10.12.2019

Mixed results from Ashtead

Ashtead, owner of Sunbelt in North America and A-Plant in the UK has posted strong revenue growth, while profits grew more slowly.

Starting with the first half, total group revenues increased 14 percent to £2.68 billion, thanks mostly to North America with Sunbelt US revenues 15.5 percent higher at $2.89 billion, with an operating profit of $947 million, 12 percent up on the same period last year. Sunbelt Canada saw revenues improve 20 percent - thanks to acquisitions – to $200.3 million, with profits 11 percent higher at $40.4 million.

In the UK A-Plant managed to increase revenues by 2.5 percent but this due to higher sales of used equipment from the fleet and a better product mix. Rental revenues actually declined two percent in the period. Operating profit dropped around 33 percent to £30 million, due to the shift in revenues, units on rent declined, but rates are said to have improved.

Group pre-tax profits for the first six months were six percent higher at £660 million. Capital expenditure for the period was slightly lower at just over £1 billion, but the company also reduced its overall sales of equipment from the fleet, the net result was a slightly larger but older fleet with the average age increasing to 33 months from 31 months this time last year.

Finally looking at the second quarter group revenues were 12 percent higher at $1.4 billion, while pre-tax profits increased just three percent to £356 million.
Chief executive Brendan Horgan said: "The group continues to trade well with strong rental revenue growth. Rental revenue increased 13 percent in the half year and underlying earnings per share increased 11 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. 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 billion in capital and a further £231 million on bolt on acquisitions in the period, which added 50 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. We spent £250 million under our share buyback programme in the period, in line with our expectation to spend a minimum of £500 million on share buybacks in 2019/20.”

“Our business continues to perform well in supportive North American end markets, while we have taken decisive strategic action to refocus our UK business in the challenging market conditions. Thus, except for the UK and a currency headwind, we expect results to be in line with our expectations and the board continues to look to the medium term with confidence."

Vertikal Comment

Overall these numbers reflect a softening of markets in both North America and more significantly in the UK. Sunbelt Rentals growth remains strong though, as it continues to keep pace with, or outperform its major North American competitors.
In the UK however the company continues to struggle and faces increased competition from incomers such as Boels and Loxam, not to mention the bounce back seen at Speedy and growth from the better managed regional companies.

Having said this Ashtead remains very strong with a strong branding solid organisation and market coverage. In the UK much will depend on how the company deals with the current slow down and any restructuring.

Overall a decent set of numbers with more opportunities than challenges.