16 June, 2020
Audited results for the year and unaudited results for the fourth quarter ended 30 April 2020
Read and download the audited results for the year and unaudited results for the fourth quarter ended 30 April 2020. You can also view the latest webcast.
|Profit before taxation||114||222||-48%||1,061||1,110||-4%|
|Earnings per share||20.2p||35.0p||-42%||175.0p||174.2p||-%|
|Profit before taxation||98||209||-52%||983||1,059||-7%|
|Earnings per share||17.4p||32.8p||-46%||162.1p||166.1p||-2%|
- Resilient performance during the COVID-19 pandemic
- Revenue up 9%2; rental revenue up 8%2
- Operating profit of £1,224m (2019: £1,213m)
- Pre-tax profit3 of £1,061m; £1,091m excluding the impact of IFRS 16 (2019: £1,110m)
- Earnings per share3 of 175.0p (2019: 174.2p)
- £1.5bn of capital invested in the business (2019: £1.6bn)
- Record free cash flow of £792m (2019: £368m)
- £453m spent on bolt-on acquisitions (2019: £622m)
- Net debt to EBITDA leverage2 of 1.9 times (2019: 1.8 times)
- Proposed final dividend of 33.5p, making 40.65p for the full year (2019: 40.0p)
1 The results for the full year and fourth quarter 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 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 provide additional useful information. The directors have adopted these to provide additional information on the underlying trends, performance and position of the Group. The alternative performance measures are not defined by IFRS and therefore may not be directly comparable with other companies’ alternative performance measures, but are defined in the Glossary on page 45.
Ashtead's Chief Executive, Brendan Horgan, commented:
“I am extraordinarily proud of, and grateful for, our team members and their response during a time when our communities were in need. All levels of the organisation quickly adapted our operations to continue servicing our customers while keeping our leading value of safety at the forefront of all we do.
While no one could have foreseen the global impact of COVID-19, our business model and capital structure are designed to withstand the cyclical nature of some of our end markets. We took prompt actions to optimise cash flow, reducing capital expenditure and operating costs, and strengthen further our liquidity position. In these unprecedented times, the results of our long-term strategy to mature our business through diversity and scale came through in our performance.
Looking forward, I am certain these swift actions combined with the strength of our cash flow and balance sheet will serve the Group well. The diversity of our products, services and end markets coupled with ongoing structural change opportunities put the Board in a position of confidence to look to the coming year as one of strong cash generation and strengthening our market position. Based on this confidence, the Board has decided to maintain its progressive dividend policy and to recommend a final dividend of 33.5p.”
|Will Shaw||Director of Investor Relations||+44 (0)20 7726 9700|
|Neil Bennett||Maitland/AMO||+44 (0)20 7379 5151|
|James McFarlane||Maitland/AMO||+44 (0)7584 142 665|
Brendan Horgan and Michael Pratt will hold a conference call for equity analysts to discuss the results and outlook at 11am on Tuesday, 16 June 2020. The call will be webcast live via the link at the top of this release and a replay will be available via the website shortly after the call concludes. A copy of this announcement and the slide presentation used for the call are available for download on the Company’s website. 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.
Overview and markets
In simple terms, the year can be characterised as pre-COVID-19 and post COVID-19. We were on track for another record year when the COVID-19 pandemic changed the world for everyone. We are proud to report that, despite an unprecedented ‘black swan’ event, with US fleet on rent falling 15% in 5 weeks, we are still able to report strong results for the year. There has, of course, been an impact on our fourth quarter results, but the underlying strength of the business and our performance in the first three quarters of 2019/20 mean we have continued to perform well overall. Our business is robust and we remain open for our customers in all our geographies. Throughout this period our focus has been on our people, our customers, our communities and our investors, in particular:
- ensuring the health and safety of our team members and customers;
- continuing to serve the needs of our customers and communities, including supporting government and private sector responses to the pandemic; and
- taking steps to optimise cash flow, reduce operating costs and strengthen further our liquidity position during a period of suppressed activity.
