17 June, 2010

Audited results for the year and unaudited results for the fourth quarter ended 30 April 2010

Read and download the results for the year and fourth quarter for the Ashtead Group. You can also view the latest webcast.

Financial summary

Fourth quarter Year 
 20102009Change120102009Change1
£m£m%£m£m%
 
Underlying results2
Revenue210.1232.1-3%836.81,073.5-25%
EBITDA61.368.2-1%255.1356.1-31%
Operating profit14.616.4+26%68.5155.0-58%
Profit/(loss) before tax(3.1)(0.2)+20%5.087.4-95%
Earnings per share(0.4p)0.2p-0.2p11.9p-
 
Statutory results
Profit/(loss) before tax1.9(29.2)-4.80.8-
Earnings per share30.3p(3.3p)-0.2p0.4p-

1 At constant exchange rates
2Before exceptionals, intangible amortisation & fair value remeasurements
3from continuing operations

Highlights

  • Profit of £5m (2009: £87m) in difficult market conditions
  • Strong full year EBITDA margin of 30.5% (2009: 33.2%)
  • Encouraging early signs of improvement in Q4, particularly in the US
  • £191m (2009: £157m) of cash generated from operations in the year
  • Net debt reduced to £829m (2009: £1,036m); net debt to EBITDA leverage of 3.1 times
  • $1.3bn ABL facility successfully refinanced in the year providing:
  • Final dividend of 2.0p per share proposed (2009: 1.675p) making 2.9p for the year (2009: 2.575p)

Ashtead’s Chief Executive, Geoff Drabble , commented:

"Having taken decisive and prompt actions to prepare the business for the contraction in our end markets we have maintained healthy margins and strong cash generation whilst gaining market share. Although market conditions remain difficult we are pleased to have seen some early signs of improvement in Q4, particularly in the US.

In the US we continue to believe that we will see stabilisation in markets in the current year with improving trends through 2011. In the UK, whilst current markets are also stabilising, uncertainty around the impact of public sector spending cuts makes the medium term less certain.

In preparation for the next phase of the cycle, we have started a fleet reinvestment programme, funded from operating cash flow. Our well structured debt facility means that we can react quickly if markets differ materially from those we anticipate.

Having strengthened our market position in the year just ended and with the flexibility provided by our strong balance sheet, the Board believes that the Group is well positioned for the future."

Contacts:

Geoff DrabbleChief executive020 7726 9700
Ian RobsonFinance director020 7726 9700
Brian HudspithMaitland020 7379 5151

Geoff Drabble and Ian Robson will host a meeting for equity analysts to discuss the results at 9.30 am on Thursday 17 June at the offices of RBS Hoare Govett at 250 Bishopsgate, London EC2M 4AA. This meeting will be webcast live via the 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 3.15pm (10.15am 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

The year's results reflect a full year's impact of the global recession which produced a significant reduction in construction volumes in both our markets. Against this backdrop our relative performance has been strong in both markets where we have made clear market share gains whilst maintaining good EBITDA margins. These strong margins, together with tight control of capital expenditure, generated £191m of cash in the year and £348m from operations in the past two years which has been applied to reduce net debt to £829m.

Lack of available finance had a dramatic impact on the pace of the decline with construction projects being cancelled or suspended in an unprecedented manner. As a result our revenues were impacted by both a reduction in volume and significant yield declines as excess supply of equipment and future uncertainty resulted in some irrational behaviour. Over the course of the year, the rental industry reacted to these conditions by removing surplus fleet and, as a result, whilst construction markets remain difficult, there is evidence, particularly in the US, of price stabilisation.

We are pleased to be able report a return to profit growth in the US in the fourth quarter with an operating profit of $24m as compared to $17m in the prior year despite lower revenues.

Whilst this is an encouraging performance, construction markets remain fragile and we anticipate only moderate recovery in the US before 2011. In the UK, current activity levels remain stable due to committed infrastructure spend, particularly in utilities, but the medium term outlook is less certain.

