3 March, 2020
Unaudited results for the nine months and third quarter ended 31 January 2020
Read and download the unaudited results for the nine months and third quarter ended 31 January 2020. You can also view the latest webcast
|Third quarter||Nine months|
|Profit before taxation||257||254||6%||947||888||6%|
|Earnings per share||42.3p||40.0p||11%||154.3p||138.9p||11%|
|Profit before taxation||225||241||-1%||885||851||4%|
|Earnings per share||37.0p||37.9p||3%||144.1p||133.1p||8%|
Nine month highlights
- Revenue up 13%2; rental revenue up 12%2
- Operating profit of £1,069m (2019: £963m)
- Pre-tax profit3 of £947m (2019: £888m); £969m excluding the impact of IFRS 16
- Earnings per share3 up 11%2 to 154.3p (2019: 138.9p)
- £1,256m of capital invested in the business (2019: £1,290m)
- Record free cash flow of £363m (2019: £72m)
- £407m spent on bolt-on acquisitions (2019: £491m)
- Net debt to EBITDA leverage2 of 1.9 times (2019: 1.8 times)
1 The results for the nine months and Q3 2020 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 exceptional items and intangible amortisation.
4 Throughout this announcement we refer to a number of alternative performance measures which are defined in the Glossary on page 38.
Ashtead's Chief Executive, Brendan Horgan, commented:
“We have enjoyed another quarter of industry-leading rental revenue growth, resulting in an increase in rental revenue of 12% in the nine months and an increase in underlying earnings per share of 11%, excluding the impact of IFRS 16, both at constant exchange rates.
Our North American end markets remain supportive and we continue to execute well on our strategy of organic growth supplemented by targeted bolt-on acquisitions in a moderating growth environment. This strategy reflects the structural growth opportunity we see in the business as we broaden our product offering, geographic reach and end markets. 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 £1.3bn in capital and a further £407m on bolt-on acquisitions in the period, which added 82 locations across the Group. As discussed at the half year, we expect capital expenditure for the year to be at the lower end of our previous guidance (c. £1.4bn). Looking forward to 2020/21, we anticipate gross capital expenditure of £1.1 - £1.3bn, which should result in mid to high single digit revenue growth in the US.
We remain focused on responsible growth. Our increasing scale and strong margins are delivering growing earnings and significant free cash flow. 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 £376m 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. The programme will be extended for the financial year 2020/21, with an anticipated spend of at least £500m.
In North America our business continues to perform well in supportive end markets, while in the UK we have taken decisive strategic action to refocus the business in the challenging market conditions. Although construction markets are moderating, we expect results to be in line with 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 conference call for equity analysts to discuss the results and outlook at 8am on Tuesday, 3 March 2020. 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 call 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)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 $m||4,279.9||3,759.1||2,188.9||1,876.5||1,339.1||1,210.1|
|Sunbelt Canada in C$m||320.8||256.6||131.0||95.5||57.6||47.4|
|Sunbelt US in £m||3,372.1||2,883.4||1,724.7||1,439.3||1,055.1||928.2|
|Sunbelt Canada in £m||191.1||150.0||78.0||55.8||34.3||27.7|
|Group central costs||-||-||(12.6)||(11.0)||(13.2)||(11.2)|
|Net financing costs||(167.3)||(111.7)|
|Profit before amortisation,|
exceptional items and tax
|Profit before taxation||885.2||850.9|
|Profit attributable to equity holders of the Company||661.5||642.4|
|Margins as reported|
1 Segment 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 nine months 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, exceptional items 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 13% to £3,928m in the nine months (2019: £3,394m) with good growth in the US and Canadian markets. This revenue growth, combined with a continued focus on drop-through, generated underlying profit before tax of £947m (2019: £888m) or £969m 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 the weakness in the UK.
The Group's strategy remains unchanged with growth being driven by organic growth (same-store and greenfield) supplemented by bolt-on acquisitions. Sunbelt US and Sunbelt Canada delivered 13% and 29% rental only revenue growth respectively, while A-Plant's rental only revenue decreased 1%, reflecting the more competitive landscape within a more uncertain UK market. The growth in Sunbelt Canada continues to reflect the impact of recent acquisitions, including William F. White acquired in December 2019.
Sunbelt US's revenue growth continues to benefit from cyclical and structural trends and can be explained as follows:
|2019 rental only revenue||2,802|
|Organic (same-store and greenfields)||8%||219|
|Bolt-ons since 1 May 2018||5%||139|
|2020 rental only revenue||13%||3,160|
|2020 rental revenue||12%||3,920|
|2020 total revenue||14%||4,280|
Sunbelt US's revenue growth demonstrates the successful execution of our long-term structural growth strategy. This growth is against a back-drop of a construction industry, just less than half of our end markets, which did not grow in 2019 and is forecast to be again flat in 2020. In this moderating growth environment, we continue to capitalise on the market opportunity 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 64 new stores in the US in the nine months, approximately half of which were specialty locations.
Rental only revenue growth was 13%, 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 14% to $4,280m (2019: $3,759m).
