7 July, 2002
Preliminary Results for the year ended 30 April 2002
Read and download the preliminary results for the year ended 30 April 2002
- Turnover up 6% to £583.7m (2000/1 - £552.0m)
- Profit before exceptional items, goodwill amortisation andtaxation of £28.9m (£41.2m) with second half ahead oftrading statement forecasts
- EPS of 6.2p (8.9p) based on the above profits and a notional30% tax charge
- After mainly non-cash exceptional charges and goodwill, the FRS3 loss before tax is £15.5m (profit of £11.1m) and theprofit after tax is £3.7m (£2.2m)
- FRS 14 EPS of 1.1p (0.7p)
- Recommended final dividend of 2.88p per share maintaining thefull year dividend of 3.5p
- Net cash inflow from operations up 17% to £202.0m(£173.0m)
- Like for like debt* repayment of £48.5m in the year
- Bank covenants renegotiated in April to provide greaterflexibility
- US continues to outperform its competitors and 23 new profitcentres opened
- Benefits emerging from new UK strategy
* Net bank debt plus bills of exchange
Ashtead's Chief Executive, George Burnett,commented:
"I am pleased that our overall performance exceeded the forecast inour previous trading statements. Although Sunbelt suffered a modestdecline in operating profit this was a strong performance indifficult conditions as the US economy slipped into recession,particularly after September 11. A-Plant is now under newmanagement and has reorganised its structure and its fleet. Thecurrent number of rental contracts is at its highest level in theUK for six months and in the US since last September."
"A-Plant is now in a much stronger position to compete and increaseits market share. The recession of the early nineties was acatalyst for the growth of the rental market in the UK. In the sameway, the current US recession is likely to prompt the accelerationof the shift from ownership to rental. This will give Sunbelt ahuge opportunity over the next few years to continue to increaseits current estimated 2½% share in a market independentlyforecast to grow faster than the US economy as a whole."
In its trading statements of March and May, the Board envisaged abroadly breakeven second half to add to the £25.8m profitbefore exceptional items, goodwill amortisation and taxation earnedin the six months to 31 October 2001. In the event the finaloutcome for the year was £28.9m. This compares with a profitbefore exceptional items, goodwill amortisation and taxation of£41.2m in the previous year. This decline reflectsrecessionary conditions in the Group's largest market, the UnitedStates, and a disappointing performance in the UK and Ireland. Inthe former case, however, there is clear evidence that Sunbelt isoutperforming its major competitors; in the latter, steps have beentaken to secure improved performance by A-Plant.
Group revenues increased by 6% to £583.7m (£552.0m).After exceptional costs, principally the loss on the asset disposalprogramme announced last September and a tax credit (principally ofdeferred tax under FRS 19) of £19.2m, there was an after taxprofit of £3.7m (2000/1 - £2.2m) giving earnings pershare of 1.1p (2000/1 - 0.7p). Earnings per share based on the£28.9m profit before exceptional items, goodwill amortisationand taxation and a notional tax rate of 30 per cent were 6.2p pershare (2000/1 - 8.9p).
During the Group's 15-year history as a public company, thedividend has been increased every year except one. That was tenyears ago, in the middle of the severe UK recession, when theprevious year's level was maintained. After nine years of dividendgrowth the Board believes an unchanged dividend to be againappropriate for the current year. A final dividend of 2.88p pershare is therefore proposed, giving a total for the year of 3.5pence per share (2000/1 - 3.5 pence per share). This represents aneffective cover of 2.3 times on a cash basis (given that goodwillamortisation, the exceptional loss from the UK asset disposalprogramme and deferred taxation are non-cash items).
Sunbelt Rentals, Ashtead's USbusiness, increased its revenues by 10.6% from £345.7m to£382.2m, achieving same store growth of 3.3%. As a result, itwas able to consolidate its number five position in the $23bn USrental market as Sunbelt and the market leader were the only majorplayers to achieve any like-for-like growth. Although Sunbeltsuffered a modest decline in operating profit, this was a strongperformance in difficult market conditions as the US economyslipped into recession, particularly after September 11. Operatingmargins at a still healthy 14.9% given the trading conditions werealso adversely affected by the drag effect of opening 23 newlocations during the year. Of these, 5 were "warm starts" - smallbolt-on acquisitions - with the remainder being greenfieldopenings. With the BET acquisition fully integrated into theSunbelt network and culture, the process of infill was started. Ofthe 23 new businesses, 17 were in areas supporting the former BETbusinesses. Sunbelt further consolidated its current position andits future potential in the US rental market by being the onlymajor player not to have a depot closure programme.
Capital expenditure on rental equipment in the year was£67.0m, significantly below the 2000/1 figure of£146.3m, and in line with its rental fleet depreciation of£67.4m. Fleet utilisation was maximised by meeting 64% of thecapital needs of the 23 new businesses from existing resources (18%for 10 new businesses in 2000/1).
The past year was a difficult onefor A-Plant. A marginal (0.9%) increase in first-half turnover wasfollowed by a 8.8% fall in the seasonally slower second half andled to an annual decline in turnover of 3.9% to £187.0m(£194.5m) and a £12.1m reduction in operating profitsto £13.0m due to the effects of operational gearing. Hirecompanies, such as A-Plant, with a significant customer baseoutside the construction industry have encountered a more difficultmarket, particularly in the manufacturing sector. In A-Plant'scase, the strategic decision to discontinue lower margin high-riskbusiness and to rationalise its fleet also contributed to thereduction in turnover. This major logistical exercise, though ashort-term distraction from its very scale, was completed onschedule by the year-end.
