2 March, 2021
Unaudited results for the nine months and third quarter ended 31 January 2021
Read and download the unaudited results for the nine months and third quarter ended 31 January 2021. You can also view the latest webcast.
|Third quarter||Nine months|
|Profit before taxation||225||257||-10%||763||947||-18%|
|Earnings per share||38.2p||42.3p||-6%||127.2p||154.3p||-15%|
|Profit before taxation||210||225||-4%||716||885||-17%|
|Earnings per share||35.7p||37.0p||-||119.4p||144.1p||-15%|
Nine month highlights3
- Strong market outperformance
- Revenue down 2%1; rental revenue down 3%1
- Operating profit of £871m (2020: £1,069m)
- Pre-tax profit2 of £763m (2020: £947m)
- Earnings per share2 of 127.2p (2020: 154.3p)
- Record free cash flow of £1,059m (2020: £363m)
- Net debt to EBITDA leverage1,3 of 1.6 times (2020: 1.9 times)
- Expect full-year results ahead of our previous expectations
1. Calculated at constant exchange rates applying current period exchange rates.
2. Underlying results are stated before intangible amortisation and exceptional items.
3. 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 32.
Ashtead’s chief executive, Brendan Horgan, commented:
“We have delivered another strong quarter of market outperformance across the business contributing to rental revenue down only 3% in the nine months at constant exchange rates. I am extraordinarily proud of, and grateful to, all our dedicated team members who have made this possible, delivering for all our stakeholders, all while keeping our leading value of safety at the forefront of what we do.
This performance illustrates the successful execution of our long-term strategy, which we embarked upon after the last recession, to broaden and diversify our end markets and strengthen our balance sheet. This has enabled us to capitalise on our increasing scale while, at the same time, maintaining the business’ agility. This has been demonstrated over the last year as the Group has responded to the challenges arising as a result of the pandemic. The actions we took to optimise cash flow during this period resulted in record free cash flow for the nine months of £1,059m (2020: £363m) contributing to reduced leverage of 1.6 times compared to 1.9 times at year end, towards the lower end of our target range.
We expect capital expenditure for the full year to be at the upper end of our previous guidance (c. £700m). Looking forward to 2021/22, we expect to return to growth and anticipate gross capital expenditure of £1.3 – 1.5bn, which should enable mid-single digit revenue growth in the US.
The strength of our business model and balance sheet positions the Group well in markets that are likely to remain uncertain. With our businesses performing well, we now expect full year results ahead of our previous expectations. The benefit we derive from the diversity of our products, services and end markets, coupled with ongoing structural change, enables the Board to look to the future with confidence.”
|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 142665|
Brendan Horgan and Michael Pratt will hold a conference call for equity analysts to discuss the results and outlook at 10am on Tuesday, 2 March 2021. The call will be webcast live via the Company’s website at www.ashtead-group.com 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
Our nine month performance has been dominated by the impact of the COVID-19 pandemic. The response of our team members to these unprecedented times has been inspiring. Our robust model has enabled us to deliver for all our stakeholders 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 than last year as a result of the pandemic, this has been mitigated, in part, by emergency response efforts throughout our business but particularly within our specialty businesses. The degree of impact on volume varied significantly across our geographical markets and correlated to the severity of infection rates and associated market level restrictions. Activity levels have increased consistently through the period such that fleet on rent is now broadly in line with prior year in the US, slightly behind in Canada due to the recent lockdown in Ontario and higher in the UK.
As a result of these market dynamics, nine month rental only revenue in the US was only 5% lower than last year. Within this overall performance, our general tool business was 7% lower than last year (third quarter 4% lower than prior year), while the specialty businesses demonstrated the benefit of a broader range of products and end markets with rental only revenue 10% higher than last year. This contributed to Group rental revenue in the nine months 3% lower than the prior year at constant exchange rates.
The Group’s skilled workforce is instrumental to our long-term success and we made every effort to preserve our committed workforce for when markets recovered. Therefore, we have not made any team members redundant as a result of the impact of COVID-19 and have not sought assistance from any government support programmes such as the UK’s Coronavirus Job Retention Scheme or similar schemes in Canada. Furthermore, we have recognised their hard work and dedication making additional discretionary payments to our skilled trade workforce.
Our performance, in a challenging environment, reflects the benefit of our long-term strategy which is focused on broadening and diversifying our end markets, while at the same time increasing our scale and market share. Our business model allows us to operate successfully in wide ranging market conditions as we allocate capital strategically, based on a consistently applied policy which takes account of the macroeconomic backdrop and our leverage.