In the coming year, as we prepare for full recovery, we intend to increase our gross capital expenditure from £63m in 2009/10 to around £225m. Currently our plans are for this reinvestment to be largely for fleet replacement as we look to broadly maintain the size of our rental fleets whilst holding or slightly reducing their average age. However, if markets continue to improve, we have the flexibility to make more of this expenditure available for fleet growth. As a result of these expenditure plans, we are targeting debt to be broadly flat over the course of the year. Beyond next year, assuming improved markets, we expect our ongoing strong operating cash flow generation to provide us with the ability to fund significant organic fleet growth whilst, at the same time, reducing the level of net debt to EBITDA.

Our well structured debt package also gives us the flexibility to make strategic capital investments as appropriate. The strength of this structure has been clearly demonstrated during an unprecedented downturn and is equally appropriate as we plan for the next phase of our cycle with availability in excess of $500m and long committed maturities.

Trading results

 RevenueEBITDAOperating profit
201020092010200920102009
 
Sunbelt in $m1,080.51,450.0350.8500.4116.6241.8
 
Sunbelt in £m674.5865.5219.0298.772.7144.4
A-Plant162.3208.042.062.81.816.1
Group central costs--(5.9)(5.4)(6.0)(5.5)
Continuing operations836.81,073.5255.1356.168.5155.0
Net financing costs    (63.5)(67.6)
Profit before tax, exceptionals and
amortisation from continuing operations  5.087.4
Ashtead Technology    -2.8
Exceptional items (net)    3.3(17.1)
Amortisation    (2.5)(3.4)
Total Group profit before taxation    5.869.7
Taxation    (3.7)(6.7)
Profit attributable to equity holders of the Company    2.163.0
 
Margins
Sunbelt  32.5%34.5%10.8%16.7%
A-Plant  25.9%30.2%1.1%7.7%
Group  30.5%33.2%8.2%14.4%

Underlying Group revenues were £837m (2009: £1.07bn) whilst the underlying pre-tax profit was £5m (2009: £87m). Measured at constant exchange rates, underlying revenue declined 25% to £837m, underlying EBITDA by 31% to £255m and underlying operating profit by 58% to £69m.

Rental revenues declined 25% in Sunbelt to $989m and by 21% in A-Plant to £152m reflecting 10% less fleet on rent in both markets and average yield declines of 16% in Sunbelt and 12% in A-Plant. Fleet size remained broadly flat throughout the year in both businesses at $2.1bn and £320m respectively whilst physical utilisation remained comparatively strong.

Fourth quarter trends were encouraging with Sunbelt returning to operating profit growth in the quarter on rental revenues down 8%.

The prompt action we took in the winter of 2008/9 to right-size the cost base to the lower activity levels and the tight cost control we maintained all year ensured that operating costs before depreciation and used equipment sold reduced by $204m (23%) in Sunbelt and by £21m (16%) in A-Plant. For the Group as a whole, operating costs (before depreciation and used equipment sold) were reduced by £148m or 21%, at constant exchange rates, compared to the previous year and by £191m compared to the 12 months ended 31 October 2008, the period immediately before we implemented the right sizing programme.

As a result, despite the significant revenue reductions, full year EBITDA margins declined by only 2% in Sunbelt and 4% in A-Plant and remained above 30% for the Group as a whole.

Depreciation expense declined 7% at constant exchange rates reflecting the smaller average fleet size to give an underlying operating profit for the year of $117m (2009: $242m) in Sunbelt and £2m in A-Plant (2009: £16m).

Group performance

Reflecting the operating results discussed above and a US dollar exchange rate that was on average 5% stronger against the pound ($1.60 in 2009/10 v $1.68 in 2008/9), Group EBITDA before exceptional items declined £101m to £255m whilst the underlying operating profit reduced from £155m to £69m.

Lower average interest rates and significantly lower underlying average debt levels partly offset by the higher margin payable from November on the extended senior debt resulted in a lower net financing cost of £64m (2009: £68m) despite an adverse translation effect from the stronger dollar in which all our debt is now denominated.

