27.04.2020

Ashtead doing OK

Ashtead, owner of Sunbelt Rentals in the USA, UK (A-Plant) and Canada has issued a detailed trading update for the year to the end of March.

Given the informative and comprehensive nature of the update, we have included the vast majority of it unedited. It shows a relatively strong fourth quarter, given the current circumstances.

“At the time of our third quarter results on 3rd March we were trading in line with expectations and this continued through the second week of March with limited impact from the consequences of the Covid-19 virus pandemic. Since the middle of March, the unprecedented action taken by governments and the private sector to contain the virus has resulted in adverse conditions within the group's end markets. This update outlines the actions the group has taken in response to these changing circumstances and the impact on current trading.”

Health and Safety measures
Ashtead also highlighted the measures it has taken to continue trading safely, they include:
- Restricted travel and meetings
- Reinforced guidelines for employees and customers to follow health protection protocols and social distancing
- Provided touchless signature at the point of equipment delivery or pickup
- Put in place curb side pick-up for equipment collections

Current trading
“With few exceptions, the group's locations in the US, UK and Canada remain open and active. Although trading volumes have been impacted negatively by the measures taken to contain the virus, this has been mitigated, in part, by emergency response efforts throughout our business units but particularly 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, telecom and utility companies while continuing to service ongoing construction sites and increased facility maintenance and cleaning.”

“As a result of these market dynamics, rental only revenue for Sunbelt US in March was two percent higher than prior year and we expect April US rental only revenue to be around 15 percent lower than April 2019. This is due principally to the general tool business being around 18 percent lower than prior year while the broader based specialty businesses are expected to be nine percent higher than last year, consistent with their performance in March. The reduction in the general tool business is driven by declines in volume rather than rental rates.”

“Since 10th April, we have seen the level of US fleet on rent stabilise and show a modest improvement. This positive trend follows a period of consistent decline over the previous four weeks. This recent trend in fleet on rent is similar in our UK and Canadian businesses.”

“Given these revenue trends, the group now expects underlying profit before tax for the year ending 30 April 2020 to be in the region of £1.05 billion.”

Other measures include
- A reduction in planned capital expenditure for the year this year to £500 million from original plans of £1.1 to £1.3 billion.
- Suspending all current and prospective Merger & Acquisition activity
- Paused the share buyback programme
- Frozen new employee hires
- Reduced third party transport and other operating expenditures to match revenues.

The company also said: “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 currently do not intend to seek assistance from the UK government's Corona virus Job Retention Scheme.”

“Ashtead remains in a strong financial position with long term committed debt facilities. The group's first debt maturity is the senior secured credit facility maturing in December 2023. At 31at January, availability under that facility was $1.446 billion with an additional $2.949 billion of suppressed availability.” The company’s debt only includes one covenant which only applies when availability is reduced to $460 million."

“In response to the Covid-19 crisis the group has modelled a variety of downside scenarios over the coming year reflecting activity levels much lower than those which have been experienced to date. Under all these scenarios the group remains free cash flow positive throughout the next financial year and availability remains well above the $460 million threshold.”

Chief executive Brendan Horgan added: "We are grateful for and extraordinarily proud of our team members who continue to respond as essential service providers during a time when our communities are in need. All levels of the organisation have quickly adapted our operations to continue servicing our customers while keeping our leading value of safety at the forefront of all we do.”

“Looking forward, I am certain the swift actions we took during these unprecedented times and the strength of our balance sheet will serve the group well. These factors, when combined with the diversity of our products and end markets, contribute to the strength of our long term business model and put the board in a position of confidence to look to the coming financial year as one of strong cash generation and strengthening our market position."

Vertikal Comment

Given the current environment this is a very upbeat statement and suggests that as long as the situation begins to ease in the second half, the company will come through the crisis in reasonably good shape. It does of course only include less than four weeks of the current crisis, buts its update on April does not seem quite as bad as might have been expected – although the information is limited.

More than halving the capital expenditure will be of concern to manufacturers, however given that the financial year has just started, this might well be reviewed upwards if the second fiscal quarter picks up as might be expected. Especially if the promised infrastructure investments in the USA and UK does go ahead.