equity capital
- Rothschild appointed to review strategic options for Ashtead Technology
- The Board has confidence in the Group's prospects for the full year and beyond.
Ashtead’s chief executive, Geoff Drabble , commented:
"This has been a key period for Ashtead and I am delighted that these results show that we have made excellent progress. In the US the integration of NationsRent has been completed successfully and we are now driving the combined business back towards the market-leading margins and returns achieved previously by Sunbelt alone. In the UK the work we have undertaken to reposition A-Plant has led to a significant improvement in its performance and with its increasing prominence in the market I see this improvement continuing.
Our experience on the ground, supported by many lead indicators, is that activity levels in our primary markets in the US and UK remain good being driven primarily by a mix of corporate and public sector investment. Notwithstanding current concerns over broader macro economic conditions, we continue to see strong demand for our equipment and services. We have the added security of being a late cycle business and a sufficiently flexible business model to react effectively to any changes, as yet unseen, which may occur in our markets.
The Board has confidence in the Group's prospects for the full year and beyond."
|Geoff Drabble||Chief executive||020 7726 9700|
|Ian Robson||Finance director||020 7726 9700|
|Brian Hudspith||Maitland||020 7379 5151|
Financial definitions :
- 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. The definition of exceptional items is set out in note 4 of the full results announcement available to download in PDF format at the top of this release. The reconciliation of underlying earnings per share and underlying cash tax earnings per share to basic earnings per share is shown in note 7 to the attached financial information to download at the top of this release.
- Pro forma basis includes the NationsRent and Lux Traffic acquisitions throughout the year ended 30 April 2007 rather than from their respective dates of acquisition of 31 August 2006 and 15 October 2006. For this purpose the pre-acquisition results of NationsRent have been derived from its reported financial performance under US GAAP adjusted to exclude the large profits on disposal of rental equipment it reported following the application of US "fresh start" accounting principles and to include an estimated depreciation charge under Ashtead's depreciation policies and methods.
Geoff Drabble and Ian Robson will host a meeting for equity analysts to discuss the results at 10.15am on Tuesday 11 December at the offices of UBS at 1 Finsbury Avenue, London EC2. The analysts' meeting will be webcast live and there will also be a replay available from shortly after the call concludes. A copy of this announcement and the slide presentation used for the meeting is also available for download at the top of this release. There will also be a conference call for bondholders at 3pm (10am EST).
Please contact the Company's PR advisers, Maitland (Camilla Vella) at +44 (0)20 7379 5151 for more details.
Overview of the results
The half year marks the successful conclusion of Sunbelt's integration of NationsRent, acquired in August 2006, and the repositioning of A-Plant. The success of both of these tasks is reflected in the strong underlying pro forma operating profit growth at both divisions for the half year. Sunbelt delivered underlying operating profits of $196.6m, up 27% on the previous year and A-Plant £16.5m, up 41%.
At Sunbelt the ex-NationsRent fleet has been reconfigured significantly and physical utilisation levels for the combined business are now consistent with those achieved by Sunbelt alone prior to the acquisition. We anticipate that the improved levels of utilisation will continue through to the year end, driven by both the better fleet mix, which is now less seasonal and less cyclical, and the enlarged sales force of almost 900.
Reflecting the Sunbelt model, we have developed a more diverse customer base for the reconfigured fleet from which we are achieving improved rental yields. Having achieved utilisation levels and margins that are comparable to those earned previously by Sunbelt alone, we will now as planned target our investment in growth capital as opposed to fleet reconfiguration. This will improve the revenue and contribution of the existing profit centre infrastructure, particularly the smaller locations acquired with NationsRent.
Looking forward our focus is on organic growth. We intend to develop those geographic areas where we now have a presence following the acquisition into the broader clusters which are central to our business model and are proven to deliver higher returns. These clusters will be supported by the ongoing development of our speciality businesses where we have added seven Pump and Power profit centres over the last 18 months.
