12 December, 2017
Unaudited results for the half year and second quarter ended 31 October 2017
Read and download the unaudited results for the half year and second quarter ended 31 October 2017. You can also view the latest webcast
|Second quarter||First half|
|Profit before taxation||298.4||242.3||24%||536.9||425.9||23%|
|Earnings per share||38.7p||31.8p||23%||70.2p||56.0p||22%|
|Profit before taxation||264.2||235.4||13%||493.1||413.3||16%|
|Earnings per share||34.3p||30.9p||12%||64.5p||54.3p||16%|
- Group rental revenue up 20%1
- First half underlying pre-tax profit2 of £537m (2016: £426m)
- £708m of capital invested in the business (2016: £683m)
- £38m of free cash flow generation3 (2016: £20m outflow)
- £298m spent on bolt-on acquisitions (2016: £142m)
- Net debt to EBITDA leverage1 of 1.8 times (2016: 1.8 times)
- Interim dividend raised 16% to 5.5p per share (2016: 4.75p per share)
- Commencing a share buy-back programme of at least £500m and up to £1bn over the next 18 months
1 Calculated at constant exchange rates applying current period exchange rates.
2 Underlying results are stated before exceptional items and intangible amortisation.
3 Throughout this announcement we refer to a number of alternative performance measures which are defined in the Glossary on page 32 of the full release available to download at the top of this page.
Ashtead’s Chief Executive, Geoff Drabble , commented:
"The strong quarter was pleasing as it was based on good underlying performance, supplemented by clean-up efforts following hurricanes Harvey, Irma and Maria. As a result, Group rental revenue increased 23% for the six months and underlying pre-tax profit increased by 26% to £537m. The reported results were impacted favourably by weaker sterling but, with 20% growth in Group rental revenue at constant exchange rates, we have good momentum.
Our end markets remain strong and a wide range of metrics have shown consistent improvement. We continue to execute well on our strategy through a combination of organic growth and bolt-on acquisitions. We made significant investments in the period, spending £708m on capital expenditure and £298m on nine acquisitions.
Our strong margins ensured that, despite these levels of investment, we remain comfortably within our target range for net debt to EBITDA of 1.5 to 2 times. As we execute our 2021 plan, we expect a number of years of good earnings growth and significant free cash flow generation. Given this outlook, we have the flexibility to be operating towards the upper end of the Group's stated leverage range. We are therefore commencing a share buyback programme, of at least £500m and up to £1bn over the next 18 months.
We continue to enjoy support from good end markets, a strong balance sheet and impressive operational execution. Whilst we would anticipate that activity levels would normalise during the second half, post hurricane clean-up, we expect full year results to be ahead of our prior expectations. Our strong performance, together with the successful execution of our 2021 plan, allows the Board to continue to look to the medium term with confidence."
|Geoff Drabble||Chief executive||020 7726 9700|
|Suzanne Wood||Finance director||020 7726 9700|
|Will Shaw||Director of Investor Relations||020 7726 9700|
|Neil Bennett||Maitland||020 7379 5151|
|Tom Eckersley||Maitland||020 7379 5151|
Geoff Drabble and Suzanne Wood will hold a meeting for equity analysts to discuss the results and outlook at 9am on Tuesday, 12 December 2017 at The London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. The meeting will be webcast live via the link at the top of this release and a replay will also be available via this link from shortly after the meeting 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. The usual conference call for bondholders will begin at 3.30pm (10.30am EST).
Analysts and bondholders have already been invited to participate in the analyst meeting and conference call for bondholders but any eligible person not having received dial-in details should contact the Company's PR advisers, Maitland (Audrey Da Costa) at +44 (0)20 7379 5151.
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.
First half trading results
|Sunbelt in $m||2,084.5||1,786.8||1,076.6||912.4||702.9||591.7|
|Sunbelt in £m||1,599.6||1,331.8||826.2||680.1||539.4||441.0|
|Group central costs||-||-||(7.3)||(7.4)||(7.4)||(7.5)|
|Net financing costs||(54.4)||(48.5)|
|Profit before amortisation exceptional items and tax||536.9||425.9|
|Profit before taxation||493.1||413.3|
|Profit attributable to equity holders of the Company||320.9||271.5|
Group revenue increased 22% to £1,899m in the first half (2016: £1,552m) with strong growth in each of our markets. Overall revenue growth reflects good performance by each division and the benefit of weaker sterling. This revenue growth, combined with strong drop-through, generated underlying profit before tax of £537m (2016: £426m).