While trading volumes were lower in the second half of March and April as a result of the
pandemic, this has been mitigated, in part, by emergency response efforts throughout our business units but particularly within our specialty businesses. Sunbelt Rentals is designated as an essential business in the US, UK and Canada, supporting government and private sector responses to the pandemic. This includes providing vital equipment and services to first responders, hospitals, alternative care facilities, testing sites, food services and telecommunications and utility companies, while continuing to service ongoing construction sites and increased facility maintenance and cleaning.
As a result of these market dynamics, rental revenue for Sunbelt US in March was 3% higher (2% on a billings per day basis) than prior year and in April was 12% lower than prior year. This is due principally to the general tool business being 15% lower than prior year in April, while the specialty businesses (excluding oil and gas) were 9% higher than last year, with the reduction in the general tool business being driven by declines in volume rather than rental rates. This contributed to Group rental revenue in the fourth quarter 1% lower than the prior year at constant exchange rates. The degree of impact on volume has varied significantly across different markets and is correlated to the severity of infection rates and associated market level restrictions. Since 10 April, we have seen US fleet on rent stabilise and then increase as our markets adjust to new working practices and restrictions eased gradually. The trend has been similar in the UK and Canada. As a result, US May rental revenue was 14% (8% on a billings per day basis) lower than last year.
In early March we took steps to optimise cash flow, reduce operating costs and strengthen further our liquidity position including, but not limited to reducing planned capital expenditure for the year ending April 2021, suspending all current and prospective M&A activity, pausing our share buyback programme, implementing a group wide freeze on new hires and reducing discretionary staff costs, use of third party freight haulers and other operating expenditures consistent with reduced activity levels. We now expect capital expenditure of c. £500m in 2020/21. In addition, on 24 April 2020, we accessed an additional $500m of liquidity through the Group’s senior secured credit facility, increasing the facility size to $4.6bn for the next twelve months.
A skilled workforce is instrumental to the Group’s long-term success and we have made every effort to preserve our committed workforce for the impending recovery. Therefore, we have not made any team members redundant as a result of the impact of COVID-19 and have not sought assistance from government support programmes such as the UK’s Coronavirus Job Retention Scheme or similar schemes in Canada.
Looking forward, we believe that the impact of the COVID-19 pandemic will continue to give rise to market uncertainties over the coming months. However, with strong market positions in all our markets, supported by good quality fleets and a strong financial position, we believe that we are well positioned to respond to this market uncertainty and continue to support our customers and team members.
|Sunbelt US in $m||5,489.9||4,988.9||2,721.0||2,453.5||1,560.0||1,545.0|
|Sunbelt Canada in C$m||420.7||344.0||157.0||124.1||54.5||54.8|
|Sunbelt US in £m||4,335.7||3,824.3||2,149.0||1,880.9||1,232.1||1,184.3|
|Sunbelt Canada in £m||248.7||200.2||92.8||72.2||32.2||31.9|
|Group central costs||-||-||(14.6)||(14.9)||(15.4)||(14.9)|
|Net financing costs||(224.5)||(153.4)|
|Profit before amortisation,|
exceptional items and tax
|Profit before taxation||982.8||1,059.5|
|Profit attributable to equity holders of the Company||739.7||796.9|
|Margins as reported|
1 Segment result presented is operating profit before amortisation.
2 The UK business was rebranded Sunbelt Rentals UK with effect from 1 June 2020
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 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, exceptional items and tax than under the previous accounting standard. 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 financial statements.
|Margins excluding the impact of IFRS 16|
Group revenue for the year increased 12% (9% at constant exchange rates) to £5,054m
(2019: £4,500m) with good growth in the US and Canadian markets. This industry leading performance includes a fourth quarter impacted by COVID-19, resulting in fourth quarter revenue only 2% higher (2% lower on a constant currency basis) than the prior year. This sudden fall in activity levels had a significant impact on profit in the quarter as a large proportion of our costs are fixed in the short term. As a result, underlying profit before tax for the year was £1,061m (2019: £1,110m) or £1,091m excluding the impact of IFRS 16.
