11 December, 2018
Unaudited results for the half year and second quarter ended 31 October 2018
Read and download the unaudited results for the half year and second quarter ended 31 October 2018. You can also view the latest webcast
|Second quarter||First half|
|Profit before taxation||347.8||298.4||16%||633.4||536.9||19%|
|Earnings per share||54.0p||38.7p||38%||98.8p||70.2p||42%|
|Profit before taxation||335.6||264.2||26%||610.0||493.1||25%|
|Profit after taxation||251.6||170.9||46%||461.5||320.9||45%|
|Earnings per share||52.1p||34.3p||50%||95.1p||64.5p||49%|
- Revenue up 19%1; rental revenue up 18%1
- Pre-tax profit2 of £633m (2017: £537m)
- Earnings per share2 up 42%1 to 98.8p (2017: 70.2p)
- Post-tax profit of £461m (2017: £321m)
- £1,063m of capital invested in the business (2017: £708m)
- £362m spent on bolt-on acquisitions (2017: £298m)
- Net debt to EBITDA leverage1 of 1.8 times (2017: 1.8 times)
- Interim dividend raised 18% to 6.5p per share (2017: 5.5p per share)
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 33 of the full report.
Ashtead’s Chief Executive, Geoff Drabble , commented:
"The Group delivered a strong quarter with good performance across the Group. As a result, Group rental revenue increased 18% for the six months and underlying pre-tax profit increased 19% to £633m, both at constant exchange rates.
We have invested £1,063m in capital and a further £362m on bolt-on acquisitions in the period which has added 80 locations and resulted in a rental fleet growth of 15%. This investment reflects the structural growth opportunity that we continue to see in the business as we broaden our product offering and geographic reach, and increase market share.
Whilst these are significant investments we remain focused on responsible growth so, after spending £425m to date on our share buyback programme, we have maintained net debt to EBITDA leverage at 1.8 times. Therefore we remain well within our target range of 1.5 to 2.0 times reflecting the strength of our margins and free cash flow.
Our business is performing well in supportive end markets. Accordingly, we expect full year results to be ahead of our prior expectations and the Board continues to look to the medium term with confidence."
|Geoff Drabble||Chief executive||020 7726 9700|
|Michael Pratt||Finance director||020 7726 9700|
|Will Shaw||Director of Investor Relations||020 7726 9700|
|Neil Bennett||Maitland||020 7379 5151|
|James McFarlane||Maitland||020 7379 5151|
Geoff Drabble, Brendan Horgan and Michael Pratt will hold a meeting for equity analysts to discuss the results and outlook at 9am on Tuesday, 11 December 2018 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 be available via the same link from shortly after the meeting concludes. A copy of this announcement and the slide presentation used for the meeting are available for download at the top of this release. The usual conference call for bondholders will begin at 3pm (10am 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 US in $m||2,500.2||2,084.5||1,278.1||1,076.6||847.1||702.9|
|Sunbelt Canada in C$m||167.4||91.1||66.6||37.1||36.3||20.9|
|Sunbelt US in £m||1,902.2||1,599.6||972.4||826.2||644.5||539.4|
|Sunbelt Canada in £m||97.7||54.4||38.8||22.1||21.2||12.5|
|Group central costs||-||-||(7.6)||(7.3)||(7.7)||(7.4)|
|Net financing costs||(68.8)||(54.4)|
|Profit before amortisation, exceptional items and tax||633.4||536.9|
|Profit before taxation||610.0||493.1|
|Profit attributable to equity holders of the Company||461.5||320.9|
Group revenue increased 18% to £2,250m in the first half (2017: £1,899m) with good growth in each of our markets. This revenue growth, combined with our focus on drop-through, generated underlying profit before tax of £633m (2017: £537m).
The Group's strategy remains unchanged with growth being driven by strong organic growth (same-store and greenfield) supplemented by bolt-on acquisitions. Sunbelt US, A-Plant and Sunbelt Canada delivered 19%, 5% and 90% rental only revenue growth respectively. The significant growth in Sunbelt Canada reflects the impact of acquisitions, most notably the acquisition of CRS in August 2017.
Sunbelt US's revenue growth continues to benefit from cyclical and structural trends and can be explained as follows:
|2017 rental only revenue||1,573|
|Same stores (in existence at 1 May 2017)||+16%||246|
|Bolt-ons and greenfields since 1 May 2017||+3%||50|
|2018 rental only revenue||+19%||1,869|
|2018 rental revenue||+18%||2,329|
|2018 total revenue||+20%||2,500|
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. We added 63 new stores in the US in the first half, the majority of which were specialty locations.
Rental only revenue growth was 19% in strong end markets. This growth was driven by increased fleet on rent year-over-year with yield flat. While revenue was impacted by our involvement in the clean-up efforts following hurricanes Florence and Michael, it was much less than last year with estimated incremental rental revenue of $15-20m (2017: $40-45m). Average first half physical utilisation was 74% (2017: 74%). Sunbelt US's total revenue, including new and used equipment, merchandise and consumable sales, increased 20% to $2,500m (2017: $2,084m).
