22.01.2004

Ashtead half-year gloomy but outlook positive

The Ashtead Group has today reported its half year results to 31 October 2003 and as predicted the results make gloomy reading. Revenues from its main US and UK rental businesses are down by over £21 million to £256 million for the period.

The Sunbelt business in North America actually posted a small improvement in revenues over the same period in 2002 at US$293.6 million (UK£172.5 million - Ashtead's exchange rate!) but fell 5.7 per cent when converted back to sterling.

In the UK, A-Plant had a difficult year and saw its revenues drop by 12 per cent to £83.5 million, but significant restructuring has, according to its management, stripped out £15 million in costs. Disposals and property sales netted £18.2 million, which included Big Air, its Mast Climber division, the Irish business and surplus properties. (see Vertikal.Net January 15th).

Group profit before goodwill amortisation, exceptional charges and tax was £11.1 million (2002: £14.7 million) after exceptional items, while including goodwill and amortisation the loss was -£8.5 million (2002: £6.6 million) or (1.6p) per share.

The bright point of the results is the improvement in cash flow with net free cash flow of £27.8 million, compared with £7.4 million in 2002, making a total of £59.3 million over the last 12 months. Total net debt including the debtors’ securitisation was £575.5 million (2002: £649.6 million)

Chief Executive George Burnett said: “During the six months ended 31 October 2003 the Group completed the independent review of its accounting issues in the US and secured the ongoing support of its banks to January 2005; eturned to profit before exceptional charges mainly related to the Group’s banking arrangements; and continued to generate significant net free cash flow and to pay down debt. By disposing of three non-core businesses for 5 times EBITDA, A-Plant has completed its restructuring programme leaving its management free to concentrate on taking the business forward.

"While a weak dollar will continue to reduce reported sterling debt and turnover levels, the effect on profitability will be more modest. The Board is encouraged by the improved performance in its US businesses, particularly since the equipment rental industry tends to see late cycle recovery. The favourable indicators regarding the current strength of the US economic recovery enables the Board to take a more optimistic view of prospective trading conditions in 2004 and beyond.”

UK - A-PLANT

A-Plant has been subject to a major rationalisation programme since May 2002, which has included shrinking five support offices into one corporate office and the closure of 39 profit centres. Along with the above mentioned disposals. There was also a “non-cash charge of £2.9 million during the six months in connection with the refocusing programme which is now substantially complete."

Ashtead states that the annualised cost saving of £15 million was not sufficient to offset the £11.5 million reduction in turnover for the six months and as a result, A-Plants profit fell from £9.7 million in 2002 to £5.6 million in 2003.

Capital expenditure in the UK rose to £19.5 million compared to £16.8 million in 2002 - this was offset by £10.9 million in sales of used rental equipment.

A-Plant now comprises three significant businesses – Main Plant, Tool Hire Shops and Specialist Products. The company states that no further disposals are anticipated.

Revenues on a same-store basis declined by 5.7 per cent in the six-month period, but A-Plant claims that sales to its top 100 customers continued to grow and accounted for 31.5 per cent of turnover in the period

US – SUNBELT RENTALS

Sunbelt Rentals claims that rental revenues in the US grew by 1.7 per cent. And, continuing on an upward trend throughout the six-month period due to improving rental rates, utilisation levels also improved returning to 2002 levels by October.

The net effect was a 1.7 per cent increase in rental revenues over the prior year in the first Quarter, rising to a 4.8 per cent increase in the second Quarter. The improvement in rental revenues was offset by lower sales of consumables and lower erection and dismantling income in the Group’s scaffolding business.

The company states that: “a comparison of these figures with our peer group in the US indicates that we continued to outperform in terms both of growth in rental revenues and in margin levels. This quarterly analysis also gave encouraging evidence of a general upturn in the US equipment rental market, which supplements other improving indicators such as the level of non-residential construction, which is now showing year-on-year growth for the first time in nearly three years".

In geographic terms, all but the West Coast region showed good increases in revenues and contribution for the six months. Product wise, the company reports that aerial work platforms have made good progress along with its tools business, whereas its scaffolding operation has been slow, but has picked up in recent months.

Sunbelt's capital expenditure for the period was $28.2 million, less than half the prior year's figure of $57.4 million. In sterling terms, capital expenditure was £16.6 million against £36.7 million in 2002.

Management prognosis
Ashtead states that UK revenues in November and December 2003 continued in line with the first half of the year, while Sunbelt continued its upward trend seen in the second quarter at around 4 per cent growth.

The interim statement concludes: “The board is encouraged by the improved performance in its US businesses, particularly since the equipment rental industry tends to see late cycle recovery.

"The favourable indicators regarding the current strength of the US economic recovery enables the board to take a more optimistic view of prospective trading conditions in 2004 and beyond".