Although COVID-19 has influenced the Group’s short-term planning and actions, our strategy remains unchanged with long-term growth being driven by organic investment (same-store and greenfield) supplemented by bolt-on acquisitions. In the US and Canada, we experienced 10% and 30% rental only revenue growth respectively, while in the UK, rental only revenue decreased 2% reflecting the more competitive landscape within a more uncertain UK market and a period of realignment for the UK business. The growth in Canada continues to reflect the impact of recent acquisitions, including William F. White acquired in December 2019.
US revenue growth continued to benefit from cyclical and structural trends during the year and can be explained as follows:
|2019 rental only revenue||3,711|
|Organic (same-store and greenfields)||6%||197|
|Bolt-ons since 1 May 2018||4%||157|
|2020 rental only revenue||10%||4,065|
|2020 rental revenue||9%||5,046|
|2020 total revenue||10%||5,490|
US revenue growth demonstrates the successful execution of our long-term structural growth strategy. This growth has been achieved against a back-drop of a construction industry, just less than half of our end markets, which did not grow in 2019. In this market environment, we continued 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 85 new stores in the US in the year, almost half of which were specialty locations.
Rental only revenue growth was 10%, 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 and a fourth quarter adversely affected by the impact of COVID-19. US total revenue, including new and used equipment, merchandise and consumable sales, increased 10% to $5,490m (2019: $4,989m).
The UK business, which was rebranded Sunbelt Rentals UK with effect from 1 June 2020, generated rental only revenue of £349m, down 2% on the prior year (2019: £357m), resulting from a 2% reduction in fleet on rent. The rate environment in the UK market remained competitive throughout the year. Total revenue decreased 1% to £469m (2019: £475m).
Canada’s rental only revenue increased 30%, including the benefit of recent acquisitions. On an organic basis, rental only revenue increased 8%. Total revenue was C$421m (2019: C$344m).
In the US, while our 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. This was compounded in the fourth quarter by the impact of COVID-19, with a significant proportion of the revenue decline falling through to EBITDA. As a result, for the year, excluding the impact of IFRS 16, 35% of revenue growth dropped through to EBITDA. This contributed to a reported EBITDA margin of 50% (2019: 49%) and a 1% increase in operating profit to $1,560m (2019: $1,545m) at a margin of 28% (2019: 31%). Excluding the impact of IFRS 16, the EBITDA and operating profit margins were 48% and 28% respectively for the year.
The UK market remains competitive and after a period of sustained growth for the business, the focus had turned to operational efficiency and improving returns. The EBITDA margin of 32% (2019: 35%) reflects the drag effect of the increased fleet disposals, the challenging rate environment, investment in the infrastructure of the business and, recently, the impact of COVID-19. Excluding the impact of the de-fleet exercise and the adoption of IFRS 16, the UK generated an EBITDA margin of 32% (2019: 35%). Operating profit of £36m (2019: £62m) at a margin of 8% (2019: 13%) also reflected these factors.
Canada is in a growth phase as it invests to expand its network and develop the business. Significant growth in the business has been achieved while delivering a COVID-19 impacted 37% EBITDA margin (2019: 36%) and generating an operating profit of C$54m (2019: C$55m) at a margin of 13% (2019: 16%). Excluding the impact of IFRS 16, the EBITDA and operating profit margins were 34% and 12%, respectively.
Reflecting the performance of the divisions, Group underlying operating profit increased to £1,285m (2019: £1,264m), down 1% at constant exchange rates. Net financing costs increased to £224m (2019: £153m) reflecting the impact of the adoption of IFRS 16, which resulted in an incremental interest charge of £45m in the year, and higher average debt levels. As a result, Group profit before amortisation of intangibles, exceptional items and taxation was £1,061m (2019: £1,110m). After a tax charge of 25% (2019: 25%) of the underlying pre-tax profit, underlying earnings per share increased to 175.0p (2019: 174.2p). Excluding the impact of IFRS 16, Group profit before exceptional items, amortisation of intangibles and taxation was £1,091m and underlying earnings per share were flat year-over-year at constant currency. The underlying cash tax charge was 9%.
