Ashtead Group deliver strong Q3 performance, group revenue up 25%

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Ashtead Group plc (LON:AHT) has announced its unaudited results for the nine months and third quarter ended 31 January 2023.

	Third quarter 2023	Third quarter 2022	Third quarter Growth¹	Nine months 2023	Nine months 2022	Nine months Growth¹
	$m	$m	%	$m	$m	%
Revenue	2,427	2,000	23%	7,224	5,884	25%
Rental revenue	2,189	1,815	22%	6,572	5,360	25%
EBITDA	1,092	877	26%	3,338	2,709	25%
Operating profit	609	449	36%	1,947	1,503	31%
Adjusted² profit before taxation	535	427	26%	1,778	1,406	28%
Profit before taxation	505	393	29%	1,690	1,282	33%
Adjusted² earnings per share	91.9¢	72.7¢	27%	304.2¢	235.1¢	30%
Earnings per share	86.9¢	66.9¢	30%	289.3¢	214.4¢	36%

Nine month highlights³

·	Strong third quarter performance with ongoing momentum in robust end markets
·	Group revenue up 25%¹; US rental revenue up 27%
·	Adjusted² earnings per share increased 30% to 304.2¢ (2022: 235.1¢)
·	120 locations added in North America
·	$2.6bn of capital invested in the business (2022: $1.7bn)
·	$970m spent on 38 bolt-on acquisitions (2022: $938m)
·	Net debt to EBITDA leverage^1,3 of 1.6 times (2022: 1.5 times)
·	We now expect full year results ahead of our previous expectations

¹	Calculated at constant exchange rates applying current period exchange rates.
²	Adjusted results are stated before exceptional items and 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 35.

Ashtead’s chief executive, Brendan Horgan, commented:

“The Group delivered another strong quarter across all geographies, contributing to rental revenue growth of 25% for the nine months at constant currency. This market outperformance 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 strong. In the period, we invested $2.6bn in capital across existing locations and greenfields and $970m on 38 bolt-on acquisitions, adding a combined 120 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 near the bottom of our target range.

We expect capital expenditure for the full year to be slightly ahead of our previous guidance at $3.5 – 3.7bn. Looking forward to 2023/24, our initial plans are for gross capital expenditure of $4.0 – 4.4bn, of which, US rental capital expenditure is $3.0 – 3.3bn. This should enable mid-teens rental revenue growth in the US.

Our business is performing well with clear momentum in strong end markets, which are enhanced by the increasing number of mega projects and recent US legislative acts. We are in a position of strength, with operational flexibility to capitalise on the opportunities arising from these strong markets and the ongoing drivers of structural change, including supply chain constraints, inflation and labour scarcity. We now expect full year results ahead of our previous 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 10am on Tuesday, 7 March 2023. The call 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 call 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.

Nine months’ trading results

Group revenue increased 23% (25% at constant currency) to $7,224m in the nine months (2022: $5,884m). This revenue growth, combined with strong operational execution, resulted in adjusted profit before tax increasing 26% to $1,778m (2022: $1,406m).

In the US, rental only revenue of $4,441m (2022: $3,549m) was 25% 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 19%, while bolt-ons since 1 May 2021 contributed 6% of rental only revenue growth. In the nine months, our general tool business grew 22%, while our specialty businesses grew 33%. 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 27% to $5,669m (2022: $4,468m). US total revenue, including new and used equipment, merchandise and consumable sales, increased 29% to $6,139m (2022: $4,764m).

The UK business generated rental only revenue of £321m, up 7% on the prior year (2022: £301m). Following the cessation of free mass COVID testing in April 2022, revenue from the Department of Health ended during the first quarter, and in the nine months was significantly lower than last year. Excluding the impact of the work for the Department of Health, rental only revenue increased 22%. Rental revenue increased 4% to £424m (2022: £406m). Total revenue decreased 5% to £522m (2022: £547m) reflecting the high level of sales revenue associated with the work for the Department of Health, which accounted for c. 6% of revenue in the nine months, compared with c. 32% of revenue a year ago.

Canada’s rental only revenue increased 23% to C$417m (2022: C$340m). Markets are robust and the major part of the Canadian business is growing in a similar manner to the US with strong volume growth and rate improvement, in a good rate environment. As highlighted previously, the lighting, grip and lens business was affected by market uncertainty, with the threat earlier this financial year of strikes by production staff in Vancouver, resulting in productions being delayed or moved elsewhere. Rental revenue increased 25% to C$524m (2022: C$420m), while Canada’s total revenue was C$609m (2022: C$463m).

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In common with many businesses, we face inflationary pressures across most cost lines, but particularly in relation to labour, transportation and fuel. However, our strong performance on rate, combined with our scale, has enabled us to navigate this inflationary environment, driving strong revenue and profit growth. As expected, US rental revenue drop through to EBITDA has improved as we have progressed through the year, and in the third quarter it was 54%, resulting in drop through of 49% for the nine months. This contributed to an EBITDA margin of 48.7% (2022: 49.0%) and a 34% increase in segment profit to $1,890m (2022: $1,414m) at a margin of 30.8% (2022: 29.7%).