The Group's strategy remains unchanged with growth being driven by strong same-store growth supplemented by greenfield openings and bolt-on acquisitions. As we fill out our clusters, the distinction between same-store growth and greenfields becomes blurred as we transfer fleet between locations to optimise our network. Accordingly, we have combined same-store and greenfields as organic growth this quarter and will report on this basis going forwards. Sunbelt US, A-Plant and Sunbelt Canada delivered 18%, 20% and 119% rental only revenue growth respectively.
Sunbelt US's revenue growth continues to benefit from cyclical and structural trends and can be explained as follows:
|2016 rental only revenue||1,333|
|Organic (same-store and greenfields)||+13%||175|
|Bolt-ons since 1 May 2016||+5%||65|
|2017 rental only revenue||+18%||1,573|
|2017 rental revenue||+18%||1,974|
|2017 total revenue||+17%||2,084|
Sunbelt US's revenue growth demonstrates the successful execution of our long-term structural growth strategy. We continue to capitalise on the opportunity presented by our markets through a combination of organic growth, same-store growth and greenfields, and bolt-ons as we expand our geographic footprint and our specialty businesses. As we continue with our plan for 2021, we have made good progress on new stores with 32 added in the US in the first half, around half of which were specialty locations.
Rental only revenue growth was 18% in generally strong end markets. This growth was driven by increased fleet on rent, partially offset by yield. During the second quarter, Sunbelt US was actively involved in the clean-up efforts following hurricanes Harvey, Irma and Maria. We estimate that these events resulted in incremental rental revenue of $40-45m. Following the significant initial restoration and remediation work we expect a much lower impact throughout the second half. Average first half physical utilisation was 74% (2016: 73%). Sunbelt US's total revenue, including new and used equipment, merchandise and consumable sales, increased 17% to $2,084m (2016: $1,787m).
A-Plant continues to perform well and delivered rental only revenue of £182m, up 20% on the prior year (2016: £152m). This reflects increased fleet on rent, partially offset by yield. A-Plant's total revenue increased 23% to £245m (2016: £199m).
The acquisition of CRS in August 2017 more than doubled the size of the Sunbelt Canada business. Given the increased scale of the Canadian business, we have chosen to report it as a separate segment going forward. The underlying business performed strongly with rental revenue growth of 22% and, with the addition of CRS, Sunbelt Canada generated revenue of £54m (C$91m) (2016: £21m (C$36m)) in the period.
We continue to focus on operational efficiency and improving margins. In Sunbelt US, 54% of revenue growth dropped through to EBITDA. The strength of our mature stores' incremental margin is reflected in the fact that this was achieved despite the drag effect of yield, greenfield openings and acquisitions. This strong drop-through drove an improved EBITDA margin of 52% (2016: 51%) and contributed to a 19% increase in operating profit to $703m (2016: $592m).
A-Plant's drop-through of 44% reflects its greater proportion of specialty businesses and ongoing integration of recent acquisitions. This contributed to an EBITDA margin of 38% (2016: 38%) and an operating profit of £47m (2016: £38m), a 23% increase over the prior year.
Reflecting the strong performance of the divisions, and slightly weaker sterling, Group underlying operating profit increased 25% to £591m (2016: £474m). Net financing costs increased to £54m (2016: £49m), reflecting higher average debt partially offset by lower interest rates following the Group's successful refinancing. As a result, Group profit before amortisation of intangibles, exceptional items and taxation was £537m (2016: £426m). After a tax charge of 35% (2016: 34%) of the underlying pre-tax profit, underlying earnings per share increased 25% to 70.2p (2016: 56.0p).
Exceptional net financing costs of £22m (including cash costs of £25m) related to the redemption of our $900m 6.5% senior secured notes in August 2017. After the net exceptional charge of £22m (2016: £nil) and amortisation of £22m (2016: £13m), statutory profit before tax was £493m (2016: £413m). After a tax charge of 35% (2016: 34%), basic earnings per share were 64.5p (2016: 54.3p). The cash tax charge for the year is expected to be around 19% based on current tax legislation.