In the UK, restructuring has created fewer, larger profit centres delivering a high customer service offering from a broad range of plant, tools and speciality products to our core customer base. It has been well received in the market and has contributed to the 9% pro forma rental revenue growth in the second quarter, delivering Q2 operating margins of 16.8% (2006 - 13.3%)
Improved demand from both our major national and regional customers means that we are operating at record physical utilisation levels. Meeting this demand has required fleet expansion and further de-ageing. Our strategy is to continue to grow the fleet to support market share gains as will be required in the second half to support major initiatives with customers such as Wates and Norwest Holst where we have recently secured long term agreements.
Our primary focus remains organic growth and leveraging our existing profit centre infrastructure. However, the UK remains a highly fragmented market and we may selectively make small bolt-on acquisitions to further accelerate growth.
Markets and outlook
Despite general concerns about the future direction of the US economy, our experience on the ground is that the US non residential construction market, which is over 90% of Sunbelt's business, continues to grow. This is supported by market data from a number of sources including McGraw Hill, Global Insight and Maximus Advisers.
The institutional element of this market, which represents 50% of the total and includes categories such as schools, hospitals and transportation, continues to be particularly strong, driven significantly by the requirement for infrastructure following the residential boom of 2000 to 2005. This together with good taxation revenues and an election in November 2008 supports the view that this element of the market will remain strong in the medium term.
Whilst the commercial element is more likely to be affected by a prolonged credit crunch, corporate profits remain good, labour markets are healthy and the industrial and manufacturing sectors remain strong. The current pipeline of projects remains good and because we are a 'late cycle' business and expect to benefit from current commitments for the next one to two years, we have a good level of confidence for future periods.
In the UK we enjoy good market conditions generally, supported by major projects, such as Crossrail, the Olympics and utility infrastructure spending. This excellent pipeline of work across the UK in a broad range of market segments will more than offset any potential slowdown in the development of high profile commercial office space, giving us confidence in the UK's medium term outlook.
First half results
Reflecting good organic growth in A-Plant and Ashtead Technology, the strong margin improvement in Sunbelt and the impact of last year's acquisitions of NationsRent and Lux:
- First half revenue grew 24% at actual rates of exchange and by 31% at constant rates
- Underlying first half operating profit of £114.9m (2006 - £82.7m) grew 39% at actual exchange rates and by 48% at constant rates
- Underlying first half profit before tax grew 41% to £76.7m at actual rates of exchange and by 50% at constant rates
- Underlying earnings per share for the first half were 8.9p up 20% at actual rates and by 26% at constant rates. On a cash tax basis underlying earnings per share were 12.1p (2006 - 11.5p)
- After amortisation and exceptional items, the first half profit before tax was £75.7m (2006 - loss of £30.6m) and basic earnings per share were 8.5p (2006 - 2.7p)
- Return on Investment ("RoI") for the Group rose to 13.1% for the 12 months ended 31 October 2007. Sunbelt delivered 13.7% whilst A-Plant's RoI was 10.2%. After tax return on equity was 16.2% (year to April 2007 - 15.3%).
|Second quarter||Half year|
|Pro forma combined||420.6||422.4||Nil%||809.1||827.7||-2%|
|Underlying operating profit|
|Pro forma combined||111.8||86.6||+29%||196.6||154.4||+27%|
|Pro forma margins||26.6%||20.5%||24.3%||18.7%|
Sunbelt's pro forma margins continue to improve as we realise the benefits of the NationsRent acquisition with the actions taken to lower costs and increase dollar utilisation driving improved profitability.
As planned, Sunbelt's revenue growth continues to be limited by our curtailment of the low margin sales of new equipment previously undertaken by NationsRent. Excluding revenues from equipment sales, rental and rental related revenues grew 2% in the second quarter to $392m and by 1% in the first half to $754m.
