10 December, 2019
Unaudited results for the half year and second quarter ended 31 October 2019
Read and download the unaudited results for the half year and second quarter ended 31 October 2019. You can also view the latest webcast
|Second quarter||First half|
|Profit before taxation||371||348||4%||690||6%|
|Earnings per share||60.5p||54.0p||9%||111.8p||11%|
|Profit before taxation||413||374||5%||771||679||8%|
|Profit after taxation||356||336||3%||660||610||6%|
|Earnings per share||57.9p||52.1p||9%||107.0p||95.1p||10%|
- Revenue up 14%2; rental revenue up 13%2
- Operating profit of £771m (2018: £679m)
- Pre-tax profit3 of £690m (2018: £633m); £705m excluding the impact of IFRS 16
- Earnings per share3 up 11%2 to 111.8p (2018: 98.8p)
- £1,010m of capital invested in the business (2018: £1,063m)
- £231m spent on bolt-on acquisitions (2018: £362m)
- Net debt to EBITDA leverage2 of 1.9 times (2018: 1.8 times)
- Interim dividend increased by 10% to 7.15p per share (2018: 6.5p per share)
1 The results for the first half and Q2 2019 are not comparable directly to the prior year due to the adoption of IFRS 16, Leases. Further details are provided in note 2 to the interim financial statements where we set out the impact of IFRS 16 on the results and present the income statement on a comparable basis to the prior year.
2 Calculated at constant exchange rates applying current period exchange rates and excluding the impact of IFRS 16.
3 Underlying results are stated before intangible amortisation.
4 Throughout this announcement we refer to a number of alternative performance measures which are defined in the Glossary on page 39 of the full release.
Ashtead's Chief Executive, Brendan Horgan, commented:
“The Group continues to trade well with strong rental revenue growth. Rental revenue increased 13% in the half year and underlying earnings per share increased 11%, excluding the impact of IFRS 16, both at constant exchange rates.
Our North American end markets remain strong and we continue to execute well on our strategy of organic growth supplemented by targeted bolt-on acquisitions. In contrast, the UK market remains challenging and we are therefore refocusing A-Plant on leveraging its platform to deliver long-term sustainable results, while generating strong cash flow.
We invested £1bn in capital and a further £231m on bolt-on acquisitions in the period, which added 50 locations across the Group. This investment reflects the structural growth opportunity that we continue to see in the business as we broaden our product offering, geographic reach and end markets, thus increasing market share and diversifying our business.
We remain focused on responsible growth. Our increasing scale and strong margins are delivering good earnings growth and significant free cash flow generation. This provides significant operational and financial flexibility, enabling us to invest in the long-term structural growth opportunity and enhance returns to shareholders, while maintaining leverage within our target range of 1.5 to 2.0 times net debt to EBITDA excluding IFRS 16. We spent £250m under our share buyback programme in the period, in line with our expectation to spend a minimum of £500m on share buybacks in 2019/20.
Our business continues to perform well in supportive North American end markets, while we have taken decisive strategic action to refocus our UK business in the challenging market conditions. Thus, except for the UK and a currency headwind, we expect results to be in line with our expectations and the Board continues to look to the medium term with confidence."
|Will Shaw||Director of Investor Relations||020 7726 9700|
|Neil Bennett||Maitland/AMO||020 7379 5151|
|James McFarlane||Maitland/AMO||020 7379 5151|
Brendan Horgan and Michael Pratt will hold a meeting for equity analysts to discuss the results and outlook at 9am on Tuesday, 10 December 2019 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 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 4.30pm (11.30am 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 details should contact the Company's PR advisers, Maitland/AMO (Audrey Da Costa) at +44 (0)
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 $m||2,887.5||2,500.2||1,502.0||1,278.1||947.0||847.1|
|Sunbelt Canada in C$m||200.3||167.4||85.0||66.6||40.4||36.3|
|Sunbelt US in £m||2,304.8||1,902.2||1,198.9||972.4||755.9||644.5|
|Sunbelt Canada in £m||120.6||97.7||51.2||38.8||24.3||21.2|
|Group central costs||-||-||(8.8)||(7.6)||(9.2)||(7.7)|
|Net financing costs||(111.1)||(68.8)|
|Profit before amortisation and tax||689.9||633.4|
|Profit before taxation||660.2||610.0|
|Profit attributable to equity holders of the Company||493.9||461.5|
|Margins as reported|
1Segment result presented is operating profit before amortisation.
