Ashtead Group PLC (LON:AHT) has announced its unaudited results for the first quarter ended 31 July 2023.
| First quarter | |||
| 2023 | 2022 | Growth1 | |
| $m | $m | % | |
| Revenue | 2,696 | 2,259 | 19% |
| Rental revenue | 2,376 | 2,075 | 14% |
| EBITDA | 1,229 | 1,039 | 18% |
| Operating profit | 703 | 594 | 18% |
| Adjusted2 profit before taxation | 615 | 555 | 11% |
| Profit before taxation | 585 | 527 | 11% |
| Adjusted2 earnings per share | 107.5¢ | 94.4¢ | 14% |
| Earnings per share | 102.3¢ | 89.7¢ | 14% |
Highlights3
· Strong quarter with ongoing momentum in robust end markets
· Group revenue up 19%1; US revenue up 22% with rental revenue up 16%
· Adjusted2 earnings per share increased 14% to 107.5¢ (2022: 94.4¢)
· 40 locations added in North America
· $1,132m of capital invested in the business (2022: $699m)
· $361m spent on nine bolt-on acquisitions (2022: $337m)
· Net debt to EBITDA leverage1 of 1.6 times (2022: 1.6 times)
| 1 | Calculated at constant exchange rates applying current period exchange rates. |
| 2 | Adjusted results are stated before amortisation. |
| 3 | Throughout this announcement we refer to a number of alternative performance measures which provide additional useful information. The directors have adopted these to provide additional information on the underlying trends, performance and position of the Group. The alternative performance measures are not defined by IFRS and therefore may not be directly comparable with other companies’ alternative performance measures but are defined and reconciled in the Glossary of Terms on page 27. |
Ashtead’s chief executive, Brendan Horgan, commented:
“The Group delivered another record quarter with revenue up 19%, rental revenue growth of 14% and adjusted profit before tax increasing 11%, both at constant currency. This strong performance is only possible through the dedication of our team members who deliver for all our stakeholders every day, while ensuring our leading value of safety remains at the forefront of all we do.
We are executing well against all actionable components of our strategic growth plan, in end markets which remain robust. In the quarter, we invested $1.1bn in capital across existing locations and greenfields and $361m on nine bolt-on acquisitions, adding a combined 40 locations in North America. This significant investment is enabling us to take advantage of the substantial structural growth opportunities that we see for the business as we deliver our strategic priorities to grow our General Tool and Specialty businesses and advance our clusters. We are achieving all this while maintaining a strong and flexible balance sheet with leverage towards the lower end of our target range.
Our business has clear momentum with robust end markets in North America, which are supported in the US by the increasing number of mega projects and recent legislative acts. We are in a position of strength, with the operational flexibility and financial capacity to capitalise on the opportunities arising from these market conditions and ongoing structural change. Despite UK market conditions softening, we expect overall performance to be in line with our expectations and the Board looks to the future with confidence.”
Brendan Horgan and Michael Pratt will hold a conference call for equity analysts to discuss the results and outlook at 9am on Tuesday, 5 September 2023. The meeting will be webcast live via the Company’s website at www.ashtead-group.com and a replay will be available via the website shortly after the meeting concludes. A copy of this announcement and the slide presentation used for the call are available for download on the Company’s website. The usual conference call for bondholders will begin at 3pm (10am EST).
Analysts and bondholders have already been invited to participate in the analyst call and conference call for bondholders but any eligible person not having received details should contact the Company’s PR advisers, H/Advisors Maitland (Audrey Da Costa) at +44 (0)20 7379 5151.
Trading results
| Revenue | EBITDA | Profit1 | ||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
