26 June, 2007
Audited results for the year and unaudited results for the fourth quarter ended 30 April 2007
Read and download the 4th quarter results for the Ashtead Group.
Audited results for the year and unaudited results for the fourth quarter ended 30 April 2007
|Financial summary||Fourth quarter||Year|
|Underlying operating profit1||35.7||25.7||+54%||150.5||111.1||+45%|
|Underlying profit before taxation1||15.7||14.5||+21%||81.4||67.5||+29%|
|Underlying earnings per share1 - basic||1.8p||2.3p||-14%||10.3p||11.3p||-3%|
|- cash tax||2.8p||3.6p||-14%||15.8p||16.4p||+3%|
|(Loss)/profit before taxation||(8.0)||14.1||n/a||(36.5)||81.7||n/a|
|Basic (loss)/earnings per share||(1.2)p||2.8p||n/a||1.5p||13.5p||-88%|
1 See explanatory notes below
*At constant exchange rates
- Continued growth in revenue and profit in all divisions with full year underlying operating profit of £150.5m, up 45% at constant exchange rates.
- On a pro forma basis1(b) Sunbelt’s underlying full year operating profit grew by 43% to $272.3m reflecting the progress made to date on the NationsRent integration.
- On the same pro forma1(b) basis, A-Plant delivered underlying operating profit growth of 40% to £20.7m reflecting its strong 11% organic improvement in pro forma1(b) revenues.
- Underlying basic earnings per share declined 3% to 10.3p reflecting the expected first year dilution from the NationsRent acquisition.
- The loss before tax for the year of £36.5m (2006 - profit of £81.7m) is after charging exceptional costs, fair value remeasurements and intangible amortisation amounting to £117.9m (2006 - £14.2m credit). No further exceptional costs relating to the NationsRent acquisition are expected.
- Final dividend of 1.1p per share proposed, making 1.65p for the year (2006 - 1.5p)
Ashtead’s chief executive, Geoff Drabble , commented:
“The year saw substantial change and development across the Group. The NationsRent acquisition was a significant step forward in enhancing the Group’s presence in the growing US rental market. I am pleased with the progress made to date which is reflected in the strong fourth quarter performance. The major elements of the integration are behind us and the combined business can now focus on gaining further market share and continuing to improve dollar utilisation1(c).
A-Plant also continued to improve its performance built upon double digit same store growth. The Board’s recent decision to invest in an improved profit centre infrastructure better suited to our customers’ needs in the UK in the coming year will underpin delivery of improved returns. Ashtead Technology also traded well throughout the year.
Looking forward, the markets in which we operate are strong and the drive to rental, due to both the financial and operational benefits for customers of outsourcing, will continue, particularly in the US. Given the ongoing integration benefits from the acquired NationsRent business, together with the improving performance of both A-Plant and Ashtead Technology, we look forward to 2008 with confidence.”
|Geoff Drabble||Chief executive||01372 362300|
|Ian Robson||Finance director|
020 7379 5151
- 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. 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. Underlying earnings per share for the fourth quarter of 2005/6 have also been adjusted to reflect the effective tax rate of 31% reported for the whole of that year rather than the effective tax rate of 6% actually reported in that quarter.
- Pro forma basis includes the NationsRent and Lux Traffic acquisitions throughout both periods. For this purpose the pre-acquisition results of NationsRent have been derived from its reported 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.
- Dollar utilisation is defined as rental and rental related revenues divided by the average original or “first” cost of rental equipment.
Review of the quarter
A year of significant change was dominated by the acquisition of NationsRent on 31 August 2006 for approximately $1bn. The acquisition provided a unique opportunity to enhance our US footprint with minimal profit centre overlap. It also allowed us to acquire an underperforming asset which provided significant cost saving and efficiency opportunities. A major focus for the year, therefore, has been ensuring we realised these integration opportunities.
