18 June, 2009
Audited results for the year and unaudited results for the fourth quarter ended 30 April 2009
Read and download the results for the year and fourth quarter 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 2009
|Underlying operating profit1||16.4||39.4||-59%||155.0||187.1||-17%|
|Underlying (loss)/profit before taxation1||(0.2)||22.1||-101%||87.4||112.3||-22%|
|Underlying earnings per share1||0.2p||3.4p||-93%||11.9p||14.8p||-20%|
|(Loss)/profit before taxation1||(29.2)||21.1||n/a||0.8||109.7||-98%|
|Basic (loss)/earnings per share||(3.3p)||3.3p||n/a||12.5p||14.2p||-12%|
1 See explanatory notes below
- Robust performance despite difficult market conditions
- Cost reduction programme announced in December now fully implemented delivering operating cost savings of at least £100m
- £246m net cash inflow generated in the year (2008: £1m outflow) of which £157m was from operations. A minimum inflow of £100m is targeted for 2009/10
- £217m of the net inflow applied to pay down debt with £29m returned to equity holders
- Debt package remains committed for the long term and structured to remain covenant free throughout the cycle
- Final dividend of 1.675p per share proposed (2008: 1.675p), making 2.575p for the year (2008: 2.5p)
Ashtead’s Chief Executive, Geoff Drabble , commented:
"Market conditions weakened further during the fourth quarter. Revenues in both the US and UK markets were adversely affected by lower volumes and yields although we continued to benefit from the stronger dollar. Whilst infrastructure and utility work continues to hold up, the relative lack of finance available for private sector commercial development makes it inevitable that construction volumes overall will remain weak.
Our business model and capital structure are designed to cope with the cyclical nature of our markets so we were well prepared for this downturn and this is reflected in our robust performance. We took prompt action to control costs and also to address fleet size which is helping us sustain good utilisation. May and early June have seen rental volumes in line with our expectations whilst rental yields have shown some tentative signs of flattening month on month. As a result, the Board confirms that its current expectations regarding 2009/10 performance are unchanged from those described in the trading update issued on 11 May.
We continue to believe that the fundamentals of our markets remain attractive and that, with our continuing focus on meeting the challenges of current market conditions and on cash generation, we are well positioned for the next phase of the cycle."
|Geoff Drabble||Chief executive||020 7726 9700|
|Ian Robson||Finance director||020 7726 9700|
|Brian Hudspith||Maitland||020 7379 5151|
- The Group adopted the amendment to IAS 16 - Property, plant and equipment (and consequent amendment to IAS 7 - Statement of cash flows) included within 'Improvements to IFRSs'. This increased the Group's reported revenues and operating costs although there is no impact on earnings and prior year figures have been restated accordingly.
- Underlying revenue, profit and earnings per share are stated before exceptional items and amortisation of acquired intangibles. The definition of exceptional items is set out in note 4, available in the full results document 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 on the same pdf download.
- 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 with the result that revenues, operating profit and pre-tax profits as reported in the Group accounts exclude Ashtead Technology. Total group results include the results of both continuing operations and Ashtead Technology.
Geoff Drabble and Ian Robson will host a meeting for equity analysts to discuss the results at 9.30am on Thursday 18 June at the offices of RBS Hoare Govett at 250 Bishopsgate, London EC2M 4AA. This meeting will be webcast live via the webcast link at the top of this release and a replay will be available from shortly after the call concludes. A copy of this announcement and the slide presentation used for the meeting are also available for download at the top of this release. A conference call for bondholders will begin 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 (Ashley Forget) at +44 (0)20 7379 5151.
Overview and markets
The year was characterised by good rental volumes and profits in our first half followed by a rapid decline into recessionary conditions and weak profitability in the second half. Although the pace of decline from still good market volumes last summer into recessionary conditions was significantly more rapid than has been seen in previous cycles, the market conditions we face and the way our markets are moving through the cycle are not without precedent. Consequently, the way we have responded reflects the flexibility inherent in our business model and our experience of previous downturns.
Private non-residential construction was the first of our major markets to see a slow down, particularly amongst the smaller builders. Sectors which are most exposed to consumer spending, such as retail, were affected first but the impact is now widespread across all sectors. The speed of the decline in the current cycle is evidenced by the number of private sector projects where the decision was taken to stop work mid-project, but many more have been postponed or cancelled without work ever having begun. As usual it will take a return to GDP growth before growth returns but a consequence of the rapid slowdown is the large number of projects that are ready to recommence as soon as developers and financiers gain the necessary confidence to resume development.
Infrastructure work, most of which is publicly financed, will as usual remain stronger through the cycle with particular areas of strength being utilities, prisons, schooling and transportation. Future strength, however, depends on central funding and hence it is helpful that both US and UK administrations are committed to delivering public sector investment to improve ageing infrastructure and support employment. On the ground, however, the fact that this spending is largely delivered by local and not central government brings uncertainty over which projects will be supported and generates some delay in projects proceeding.