Dollar utilisation was 63% at 31 October 2007 compared to a pro forma 62% at 30 April 2007. Fleet size was on average 2% smaller in the first half than in the pro forma equivalent period last year as we focused on raising the physical utilisation of the acquired fleet. First half physical utilisation was comparable to last year's Sunbelt only levels and is now tracking higher, a trend we would expect to continue for the rest of the financial year. First half physical utilisation averaged 70% (2006 - 72%).
|Second quarter||Half year|
|Pro forma combined||56.4||51.7||+9%||108.5||101.0||+7%|
|Underlying operating profit|
|Pro forma combined||9.5||6.9||+38%||16.5||11.7||+41%|
|Pro forma margin||16.8%||13.3%||15.2%||11.6%|
A-Plant again delivered good revenue growth in the first half, up 7% on a pro forma basis. This growth reflected a 4% increase in average fleet size, a 3% increase in first half physical utilisation to a record 71% (2006 - 69%) and broadly unchanged rental rates. That this revenue growth was achieved in the period immediately following the profit centre rationalisation programme at the end of last year is a testament to the way A-Plant managed that programme and the continuing strength of the market.
The good revenue increase drove first half operating margins to 15.2% and produced growth of 41% in pro forma operating profits to £16.5m (2006 - £11.7m). By the end of the period A-Plant had also exceeded, six months ahead of schedule, its target of delivering a return on investment in excess of 10% with the actual RoI for the 12 months ended 31 October 2007 being 10.2%. We expect A-Plant's RoI to continue to improve.
|Second quarter||Half year|
Ashtead Technology's offshore and onshore markets remain good and we have continued to invest in order to support these markets. At constant rates of exchange first half revenues and profits grew 20% and 58% respectively as we continue to benefit from our global reach and strong customer service.
Ashtead Technology serves specialised markets which whilst attractive are different to those of our two core businesses. Accordingly Rothschild has been appointed to review and report to the Board on the strategic options for Technology.
Capital expenditure in the first half was £255.1m (2006 - £192.4m) well ahead of the first half depreciation charge of £90.3m as we invested to de-age our fleets and ensure our competitiveness in good market conditions, to complete reconfiguration of the acquired fleet in the US and to support the top-line growth in the UK.
Taking into account continued investment in fleet growth at A-Plant, we now expect capital expenditure in the current year of approximately £320m gross and £260m net of disposal proceeds.
Our rental fleets in all three divisions have now reached an age and mix which we consider to be at or near optimal levels. Accordingly the replacement capital spend in the coming financial year will be reduced significantly to a level slightly below depreciation. We will continue to invest in growth capital as dictated by the strength of our markets and market share gains.
Net debt and leverage
EBITDA for the 12 months to 31 October 2007, which now includes NationsRent and Lux throughout, was £360.6m and the ratio of net debt to LTM EBITDA was 2.6 times (April 2007 - 2.7 times).
As we move forward the natural trend to lower replacement capital expenditure and the ongoing strength of the non residential construction markets in which we operate will deliver strong cash generation allowing us to both reduce leverage whilst continuing to invest in fleet growth next year. Our strategy remains to operate within a net debt to EBITDA range of 2-3 times through the cycle. With a reduced requirement for replacement capital expenditure in future, we expect to be in the lower half of this range by April 2009 and to continue deleveraging in future periods.
Debt facilities remain committed for the long-term with the first significant maturity being in August 2011. Availability, including suppressed availability of $105m, under the $1.75bn asset based loan facility was $676m at 31 October 2007 ($589m at 30 April 2007). Under our debt facilities, lenders have agreed that we have no financial covenants to adhere to whilst availability exceeds $125m.
Whilst we intend to continue to invest strongly in the future growth of the business, given our confidence in its prospects we believe it is now appropriate to rebase the dividend. The Board has decided therefore on an interim dividend of 0.825p per share, an increase of 50%. The Board also expects to increase the 2007/8 final dividend by a similar percentage. Following this rebasing, the Board's dividend policy will be to increase cash returns to shareholders progressively over time, considering both the underlying performance of the Group and the ongoing cash flow of the business. The interim dividend will be paid on 29 February 2008 to shareholders on record on 8 February 2008.
In addition to the increased dividend outlined above, now that the NationsRent integration is complete and debt leverage has been reduced to around the mid point of our target range with further reductions expected, the Board believes that it is appropriate to make an additional equity return in the form of an on-market share buy-back. Accordingly the Company's brokers, UBS and Hoare Govett, will be making selective purchases in the market of the Company's issued share capital up to the 5% authorised amount.