Our initial focus was to complete the internal activities such as systems changes, head office closures, profit centre mergers and closures and fleet reconfiguration by the end of the financial year. This was to ensure that not only will we enjoy a full year of the benefits accruing from this activity in the coming year but also that the combined business could be focused fully on market share gains as we enter the busy summer period.
We are pleased with the success to date of the integration, the benefits of which are reflected in a strong fourth quarter performance. No further exceptional costs associated with the transaction are expected.
A-Plant’s recent strong revenue and profit growth continued in the fourth quarter. Ongoing focus on revenue growth and operational efficiency supports our expectation of continuing improvement in its margins and return on investment. During the year we acquired the Lux Traffic business creating a clear market leader in this sector. This was A-Plant’s first acquisition for some time and reflected our confidence in the business.
We have continued to invest in Ashtead Technology to support buoyant market conditions contributing to good revenue and profit growth.
Our prime market is non-residential construction. In the US, high corporate profits continue to support strong private and public expenditure, the latter due to federal and state tax receipts. We see increased expenditure in key areas such as education, healthcare and transportation.
A quarter of operational growth
The Group made good progress in the year to 30 April 2007:
- Revenue for the year at £896.1m was up 40.5% on the revenue reported in 2006 at actual exchange rates and 48.2% at constant rates. On a consolidated, pro forma basis the organic growth in rental and rental related revenues was 10% at constant exchange rates.
- Underlying operating profit for the year at £150.5m was 35.5% up on the prior year at actual exchange rates and 44.7% at constant rates, reflecting good performance in all three divisions. Pro forma underlying operating profit grew 43.1% to £161.2m at constant exchange rates.
- The underlying profit before tax of £81.4m grew 20.6% at actual rates of exchange and by 28.9% at constant rates over last year’s £67.5m
- 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 of £36.5m in the year compared to last year’s £81.7m profit. No further exceptional items relating to the NationsRent acquisition are expected in the coming year.
- Basic earnings per share for the year were 1.5p (2006 - 13.5p) whilst underlying earnings per share were 10.3p (2006 - 11.3p). On a cash tax basis underlying earnings per share were 15.8p (2006 - 16.4p).
- Capital expenditure in the year was £290.2m (2006 - £220.2m) gross whilst disposal proceeds totalled £89.1m (2006 - £63.7m) giving net capex of £201.1m (2006 - £156.5m)
- Net debt at 30 April 2007 was £915.9m (2006 - £493.6m). The ratio of debt to pro forma last twelve months’ EBITDA was 2.7 times at 30 April 2007 down from 3.2 times at closing.
- Availability under the $1.75bn asset based loan facility was $589m at 30 April 2007 ($283m at 30 April 2006) providing substantial flexibility for future growth.
|Pro forma combined||349.4||347.2||+1%||1,538.6||1,424.5||+8%|
|Underlying operating profit|
|Pro forma combined||59.8||33.7||+78%||272.3||190.4||+43%|
|Pro forma margin||17.1%||9.7%||17.7%||13.4%|
The year was dominated by the acquisition of NationsRent on 31 August 2006 and the subsequent operational integration of its 268 stores into the Sunbelt network. Within two months of closing the transaction, a new combined regional and district management structure had been introduced, overlapping profit centres merged and the two point of sale computer systems combined. By the end of January the former NationsRent head office had been closed and Sunbelt’s corporate headquarters had been relocated to new larger premises. Sunbelt’s profit share and sales commission programmes, with their strong focus on return on investment, were also introduced to the NationsRent staff. In addition, we undertook a programme to reshape the acquired NationsRent fleet to contain a similar proportion of higher returning assets to Sunbelt.
These actions not only realised annual cost savings of approximately $48m, ahead of our $37m target, but have positioned Sunbelt to focus on improving the dollar utilisation and operational performance of the acquired profit centres as we enter the busy summer period. The year also saw an early improvement in combined pro forma dollar utilisation which rose to 62% from a combined 59% in the year to 30 April 2006.
