24 June, 2008
Audited results for the year and unaudited results for the fourth quarter ended 30 April 2008
Read and download the 4th quarter results for the Ashtead Group. You can also view the latest webcast.
Audited results for the year and unaudited results for the fourth quarter ended 30 April 2008
|Total Group (including Technology)|
|Underlying operating profit1||42.7||35.7||+20%||197.7||150.5||+31%|
|Underlying profit before taxation1||25.4||15.7||+63%||122.9||81.4||+51%|
|Underlying earnings per share1||3.4p||1.8p||+86%||14.8p||10.3p||+44%|
|Profit/(loss) before taxation1||24.4||(8.0)||n/a||120.3||(36.5)||n/a|
|Basic earnings/(loss) per share||3.3p||(1.2p)||n/a||14.2p||1.5p||n/a|
|Continuing activities (excluding Technology)|
|Underlying profit before taxation1||22.1||13.9||+60%||112.3||75.2||+49%|
|Underlying earnings per share1||2.9p||1.6p||+79%||13.4p||9.5p||+40%|
|Profit/(loss) before taxation1||21.1||(9.8)||n/a||109.7||(42.7)||n/a|
|Basic earnings/(loss) per share||2.8p||(1.4p)||n/a||12.8p||0.4p||n/a|
1. Basis of preparation
The financial statements for the year ended 30 April 2008 were approved by the directors on 23 June 2008. This preliminary announcement of the results for the year ended 30 April 2008 contains information derived from the forthcoming 2007/8 Annual Report & Accounts and does not contain sufficient information to comply with International Financial Reporting Standards (IFRS) and does not constitute the statutory accounts for either 2007/8 or 2006/7 for the purposes of section 240(3) of the Companies Act 1985. The 2007/8 results are extracted from the audited accounts for that year which have not yet been filed with Companies House.
The comparative figures for 2006/7 have been extracted from the accounts for that year which have been delivered to Companies House except that the income statement has been restated to separate Ashtead Technology as a discontinued operation in accordance with IFRS 5. The auditors' reports in respect of both years were unqualified and do not contain a statement under section 237(2) or (3) of the Companies Act 1985. The results for the year ended and quarter ended 30 April 2008 have been prepared in accordance with relevant IFRS and the accounting policies set out in the Group's Annual Report & Accounts for the year ended 30 April 2007.
The figures for the fourth quarter are unaudited.
The exchange rates used in respect of the US dollar are:
|Average for the year ended 30 April||2.01||1.91|
|At 30 April||1.98||2.00|
- Strong performance across both core divisions1
- 21% growth in Sunbelt's underlying operating profit to $330.9m
- 46% growth in A-Plant's underlying operating profit to £30.2m
- Sale of Ashtead Technology for £96m announced on 23 June 2008
- Market conditions remain good in both the UK and the US
- physical utilisation in both businesses currently exceeds last year on a larger fleet
- fleet age and mix at optimum levels
- business model has flexibility to react quickly and effectively to change
- Net debt to EBITDA of 2.5 times (2007: 2.7 times). With the Technology sale and our anticipated strong cash flow, we are targeting net debt at constant exchange rates at 30 April 2009 of £785m (2008: £963m)
- Final dividend of 1.675p per share proposed, making 2.5p for the year, up 52% on 2007's 1.65p
- £23m spent in the year on share buy-backs. To 20 June, a total of £30m has been spent acquiring 7.5% of the issued capital at an average cost of 73p
Ashtead’s Chief Executive, Geoff Drabble , commented:
We are pleased to report strong results for the year.
In the United States, in the first full year of our ownership of NationsRent, Sunbelt has delivered strong 21% growth in underlying operating profit and established a foundation for further improvement as the full benefits of the acquisition are realised.
In the UK, A-Plant saw strong organic revenue growth and a tight control of infrastructure cost, delivering an excellent 46% improvement in underlying operating profit.
The sale of Ashtead Technology for £96m will allow us to continue to focus on the development of our core businesses and significantly reduce debt.
