12th Dec 2006 07:00
ASHTEAD GROUP PLC
Unaudited results for the half year and second quarter ended 31 October 2006
Ashtead Group plc, the world's second largest equipment rental group servingprincipally the US and UK non-residential construction markets, announces itshalf year and second quarter results: Half year 2006 2005 Growth ---- ---- ------ ‚£m ‚£m At actual rates At constant rates of exchange of exchangeRevenue 422.3 313.8 +35% +38% Underlying profit before taxation * 54.4 40.2 +35% +40%Underlying earnings per share * - basic 7.4p 6.4p +16% +20% - cash tax 11.5p 9.7p +18% +22%(Loss)/profit before taxation (30.6) 40.5 - -* Underlying profit and earnings per share are stated before exceptional items,amortisation of acquired intangibles and non-cash fair value remeasurements ofembedded derivatives in long term debt.- Record underlying first half Group profit- Significant growth in revenue and underlying operating profit in all
divisions
- NationsRent acquisition completed on 31 August:
- Sunbelt now the second largest equipment rental company in the US
- Two month contribution from former NationsRent stores added c$110m (‚£58.9m) to
revenue
- All first phase integration milestones have been met - Acquisition of Lux Traffic Controls by A-Plant completed on 16 October - Interim dividend raised 10% to 0.55p per share
Ashtead's chief executive, Geoff Drabble, commented:
"The first half saw a good performance in all three operating divisions where acombination of strong markets and continued market share gains resulted ingrowth in rental revenues and operating profits. Following the acquisition ofNationsRent in the second quarter, the combined management team has met all ourinitial targets and has already established the combined regional operatingstructure, introduced Sunbelt's performance monitoring and reward systems,merged the two computer systems and eliminated duplicated central functions.We are encouraged by both the strong underlying performance of our business andby the strategic development of the Group following the acquisitions ofNationsRent and Lux. Ongoing favourable market conditions, supported in the USby the continuing shift from ownership to rental, allow the Board to view thesecond half with confidence."
Ashtead's Chairman, Chris Cole added:
"As George Burnett our former chief executive retires, on behalf of the Board,shareholders and staff, I offer him our thanks for his determined andsuccessful leadership and send him our best wishes for a long and happyretirement. This is also our first results statement since the sad andunexpected death of Cob Stenham who chaired the Group for the past three yearsand whose guidance during a critical period in the Group's development isgreatly appreciated."Contacts:---------Chris Cole Chairman 020 7314 5000 Geoff Drabble Chief executive ) 01372 362 300 Ian Robson Finance director ) Brian Hudspith Maitland 020 7379 5151 PRESS RELEASEOverview--------Each of the Group's three divisions performed strongly in the first half. Grouprevenue increased by 34.6% to ‚£422.3m including approximately $110m (‚£58.9m)from the acquired NationsRent profit centres. Underlying operating profit rose34.9% to ‚£82.7m whilst underlying profit before tax grew by 35.2% to ‚£54.4mfrom last year's ‚£40.2m. After exceptional items, non-cash fair valueremeasurements of embedded derivatives in long term debt and amortisation ofacquired intangibles, there was a loss before tax for the half year of ‚£30.6mbut a profit after taxation of ‚£13.0m due to a tax credit of ‚£43.6m. Thisincludes a tax credit of ‚£25.4m on the exceptional items and a one-time taxcredit of ‚£37.3m relating to previously unrecognised UK tax losses. As aresult, basic earnings per share were 2.7p (2005 - 6.5p). Underlying earningsper share were 7.4p compared to 6.4p a year ago. On a cash tax basis,underlying earnings per share were 11.5p (2005 - 9.7p).Review of six month trading performance--------------------------------------- Revenue EBITDA* Underlying profit ------- ------ ----------------- 2006 2005 2006 2005 2006 2005 ---- ---- ---- ---- ---- ---- Sunbelt in $m ** 597.0 406.8 230.3 159.4 135.2 96.0 ===== ===== ===== ===== ===== ====Sunbelt in ‚£m ** 319.5 226.1 123.3 88.6 72.3 53.4A-Plant 91.5 79.7 30.0 26.7 11.1 8.6Ashtead Technology 11.3 8.0 5.6 4.1 3.3 2.3 Group central costs - - (4.0) (3.0) (4.0) (3.0) ---- ---- ---- ---- ---- ---- 422.3 313.8 154.9 116.4 82.7 61.3 ===== ===== ===== ===== Net financing costs (28.3) (21.1) ---- ---- Underlying profit before tax 54.4 40.2 ==== ====
* Before exceptional items ** Includes two months' contribution from the acquired NationsRent profit centres