Looking forward, while we believe the COVID-19 pandemic will continue to contribute to market uncertainty in the coming months, the vaccination roll out should provide mitigation. With strong positions in all our markets, supported by good quality fleets and a strong financial position, we are well positioned to respond to these market conditions and continue to support our customers and team members as well as take advantage of opportunities to invest for the long-term sustainable growth and strength of the business.
Nine months' trading results
|US in $m||4,034.2||4,279.9||1,991.4||2,188.9||1,105.4||1,339.1|
|Canada in C$m||356.6||320.8||153.8||131.0||63.9||57.6|
|US in £m||3,108.5||3,372.1||1,534.4||1,724.7||851.7||1,055.1|
|Canada in £m||207.4||191.1||89.4||78.0||37.2||34.3|
|Group central costs||-||-||(9.4)||(12.6)||(10.0)||(13.2)|
|Net financing costs||(154.7)||(167.3)|
|Profit before amortisation,|
exceptional items and tax
|Profit before taxation||716.3||885.2|
|Profit attributable to equity holders of the Company||534.6||661.5|
1 Segment result presented is operating profit before amortisation.
Group revenue decreased 4% (2% at constant exchange rates) to £3,760m in the nine months (2020: £3,928m). However, the sudden fall in activity levels last March and April had a significant impact on profit in the nine months as a large proportion of our costs are fixed in the short term. This profit impact reflects, in part, our decision to not make team members redundant as a result of COVID-19 and ensure we had a committed workforce ready to take advantage of improving market conditions, when the recovery came. We used the opportunity presented by lower activity levels both to ensure our fleet was well maintained and serviced in preparation for activity levels improving and to identify market opportunities to drive revenue. As a result, underlying profit before tax for the nine months was £763m (2020: £947m).
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, we experienced a 5% rental only revenue decline, while in the UK and Canada, rental only revenue increased by 3% and 19% respectively, reflecting the benefit of the work for the Department of Health in the UK and the acquisition of William F White (‘WFW’) in Canada.
In the US a moderate rental only revenue decline represents a strong market outperformance, demonstrating the benefit of our strategy of growing our specialty business and broadening our end markets. In the nine months, our specialty business grew 10% while the general tool business declined 7%. In the second quarter, our revenue was affected by our hurricane response efforts which we estimate contributed $35-40m of revenue, with little carry-over into the third quarter. US total revenue, including new and used equipment, merchandise and consumable sales, decreased 6% to $4,034m (2020: $4,280m).
The UK business generated rental only revenue of £265m, an increase of 3% on the prior year on a comparable basis (2020: £256m). This was a strong performance as the breadth of our product offering and commitment of our team members enabled us to provide essential support to the Department of Health in its COVID-19 response efforts. Total revenue increased 22% to £444m (2020: £365m) reflecting the higher level of ancillary and sales revenue associated with the work for the Department of Health, which accounted for c. 25% of UK revenue.
Canada’s rental only revenue increased 19% on a reported basis. Excluding the impact of the acquisition of William F. White (‘WFW’), rental only revenue of the legacy business decreased 8%. Total Canadian revenue was C$357m (2020: C$321m).
In all our markets we took action to reduce operating costs and eliminate discretionary expenditure. However, we believe there continue to be good opportunities to grow the business and we are focused on disciplined investment to position the Group for the next phase of growth. We took early decisions not to make any team members redundant as a result of COVID-19 or seek assistance from any government support programmes but to continue investment in the business, including our technology platform and the condition of our rental fleet. As a result, in the US, 74% of the rental revenue decline dropped through to EBITDA. This contributed to a reported EBITDA margin of 49% (2020: 51%) and a 17% decrease in operating profit to $1,105m (2020: $1,339m) at a margin of 27% (2020: 31%). Excluding the impact of used equipment sales, the EBITDA margin would have been only 1% lower than last year.
Last financial year we launched Project Unify in the UK with the objective of improving operational efficiency and returns in the business. This has resulted in significant investment in the operational infrastructure of the business which, when combined with the impact of COVID-19 on activity levels, contributed to an EBITDA margin of 31% (2020: 33%). Operating profit of £39m (2020: £38m) at a margin of 9% (2020: 10%) reflected these factors and a property impairment charge of c. £10m as we reshape the business to drive operational improvement.
Canada is in a growth phase as we invest to expand its network and develop the business. The most recent acquisition was WFW, which serves the film and TV production industries. This was a drag on Canadian performance in the period as production activity in Canada ceased in March and only restarted in September. However, while WFW contributed virtually no revenue in the first quarter, we retained all the team members and infrastructure of the business, and it bounced back strongly from September onwards such that November saw record revenue for the business. The legacy Canadian business, excluding WFW, increased its EBITDA margin to 44% (2020: 41%) and generated an operating profit of C$52m (2020: C$57m) at a 19% margin (2020: 19%). This performance reflects a strong focus on operational efficiency.