The UK business remains focused on delivering operational efficiency and improving returns in the business. However, this year is a transition year as we redeploy assets dedicated to the Department of Health testing centres elsewhere in the business. We took a charge of £4m in the third quarter to impair a convertible loan note due from Britishvolt, which entered administration in January. As a result, the UK generated an EBITDA margin of 28.7% (2022: 30.1%) and a segment profit of £55m (2022: £72m) at a margin of 10.6% (2022: 13.1%).

Our Canadian business continues to develop and enhance its performance as it invests to expand its network and broaden its markets. However, this ongoing investment, including greenfields, acquisitions and infrastructure, combined with drag from the lighting, grip and lens business contributed to a 41.8% EBITDA margin (2022: 45.7%) and a segment profit of C$131m (2022: C$110m) at a margin of 21.6% (2022: 23.8%).

Overall, Group adjusted operating profit increased to $2,035m (2022: $1,579m), up 30% at constant exchange rates. After increased net financing costs of $257m (2022: $173m), reflecting higher average debt levels and the higher interest rate environment, Group adjusted profit before tax was $1,778m (2022: $1,406m). After a tax charge of 25% (2022: 25%) of the adjusted pre-tax profit, adjusted earnings per share increased 30% at constant currency to 304.2ȼ (2022: 235.1ȼ).

Statutory profit before tax was $1,690m (2022: $1,282m). This is after amortisation of $87m (2022: $76m) and, in the prior year, exceptional interest costs of $47m. Included within the total tax charge is a tax credit of $22m (2022: $31m) which relates to the amortisation of intangibles and exceptional items. As a result, basic earnings per share were 289.3¢ (2022: 214.4¢).

Capital expenditure and acquisitions

Capital expenditure for the nine months was $2,618m gross and $2,194m net of disposal proceeds (2022: $1,708m gross and $1,469m net). As a result, the Group’s rental fleet at 31 January 2023 at cost was $15.3bn and our average fleet age is now 37 months (2022: 40 months).

We continue to navigate supply chain challenges and, for the full year, now expect gross capital expenditure to be slightly ahead of our previous guidance at $3.5 – 3.7bn. For 2023/24, our initial plans are for gross capital expenditure to be in the range of $4.0 – 4.4bn, which should enable mid-teens revenue growth next year in the US.

We invested $970m (2022: $938m) including acquired borrowings in 38 bolt-on acquisitions during the nine months as we continue to both expand our footprint and diversify our end markets. Further details are provided in Note 16. Since the period end, we have invested a further $120m in bolt-ons.

Return on Investment

In the US, return on investment (excluding goodwill and intangible assets) for the 12 months to 31 January 2023 was 27% (2022: 24%). In the UK, return on investment (excluding goodwill and intangible assets) was 10% (2022: 15%). The decrease reflects reduced volumes, particularly service and sales, supporting the Department of Health as we have demobilised testing sites, and the lower margin. In Canada, return on investment (excluding goodwill and intangible assets) was 19% (2022: 22%). This reduction reflects predominantly the drag from the recent performance of our lighting, grip and lens business. For the Group as a whole, return on investment (including goodwill and intangible assets) was 19% (2022: 18%). Return on investment excludes the impact of IFRS 16.

Cash flow and net debt

The Group generated free cash flow of $295m (2022: $738m) during the period after capital expenditure payments of $2,509m (2022: $1,591m). However, as expected, debt increased as we continued to invest in bolt-ons and returned capital to shareholders. During the period, we spent $243m (£204m) on share buybacks (2022: $307m (£224m)) under the two-year buyback programme launched in May 2021 of up to £1bn.

In August 2022, the Group issued $750m 5.500% senior notes maturing in August 2032 and in January 2023, the Group issued $750m 5.550% senior notes maturing in May 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 January 2023 was $8,819m (2022: $6,894m). Excluding the effect of IFRS 16, net debt at 31 January 2023 was $6,536m (2022: $5,031m), while the ratio of net debt to EBITDA was 1.6 times (2022: 1.5 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 January 2023, availability under the senior secured debt facility was $2,642m with an additional $4,567m 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

The Ashtead Group business is performing well with clear momentum in strong end markets, which are enhanced by the increasing number of mega projects and recent US legislative acts. We are in a position of strength, with the operational flexibility to capitalise on the opportunities arising from these strong markets and ongoing drivers of structural change, including supply chain constraints, inflation and labour scarcity. We now expect full year results ahead of our previous expectations and the Board looks to the future with confidence.

	Previous guidance	Current guidance
Rental revenue¹
– US	20 to 23%	23 to 25%
– Canada	22 to 25%	22 to 25%
– UK²	Flat	0 to 3%
– Group	18 to 21%	21 to 23%

Capital expenditure (gross)³	$3.3 – 3.6bn	$3.5 – 3.7bn

Free cash flow³	c. $300m	c. $300m