The Group measures its performance and that of its divisions using their profitbefore exceptional items (which are material, non-recurring items), fair valueremeasurements of embedded derivatives in long term debt and amortisation ofacquired intangibles. This measure of profitability is referred to throughoutthis report as "underlying profit". As a result of the NationsRent acquisitionthere are a significant number of these items which are described in full laterin this statement. The following sections concentrate on the underlyingperformance of the Group and the three trading divisions.At actual rates of exchange the Group delivered a 34.6% increase in first halfrevenue, a 33.0% increase in EBITDA before exceptional items and an increase of34.9% in underlying operating profit to ‚£82.7m. Measured at constant exchangerates, to eliminate the translation effect of the weakening US dollar, revenuegrew 38.4%, EBITDA before exceptional items grew 37.0%, underlying operatingprofit grew 39.5% and the underlying profit before tax grew 40.1%. Reflectingthe inclusion of the lower margin NationsRent business, EBITDA margins declinedslightly from 37.1% to 36.7% whilst operating margins were virtually unchangedat 19.6%. Return on investment for the 12 months ended 31 October 2006 rose to18.2% (2005 - 15.2%).SunbeltSunbelt's revenue growth again reflected growth in non-residential constructionactivity which grew 16% in the 12 months to 31 October 2006 according tofigures published by the US Department of Commerce as well as the continuingshift from ownership to rental. In the six months to 31 October 2006 revenuegrew 46.8% to $597.0m. This growth was achieved through increased investment inthe rental fleet which, excluding the acquired NationsRent assets, was onaverage approximately 18% larger than a year ago and by rental rates which wereapproximately 3% higher than in the first half of last year. Average fleetutilisation remained unchanged at 72%. Additionally the acquired NationsRentbusiness contributed approximately $110m (‚£58.9m) to first half revenues in thetwo month period since its acquisition.Revenue growth was broadly based with all regions and all major product areascontinuing to trade ahead of last year. This good performance is comparedagainst a prior year period which benefited from significant hurricane relatedactivity. Sunbelt's operating profit before exceptional items and intangibleasset amortisation was up 40.8% to $135.2m (2005 - $96.0m), representing amargin of 22.6% (2005 - 23.6%).
A-Plant
Continuing recent progress, in the six months ended 31 October 2006, A-Plant'srevenues increased 14.9% to ‚£91.5m (2005 - ‚£79.7m), well ahead of a marketwhich independent commentators report is growing at around 3.5% per annum. Thiswas achieved through investment in the rental fleet which was 5% larger than ayear ago, increasing average utilisation to 69% (2005 - 65%) and maintainingrental rates at similar levels to last year. The strong revenue growthdelivered an increase in operating profit of 28.3% to ‚£11.1m (2005 - ‚£8.6m),representing a margin of 12.1% (2005 - 10.8%).As a result of the improvement in performance, the Board approved A-Plant'sfirst large acquisition in more than seven years. The purchase of Lux TrafficControls Limited on 16 October 2006 for ‚£15.5m makes A-Plant the market leaderin traffic management solutions in the UK. As A-Plant continues to develop, theBoard anticipates investing in both organic growth and selected acquisitions inareas of the market where good returns are foreseen. A-Plant's success was alsorecognised when it was recently made Plant Hirer of the Year 2006 by ContractsJournal in its annual Construction Industry Awards.
Ashtead Technology
Ashtead Technology continued to grow strongly with first half revenue up 41.7%to ‚£11.3m (2005 - ‚£8.0m) and operating profit up 44.4% to ‚£3.3m (2005 - ‚£2.3m).This reflects increased investment by the oil majors which is delivering higheroffshore exploration and construction activity as well as ongoing growth inAshtead Technology's on-shore environmental business. The positive markettrends are expected to continue and an eighth North American on-shore store isexpected to open in Philadelphia in the second half.The NationsRent acquisition---------------------------The integration is progressing well with the two regional and districtmanagement teams merged and all the former NationsRent stores migrated ontoSunbelt's monthly paid profit share programme. The combination of the Sunbeltand NationsRent point of sale and back office computer systems was achievedahead of plan at the beginning of November and the former NationsRent headoffice in Fort Lauderdale was closed on schedule in early December. These stepshave also enabled us to validate the $37m of savings we targeted from bringingthe two companies' regional and head office structures together and we continueto be on track to deliver annual savings of at least $37m in the first fullfinancial year.The next phase of the integration is to improve the time and dollar utilisationof the combined business. This will be achieved by fully deploying Sunbelt'sreward systems amongst the former NationsRent employees to help drive improvedperformance and by reshaping the acquired fleet to contain a greater proportionof higher returning assets in line with the Sunbelt model. This will requireadditional gross capital expenditure of approximately $150m at NationsRent inthe current financial year but will generate in the region of $90m ofadditional proceeds from the equipment sold.Exceptional items, amortisation of acquired intangibles and fair value remeasurements-------------------------------------------------------------------------------------Exceptional items, amortisation of acquired intangibles and fair valueremeasurements relating to embedded derivatives in long term debt totalling ‚£85.0m were incurred in the first half, mostly relating to the acquisition ofNationsRent. Whilst these factors have led to a significant pre-tax loss beingincurred in the first half, these costs, with the exception of amortisation ofacquired intangibles, are non-recurring and fully tax deductible.