In May both Sunbelt and A-Plant delivered improved year on year performance. We continue to enjoy high levels of utilisation and expect to benefit further from the momentum established in the Group. Therefore, despite the current economic uncertainty, the Board anticipates the Group continuing to trade in line with its expectations in the coming year.
|Geoff Drabble||Chief executive||020 7726 9700|
|Ian Robson||Finance director||020 7726 9700|
|Brian Hudspith||Maitland||020 7379 5151|
- IFRS requires that, as a disposed business, Ashtead Technology's after tax profits and total assets and liabilities are reported in the Group's accounts as single line items within our income statement and balance sheet with the result that revenues, operating profit and pre-tax profits as reported in the Group accounts exclude Ashtead Technology. To aid comparability with our previous results announcements and with market expectations, however, the total Group's results above include Ashtead Technology's revenues and profits alongside those of Sunbelt and A-Plant. A reconciliation of these total Group underlying results to the reported results for the year is included in the Review of Results, Balance sheet and Cash flow section of this announcement.
- 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, which you can find in the full results announcement pdf above. 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, which you can find in the full results announcement pdf above.
- Divisional comparisons above are on a pro forma basis which includes the NationsRent and Lux Traffic acquisitions throughout the whole of the 2006/7 fiscal year. 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.
Geoff Drabble and Ian Robson will host a meeting for equity analysts to discuss the results at 9.30am on Tuesday 24 June at the offices of RBS Hoare Govett at 250 Bishopsgate, London EC2M 4AA. For the information of shareholders and other interested parties, the analysts' meeting will be webcast via the link above 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 above. 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.
Review of the year
The year was a significant one in terms of the development of the Group both in the US and the UK.
In our first full year of ownership of NationsRent, our transformational US acquisition, we completed the final structural elements of the integration. An integration of this scale can be a distraction and, therefore, delivering a 21% growth in Sunbelt's underlying operating profit over last year's pro forma combined performance was particularly pleasing.
Sunbelt's utilisation improved throughout the year which allowed us to invest in growing the fleet during the fourth quarter. We have, therefore, entered the new fiscal year with a larger, reconfigured fleet, good levels of utilisation and the major distractions of integration behind us. Our focus for the coming year will be on driving organic revenue growth and deriving full benefit from the enlarged, nationwide footprint of our profit centres.
In the UK, A-Plant also performed well, benefiting from a clear sales strategy which delivered strong growth together with infrastructure cost control. As a result, A-Plant delivered an excellent 46% improvement in underlying operating profit. We continue to offer a broad range of plant, tools and specialty products to our customer base, a strategy where we are the clear market leader and one which has significant advantages for our larger customers.
On 23 June we announced the sale of Ashtead Technology for £95.6m. Our strategic review concluded that Ashtead Technology was a non-core, niche business serving different markets and customers to the rest of the Group. The Board believes that the disposal price achieved (5.9 times 2007/8 EBITDA) represents good value for shareholders.
We have continued to invest in our fleet in the US and UK with total capital expenditure for the year of £331.0m. Our rental fleet has now reached an age and mix which we consider optimal for this stage in the economic cycle and, therefore, in the coming year we intend to greatly reduce gross capital expenditure to approximately £230m. The resulting increased free cash flow, together with the proceeds from the Technology sale, should reduce net debt to EBITDA leverage towards the lower end of our 2-3 times target range by April 2009.
- Total Group revenue (including Ashtead Technology) for the year was £1,002.6m up 11.9% on 2008 at actual exchange rates and 16.2% at constant rates.
- Total Group underlying operating profit for the year at £197.7m (£150.5m) grew 31.4% at actual exchange rates and 37.3% at constant rates whilst, on a pro forma basis, the growth was 22.7% at actual exchange rates and 28.2% at constant rates. This reflected good performance in all three divisions.
- Total Group underlying profit before tax of £122.9m grew 51.1% at actual rates of exchange and by 56.3% at constant rates over last year's £81.4m. Excluding Technology, the underlying profit before tax from continuing operations was £112.3m (2007: £75.2m), growth of 49%.
- Total underlying earnings per share for the year were 14.8p (2007: 10.3p) up 44% at actual rates and 48% at constant rates. On a cash tax basis underlying earnings per share grew 35% to 21.4p (2007: 15.8p).
- This year pre-tax exceptional costs were nil (2007: exceptional costs of £91.5m, mostly relating to the NationsRent acquisition) whilst there was a much reduced charge for amortisation of acquired intangible assets and no fair value remeasurements. Consequently this year's profit before tax from continuing operations (which excludes Ashtead Technology) was £109.7m compared to last year's £42.7m loss. Basic earnings per share (which include Ashtead Technology) were 14.2p (2007: 1.5p).