The Group adopted IFRS 16, Leases ('IFRS 16') on 1 May 2019. The Group elected to apply IFRS 16 using the modified retrospective approach with no restatement of comparative figures. As a result, the results for the half year are not comparable directly to the prior year with the adoption of IFRS 16 resulting in higher EBITDA and operating profit but lower profit before amortisation and tax than under the previous accounting standard. As a result, our comments below are on both the reported figures and those excluding the impact of IFRS 16 to aid comparability. Margins excluding the impact of IFRS 16 are summarised below. Further details on the adoption and impact of IFRS 16 are provided in note 2 to the interim financial statements.
|Margins excluding the impact of IFRS 16|
Group revenue increased 19% to £2,681m in the first half (2018: £2,250m) with strong growth in the US and Canadian markets. This revenue growth, combined with a continued focus on dropthrough, generated underlying profit before tax of £690m (2018: £633m) or £705m excluding the impact of IFRS 16. This performance reflects good profit growth in the US, a more moderate improvement in Canada as we invest in the business and a drag from weakness in the UK.
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 and Sunbelt Canada delivered 15% and 21% rental only revenue growth respectively, while A-Plant's rental only revenue decreased 2%, reflecting the more competitive landscape within a more uncertain UK market. The growth in Sunbelt Canada continues to reflect the impact of recent acquisitions.
Sunbelt US's revenue growth continues to benefit from cyclical and structural trends and can be explained as follows:
|2018 rental only revenue||1,869|
|Organic (same-store and greenfields)||10%||181|
|Bolt-ons since 1 May 2018||5%||96|
|2019 rental only revenue||15%||2,146|
|2019 rental revenue||15%||2,667|
|2019 total revenue||15%||2,887|
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 44 new stores in the US in the first half, over half of which were specialty locations.
Rental only revenue growth was 15% in strong end markets, driven by increased fleet on rent. This is a good performance after the last two years which were impacted favourably by significant hurricane activity, whereas the 2019 hurricane season was much quieter. Sunbelt US's total revenue, including new and used equipment, merchandise and consumable sales, increased 15% to $2,887m (2018: $2,500m).
A-Plant generated rental only revenue of £187m, down 2% on the prior year (2018: £191m). This resulted from a 3% reduction in fleet on rent partially offset by a better yield, mainly due to product mix. The rate environment in the UK market remains competitive. A-Plant's total revenue increased 2% to £256m (2018: £251m) reflecting higher used equipment sales as A-Plant defleeted, selling under-utilised and low returning assets.
Sunbelt Canada's rental only revenue increased 21%, including the benefit of recent acquisitions. On an organic basis, rental only revenue increased 11%. Sunbelt Canada's total revenue was C$200m (2018: C$167m).
We continue to focus on operational efficiency as we look to maintain or improve margins. However, while US growth continues to outpace the market, the relatively lower rate of growth compared with recent years has put some pressure on drop-through, both in some of our mature stores and from the drag effect of greenfield openings and acquired stores. In Sunbelt US, excluding the impact of IFRS 16, 48% of revenue growth dropped through to EBITDA. This contributed to a reported EBITDA margin of 52% (2018: 51%) and a 12% increase in operating profit to $947m (2018: $847m) at a margin of 33% (2018: 34%). Excluding the impact of IFRS 16, the EBITDA and operating profit margins were 50% and 33% respectively for the current period.
The UK market remains competitive and after a period of sustained growth for the business, the focus is now on operational efficiency and improving returns. The EBITDA margin of 34% (2018: 38%) reflects the drag effect of the increased fleet disposals, the challenging rate environment and investment in the infrastructure of the business. Excluding the impact of the de-fleet exercise and the adoption of IFRS 16, A-Plant generated an EBITDA margin of 35% (2018: 39%). Operating profit of £30m (2018: £44m) at a margin of 12% (2018: 18%) also reflected these impacts.
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 42% EBITDA margin (2018: 40%) and generating an operating profit of C$40m (2018: C$36m) at a margin of 20% (2018: 22%). Excluding the impact of IFRS 16, the EBITDA and operating profit margins were 40% and 20%, respectively.