Exceptional items this year comprised the £3m non-cash write off of the remaining deferred financing costs on the 2006 senior debt facility following its renewal in November 2009, a credit of £5m relating to the remeasurement at fair value of the embedded call options in the Group's senior secured notes and a £1m credit for the release of a provision for potential warranty claims on the June 2008 sale of Ashtead Technology which proved not to be required. After exceptionals and amortisation of acquired intangibles of £2m, the reported profit before tax for the year was £5m (2009: £1m).

The current year effective tax rate was stable at 35% (2009: 34%). In addition, there was an adjustment of £2m to prior year tax. Moving forward, once economies in the UK and US recover from the current recession, we expect the Group's effective tax rate to remain around 35% whilst the cash tax rate should continue to be substantially lower.

Underlying earnings per share for the year decreased to 0.2p (2009: 11.9p) whilst the basic earnings per share from continuing activities for the year was 0.2p (2009: 0.4p).

Capital expenditure

Capital expenditure for the year was held to £63m (2009: £238m) or roughly one third of the depreciation charge as we aged the fleet and maximised cash generation in tough markets. Despite this, the average age of the Group's rental fleet at 30 April 2010 was 44 months (2009: 35 months) on a net book value weighted basis. Disposal proceeds were £32m (2009: £100m), including £2m from the disposal of assets held for sale at April 2009, giving net capital expenditure for the year of £31m (2009: £138m).

We anticipate investing around £225m gross and £175m net in the coming year which will be mostly replacement rather than growth expenditure.

Cash flow and net debt

£191m (2009: £157m) was generated from operations in the year, of which £13m was returned to equity shareholders by way of dividend and £178m was applied to reduce outstanding debt. Including a translation reduction of £37m, closing net debt at 30 April 2010 reduced to £829m (30 April 2009: £1,036m). The ratio of net debt to underlying EBITDA at constant exchange rates was 3.1 times at 30 April 2010 (2009: 2.6 times).

Our debt package remains well structured for both the challenges of current market conditions and to enable us to take advantage of the next phase in the cycle. We retain substantial headroom on facilities which are committed for the long term, an average of 5.0 years at 30 April 2010 (2009: 4.6 years), with the first maturity being on our asset based senior bank facility which now extends until November 2013. Availability at 30 April 2010 was $537m (2009: $550m) well above the $150m level at which the entire debt package is covenant free.

Dividends

The Board is recommending a final dividend of 2.0p per share (2009: 1.675p) making 2.9p for the year (2009: 2.575p). Payment of the 2009/2010 dividend will cost £14.5m and, whilst not covered by 2009/10 earnings is, in the Board's view, appropriate. If approved at the forthcoming Annual General Meeting, the final dividend will be paid on 10 September 2010 to shareholders on the register on 20 August 2010.

In future the Board will aim to provide a progressive dividend having regard to both profits and cash generation whilst seeking to keep to levels that are sustainable over the cycle.

Current trading and outlook

Fleet on rent and revenue continued to be encouraging in both of our markets during May, supporting our view that the winter of 2010 was the bottom of the cycle.

In the US we continue to believe that we will see stabilisation in markets in the current year with improving trends through 2011. In the UK, whilst current markets are also stabilising, uncertainty around the impact of public sector spending cuts makes the medium term less certain.

In preparation for the next phase of the cycle, we have started a fleet reinvestment programme, funded from operating cash flow. Our well structured debt facility means that we can react quickly if markets differ materially from those we anticipate.

Having strengthened our market position in the year just ended and with the flexibility provided by our strong balance sheet, the Board believes that the Group is well positioned for the future.

Forward looking statements

This announcement contains forward looking statements. These have been made by the directors in good faith using information available up to the date on which they approved this report. The directors can give no assurance that these expectations will prove to be correct. Due to the inherent uncertainties, including both business and economic risk factors underlying such forward looking statements, actual results may differ materially from those expressed or implied by these forward looking statements. Except as required by law or regulation, the directors undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

Directors' responsibility statement on the annual report

The responsibility statement below has been prepared in connection with the Company's Annual Report & Accounts for the year ended 30 April 2010. Certain parts thereof are not included in this announcement.

"The Board confirms to the best of its knowledge (a) the consolidated financial statements, prepared in accordance with IFRS as issued by the International Accounting Standards Board and IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and (b) the Directors' Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.