5 March, 2019
Unaudited results for the nine months and third quarter ended 31 January 2019
Read and download the unaudited results for the nine months and third quarter ended 31 January 2019. You can also view the latest webcast
|Third quarter||Nine months|
|Profit before taxation||254.3||205.1||17%||887.7||742.0||18%|
|Earnings per share||40.0p||32.2p||18%||138.9p||102.4p||34%|
|Profit before taxation||240.9||194.3||17%||850.9||687.4||23%|
|Profit after taxation4||180.9||548.0||-68%||642.4||868.9||-27%|
|Earnings per share4||37.9p||110.2p||-67%||133.1p||174.7p||-25%|
Nine month highlights
- Revenue up 19%1; rental revenue up 18%1
- Pre-tax profit2 of £888m (2018: £742m)
- Earnings per share2 up 34%1 to 138.9p (2018: 102.4p)
- Post-tax profit4 of £642m (2018: £869m)
- £1,290m of capital invested in the business (2018: £859m)
- £491m spent on bolt-on acquisitions (2018: £315m)
- Net debt to EBITDA leverage1 of 1.8 times (2018: 1.6 times)
- Refinanced debt facilities enhance financial strength and flexibility
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 at the top of this page.
4 Prior year profit after tax and earnings per share figures include a one-off benefit from the US Tax Cuts and Jobs Act of 2017.
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 nine months and underlying pre-tax profit increased 18% to £888m, both at constant exchange rates.
We continue to experience strong end markets in North America and are executing well on our strategy of organic growth supplemented by targeted bolt-on acquisitions. We invested £1,290m in capital and a further £491m on bolt-on acquisitions in the period which has added 112 locations and resulted in rental fleet growth of 18%. 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.
Reflecting this opportunity for profitable growth, we expect capital expenditure for the year to be towards the upper end of our previous guidance (c. £1.6bn). Looking forward to 2019/20, we anticipate a similar level of capital expenditure to this year as we execute on our strategic plan through to 2021.
Whilst these are significant investments we remain focused on responsible growth so, after spending £550m 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 continues to perform well in supportive end markets. Accordingly, we expect full year 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|
Geoff Drabble, Brendan Horgan and Michael Pratt will hold a conference call for equity analysts to discuss the results and outlook at 8am on Tuesday, 5 March 2019. The call 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 call concludes. A copy of this announcement and the slide presentation used for the call 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/AMO (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 US in $m||3,759.1||3,118.8||1,876.5||1,568.4||1,210.1||1,001.1|
|Sunbelt Canada in C$m||256.6||161.0||95.5||59.7||47.4||33.2|
|Sunbelt US in £m||2,883.4||2,365.7||1,439.3||1,189.8||928.2||759.4|
|Sunbelt Canada in £m||150.0||95.5||55.8||35.4||27.7||19.7|
|Group central costs||-||-||(11.0)||(11.2)||(11.2)||(11.3)|
|Net financing costs||(111.7)||(82.6)|
|Profit before amortisation,exceptional items and tax||887.7||742.0|
|Profit before taxation||850.9||687.4|
|Profit attributable to equity holders of the Company||642.4||868.9|
Group revenue increased 21% to £3,394m in the nine months (2018: £2,815m) with strong growth in the US and Canadian markets. This revenue growth, combined with our focus on drop-through, generated underlying profit before tax of £888m (2018: £742m).
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 72% 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:
|2018 rental only revenue||2,349|
|Organic (same-store and greenfields)||+15%||358|
|Bolt-ons since 1 May 2017||+4%||95|
|2019 rental only revenue||+19%||2,802|
|2019 rental revenue||+19%||3,493|
|2019 total revenue||+21%||3,759|
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 89 new stores in the US in the nine months, 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 $30-35m (2018: $75-85m). Average nine month physical utilisation was 73% (2018: 73%). Sunbelt US's total revenue, including new and used equipment, merchandise and consumable sales, increased 21% to $3,759m (2018: $3,119m).