Additionally A-Plant's improving profitability and the restructuring of our internal corporate structure to finance the acquisition has led us to recognise, as an exceptional profit, a deferred tax credit of ‚£37.3m in respect of previously unrecognised accumulated UK tax losses. These items are summarised in the table below.
‚£m ‚£m
-- -- Cash amounts paid at closing:
`Make-whole' paid to redeem the NationsRent bonds, including costs
25.6
`Make-whole' paid to redeem the Ashtead sterling bonds, including costs
16.7 ---- 42.3Non cash items Write off of deferred financing costs on debt repaid at closing 10.6 Amortisation of acquired intangibles (mainly the NationsRent name) 2.8 Fair value remeasurements of embedded derivatives in long term debt 15.4 ---- 28.8Cash items
Integration costs to deliver the $37m (‚£20m) of integration savings 13.0 Other cash exceptional costs including rebranding costs
0.9 --- 13.9 ----Total pre-tax costs 85.0Deferred tax credit on the pre-tax costs
(25.4)
Recognition in deferred tax of previously unrecognised UK tax losses
(37.3)
----
Net exceptional items, amortisation of acquired intangibles and fair value remeasurements after tax
22.3
====
Additionally, further exceptional costs of ‚£10m - ‚£15m will be incurred in thesecond half mostly relating to the rebranding of the acquired locations andfleet. There will also be additional non-cash intangible amortisation ofapproximately ‚£9m. No further exceptional costs related to the NationsRentacquisition are expected to be incurred after April 2007 whilst the intangibleamortisation expense will reduce in 2007/8 to ‚£2-3m annually.
Tax
---
The tax deductibility of the exceptional items outlined above, together withthe estimated $127m of acquired tax losses in NationsRent which are availablefor use in the next two years mean that the Group is not now expected to paysignificant amounts of cash tax in either the US or the UK until the 2008/9financial year. From an accounts perspective, the estimated tax rate onunderlying profit (comprised mostly of deferred tax) for the half year is 35%and is expected to remain around this level depending on the future mix of USand UK profits.Capital expenditure and net debt--------------------------------Capital expenditure in the six months was ‚£192.4m (2005 - ‚£131.3m) of which ‚£173.0m was invested in the rental fleet with the increased expenditure directedmainly towards expanding Sunbelt's fleet prior to the NationsRent acquisition.‚£101.8m of the fleet expenditure was for growth with the remainder spent toreplace existing equipment. Total disposal proceeds were ‚£28.0m (2005 - ‚£24.5m)generating a profit on disposal of ‚£4.6m (2005 - ‚£4.2m).Full year gross capital expenditure, including the NationsRent fleetreconfiguration expenditure outlined above, is now expected to amount toapproximately ‚£375m gross and approximately ‚£275m net. Fleet age at 31 October2006 was 33 months for Sunbelt and 30 months at A-Plant, in line with or belowthat of most of our major competitors. We expect to have concluded our two yearprogramme of above depreciation fleet replacement spend to reduce fleet age by30 April 2007. Accordingly we anticipate replacement capital expenditure willreduce in the year to 30 April 2008.Net debt at 31 October 2006 increased to ‚£993.9m (2005 - ‚£515.6m) due to theNationsRent acquisition. The ratio of debt to pro forma EBITDA* was 2.9 timesat 31 October 2006. Availability under the new $1.75bn asset based loanfacility was $478m at 31 October 2006 ($283m at 30 April 2006).* Pro forma EBITDA for the 12 months to 31 October 2006 was ‚£337.7m (includingNationsRent's pre-acquisition EBITDA calculated excluding its profit on usedequipment sales and the ‚£20m ($37m) of central overhead savings)
Dividends
---------
The Board has decided to increase the interim dividend by 10% to 0.55p per share (2005 - 0.5p per share) which will be paid on 28 February 2007 to shareholders on record on 9 February 2007.