| Canada in C$m | 213.0 | 176.4 | 93.2 | 76.0 | 40.2 | 38.4 |
| UK in £m | 177.7 | 181.8 | 50.0 | 57.1 | 15.8 | 25.7 |
| US | 2,311.4 | 1,899.2 | 1,104.7 | 916.2 | 691.9 | 567.1 |
| Canada in $m | 159.7 | 137.1 | 69.9 | 59.1 | 30.1 | 29.9 |
| UK in $m | 225.0 | 222.7 | 63.3 | 70.0 | 20.0 | 31.5 |
| Group central costs | – | – | (8.7) | (6.7) | (8.9) | (6.9) |
| 2,696.1 | 2,259.0 | 1,229.2 | 1,038.6 | 733.1 | 621.6 | |
| Net financing costs | (118.2) | (66.9) | ||||
| Adjusted profit before tax | 614.9 | 554.7 | ||||
| Amortisation | (30.3) | (27.9) | ||||
| Profit before taxation | 584.6 | 526.8 | ||||
| Taxation charge | (137.2) | (131.0) | ||||
| Profit attributable to equity holders of the Company | 447.4 | 395.8 | ||||
| Margins | ||||||
| US | 47.8% | 48.2% | 29.9% | 29.9% | ||
| Canada | 43.8% | 43.1% | 18.9% | 21.8% | ||
| UK | 28.1% | 31.4% | 8.9% | 14.2% | ||
| Group | 45.6% | 46.0% | 27.2% | 27.5% | ||
1 Segment result presented is adjusted operating profit.
Group revenue for the quarter increased 19% to $2,696m (2022: $2,259m). This revenue growth, combined with strong operational execution and a focus on drop-through, resulted in adjusted profit before tax increasing 11% to $615m (2022: $555m). This lower rate of growth in adjusted profit before tax reflects an increased net financing cost due to increased average debt levels and the higher interest rate environment.
In the US, rental only revenue of $1,615m (2022: $1,389m) was 16% higher than the prior year, representing continued market outperformance and demonstrating the benefits of our strategy of growing our Specialty businesses and broadening our end markets. Organic growth (same-store and greenfields) was 13%, while bolt-ons since 1 May 2022 contributed 3% of rental only revenue growth. In the quarter, our General Tool business grew 14%, while our Specialty businesses grew 17%. Rental only revenue growth has been driven by both volume and rate improvement in what continues to be a good rate environment. Rental revenue increased 16% to $2,048m (2022: $1,768m). US total revenue, including new and used equipment, merchandise and consumable sales, increased 22% to $2,311m (2022: $1,899m). This reflects a higher level of used equipment sales, as we took advantage of improved fleet deliveries and strong second-hand markets to bring forward some disposals scheduled for later in the year.
Canada’s rental only revenue increased 14% to C$149m (2022: C$131m). Markets relating to the major part of the Canadian business are growing in a similar manner to the US with strong volume growth and rate improvement. However, the Writers Guild of America and Screen Actors Guild strikes are having a significant impact on the performance of the Film & TV business, with some impact on the rest of the Canadian business. Rental revenue increased 15% to C$183m (2022: C$159m), while total revenue was C$213m (2022: C$176m).
The UK business generated rental only revenue of £120m, up 15% on the prior year (2022: £104m). Excluding the impact of the work for the Department of Health, which ended during the first quarter of last year, rental only revenue increased 18%. Bolt-ons since 1 May 2022 contributed 7% of this growth. Rental only revenue growth has been driven by both rate and volume improvement. Rental revenue increased 1% to £150m (2022: £149m), while total revenue decreased 2% to £178m (2022: £182m), reflecting the high level of ancillary and sales revenue associated with the work for the Department of Health last year.
We have invested in the infrastructure of the business during the first two years of Sunbelt 3.0, to support the growth of the business now and into the future. This has been combined with inflationary pressures across most cost lines, particularly in relation to labour. Our focus on rate improvement and leveraging our infrastructure has driven strong revenue and profit growth in the US. This has resulted in US rental revenue drop through to EBITDA of 53%. This contributed to an EBITDA margin of 47.8% (2022: 48.2%) and a 22% increase in segment profit to $692m (2022: $567m) at a margin of 29.9% (2022: 29.9%).
Our Canadian business continues to develop and enhance its performance as it invests to expand its network and broaden its markets. Despite the drag from the strike affected Film & TV business, Canada generated an EBITDA margin of 43.8% (2022: 43.1%) and a segment profit of C$40m (2022: C$38m) at a margin of 18.9% (2022: 21.8%).
In the UK the focus remains on delivering operational efficiency and improving returns in the business. While we continue to improve rental rates, which remains an area of focus, this has been insufficient to offset the inflation impact on the cost base. These factors, together with the loss of revenue from the work for the Department of Health, contributed to the UK generating an EBITDA margin of 28.1% (2022: 31.4%) and a segment profit of £16m (2022: £26m) at a margin of 8.9% (2022: 14.2%).
Overall, Group adjusted operating profit increased to $733m (2022: $622m), up 18% at constant exchange rates. After increased net financing costs of $118m (2022: $67m), reflecting higher average debt levels and the higher interest rate environment, Group adjusted profit before tax was $615m (2022: $555m). After a tax charge of 24% (2022: 25%) of the adjusted pre-tax profit, adjusted earnings per share increased 14% at constant currency to 107.5ȼ (2022: 94.4ȼ).