A-Plant generated rental only revenue of £274m, up 5% on the prior year (2018: £262m). This was driven by increased fleet on rent, with yield broadly flat. The rate environment in the UK market remains competitive. A-Plant's total revenue increased 2% to £360m (2018: £354m).
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 only revenue increased 20% in western Canada, while in eastern Canada the CRS and Voisin's businesses grew 21%. For Sunbelt Canada overall, total revenue was C$257m (2018: C$161m) 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 50% (2018: 50%) and contributed to a 21% increase in operating profit to $1,210m (2018: $1,001m) at a margin of 32% (2018: 32%).
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 37% (2018: 36%) and an operating profit of £55m (2018: £57m) at a margin of 15% (2018: 16%).
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 37% EBITDA margin and generating an operating profit of C$47m (2018: C$33m) at a margin of 18% (2018: 21%).
Reflecting the strong performance of the divisions, Group underlying operating profit increased 21% to £999m (2018: £825m). Net financing costs increased to £112m (2018: £83m) reflecting a higher average interest rate and higher average debt levels. As a result, Group profit before amortisation of intangibles, exceptional items and taxation was £888m (2018: £742m). After a tax charge of 24% (2018: 31%) of the underlying pre-tax profit, underlying earnings per share increased 36% to 138.9p (2018: 102.4p). The reduction in the Group's underlying tax charge from 31% 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 £851m (2018: £687m). This is after amortisation of £37m (2018: £33m) and, in the prior year, an exceptional charge of £22m. The exceptional tax credit of £9m (2018: £414m) relates to a £9m (2018: £10m) credit in relation to the amortisation of intangibles. In addition, the prior year includes a £7m tax credit in relation to exceptional net financing costs and a £397m credit as a result of the change in the US federal tax rate. As a result, basic earnings per share were 133.1p (2018: 174.7p).
Capital expenditure and acquisitions
Capital expenditure for the nine months was £1,290m gross and £1,138m net of disposal proceeds (2018: £859m gross and £762m net). This level of capital expenditure reflects the strong market and our ability to take market share. Reflecting this investment, the Group's rental fleet at 31 January 2019 at cost was £8.0bn. Our average fleet age is now 32 months (2018: 32 months).
We invested £491m (2018: £315m), including acquired debt, in 19 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 £104m in three bolt-on acquisitions.
For the full year, we expect gross capital expenditure towards the upper end of our previous guidance at around £1.6bn at a $1.30 sterling exchange rate. We expect a similar level of capital expenditure next year, consistent with our strategic plan. This should result in low teens growth in 2019/20.
Return on Investment
Sunbelt US's pre-tax return on investment (excluding goodwill and intangible assets) in the 12 months to 31 January 2019 was 24% (2018: 23%). In the UK, return on investment (excluding goodwill and intangible assets) was 10% (2018: 12%). This decline reflects the competitive nature of the UK market and the rate environment. In Canada, return on investment (excluding goodwill and intangible assets) was 11% (2018: 16%). 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 18% (2018: 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. In addition, weaker sterling increased reported debt by £106m. During the period, we spent £327m 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. In December, the Group also increased and extended its asset-based senior bank facility, with $4.1bn committed until December 2023 at a lower cost. Other principal terms and conditions remain unchanged. 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 January 2019 was £3,725m (2018: £2,628m) while, reflecting our strong earnings growth, the ratio of net debt to EBITDA was 1.8 times (2018: 1.6 times) on a constant currency basis. The Group's target range for net debt to EBITDA is 1.5 to 2 times.
At 31 January 2019, availability under the senior secured debt facility was $1,603m, with an additional $2,359m of suppressed availability - substantially above the $410m 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. 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 currently £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 continues to perform well in supportive end markets. Accordingly, we expect full year results to be in line with our expectations and the Board continues to look to the medium term with confidence.