- Total capital expenditure in the year, including Ashtead Technology, was £331.0m gross (2007: £290.2m) whilst total disposal proceeds were £77.9m (2007: £89.1m) giving net capex of £253.1m (2007: £201.1m)
- Net debt at 30 April 2008 was £963.2m (2007: £915.9m), including £22.9m spent on share buy-backs during the year. The ratio of net debt to total Group underlying EBITDA of £380.0m was 2.5 times at 30 April 2008 (2007: 2.7 times).
- Availability under the $1.75bn asset based loan facility (including suppressed availability of $10m) was $602m at 30 April 2008 ($589m at 30 April 2007) providing substantial assurance that the debt package will remain covenant free
|Pro forma combined||356.3||349.4||+2%||1,528.1||1,538.6||-1%|
|Underlying operating profit|
|Pro forma combined||64.9||59.8||+8%||330.9||272.3||+21%|
|Pro forma margin||18.2%||17.1%||21.7%||17.7%|
Sunbelt's performance for the year following the transformational acquisition of NationsRent in August 2006 was excellent.
The focus remained throughout the year on establishing a cost efficient infrastructure for profitable future growth. The success of this work is demonstrated by the operating profit of $330.9m, an increase of 21% on a pro forma basis. Profit margins rose from 17.7% to 21.7%.
These improvements were achieved by above expectation cost reductions with 2007/8 operating costs $82m lower than 2006/7 costs despite significant inflationary pressure in certain key cost areas such as fuel.
Total revenue remained broadly flat at $1.5bn due to our curtailment of the low margin sales of new equipment previously undertaken by NationsRent whilst rental and rental related revenues grew 2% to $1.4bn on a pro forma basis. Within this there were major regional variations, with areas of weakness such as the well publicised challenges in Florida being more than offset by good growth elsewhere.
The 2% pro forma growth in rental and rental related revenues was achieved with a combined fleet that on average was 1% larger than last year measured across the year as a whole. However, the fleet was 1% smaller on average for the first three quarters of the year as we focused on improving physical utilisation which for the full year averaged 68%. In the fourth quarter, physical utilisation was 64% (2007: 62%) whilst the average fleet size grew 6%. We also gained an increased share of larger, longer-running projects which will provide good momentum into the new financial year.
With our enlarged national footprint, we are increasingly targeting larger regional and national accounts where the profile of business is different from our historical mix. Whilst this work tends to be at lower rates, rental periods are longer. This benefits margins by improving average physical utilisation and reducing transactional costs. We intend to continue this strategy of rebalancing our customer mix.
Whilst the current period of economic uncertainty will affect certain sectors of the market in the short term, particularly private commercial investment, other areas such as institutional expenditure and industrial markets are likely to remain more robust. We are a late cycle business with only 5% market share and continue to perform well. These factors, together with self-help available in a number of the acquired profit centres, contribute to our optimism regarding Sunbelt's performance in the coming year.
|Pro forma combined||55.1||50.2||+10%||214.8||199.4||+8%|
|Underlying operating profit|
|Pro forma combined||8.3||5.9||+42%||30.2||20.7||+46%|
|Pro forma margin||15.1%||11.8%||14.1%||10.4%|
A-Plant performed strongly throughout the year with market share gains generating organic like for like revenue growth of 8%. This growth was achieved by focusing on the value added products and services required by our customers. We are now the market leader in providing a combined plant and tool product offering which has proven particularly attractive to our larger customers. This growth was supported by 8% growth in average fleet size and a specific programme of investment in de-aging which has resulted in a fleet age of 23 months at 30 April 2008, down from 29 months a year ago.
Whilst the focus on major contractors can have a negative impact on our pricing yield, it also provides a number of other opportunities in terms of improved physical utilisation (71% for the year compared to 69% in 2006/7) and reduced infrastructure cost. Our initiative in April 2007 to move to fewer, larger depots has clearly delivered results, with a 46% increase in A-Plant's underlying operating profit to £30.2m. As a result of these actions, margins improved significantly from 10.4% in 2006/7 to 14.1% in 2007/8.
In the fourth quarter the average fleet size grew 12% and we enjoyed average physical utilisation of 74% (2007: 71%). Underlying operating profit grew 42% to £8.4m. We therefore enter the coming year with strong momentum.
Whilst economically there are now areas of difficulty in the UK, notably the residential market and new commercial offices, the overall picture for our served market remains healthy. Infrastructure and utility work remains good and we are well positioned to benefit from major projects such as the Olympics, Crossrail, M25 widening and changes to the energy infrastructure. These factors together with the opportunity to drive further market share gains from A-Plant's current single digit market share give us confidence in the prospects for the year ahead.