Statutory profit before tax was £983m (2019: £1,059m). This is after amortisation of £62m (2019: £51m) 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 £19m (2019: £12m) which relates to the amortisation of intangibles and exceptional items. As a result, basic earnings per share were 162.1p (2019: 166.1p).
Capital expenditure and acquisitions
Capital expenditure for the year was £1,483m gross and £1,208m net of disposal proceeds (2019: £1,587m gross and £1,385m net). Reflecting this investment, the Group’s rental fleet at 30 April 2020 at cost was £9.4bn. Our average fleet age is now 36 months (2019: 34 months).
We invested £453m (2019: £622m), including acquired borrowings, in 18 bolt-on acquisitions during the year as we continue to expand our footprint and look to diversify our specialty markets.
In response to the change in the economic environment as a result of the impact of COVID-19, we paused all acquisition activity and reassessed our capital expenditure plans for 2020/21. As a result, we now expect gross capital expenditure to be c. £500m but have the ability to flex this subject to market conditions. We continue to assess bolt-on opportunities and will evaluate them as part of our capital allocation priorities.
Return on Investment
The Group’s return on investment metrics have been impacted by the sudden decline in activity levels in the fourth quarter as a result of COVID-19. This has led to return on investment (excluding goodwill and intangible assets) in the US in the 12 months to 30 April 2020 of 21% (2019: 24%). In the UK, return on investment (excluding goodwill and intangible assets) was 5% (2019: 9%). This decline also reflects the competitive nature of the UK market and the rate environment throughout the year. As a result of the action taking during the year through Project Unify and the strategic plans for the business, we expect returns to improve post COVID-19. In Canada, return on investment (excluding goodwill and intangible assets) was 9% (2019: 12%). 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 15% (2019: 18%). For comparability, return on investment excludes the impact of IFRS 16.
Cash flow and net debt
The Group generated free cash flow of £792m (2019: £368m) during the year, a record for the business. However as expected, debt increased 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 year, we spent £449m 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 these 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. In addition, in April the Group accessed an additional $500m through its senior secured credit facility for one year, increasing the facility size to $4.6bn and providing additional liquidity. These actions ensure the Group’s debt package continues to be well structured and flexible, enabling us to respond to current market conditions. The Group’s borrowing facilities are committed for an average of six years at a weighted average cost of 4%.
Net debt at 30 April 2020 was £5,363m (2019: £3,745m), resulting in a net debt to EBITDA ratio of 2.3 times on a constant currency 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 30 April 2020 was £4,256m, while the ratio of net debt to EBITDA was 1.9 times (2019: 1.8 times) on a constant currency basis.
At 30 April 2020, availability under the senior secured debt facility, including cash on the balance sheet, was $2,363m with an additional $2,147m of suppressed availability – substantially above the $460m level at which the Group’s entire debt package is covenant free.
The Board considered carefully this year’s final dividend, given the unprecedented circumstances, taking into account the Group’s prospects and financial position; stakeholder interests including team members, customers, communities and shareholders; and the decision not to access government assistance programmes. Taking these considerations into account, the Board has decided to maintain its progressive dividend policy, which considers both profitability and cash generation, and results in a dividend that is sustainable across the cycle. Our intention has always been to increase the dividend as profits increase and be able to maintain it when profits decline. Thus, in a year of slightly lower profit but strong cash generation and a strong balance sheet, the Board is recommending a final dividend of 33.5p per share (2019: 33.5p) making 40.65p for the year (2019: 40.0p). If approved at the forthcoming Annual General Meeting, the final dividend will be paid on 11 September 2020 to shareholders on the register on 14 August 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
The Group paused its share buyback programme in March as we took action to optimise our cash flow and strengthen further our liquidity position due to the uncertainty arising from the COVID-19 pandemic. We will assess when it is appropriate to resume this programme in the context of all our capital allocation priorities and leverage.
Current trading and outlook
Looking forward, the Board is certain these swift actions combined with the strength of our cash flow and balance sheet will serve the Group well. The diversity of our products, services and end markets coupled with ongoing structural change opportunities put the Board in a position of confidence to look to the coming year as one of strong cash generation and strengthening our market position.