We believe that a combination of financial constraint and uncertain order books will result in contractors, particularly in the US, increasingly choosing the rental option. We therefore expect the established trend towards increased outsourcing of equipment supply in the US will accelerate through the cycle. At the same time our industry remains fragmented with a number of smaller rental companies surviving on leasing finance often with low or zero cost interest rates which historically was provided by the equipment manufacturers. As this source of finance has become increasingly scarce and substantially more expensive, we expect the rental market to consolidate further during the downturn, benefitting the larger, better financed players such as ourselves.
As a result, with strong market positions in both the UK and US, supported by young fleets and sound long-term debt facilities, we continue to expect that we will emerge from the current downturn with greater market share and, in the US, in a market with enhanced rental penetration.
In the face of reducing demand, it was, however, necessary that we configured our operations to be as efficient as possible and to lower cost. As a result, in the second half, we have reduced our rental fleets by around 10%, merged or shut 100 profit centres and reduced our workforce by around 14%. Overall these actions resulted in savings of around £100m compared to last summer in our annualised local currency cost base.
Critically, in taking rationalisation action, we have ensured that we remain positioned to service all our main geographies and markets when the upturn comes. The one-time exceptional charge incurred in delivering the savings, much of which is non-cash relating to asset impairments and future costs on closed properties, was £83m. Including the proceeds realised from the sale of the surplus equipment, the programme generated a net cash inflow in the year of around £40m.
|Sunbelt in $m||1,450.0||1,626.0||500.4||598.9||241.8||330.9|
|Sunbelt in £m||865.5||810.0||298.7||298.4||144.4||164.9|
|Group central costs||-||-||(5.4)||(7.9)||(5.5)||(8.0)|
|Net financing costs||(67.6)||(74.8)|
|Profit before tax, exceptionals and|
|amortisation from continuing operations||87.4||112.3|
|Exceptional items (net)||(17.1)||-|
|Total Group profit before taxation||69.7||120.3|
|Profit attributable to equity holders of the Company||63.0||77.6|
The year's results reflect markedly different performances in the first and second half of the year. In the first half we saw revenue and profit growth whereas the second half saw significant local currency revenue and profit declines. During the second half operating results also benefited from the stronger dollar. As a result, reported Group revenues grew to £1.07bn1 (2008: £1.05bn), whilst the underlying pre-tax profit was £87.4m (2008: £112.3m). Measured at constant exchange rates, to eliminate currency translation effects, underlying revenue declined 11% and underlying pre-tax profit declined 29%.
1 Following adoption in the year end accounts of the provisions of the 2008 "Improvements to IFRSs", underlying revenues now include as revenue £43.9m of proceeds generated from the sale of used rental equipment whilst underlying costs include as a cost of revenue, the £37.3m net book value of the equipment sold. This aligns our treatment of used sale proceeds under IFRS with that followed by Sunbelt's peers under US GAAP. Previously under IFRS Ashtead would have shown the £6.6m net gain as other income. Consequently this presentational change has had no impact on reported operating profit or earnings.
For the year, Sunbelt's rental revenue declined 8% to $1,311m reflecting a rental fleet which was on average broadly flat, physical utilisation of 66% (2008: 68%) and a decline in yield which averaged 5% for the year as a whole. Rental revenue grew 2% in the first half followed by a 19% decline in the second half as markets slowed. In the fourth quarter, measured against strong comparatives, rental revenue declined 24% reflecting an 8% reduction in fleet size, physical utilisation of 61% (2008: 64%) and a 14% reduction in yield.
Since the acquisition of NationsRent in August 2006, Sunbelt reconfigured and reshaped its enlarged business to deliver improved services to its customer base cost effectively. The ongoing benefit of these steps was underpinned by the cost reduction actions taken in the second half resulting in an 8% reduction in Sunbelt's full year operating cost base (excluding depreciation). The fourth quarter cost reduction was greater, with pre-depreciation costs down 20% as the additional cost reduction measures took hold.
As a result, Sunbelt's EBITDA for the year declined 16% to $500m. Depreciation reflected broadly the movement in Sunbelt's average fleet size and declined 4% in the year to give an underlying operating profit for the year of $242m (2008: $331m).
For the year, A-Plant's rental revenue declined 8% to £191m reflecting a 6% increase in average fleet size, physical utilisation of 67% (2008: 71%) and an 8% reduction in average yield. As with Sunbelt, this reflected first half growth followed by a rapid reduction in the second half. For the fourth quarter, again measured against a strong comparative, A-Plant's rental revenue decline was 22% reflecting a fleet size 5% smaller than in the prior year, physical utilisation at 68% (2008: 74%) and a yield reduction of 11%.