The fourth quarter saw the operating margin enhancements at NationsRent accelerate. Growth in pro forma fourth quarter revenues was just 1% as we continued the planned reduction in low margin new equipment sales at NationsRent. Excluding these sales revenues, rental and rental related revenues grew 3% in total to $319.1m. Away from the hurricane related states (Florida, Alabama, Louisiana and Mississippi) which were still affected by unusually strong comparatives, rental and rental related revenues in the rest of the US grew 5% in the quarter.
Operating margins benefited from the growth in rental revenues resulting from focusing the acquired profit centres on more profitable rental business and from the regional and head office cost savings which ran at an annual rate of approximately $48m in the quarter. Pro forma fourth quarter operating profit margins increased from 9.7% a year ago to 17.1% giving a 78% increase in pro forma operating profit to $59.8m.
For the year as a whole, which on a pro forma basis includes four months prior to our taking ownership of NationsRent, total revenues grew 8% whilst rental and rental related revenues grew 9%. Pro forma operating profit grew 43% to $272.3m representing an improvement in pro forma margins from 13.4% to 17.7%.
Exceptional costs incurred in the year in relation to the NationsRent acquisition totalled £31.5m and related to redundancies, retention bonuses, rebranding and other costs. In addition £68.0m of exceptional financing costs and non-cash fair value remeasurements were incurred at closing relating to debt redeemed in connection with the acquisition. The charge for intangible amortisation for the year was £11.0m, mostly relating to the write off of the acquired NationsRent brand name which ceased to be used with the completion of the profit centre rebranding programme by year end.
|Pro forma combined||50.2||46.9||+7%||199.4||179.1||+11%|
|Underlying operating profit|
|Pro forma combined||5.9||4.6||+29%||20.7||14.7||+40%|
|Pro forma margin||11.8%||9.8%||10.4%||8.2%|
The year also saw substantial progress at A-Plant where we continued to build on the investment in additional sales resources made in the previous year and delivered double digit same store revenue growth. The Lux Traffic business acquired in October was integrated smoothly thereby making A-Plant the UK market leader in the rental of temporary traffic systems.
In April we began to implement a new investment programme for A-Plant. This will involve the restructuring of its profit centre infrastructure over the coming year to create fewer, larger sites with higher levels of activity. These larger pools of equipment and staff will improve operational efficiency and enable A-Plant to meet the needs of its customers better.
A-Plant continued to trade strongly in the fourth quarter with same store revenue growth of 7%. For the year as a whole, the same store revenue growth was 11% which reflected a 5% increase in average fleet size, a 5% increase in average fleet utilisation to 69% (2006 - 65%) and a 1% growth in rental rates as A-Plant regained market share. On a pro forma basis, 2006/7’s revenues exceeded those of 2001/2, A-Plant’s previous record year.
The increased revenues and the acquisition of the higher margin, Lux Traffic business drove improved pro forma margins which grew from 8.2% to 10.4% for the year. As a result pro forma operating profit totalled £20.7m.
An exceptional charge of £6.2m was recorded in the fourth quarter in respect of, principally, vacant premises cost at the profit centres which will be closed as a result of the new investment plan.
* At constant exchange rates
Ashtead Technology rents specialist equipment including underwater survey and positioning equipment, remote visual inspection and non-destructive testing equipment and environmental monitoring equipment. Both Ashtead Technology’s offshore and onshore markets remain good and the division has continued to invest in order to take advantage of these markets. This has enabled the business to deliver excellent revenue and profit growth all year, trends which look set to continue.
Following the refinancing at the time of the NationsRent acquisition and the improvement in A-Plant’s profitability the Group has recognised £35.9m of the previously unrecognised UK deferred tax asset as an exceptional item. As a result the effective tax rate on underlying pre-tax profits for the year was 35% (2006 – 31%) and is now expected to remain at around 35% in coming years. There was again no significant cash tax charge and, due to available tax losses and the capital intensive nature of the business, the cash tax charge is expected to remain well below the effective accounting tax charge for several more years.
