10.09.2019

Ashtead profit growth moderates

Ashtead, owner of Sunbelt in North America and A-Plant in the UK has reported a strong first quarter.

Total revenues for the three months to the end of July were £1.28 billion, up 17 percent on the same period last year, most of it through rental growth, but also higher sales. Pre-tax profit for the quarter was eight percent higher at £304.7 million. Capital Expenditure increased 12.5 percent to £521 million. Net debt jumped more than 70 percent to £5.2 billion, partly due to changes in accounting rules and partly due to additional borrowing for acquisitions in the quarter.

Sunbelt saw revenues rise by 18.5 percent to $1.38 billion, with rental up 16 percent and the balance coming from higher sales of new equipment and consumables as well as increased sales of used equipment. Operating profits were 15.5 percent higher at $446.6 million. During the quarter the company added 22 more outlets.

Revenues at Sunbelt Canada increased 26 percent to $94.8 million, thanks to acquisitions coming on stream. Operating profits improved 12.5 percent to $16 million.

In the UK A-Plant revenues were five percent higher at £131.4 million, due entirely to higher sales of used machines as the company sold off under utilised equipment. Rental revenues were one percent lower, due to a fall in volumes partly offset by improved rental rates. Operating profits dropped 31 percent to $15.4 million.

Ashtead chief executive Brendan Horgan, said: "The group delivered a strong quarter with rental revenue increasing 16 percent and underlying pre-tax profit increasing nine percent, excluding the impact of IFRS 16, both at constant exchange rates.”

“Our North American end markets remain strong and we continue to execute well on our strategy of organic growth supplemented by targeted bolt-on acquisitions. We invested £521 million in capital and a further £196 million on bolt-on acquisitions in the period, which has added 27 locations across the Group. This investment reflects the structural growth opportunity that we continue to see in the business as we broaden our product offering, geographic reach and end markets, thus increasing market share and diversifying our business.”

“We remain focused on responsible growth. Our increasing scale and strong margins are delivering good earnings growth and significant free cash flow generation. 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 1.9 to 2.4 times net debt to EBITDA (1.5 to 2.0 times excluding IFRS 16). We spent £125 million under our share buyback programme in the quarter and expect to spend a minimum of £500 million on share buybacks in 2019/20.”

“Our business continues to perform well in supportive end markets. Accordingly we expect business performance in line with our expectations and the Board continues to look to the medium term with confidence."

Vertikal Comment

Another very strong set of numbers from Ashtead, although perhaps there are signs that growth levels are slowing a little in percentage terms, as might be expected due to the increasing size of the business, heading towards annual revenues approaching £6 billion.
The sharp rise in published net debt also looks a little hairy, although given the acquisitions and the share buy back programme and it comes in to focus. The company clearly has some issues in the UK, and as a result has replaced its managing director and added to its senior leadership team. See Change at the top at A-Plant.

Having said all that the company is well placed in both North America and possibly in the UK to continue its double digit growth, based mostly on organic growth.