Action taken to reduce A-Plant's costs resulted in a 12% reduction in underlying full year operating costs (excluding depreciation) to £145m and a much larger 23% reduction in the fourth quarter to £31m.
Reflecting these factors, A-Plant's full year EBITDA declined 14% to £63m whilst the depreciation charge rose 9% to £47m reflecting the growth in its fleet size in the second half of the previous year. Consequently A-Plant's full year underlying operating profit was £16m down from £30m in the previous year.
On a continuing basis, excluding Ashtead Technology throughout, Group EBITDA before exceptional items declined 2% to £356m whilst underlying operating profit reduced 17% to £155m. This reflected the trading results discussed above together with the translation benefit from the stronger dollar which averaged $1.68 in the year to April 2009, 16% stronger than 2007/8's average of $2.01.
Lower average interest rates and significantly lower underlying average debt levels resulted in a lower financing cost despite an adverse translation effect from the stronger dollar in which 99% of our debt is denominated.
Exceptional items comprised the £83m discussed above in relation to the cost reduction programmes together with a £66m pre-tax gain from the sale of Ashtead Technology in June 2008. Technology also contributed a £2m profit in the period prior to disposal. After amortisation of acquired intangibles of £3m, the reported profit before tax for the year was £1m (2008: £110m) whilst the underlying pre-tax profit from continuing operations before exceptionals was £87m (2008: £112m).
The effective tax rate for the year was stable at 34% (2008: 35%) with, again, virtually no cash tax being due. Underlying earnings per share for the year decreased 20% to 11.9p (2008: 14.8p) whilst basic earnings per share for the year were 12.5p (2008: 14.2p).
Capital expenditure totalled £238m (2008: £331m) including £208m on rental fleet replacement. Disposal proceeds totalled £100m (2008: £78m) giving net expenditure of £138m (2008: £253m). The average age of the Group's rental fleet at 30 April 2009 was 35 months up by only 4 months from 31 months at 30 April 2008.
Next year's capital expenditure is again expected to be entirely for replacement rather than growth. We currently anticipate spending around 70% of depreciation or around £100m net of disposal proceeds but, with short lead times and no forward commitments, we have the flexibility to adjust this as required to reflect market conditions.
Cash flow and net debt
£246m of net cash inflow was generated in the year comprising £157m from operations and a further £89m generated from the sale of Ashtead Technology. £29m of this net inflow was returned to equity shareholders by way of dividends (£13m) and share buy-backs (£16m) with £217m applied to reduce outstanding debt.
As a result, closing net debt was significantly lower than last year on an underlying basis at £1,036m (2008 net debt at 2009 exchange rates: £1,268m). Closing net debt was also $20m below the $1,555m target announced a year ago. Closing net debt, however, includes an adverse translation increase of £285m since last year end reflecting sterling's 25% decline against the dollar and the fact that 99% of our debt is drawn in dollars to provide a natural hedge against Sunbelt's dollar based assets on which there was an equivalent £355m translation gain. The ratio of net debt to underlying EBITDA at constant rates was 2.6 times at 30 April 2009, almost unchanged from last year's 2.5 times and well within our 2-3 times target range.
Our debt package remains well structured for the challenges of current market conditions. We retain substantial headroom on facilities which are committed for the long term, an average of 4.6 years at 30 April 2009, with the first maturity on our asset-based senior bank facility not being due until August 2011. Availability under the $1.75bn asset-based loan facility was $550m at 30 April 2009 ($602m at 30 April 2008) well above the $125m level at which the entire debt package is covenant free.
Return on Investment
Return on investment (underlying operating profit divided by the weighted average net assets employed, including goodwill but excluding debt and tax) was 9.7% (2008: 14.0%) for the year. RoI for Sunbelt was 10.8% (2008: 14.4%) whilst RoI at A-Plant was 5.1% (2008: 10.9%).
The Board is proposing a final dividend of 1.675p (2008: 1.675p) making 2.575p for the year (2008: 2.5p) and costing £12.8m (2008: £12.8m). The proposed full year dividend is covered 4.5 times by underlying profits after tax from continuing operations. If approved by shareholders at the forthcoming Annual General Meeting, the final dividend will be paid on 11 September 2009 to shareholders on record at 21 August 2009.
Current trading and outlook
Most of our markets remain weak with limited visibility. However, May and early June have seen rental volumes in line with our expectations whilst rental yields have shown some tentative signs of flattening month on month. As a result, the Board confirms that its current expectations regarding 2009/10 performance are unchanged from those described in the trading update issued on 11 May.
We continue to believe that the fundamentals of our markets remain attractive and that, with our continuing focus on meeting the challenges of current market conditions and on cash generation, we are well positioned for the next phase of the cycle.