Capital expenditure and acquisitions
Capital expenditure for the first half was £708m gross and £649m net of disposal proceeds (2016: £683m gross and £631m net). This level of capital expenditure is towards the upper end of our expectations at this stage of the year for 2017/18. As a result, we have revised our capital expenditure guidance for the full year to £1.2 - 1.3bn at current exchange rates. Reflecting this investment, the Group's rental fleet at 31 October 2017 at cost was £6.4bn. Our average fleet age is now 30 months (2016: 26 months).
We invested £298m, including acquired debt, (2016: £142m) on nine bolt-on acquisitions during the first half as we continue to both expand our footprint and diversify into specialty markets.
Return on Investment
Sunbelt US's pre-tax return on investment (excluding goodwill and intangible assets) in the 12 months to 31 October 2017 was 23% (2016: 23%) and has improved sequentially during the period. In the UK, return on investment (excluding goodwill and intangible assets) was 13% (2016: 14%). This continues to be impacted adversely by the large number of acquisitions which we are in the process of integrating and optimising their potential. In Canada, return on investment (excluding goodwill and intangible assets) was 13% (2016: 6%). For the Group as a whole, return on investment (including goodwill and intangible assets) was 18% (2016: 18%).
Cash flow and net debt
As expected, debt increased during the first half as we continued to invest in the fleet and made a number of bolt-on acquisitions. This was partially offset by £65m of currency translation benefit as sterling has strengthened since the year end.
Net debt at 31 October 2017 was £2,851m (2016: £2,694m) while, reflecting our strong earnings growth, the ratio of net debt to EBITDA remained at 1.8 times (2016: 1.8 times) on a constant currency basis. This is in the middle of the Group's target range for net debt to EBITDA of 1.5 to 2 times.
The Group's debt package remains well structured to enable us to take advantage of prevailing end market conditions. Following the issue of the 4.125% $600m senior secured notes due in 2025 and the 4.375% $600m senior secured notes due in 2027, and the redemption of the 6.5% $900m senior secured notes, the Group's debt facilities are committed for an average of six years.
At 31 October 2017, availability under the senior secured debt facility was $1,067m, with an additional $2,125m of suppressed availability - substantially above the $310m level at which the Group's entire debt package is covenant free.
In line with its policy of providing a progressive dividend, having regard to both underlying profit and cash generation and to sustainability through the economic cycle, the Board has increased the interim dividend to 5.5p per share (2016: 4.75p per share). This will be paid on 7 February 2018 to shareholders on the register on 19 January 2018.
The Group remains disciplined in its approach to allocation of capital with the overriding objective being to enhance shareholder value. Our capital allocation framework remains unchanged and prioritises:
- organic fleet growth;
- bolt-on acquisitions; and
- a progressive dividend with consideration to both profitability and cash generation that is sustainable through the cycle.
Additionally, we consider further returns to shareholders, balancing capital efficiency and security with financial flexibility in a cyclical business and an assessment of whether it would be accretive to shareholder value. In this regard, we assess continuously our medium term plans which take account of investment in the business, growth prospects, cash generation, net debt and leverage.
As we execute our 2021 plan, we expect a number of years of good earnings growth and significant free cash flow generation. Given this outlook, we have the flexibility to be operating towards the upper end of the Group's stated leverage range of 1.5 to 2.0 times net debt to EBITDA. This, and the Group's strong balance sheet, provides it with the financial flexibility to fund fully the four key priorities listed above and have significant funds available to provide additional returns to shareholders.
We are therefore commencing a share buyback programme, of at least £500m and up to £1bn over the next 18 months, for which we will seek continued shareholder approval at the next Annual General Meeting. Capital returns to shareholders will be kept under regular review reflecting the factors set out above.
Current trading and outlook
We continue to enjoy support from good end markets, a strong balance sheet and impressive operational execution. Whilst we would anticipate that activity levels would normalise during the second half, post hurricane clean-up, we expect full year results to be ahead of our prior expectations. Our strong performance, together with the successful execution of our 2021 plan, allows the Board to continue to look to the medium term with confidence.
Directors' responsibility statement
We confirm that to the best of our knowledge:
- the condensed consolidated interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting'; and
- the interim management report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year) and Disclosure and Transparency Rules 4.2.8R (disclosure of related parties' transactions and changes therein).
By order of the Board of Directors
11 December 2017