6 March, 2018
Unaudited results for the nine months and third quarter ended 31 January 2018
Read and download the unaudited results for the nine months and third quarter ended 31 January 2018. You can also view the latest webcast
|Third quarter||Nine months|
|Profit before taxation||205.1||178.7||26%||742.0||604.6||24%|
|Earnings per share||32.2p||23.0p||52%||102.4p||79.0p||30%|
|Profit before taxation||194.3||171.2||24%||687.4||584.5||18%|
|Earnings per share||110.2p||22.0p||462%||174.7p||76.3p||130%|
- Group rental revenue up 21%1
- Nine month underlying pre-tax profit2 of £742m (2017: £605m)
- £859m of capital invested in the business (2017: £812m)
- £179m of free cash flow generation3 (2017: £68m)
- £315m spent on bolt-on acquisitions (2017: £196m)
- Net debt to EBITDA leverage1 of 1.6 times (2017: 1.7 times)
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 30 of the full release at the top of this page.
Ashtead’s Chief Executive, Geoff Drabble , commented:
"The Group continues to perform well and delivered another strong quarter with reported rental revenue increasing 21% for the nine months and underlying pre-tax profit increasing by 24% at constant currency to £742m.
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, investing £859m by way of capital expenditure and £315m on bolt-on acquisitions in the period. With the continuing opportunity for profitable growth, we expect capital expenditure for the year to be towards the upper end of our guidance (c. £1.2bn). Looking forward to 2018/19, we anticipate a similar level of capital expenditure to this year as we execute on our strategic plan through to 2021.
All our divisions continue to perform well in supportive end markets. While currency continues to be a headwind, we expect this to be mitigated by the strong underlying performance in North America. Therefore, we anticipate full year results to be line with prior expectations."
|Geoff Drabble||Chief executive||020 7726 9700|
|Suzanne Wood||Finance director||020 7726 9700|
|Will Shaw||Director of Investor Relations||020 7726 9700|
|Becky Mitchell||Maitland||020 7379 5151|
|James McFarlane||Maitland||020 7379 5151|
Geoff Drabble and Suzanne Wood will hold a conference call for equity analysts to discuss the results and outlook at 8am on Tuesday, 6 March 2018. The call will be webcast live via the link at the top of this release and a replay will also be available via the same link shortly after the call concludes. A copy of this announcement and the slide presentation used for the call will also be 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.
Nine months' trading results
|Sunbelt in $m||3,118.8||2,646.4||1,568.4||1.325.6||1,001.1||835.2|
|Sunbelt in £m||2,365.7||2,021.2||1,189.8||1,012.4||759.4||637.9|
|Group central costs||-||-||(11.2)||(11.3)||(11.3)||(11.4)|
|Net financing costs||(82.6)||(76.4)|
|Profit before amortisation,exceptional items and tax||742.0||604.6|
|Profit before taxation||687.4||584.5|
|Profit attributable to equity holders of the Company||868.9||380.8|
Group revenue increased 19% to £2,815m in the nine months (2017: £2,356m) with strong growth in each of our markets. This revenue growth, combined with our focus on drop-through, generated underlying profit before tax of £742m (2017: £605m)
The Group's strategy remains unchanged with growth being driven by strong same-store growth supplemented by greenfield openings and bolt-on acquisitions. Sunbelt US, A-Plant and Sunbelt Canada delivered 20%, 15% and 146% rental only revenue growth respectively.
Sunbelt US's revenue growth continues to benefit from cyclical and structural trends and can be explained as follows:
|2017 rental only revenue||1,963|
|Organic (same-store and greenfields)||+15%||290|
|Bolt-ons since 1 May 2016||+5%||96|
|2018 rental only revenue||+20%||2,349|
|2018 rental revenue||+20%||2,942|
|2018 total revenue||+18%||3,119|
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 45 added in the US in the nine months, around half of which were specialty locations.
Rental only revenue growth was 20% in generally strong end markets. This growth was driven by increased fleet on rent, with yield flat year-over-year. Sunbelt US has continued to support the clean-up efforts following hurricanes Harvey, Irma and Maria. Whilst it is increasingly difficult to assess the revenue impact of these efforts, we estimate that these events resulted in incremental total rental revenue of $75-85m in the period. Average nine month physical utilisation was 73% (2017: 72%). Sunbelt US's total revenue, including new and used equipment, merchandise and consumable sales, increased 18% to $3,119m (2017: $2,646m).