Overall, Group underlying operating profit decreased to £918m (2020: £1,114m), down 16% at constant exchange rates. After net financing costs of £155m (2020: £167m), Group profit before amortisation of intangibles and taxation was £763m (2020: £947m). After a tax charge of 25% (2020: 25%) of the underlying pre-tax profit, underlying earnings per share decreased to 127.2p (2020: 154.3p).
Statutory profit before tax was £716m (2020: £885m). This is after amortisation of £47m
(2020: £45m) and, in the prior year, an exceptional interest cost of £16m. Included within the total tax charge is a tax credit of £12m (2020: £15m) which relates to the amortisation of intangibles and exceptional items. As a result, basic earnings per share were 119.4p (2020: 144.1p). The overall cash tax charge was 37%.
Capital expenditure for the nine months was £518m gross and £309m net of disposal proceeds (2020: £1,256m gross and £1,028m net). As a result, the Group’s rental fleet at 31 January 2021 at cost was £8.6bn and our average fleet age is now 40 months (2020: 34 months).
For the full year, we expect capital expenditure to be at the upper end of our previous guidance (c. £700m at a $1.32 exchange rate) to ensure we are able to support the COVID-19 response efforts for the UK Department of Health. For 2021/22, our initial plans are for gross capital expenditure to be in the range of £1.3 – 1.5bn, which should enable mid-single digit rental revenue growth in the US next year.
Return on Investment
The Group’s return on investment metrics have been affected adversely by the decline in activity levels and their impact on profits from mid-March 2020 onwards as a result of COVID-19. This has led to return on investment (excluding goodwill and intangible assets) in the US for the 12 months to 31 January 2021 of 18% (2020: 23%). In the UK, return on investment (excluding goodwill and intangible assets) was 6% (2020: 7%). As a result of the actions taken through Project Unify and the strategic plans for the business, we expect returns in the UK to improve going forwards. In Canada, return on investment (excluding goodwill and intangible assets) was 9% (2020: 12%). We have made a significant investment in Canada including the acquisition of William F. White in December 2019 and, as we develop the potential of the market, we expect returns to improve. For the Group as a whole, return on investment (including goodwill and intangible assets) was 13% (2020: 17%). Return on investment excludes the impact of IFRS 16.
Cash flow and net debt
The Group generated free cash flow of £1,059m (2020: £363m) during the period, a record for the business, which was used to reduce debt. Net debt at 31 January 2021 was £4,276m (2020: £5,443m). Excluding the effect of IFRS 16, net debt at 31 January 2021 was £3,178m, while the ratio of net debt to EBITDA was 1.6 times (2020: 1.9 times) on a constant currency basis. The Group’s target range for net debt to EBITDA is 1.5 to 2.0 times excluding the impact of IFRS 16 (1.9 to 2.4 times post IFRS 16). Including the effect of IFRS 16, the ratio of net debt to EBITDA was 2.1 times (2020: 2.3 times) on a constant currency basis. The Group’s borrowing facilities are committed for an average of five years at a weighted average cost of 4%.
At 31 January 2021, availability under the senior secured debt facility was $3,342m with an additional $1,620m of suppressed availability – substantially above the $460m 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 pre IFRS 16.
The Group paused its greenfield opening, bolt-on and share buyback programmes in March 2020 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 resumed greenfield openings towards the end of the first quarter and returned to bolt-ons in February, with a number of other opportunities under active consideration. We continue to assess the appropriate time to resume the buyback programme within the context of our balanced capital allocation policy, leverage range and the macroeconomic backdrop.
Current trading and outlook
The strength of our business model and balance sheet positions the Group well in markets that are likely to remain uncertain. With our businesses performing well, we now expect full year results ahead of our previous expectations. The benefit we derive from the diversity of our products, services and end markets, coupled with ongoing structural change, enables the Board to look to the future with confidence.
|Previous guidance||Current guidance|
|- US||-4% to -7%||c. -4%|
|- Canada||+15% to +20%||+15% to +20%|
|- UK||+15% to +20%||+15% to +20%|
|- Group||-3% to -7%||c. -4%|
|Capital expenditure (gross) 2||£650m - £700m||c. £700m|
Free cash flow2
|Greater than £1.2bn||c. £1.2bn|
1 Represents change in year-over-year rental revenue at constant exchange rates
2 Stated at £1=$1.32 and £1=C$1.73