Earnings per share
Basic earnings per share for the year were 1.5p (2006 -13.5p) and 1.5p (2006 - 13.2p) on a fully diluted basis reflecting the significant exceptional integration and financing costs incurred in the year, principally in connection with the NationsRent acquisition. Before these items, underlying earnings per share were 10.3p (2006 - 11.3p) whilst, on a cash tax basis, underlying earnings per share were 15.8p (2006 - 16.4p). The reduction in underlying earnings per share was 3% at constant exchange rates reflecting the expected first year dilution from the NationsRent acquisition.
Return on Investment and Return on Equity
Reflecting the inclusion of the lower margin NationsRent business Group return on investment declined to 12.9% (2006 - 14.7%), still well above our cost of capital. RoI for Sunbelt was 14.0% (2006 - 17.2%) whilst that for A-Plant continued its recently improving trend and was 8.8% (2006 - 7.0%). Following the NationsRent and Lux acquisitions, RoI is now computed including goodwill and is defined as underlying operating profit divided by average shareholders’ equity plus debt and deferred tax, less the pension fund surplus and financial assets - derivatives.
Following the recognition of the UK deferred tax asset, the Group’s tax position has normalised and return on equity (defined as underlying profit after tax and financing costs divided by average stockholders equity) has also become relevant. For the year, after tax, the return on equity was 15.3% indicating strong returns for shareholders.
Balance sheet and debt position
Capital expenditure in the year totalled £290.2m (2006 - £220.2m) including £256.4m on the rental fleet. £181.7m of the rental fleet expenditure was maintenance or replacement expenditure with £74.7m spent for growth. Disposal proceeds totalled £89.1m (2006 - £63.7m) giving net expenditure of £201.1m (2006 - £156.5m). The average age of the Group’s rental fleet at 30 April 2007 was 31 months (2006 - 37 months). In the coming year gross capital expenditure is expected to be approximately £275m including £50m of NationsRent fleet reconfiguration spend rolled over from 2006/7. Net of disposal proceeds, 2007/8 capital expenditure is expected to be approximately £225m.
Net debt of £916m at 30 April 2007 compares to pro forma net debt at closing of the NationsRent acquisition on 31 August 2006 of £990m. The ratio of net debt to last twelve months pro forma EBITDA was 2.7 times at 30 April 2007 compared to 3.2 times on 31 August 2006 when the NationsRent acquisition closed (in each case, not including pro forma cost savings).
The Board is proposing a final dividend of 1.1p (2006 - 1.0p) making 1.65p for the year (2006 - 1.5p). If approved by shareholders at the forthcoming Annual General Meeting, the dividend will be paid on 28 September 2007 to shareholders on record as of 7 September 2007.
Current trading and outlook
The new financial year has started with May results in line with our expectations. Looking forward, the markets in which we operate remain strong and the drive to rental, due to both the financial and operational benefits of outsourcing, will continue, particularly in the US. Given the ongoing integration benefits from the acquired NationsRent business, together with the improving performance of both A-Plant and Ashtead Technology, we look forward to 2008 with confidence.
Geoff Drabble and Ian Robson will host a meeting for equity analysts to discuss the results at 10.30am on Tuesday 26 June at the offices of JPMorgan Cazenove at 20 Moorgate, London EC2. For the information of shareholders and other interested parties, the analysts’ meeting will be webcast live via the Company’s website at www.ashtead-group.com 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 will also be available for download on the Company’s website. There will also be a conference call for bondholders at 3pm (10am EST).
Analysts and bondholders have already been invited to participate in the meeting and conference call but anyone not having received dial-in details should contact the Company’s PR advisers, Maitland (Jane Franklin) at +44 (0)20 7379 5151.