Current trading and outlook---------------------------The Board is encouraged both by the strong underlying performance of thebusiness and by the strategic development of the Group following theacquisitions of NationsRent and Lux. Following the NationsRent acquisition,substantially all our debt is drawn in dollars which reduces the translationimpact on our profits of changes in dollar exchange rates. Ongoing favourablemarket conditions, supported in the US by the continuing shift from ownershipto rental, allow the Board to view the second half with confidence. - o0o - A presentation to equity analysts will take place at 9.30am today at theoffices of JP Morgan Cazenove at 20 Moorgate, London while there will be aconference call for bondholders this afternoon at 3.00pm (GMT). A simultaneouswebcast of the equity analysts' presentation will be available via theCompany's website at www.ashtead-group.com as will a copy of the slides for thepresentation. There will also be a recorded playback available from shortlyafter the presentation concludes.CONSOLIDATED INCOME STATEMENT Unaudited Audited Three months to Six months to Year to 31 October 31 October 30 April 2006 2005 2006 2005 2006 ---- ---- ---- ---- ---- ‚£m ‚£m ‚£m ‚£m ‚£m (restated) (restated) Revenue 246.6 167.9 422.3 313.8 638.0Staff costs (81.0) (48.7) (134.3) (96.1) (200.7)Other operating costs (91.2) (56.6) (151.1) (106.2) (223.3)Other income 2.4 5.6 4.6 7.8 24.1 --- --- --- --- ----EBITDA* 76.8 68.2 141.5 119.3 238.1Depreciation (42.2) (28.4) (72.2) (55.1) (113.6)Amortisation of acquired intangibles (2.8) - (2.8) - - --- --- --- --- ---Operating profit 31.8 39.8 66.5 64.2 124.5Investment income 1.0 4.0 2.0 6.0 10.5Interest expense (72.0) (16.9) (99.1) (29.7) (53.3) ---- ---- ---- ---- ----(Loss)/profit on ordinary activities before taxation (39.2) 26.9 (30.6) 40.5 81.7
Underlying profit before taxation 30.1 27.9 54.4 40.2 67.5 Exceptional items
(66.5) (1.9) (66.8) (1.9) 8.6Amortisation of acquired intangibles (2.8) - (2.8) - -Fair value remeasurements in long term debt - 0.9 (15.4) 2.2 5.6(Loss)/profit on ordinary activities before taxation (39.2) 26.9 (30.6) 40.5 81.7 Taxation: - current 5.3 (1.8) (0.1) (2.2) (5.5)- deferred 45.9 (7.3) 43.7 (12.8) (20.6) ---- --- ---- ---- ---- 51.2 (9.1) 43.6 (15.0) (26.1) ---- --- ---- ---- ---- Profit attributable to equity shareholders of the company 12.0 17.8 13.0 25.5 55.6 ==== ==== ==== ==== ====Basic earnings per share 2.3p 4.1p 2.7p 6.5p 13.5p ==== ==== ==== ==== =====Diluted earnings per share 2.3p 4.1p 2.7p 6.4p 13.2p ==== ==== ====
==== ===== * EBITDA is presented here as an additional performance measure as it is commonly used by investors and lenders.
All results are from continuing operations. Details of seasonality are given in the Business and Financial Review which accompanies these interim financial statements.