* At constant exchange rates
In good markets, aided by a very strong oil price, Ashtead Technology continued to deliver excellent revenue and profit growth.
The effective tax rate on underlying pre-tax profits for the year was 35% (2007: 35%) and is expected to remain at around 35% in coming years. In addition, there was a £1.6m exceptional tax charge to write down the UK deferred tax asset to reflect the reduction in the rate of UK corporation tax from 30% to 28% effective 1 April 2008.
The tax charge again comprised mostly deferred tax, with cash tax payments only amounting to approximately 5% of profits due to available tax losses and the accelerated tax depreciation available due to the capital intensive nature of the business. Following the introduction of a "like kind exchange" programme at Sunbelt effective from 1 May 2008 and with the benefit of US bonus depreciation as part of the economic stimulus measures introduced earlier this year, the cash tax rate is expected to remain in single digits in 2008/9 and to continue to be well below the effective 35% long term accounting tax rate for several more years.
Earnings per share
Basic earnings per share for the year were 14.2p (2007: 1.5p) and 14.1p (2007: 1.5p) on a fully diluted basis. Underlying earnings per share were 14.8p (2007: 10.3p) whilst, on a cash tax basis, underlying earnings per share were 21.4p (2007: 15.8p).
Underlying earnings per share of 14.8p has now grown 45% at constant exchange rates from the 11.3p delivered in 2005/6, immediately prior to the NationsRent acquisition. This equates to compound annual growth of 20% per annum in earnings at constant exchange rates (14% per annum at actual rates) over the past two years, notwithstanding the enlarged share capital in issue following the NationsRent acquisition.
Return on Investment and Return on Equity
Group return on investment improved to 14.0% (2007: 12.9%), reflecting improving performance in Sunbelt and A-Plant. RoI for Sunbelt was 14.4% (2007: 14.0 %) whilst RoI at A-Plant continued its recently improving trend and was 10.9% (2007: 8.8%). Both businesses therefore now return well above our weighted average cost of capital.
Aided by the beneficial impact of using lower cost, tax deductible debt to finance a significant part of our fleet investment, the after tax return on equity was 19.0% (2007: 15.3%) producing strong accretive returns for shareholders.
Capital expenditure in the year totalled £331.0m (2007: £290.2m) including £294.8m on the rental fleet. £168.8m of the rental fleet expenditure was maintenance or replacement expenditure with £126.0m spent for growth. Disposal proceeds totalled £77.9m (2007: £89.1m) giving net expenditure of £253.1m (2007: £201.1m). The average age of the Group's rental fleet at 30 April 2008 was 31 months (2007: 31 months).
Our rental fleet is now at an age and mix which we consider optimum. Accordingly, we expect significantly reduced capital expenditure next year at approximately £230m gross and £175m net of disposal proceeds. Around £180m of the gross expenditure will be for replacement with £50m of investment for growth (3% of current fleet size).
Net debt increased to £963m at 30 April 2008 (2007: £916m) reflecting the capital investment in fleet growth and de-ageing and the £23m spent on share buy-backs. However, the ratio of net debt to last twelve months total Group EBITDA of £380m improved to 2.5 times at 30 April 2008. From a leverage position of around 3 times when the NationsRent acquisition closed in August 2006, the Group has therefore, as we had anticipated, already delevered to the mid point of our long term 2-3 times net debt to EBITDA target.
With the US fleet reconfiguration complete and with both the US and UK fleets in excellent shape, we anticipate significant free cash flow in the coming year which we expect to apply largely towards debt pay-down. Together with the Technology sale proceeds we are therefore, by April 2009, targeting net debt, at constant exchange rates, of £785m 2008: £963m) and to be at the lower end of our 2-3 times net debt to EBITDA range.
The Board is proposing a final dividend of 1.675p (2007: 1.1p) making 2.5p for the year (2007: 1.65p), an increase of 52%. If approved by shareholders at the forthcoming Annual General Meeting, the final dividend will be paid on 26 September 2008 to shareholders on record at 5 September 2008.
Current trading and outlook
Current trading is in line with our expectations with both Sunbelt and A-Plant delivering improved year on year performance in May.
We continue to enjoy high levels of utilisation and expect to benefit further from the momentum established in the Group. Therefore, despite the current economic uncertainty, the Board anticipates the Group continuing to trade in line with its expectations in the coming year.