09.12.2008

Ashtead up 7% and plans to cut £45 million in costs

Ashtead, owner of Sunbelt in the USA and A-Plant in the UK has reported revenues and underlying profits up seven percent in its first half. It has also announced its intention to cut $45 million of costs though a restructuring programme to ‘ size the business to current demand levels’

Sunbelt in the USA posted revenues of $822 million an increase of just under two percent in dollar terms translating to an increase of 8.7 percent when converted to sterling. Operating profits slipped five percent in dollar terms to $187 million.

Utilisation was flat at 70 percent on a fleet six percent larger than last year, following $207 million of capital expenditure, compared to $313 million last year. Rental rates in the second quarter increased two percent offsetting rising costs for delivery.

A-Plant revenues increased just under one percent to $109.5 million, while the company invested £51 million in its rental fleet compared to £77 million during the same period last year. The fleet however grew by 14 percent due to fewer disposals.

Physical utilisation dropped two percent to 69 percent, rental rates were flat through the first half, but were nine percent below the levels of last year, according to the company. Increased depreciation hit underlying operating profits which dropped 15 percent to £14.2 million.

The group as a whole though saw a seven percent increase in underlying pre-tax profits to £76.6 million, however exceptional profits boosted total pre tax profits to £108.5 million an increase of 44 percent.

The company says that its restructuring programme will cut £45 million of costs, it also expects to generate £200 million of cash this year, which puts it in a good position to weather the current slow down.

Ashtead's chief executive, Geoff Drabble, said: “Ashtead has continued to perform well against the background of weakening market conditions. Our strong and diversified market positions have and will continue to benefit the Group but it is also important that we take prompt actions based upon realistic assumptions of the future trading environment.”

“We are, today, announcing a restructuring programme which will right size the business for the anticipated lower levels of demand. Based upon the success of our ongoing focus on operational efficiency, we are confident that this programme will generate cost savings of £45 million per annum. Whilst generating an exceptional cost to the business the programme also has the benefit of being
cash positive due to the fleet disposals.”

“We continue to be confident in the strength of our debt package which is committed for the long term and structured to support us through the cycle. We remain on track to deliver £200 million of cash generation this year and expect a minimum of £100 million in 2009/10 thereby significantly reducing our future borrowing needs. In addition our asset based debt package is effectively covenant free and we anticipate it remaining so even allowing for a long and deep recession.”

Vertikal Comment

Ashtead looks to have had a reasonable first half and will benefit from the strength in the dollar and weakness of sterling. The company looks well set to benefit from opportunities that might arise in the year ahead, although some of this will depend on how well it implements its £45 million restructuring programme.

More comment later,