Reflecting the performance of the divisions, Group underlying operating profit increased to £801m (2018: £702m), up 9% at constant exchange rates. Net financing costs increased to £111m (2018: £69m) reflecting the impact of the adoption of IFRS 16, which resulted in an incremental interest charge of £21m in the first half, and higher average debt levels. As a result, Group profit before amortisation of intangibles and taxation was £690m (2018: £633m). After a tax charge of 25% (2018: 24%) of the underlying pre-tax profit, underlying earnings per share increased 8% at constant currency to 111.8p (2018: 98.8p). Excluding the impact of IFRS 16, Group profit before amortisation of intangibles and taxation was £705m and underlying earnings per share increased 11% at constant currency. The underlying cash tax charge was 12%.
Statutory profit before tax was £660m (2018: £610m). This is after amortisation of £30m (2018: £23m). Included within the total tax charge is a tax credit of £7m (2018: £5m) which relates to the amortisation of intangibles. As a result, basic earnings per share were 107.0p (2018: 95.1p).
Capital expenditure and acquisitions
Capital expenditure for the first half was £1,010m gross and £866m net of disposal proceeds (2018: £1,063m gross and £963m net). Reflecting this investment, the Group's rental fleet at 31 October 2019 at cost was £9.0bn. Our average fleet age is now 33 months (2018: 31 months). Looking forward to the full year, we anticipate total capital expenditure to be towards the lower end of our range of £1.4bn to £1.6bn.
We invested £231m (2018: £362m), including acquired debt, in 11 bolt-on acquisitions during the period as we continue to expand our footprint and look to diversify our specialty markets.
Since the period end we have completed three further acquisitions, the most notable of which was William F. White ('WFW') in Canada for £136m (C$234m) with contingent consideration of up to £8m (C$14m), payable over the next year, depending on EBITDA meeting or exceeding certain thresholds. Including acquired debt, the total cash consideration was £151m (C$260m). WFW is Canada's largest provider of production equipment, services and studio facilities to the film and television industry.
Return on Investment
Sunbelt US's pre-tax return on investment (excluding goodwill and intangible assets) in the 12 months to 31 October 2019 was 23% (2018: 24%). In the UK, return on investment (excluding goodwill and intangible assets) was 7% (2018: 10%). This decline reflects the competitive nature of the UK market and the rate environment and the weaker performance of the business. In Canada, return on investment (excluding goodwill and intangible assets) was 11% (2018: 12%). We have made a significant investment in Canada and, as we develop the potential of the market, we expect returns to increase. For the Group as a whole, return on investment (including goodwill and intangible assets) was 17% (2018: 18%). For comparability, return on investment excludes the impact of IFRS 16
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 but also due to the adoption of IFRS 16, which added £883m to debt as at 1 May 2019. During the period, we spent £249m on share buybacks.
As a result, net debt at 31 October 2019 was £5,237m (2018: £3,612m), resulting in a net debt to EBITDA ratio of 2.2 times on a pro forma basis. The Group's target range for net debt to EBITDA is 1.9 to 2.4 times following the adoption of IFRS 16. Excluding the effect of IFRS 16, net debt at 31 October 2019 was £4,242m, while the ratio of net debt to EBITDA was 1.9 times (2018: 1.8 times) on a constant currency basis.
At 31 October 2019, availability under the senior secured debt facility was $1,001m, with an additional $2,930m of suppressed availability – substantially above the $410m level at which the Group's entire debt package is covenant free.
In November, the Group took advantage of good debt markets and refinanced its debt facilities by issuing $600m 4.0% senior secured notes maturing in May 2028 and $600m 4.25% senior secured notes maturing in November 2029. The net proceeds of the issue were used to repurchase the Group's $500m 5.625% senior secured notes which would have matured in 2024, pay related fees and expenses and repay an element of the amount outstanding under the ABL facility. These actions ensure the Group's debt package continues to be well structured and flexible, enabling us to optimise the opportunity presented by end market conditions. The Group's debt facilities are now committed for an average of six years at a weighted average cost of 4%
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 7.15p per share (2018: 6.5p per share). This will be paid on 5 February 2020 to shareholders on the register on 17 January 2020.
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 1.9 to 2.4 times target range for net debt to EBITDA (1.5 to 2.0 times pre IFRS 16).
Current trading and outlook
Our business continues to perform well in supportive North American end markets, while we have taken decisive strategic action to refocus our UK business in the challenging market conditions. Thus, except for the UK and a currency headwind, we expect results to be in line with our 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 of Directors
9 December 2019