In March, Sat Dhaiwal, newly appointed Chief Executive of A-Plant,led an exhaustive review of the entire A-Plant rental fleet,including a physical examination of every asset not on hire to acustomer. As a result, a number of under performing assets wereadded to the disposal programme taking the total exceptional chargeto £32.6m. At the same time, A-Plant has been restructured.As a result of the changes, the specialist businesses, such asPowered Access, Accommodation, Rail, Welding and Power Generation,have been removed from the regional structure and are now managedby experts in their field who hold national profit accountability.The regional businesses in turn have been more closely focussed ontool hire and general equipment at the national and local level andthere has been an infusion of new management talent at the mostsenior level within the Company.
Two significant steps have been taken to secure additionalrevenues. The major accounts team, which has been successful ingrowing our business through sole and preferred supply agreementswith national customers such as Transco and large regional players,has been increased from two to twelve. Secondly, A-Plant's smallequipment businesses have been given a separate "Tool Hire Shops"identity and the rollout of this brand is already under way.
Capital expenditure on the rental fleet, significantly reducedsince October 2000, was kept under tight control, amounting to£26.7m (2000/1: £67.0m). This compared withdepreciation on the rental fleet of £40.6m.
Ashtead Technology increased its turnover by 22.9% to £14.5min the year, of which like-for-like growth from the survey andinspection division was 11%. The year to 30 April 2002 was thefirst full year of ownership of the environmental testing divisionacquired in October 2000. This division, although entirely based inNorth America held up well throughout the year achievinglike-for-like sales up 3%. More importantly, its rental revenuesincreased by 17% reflecting reduced emphasis on lower margin salesbusiness.
In the Survey and Inspection Division, the Far East and Australianmarkets were strong with offshore field development more thanreplacing subsea cable business lost in the collapse of the telecommarket. The North Sea and Gulf of Mexico were slower in the secondhalf although West Africa and Brazil provided somecounterbalance.
Overall operating profits rose 13.8% in the year to £4.1mwith operating margins of 28.3% remaining strong.
Total capital expenditure in the year was £113.8m, less thanhalf the previous year's figure of £237.7m. The average ageof the rental fleet at 30 April 2002 was 41 months against anaverage working life for the equipment in the fleet of over 100months. As noted above, the net cash inflow in the year was arecord £202.0m (£173.0m). This facilitated a like forlike reduction of £48.5m of senior debt (as defined by theGroup's banking agreements). Further substantial pay downs of debtare anticipated in 2003 and 2004.
The Group operates mostly from leasehold properties. It manages itsfleet of cars and commercial vehicles on a contract hire basis. Italso has operating lease arrangements for minor items such asphotocopiers and faxes. It has no other form of off balance sheetfinancing.
The Group did not breach any of its quarterly banking covenants inthe year. However, given the changed economic circumstances in theUnited States the Group requested greater flexibility in itscovenant package. The requested adjustments were unanimouslyapproved by the Company's bank group in April 2002. Total headroomagainst the Group's banking facilities as at 30 April 2002 was£66.8m.
The £19.2m tax credit for the year incorporates a minimalcurrent tax charge and a deferred tax credit relating to thestructure created to fund the BET acquisition. In cash flow termsthe level of cash tax payments will be significantly less than tenper cent of profits for the foreseeable future.
Current Trading & Future Prospects
Although the current number of rental contracts is at its highestlevel in the UK for 6 months and in the USA since last September,group turnover for the two months ended June 2002 was 6% down on ayear on year basis at actual rates of exchange and 3% down atcomparable rates of exchange, reflecting the fact that comparativegroup revenues declined throughout last year as economic conditionsdeteriorated. In the coming year, the Board anticipates the reverseof this trend with year on year growth expected to improve as theyear progresses.
In the UK and Ireland determining the future progress of theeconomy remains uncertain although overall a modest improvement isexpected over the next 12 months. What is more certain is thatA-Plant has in the past year addressed issues it needed to confrontand is in a much stronger position to compete. Ashtead Technologyshould continue to make progress, although the offshore market willremain patchy in the coming months.
In the United States, the Board expects the market to be generallyflat for the rest of 2002 with the possibility of improvingconditions in early 2003. Sunbelt should, however, continue to gainmarket share. By retaining the integrity of its profit centrestructure and investing in new businesses, Sunbelt has maintainedits revenue line - crucial in a fixed cost business - just as theGroup did a decade ago in the UK recession. A further five newprofit centres are planned for the coming year. The recession ofthe early nineties was a catalyst for the growth of the rentalmarket in the UK and of A-Plant in particular. In the same way, thecurrent US recession is likely to prompt an acceleration of theshift from ownership to rental and give Sunbelt a huge opportunityover the next few years to continue to increase its currentestimated 2½% share in a market independently forecast togrow faster than the US economy as a whole.
There will be a presentation to analysts at 9.00am at the officesof WestLB Panmure at Woolgate Exchange, 25 Basinghall Street,London EC2V 5HA. A simultaneous webcast of the meeting and a copyof the slides will be available through the company's website,www.ashtead-group.com. A recorded playback will also be availableshortly after the meeting.