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Ashtead posts strong first half

Ashtead has released its interim results for the half year to the 31 October 2005.

Group revenues rose by almost 14 percent, driven largely by a strong increase from Sunbelt in North America, which saw revenues climb by 19 percent to $407 million. This translated into £226 million sterling, a 20 percent increase.

Profits for Sunbelt, which now represents 72 percent of the group’s revenues, rose by 54 percent to $96.4 million or £53.6 million. The business managed to increase rental rates by 10 percent, while utilisation remained at last years 72 percent on a fleet that was on average seven percent larger.

Sunbelt spent $152 million on new equipment in the first half, in order to renew its fleet and fill three new Greenfield locations. This was around 70% of the groups total spend of £120 million ($216) on new rental equipment.

A total of around $100 million was spent acquiring 15 new locations, while $24 million was raised from the sale of 12 scaffold stores

A-plant the UK rental business saw its revenues shrink by £900,000 to just under £80 million, but this with a fleet two percent smaller. Rates though improved by three percent, which had the effect of reducing utilisation by one percent to 65 percent.

The overall impact of this was an improvement to A-Plants bottom line of almost four percent, taking profits to £8.9 million.

Group profits before interest rose by over 50 percent, to £60.3 million and after tax by 220 percent to £40.2 million. With a strong pick up in business, the group expects to increase its capital expenditure over its plan for the full year by around £40 million to £220 million.

Ashtead’s chief executive, George Burnett, said:

“Sunbelt achieved substantial first half profit growth by maintaining last year’s record levels of utilisation on a fleet which was on average 7% larger than a year ago and by continuing to grow its market share. Although A-Plant’s profit growth was more modest, it did achieve improved return on capital year on year through rigorous cost control. Ashtead Technology took advantage of the strong offshore market to record a 67% profit increase.

I am pleased that the strength of the Group’s first half performance, our confidence in the outlook and the completion of the capital reorganisation has enabled the Board to announce the resumption of dividend payments to shareholders for the first time since 2002.

With interim profits more than double those of last year, continuing strong trading conditions at Sunbelt and Ashtead Technology and a stable position at A-Plant, the Board looks forward with confidence.”

Vertikal Comment

Ashtead is doing exceptionally well, particularly in North America where it goes from strength to strength. It is hard to recall now just how close the company came to complete bankruptcy not so long ago.

George Burnett must take much of the credit for pulling this business round and transforming it into the growth company it is today, in the face of numerous challenges.

All too puzzling then to see the reports in the financial press a few weeks ago, when it seems a major city head-hunter claimed that it had been asked to find a replacement for him without his knowledge. Their was much back pedalling and embarassement and the situation has quietened.

If you believe what you read though, it seems that non executive chairman Cob Stenham would like to see the company drop its London listing and move to the USA, concentrating on its North American business, possibly even letting A-Plant go.

While Burnett believes that the UK base and business is important if the group is to expand its European presence.
Stenham woudl like a new CEO who thinks as he and one or two analysts do.

Burnett is right though, the US market can be very volatile and what goes up fast does come down just as quckly. Witness the number of major rental companies that went into administration only a few years ago. Not to mention the flood of SEC investigations currently going on, including the one into United Rentals.

Sunbelt is unique in the general rental business in having a strong presence on both sides of the Atlantic, United Rentals has oft expressed a desire to move into Europe but they know how elusive trans Atlantic success can be, as does Hertz equipment.

The rental business is cyclical, the benefit it has, is that the two continents tend to run on a different cycle. Ashtead just needs more balance to provide effective diversification protection.

Ashtead should consider expanding its UK base into other European markets.. not at all easy, but it has a lead on other North American players that it could leverage in one way or another.

Regardless of what it does it is certain that a large number of shareholders owe a great deal to George Burnett.