A-Plant generated rental only revenue of £191m, up 5% on the prior year (2017: £182m). This was driven by increased fleet on rent, partially offset by yield. The adverse yield reflects the competitive rate environment in the UK market. A-Plant's total revenue increased 2% to £251m (2017: £245m).
In Canada, the acquisitions of CRS and Voisin's are distortive to year-over-year comparisons as they have tripled the size of the Sunbelt Canada business. Excluding acquisitions, rental revenue increased 21% in western Canada, while in eastern Canada the CRS and Voisin's businesses also grew 21%. For Sunbelt Canada overall, total revenue was C$167m (2017: C$91m) in the period.
We continue to focus on operational efficiency and improving margins. In Sunbelt US, 51% 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 greenfield openings and acquisitions. This resulted in an EBITDA margin of 51% (2017: 52%) and contributed to a 21% increase in operating profit to $847m (2017: $703m) at a margin of 34% (2017: 34%).
Sunbelt Canada is in a growth phase as it invests to expand its network and develop the business. Significant growth has been achieved while delivering a 40% EBITDA margin and generating an operating profit of C$36m (2017: C$21m) at a margin of 22% (2017: 23%).
While the UK market remains competitive, A-Plant's focus on driving improved performance within the existing business resulted in drop-through of 62%. This contributed to an EBITDA margin of 38% (2017: 38%) and an operating profit of £44m (2017: £47m) at a margin of 18% (2017: 19%).
Reflecting the strong performance of the divisions, Group underlying operating profit increased 19% to £702m (2017: £591m). Net financing costs increased to £69m (2017: £54m) reflecting a higher interest rate and higher average debt levels. As a result, Group profit before amortisation of intangibles, exceptional items and taxation was £633m (2017: £537m). After a tax charge of 24% (2017: 35%) of the underlying pre-tax profit, underlying earnings per share increased 41% to 98.8p (2017: 70.2p). The reduction in the Group's underlying tax charge from 35% to 24% reflects the reduction in the US federal rate of tax from 35% to 21% with effect from 1 January 2018, following the enactment of the Tax Cuts and Jobs Act of 2017. The underlying cash tax charge was 4% and is expected to be around 4% for the full year.
Statutory profit before tax was £610m (2017: £493m). This is after amortisation of £23m (2017: £22m) and, in the prior year, an exceptional charge of £22m. After a tax charge of 24% (2017: 35%), basic earnings per share were 95.1p (2017: 64.5p).
Capital expenditure and acquisitions
Capital expenditure for the first half was £1,063m gross and £963m net of disposal proceeds (2017: £708m gross and £649m net). This level of capital expenditure reflects the strong market and our ability to take market share. As a result, we have revised our capital expenditure guidance for the full year to £1.4 - £1.6bn at current exchange rates. Reflecting this investment, the Group's rental fleet at 31 October 2018 at cost was £8.1bn. Our average fleet age is now 31 months (2017: 30 months).
We invested £362m (2017: £298m), including acquired debt, in 12 bolt-on acquisitions during the period as we continue to both expand our footprint and diversify our specialty markets. Since the period end, we have invested a further £117m in five bolt-on acquisitions.
Return on Investment
Sunbelt US's pre-tax return on investment (excluding goodwill and intangible assets) in the 12 months to 31 October 2018 was 24% (2017: 23%). In the UK, return on investment (excluding goodwill and intangible assets) was 10% (2017: 13%). This decline reflects the competitive rate environment in the UK market. In Canada, return on investment (excluding goodwill and intangible assets) was 12% (2017: 13%). For the Group as a whole, return on investment (including goodwill and intangible assets) was 18% (2017: 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. In addition, weaker sterling increased reported debt by £200m. During the period, we spent £210m on share buybacks.
In July, the Group issued $600m 5.25% senior secured notes maturing in August 2026. The proceeds of the issue were used to pay related fees and expenses and repay an element of the amount outstanding under the senior credit facility. This ensures our debt package remains well structured and flexible, enabling us to take advantage of prevailing end market conditions. The Group's debt facilities are now committed for an average of six years at a weighted average interest cost of less than 5%.
Net debt at 31 October 2018 was £3,612m (2017: £2,851m) while, reflecting our strong earnings growth, the ratio of net debt to EBITDA was 1.8 times (2017: 1.8 times) on a constant currency basis. The Group's target range for net debt to EBITDA is 1.5 to 2 times.
At 31 October 2018, availability under the senior secured debt facility was $826m, with an additional $3,333m 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 18% to 6.5p per share (2017: 5.5p per share). This will be paid on 6 February 2019 to shareholders on the register on 18 January 2019.
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. 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. Therefore the amount allocated to buybacks is simply driven by that which is available after organic growth, bolt-on M&A and dividends, whilst allowing us to operate within our 1.5 to 2.0 times target range for net debt to EBITDA.
In line with these priorities, we are spending £125m per quarter on share buybacks with the programme continuing through the 2019/20 financial year, with an anticipated spend in 2019/20 of at least £500m.
Current trading and outlook
Our business is performing well in supportive end markets. Accordingly, we expect full year results to be ahead of our prior expectations and the Board continues 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
10 December 2018