Statutory profit before tax was $585m (2022: $527m). This is after amortisation of $30m (2022: $28m). Included within the total tax charge is a tax credit of $8m (2022: $7m) which relates to the amortisation of intangibles. As a result, basic earnings per share were 102.3¢ (2022: 89.7¢).
Capital expenditure and acquisitions
Capital expenditure for the quarter was $1,132m gross and $899m net of disposal proceeds (2022: $699m gross and $593m net). As a result, the Group’s rental fleet at 31 July 2023 at cost was $17bn and our average fleet age is 33 months (2022: 40 months).
We invested $361m (2022: $337m) including acquired borrowings in nine bolt-on acquisitions during the quarter as we continue to both expand our footprint and diversify our end markets. Further details are provided in Note 15. Since the period end, we have invested a further $41m in bolt-ons.
Return on Investment
The Group return on investment was 19% (2022: 18%). In the US, return on investment (excluding goodwill and intangible assets) for the 12 months to 31 July 2023 was 27% (2022: 26%), while in Canada it was 17% (2022: 20%). This reduction in Canada reflects predominantly the drag from the recent performance of our Film & TV business. In the UK, return on investment (excluding goodwill and intangible assets) was 7% (2022: 12%). The decrease reflects the lower profit margin together with the impact of the demobilisation of the Department of Health testing sites in the prior year. Return on investment excludes the impact of IFRS 16.
Cash flow and net debt
The Group had a free cash outflow of $139m (2022: inflow of $91m) during the quarter, which reflected increased capital expenditure payments of $1,164m (2022: $667m). As expected, this combined with continued investment in bolt-ons and returns to shareholders increased debt during the quarter. We spent $22m (£17m) on share buybacks (2022: $119m (£97m)).
In July 2023, the Group issued $750m 5.950% senior notes maturing in October 2033. The net proceeds were used to reduce the amount outstanding under the ABL facility. This ensures the Group’s debt package continues to be well structured and flexible, enabling us to optimise the opportunity presented by end market conditions. The Group’s debt facilities are now committed for an average of six years at a weighted average cost of 5%.
Net debt at 31 July 2023 was $9,679m (2022: $7,716m). Excluding the effect of IFRS 16, net debt at 31 July 2023 was $7,200m (2022: $5,630m), while the ratio of net debt to EBITDA was 1.6 times (2022: 1.6 times) on a constant currency basis. The Group’s target range for net debt to EBITDA is 1.5 to 2.0 times, excluding the impact of IFRS 16 (1.9 to 2.4 times post IFRS 16). Including the effect of IFRS 16, the ratio of net debt to EBITDA was 2.1 times (2022: 2.0 times) on a constant currency basis.
At 31 July 2023, availability under the senior secured debt facility was $2,740m with an additional $5,631m of suppressed availability – substantially above the $450m level at which the Group’s entire debt package is covenant free.
Capital allocation
The Group remains disciplined in its approach to allocation of capital with the overriding objective being to enhance shareholder value.
Our capital allocation framework remains unchanged and prioritises:
· organic fleet growth;
– same-stores;
– greenfields;
· bolt-on acquisitions; and
· a progressive dividend with consideration to both profitability and cash generation that is sustainable through the cycle.
Additionally, we consider further returns to shareholders. In this regard, we assess continuously our medium-term plans which take account of investment in the business, growth prospects, cash generation, net debt and leverage. Therefore, the amount allocated to buybacks is simply driven by that which is available after organic growth, bolt-on M&A and dividends, whilst allowing us to operate within our 1.5 to 2.0 times target range for net debt to EBITDA pre IFRS 16.
Current trading and outlook
Our business has clear momentum with robust end markets in North America, which are supported in the US by the increasing number of mega projects and recent legislative acts. We are in a position of strength, with the operational flexibility and financial capacity to capitalise on the opportunities arising from these market conditions and ongoing structural change. Despite UK market conditions softening, we expect overall performance to be in line with our expectations and the Board looks to the future with confidence.
| Previous guidance | Current guidance | ||
| Rental revenue1 | |||
| – US | 13 to 16% | 13 to 16% | |
| – Canada2 | 15 to 20% | 15 to 20% | |
| – UK | 10 to 13% | 6 to 9% | |
| – Group | 13 to 16% | 13 to 16% | |
| Capital expenditure (gross)3 | $3.9 – 4.3bn | $3.9 – 4.3bn | |
| Free cash flow3 | c. $300m | c. $300m |
1 Represents change in year-over-year rental revenue at constant exchange rates
2 Reflects impact of Writers Guild of America and Screen Actors Guild strike
3 Stated at C$1=$0.75 and £1=$1.20