A-Plant generated rental only revenue of £272m, down 1% on the prior year (2019: £274m). This resulted from a 1% reduction in fleet on rent. The rate environment in the UK market remains competitive. A-Plant's total revenue increased 1% to £365m (2019: £360m) reflecting higher used equipment sales as A-Plant defleeted, selling under-utilised and lower returning assets. This defleet programme combined with targeted fleet investment has contributed to improved utilisation.
Sunbelt Canada's rental only revenue increased 29%, including the benefit of recent acquisitions. On an organic basis, rental only revenue increased 11%. Sunbelt Canada's total revenue was C$321m (2019: C$257m).
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 51% (2019: 50%) and an 11% increase in operating profit to $1,339m (2019: $1,210m) at a margin of 31% (2019: 32%). Excluding the impact of IFRS 16, the EBITDA and operating profit margins were 49% and 31% 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 33% (2019: 37%) 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 34% (2019: 37%). Operating profit of £38m (2019: £55m) at a margin of 10% (2019: 15%) 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 41% EBITDA margin (2019: 37%) and generating an operating profit of C$58m (2019: C$47m) at a margin of 18% (2019: 18%). Excluding the impact of IFRS 16, the EBITDA and operating profit margins were 38% and 18%, respectively.
Reflecting the performance of the divisions, Group underlying operating profit increased to £1,114m (2019: £999m), up 9% at constant exchange rates. Net financing costs increased to £167m (2019: £112m) reflecting the impact of the adoption of IFRS 16, which resulted in an incremental interest charge of £33m in the nine months, and higher average debt levels. As a result, Group profit before amortisation of intangibles, exceptional items and taxation was £947m (2019: £888m). After a tax charge of 25% (2019: 24%) of the underlying pre-tax profit, underlying earnings per share increased 8% at constant currency to 154.3p (2019: 138.9p). Excluding the impact of IFRS 16, Group profit before exceptional items, amortisation of intangibles and taxation was £969m and underlying earnings per share increased 11% at constant currency. The underlying cash tax charge was 12%.
Statutory profit before tax was £885m (2019: £851m). This is after amortisation of £45m (2019: £37m) and, in the current year, an exceptional charge of £16m ($21m). The exceptional charge relates to financing costs associated with the redemption of our $500m 5.625% senior notes in November 2019. Included within the total tax charge is a tax credit of £15m (2019: £9m) which relates to the amortisation of intangibles and exceptional items. As a result, basic earnings per share were 144.1p (2019: 133.1p).
Capital expenditure and acquisitions
Capital expenditure for the nine months was £1,256m gross and £1,028m net of disposal proceeds (2019: £1,290m gross and £1,138m net). Reflecting this investment, the Group's rental fleet at 31 January 2020 at cost was £9.0bn. Our average fleet age is now 34 months (2019: 32 months).
We invested £407m (2019: £491m), including acquired borrowings, in 17 bolt-on acquisitions during the period as we continue to expand our footprint and look to diversify our specialty markets.
For the full year, we now expect gross capital expenditure to be at the lower end of our previous guidance (c. £1.4bn at a $1.30 sterling exchange rate). For 2020/21, we expect gross capital expenditure to be in the range of £1.1 - £1.3bn which should result in mid to high single digit rental revenue growth in the US next year.
Return on Investment
Sunbelt US's pre-tax return on investment (excluding goodwill and intangible assets) in the 12 months to 31 January 2020 was 23% (2019: 24%). In the UK, return on investment (excluding goodwill and intangible assets) was 7% (2019: 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 12% (2019: 11%). We have made a significant investment in Canada including the recent acquisition of William F. White 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% (2019: 18%). For comparability, return on investment excludes the impact of IFRS 16.
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 but also due to the adoption of IFRS 16, which added £883m to debt as at 1 May 2019. During the period, we spent £376m on share buybacks.
In November, the Group took advantage of good debt markets and refinanced its debt facilities by issuing $600m 4.0% senior notes maturing in May 2028 and $600m 4.25% senior notes maturing in November 2029. The net proceeds of the issues were used to repurchase the Group's $500m 5.625% senior 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 borrowing facilities are now committed for an average of six years at a weighted average cost of 4%.
Net debt at 31 January 2020 was £5,443m (2019: £3,725m), resulting in a net debt to EBITDA ratio of 2.3 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 January 2020 was £4,359m, while the ratio of net debt to EBITDA was 1.9 times (2019: 1.8 times) on a constant currency basis.
At 31 January 2020, availability under the senior secured debt facility was $1,446m, with an additional $2,949m 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 1.9 to 2.4 times target range for net debt to EBITDA (1.5 to 2.0 times pre IFRS 16).
In line with these priorities, our share buyback programme will continue through the 2020/21 financial year, with an anticipated spend of at least £500m.
Current trading and outlook
In North America our business continues to perform well in supportive end markets, while in the UK we have taken decisive strategic action to refocus the business in the challenging market conditions. Although construction markets are moderating, we expect results to be in line with expectations and the Board continues to look to the medium term with confidence.