A-Plant generated rental only revenue of £262m, up 15% on the prior year (2017: £227m). This reflects increased fleet on rent, partially offset by yield. The reduced growth rate from the first half reflects prior year acquisitions, which are now included in the comparative. A-Plant's total revenue increased 17% to £354m (2017: £302m).
The acquisition of CRS in August 2017 more than doubled the size of the Sunbelt Canada business. The underlying business performed strongly with rental revenue growth of 16% and, with the addition of CRS, Sunbelt Canada generated revenue of £96m (C$161m) (2017: £33m (C$57m)) 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 strong drop-through resulted in an EBITDA margin of 50% (2017: 50%) and contributed to a 20% increase in operating profit to $1,001m (2017: $835m).
A-Plant's drop-through of 43% reflects its greater proportion of specialty businesses and ongoing integration of recent acquisitions. This contributed to an EBITDA margin of 36% (2017: 37%) and an operating profit of £57m (2017: £50m), a 13% increase over the prior year.
Reflecting the strong performance of the divisions, Group underlying operating profit increased 21% to £825m (2017: £681m). Net financing costs increased to £83m (2017: £76m) reflecting higher average debt. As a result, Group profit before amortisation of intangibles, exceptional items and taxation was £742m (2017: £605m). After a tax charge of 31% (2017: 35%) of the underlying pre-tax profit, underlying earnings per share increased 30% to 102.4p (2017: 79.0p). The reduction in the Group's underlying tax charge from 35% to 31% 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.
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 (2017: £nil) and amortisation of £33m (2017: £20m), statutory profit before tax was £687m (2017: £585m).
The exceptional tax credit of £414m consists of principally a credit of £397m arising from the remeasurement of the Group's US deferred tax liabilities at the newly-enacted US federal tax rate of 21% rather than the historical rate of 35%. This is an estimate based on forecasts for the full year to 30 April 2018 and as such will be reassessed at 30 April 2018. In addition, there was an exceptional tax credit of £7m in relation to the exceptional net financing costs and a £10m credit in relation to the amortisation of intangibles. As a result, basic earnings per share were 174.7p (2017: 76.3p).
The cash tax charge for the year is expected to be around 8%. This is lower than the 19% forecast at the time of preparing our results for the first half of the year, primarily due to the changes in US tax legislation, resulting in a lower federal rate of tax in the US from 1 January 2018 and full expensing of capital expenditure from 27 September 2017.
Capital expenditure and acquisitions
Capital expenditure for the nine months was £859m gross and £762m net of disposal proceeds (2017: £812m gross and £716m net). Reflecting this investment, the Group's rental fleet at 31 January 2018 at cost was £6.2bn. Our average fleet age is now 32 months (2017: 28 months).
We invested £315m, including acquired debt, (2017: £196m) in ten bolt-on acquisitions during the nine months as we continue to both expand our footprint and diversify into specialty markets.
For the full year, we expect gross capital expenditure towards the upper end of our previous guidance at around £1.2bn at current exchange rates. We expect a similar level of capital expenditure next year, consistent with our strategic plan, which anticipates high single to low teen growth through to 2021.
Return on Investment
Sunbelt US's pre-tax return on investment (excluding goodwill and intangible assets) in the 12 months to 31 January 2018 was 23% (2017: 23%) and has improved sequentially during the period. In the UK, return on investment (excluding goodwill and intangible assets) was 12% (2017: 14%). In Canada, return on investment (excluding goodwill and intangible assets) was 16% (2017: 6%). 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 nine months as we continued to invest in the fleet and made a number of bolt-on acquisitions. This was partially offset by £213m of currency translation benefit as sterling has strengthened since the year end. During the nine months, we spent £51m on share buybacks.
Net debt at 31 January 2018 was £2,628m (2017: £2,588m) while, reflecting our strong earnings growth, the ratio of net debt to EBITDA reduced to 1.6 times (2017: 1.7 times) on a constant currency basis. The Group's target range for net debt to EBITDA is 1.5 to 2 times.
The Group's debt package remains well structured and flexible, enabling 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 in August 2017, the Group's debt facilities are committed for an average of six years.
At 31 January 2018, availability under the senior secured debt facility was $1,124m, with an additional $2,276m of suppressed availability – substantially above the $310m level at which the Group's entire debt package is covenant free.
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.
In December 2017, we announced a share buyback programme of at least £500m and up to £1bn over the next 18 months. At the date of this announcement, we have spent £100m under this programme.
Current trading and outlook
All our divisions continue to perform well in supportive end markets. While currency continues to be a headwind, we expect this to be mitigated by the strong underlying performance in North America. Therefore, we anticipate full year results to be line with prior expectations.