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
Unaudited Audited Three months to Six months to Year to 31 October 31 October 30 April 2006 2005 2006 2005 2006 ---- ---- ---- ---- ---- ‚£m ‚£m ‚£m ‚£m ‚£m (restated) (restated) Net profit for the period 12.0 17.8 13.0 25.5 55.6Actuarial gain on defined benefit - - - - 0.2pension plan Losses on cash flow hedges taken to equity - (0.8) - - -Foreign currency translation differences (3.1) (0.4) (7.2) 19.9 15.4 ---- ---- ---- ---- ----Total recognised income and expense for the period 8.9 16.6 5.8 45.4 71.2 === ==== === ==== ====
CONSOLIDATED MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
Unaudited Audited Three months to Six months to Year to 31 October 31 October 30 April 2006 2005 2006 2005 2006 ---- ---- ---- ---- ---- ‚£m ‚£m ‚£m ‚£m ‚£m (restated) (restated) Total recognised income and expense for the period 8.9 16.6 5.8 45.4 71.2Issue of ordinary shares, net of expenses 146.8 68.1 147.4 68.4 70.9Dividends paid (4.0) - (4.0) - (2.0)Credit in respect of share based payments 0.6 0.4 1.4 0.5 1.3Own shares acquired by ESOT (1.9) (2.8) (4.9) (2.8) (2.8) --- --- --- --- ---Net increase in equity shareholders funds 150.4 82.3 145.7 111.5 138.6Opening equity shareholders' funds 253.6 148.9 258.3 119.7 119.7 ----- ----- ----- ----- -----Closing equity shareholders' funds 404.0 231.2 404.0 231.2 258.3 ===== ===== ===== ===== =====CONSOLIDATED BALANCE SHEET Unaudited Audited 31 October 30 April 2006 2005 2006 ---- ---- ---- ‚£m ‚£m ‚£m (restated) Current assets Inventories 38.4 15.4 12.7Trade and other receivables 175.5 122.2 110.4Current tax asset recoverable 2.8 - -Cash and cash equivalents 1.2 0.9 1.0 --- --- --- 217.9 138.5 124.1 ----- ----- -----Non-current assets Property, plant and equipment - rental equipment 1,017.2 554.3 559.9- other assets 128.7 91.1 86.8 ---- ---- ---- 1,145.9 645.4 646.7Intangible assets including goodwill 314.6 152.9
149.0
Deferred tax asset 42.6 -
2.9
Other financial assets - derivatives - 12.0
15.4
Defined benefit pension fund surplus 2.2 - 1.7 --- --- --- 1,505.3 810.3 815.7 ------- ----- ----- Total assets 1,723.2 948.8 939.8 ======= ===== ===== Current liabilities Trade and other payables 196.2 108.0 99.1Current tax liabilities - 2.3 3.3Debt due in less than one year 12.9 13.1 10.6Provisions 12.3 7.1 7.0 ---- --- --- 221.4 130.5 120.0 ----- ----- -----Non-current liabilities Debt due in more than one year 982.2 503.4
484.0
Provisions 19.8 10.4
11.3
Defined benefit pension fund deficit - 15.9 -Deferred taxation liability 95.8 57.4 66.2 ---- ---- ---- 1,097.8 587.1 561.5 ------- ----- ----- Total liabilities 1,319.2 717.6 681.5 ------- ----- -----Equity shareholders' funds Share capital 55.8 40.2 40.4Share premium account 2.0 0.9 3.2Non-distributable reserve 90.7 90.7 90.7Own shares held in treasury through the ESOT (8.6) (4.2) (4.2)Cumulative foreign exchange translation differences (24.4) (12.7) (17.2)Distributable reserves 288.5 116.3 145.4 ----- ----- -----Total equity shareholders' funds 404.0 231.2
258.3
----- ----- ----- Total liabilities and equity shareholders' funds 1,723.2 948.8
939.8
======= =====
=====
CONSOLIDATED CASH FLOW STATEMENT
Unaudited Audited Six months to Year to 31 October 30 April 2006 2005 2006 ---- ---- ---- ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Cash flows from operating activities Cash generated from operations before exceptional items 155.7 99.2 215.2Exceptional items (2.4) - 11.1Pension payment - - (17.1) --- --- ---- Cash generated from operations 153.3 99.2 209.2Financing costs paid before exceptional items (24.1) (18.6) (38.7) Exceptional financing costs paid (49.4) (13.3) (13.3) ---- ---- ---- Financing costs paid (73.5) (31.9) (52.0)Tax paid (6.2) (0.6) (2.8) --- --- --- Net cash from operating activities 73.6 66.7
154.4
---- ---- ----- Cash flows from investing activities Acquisition of businesses (326.8) (56.9) (57.0)Disposal of businesses - 11.8 12.8
Payments for property, plant and equipment (188.3) (124.3)
(229.3)
Proceeds on sale of property, plant and equipment 28.8 22.4
50.4
---- ----
----
Net cash used in investing activities (486.3) (147.0) (223.1) ----- ----- ----- Cash flows from financing activities Drawdown of loans 878.5 235.6 257.5Redemption of loans (599.5) (215.6) (244.0)Capital element of finance lease payments (4.6) (6.5)
(12.1)
Purchase of own shares by the ESOT (4.9) (2.8)
(2.8)
Dividends paid (4.0) -
(2.0)
Proceeds from issue of ordinary shares 147.4 68.4
70.9
----- ---- ---- Net cash from financing activities 412.9 79.1
67.5
----- ---- ---- Increase/(decrease) in cash and cash equivalents 0.2 (1.2)
(1.2)
Opening cash and cash equivalents 1.0 2.1
2.1
Effect of exchange rate changes - -
0.1
--- ---
---
Closing cash and cash equivalents 1.2 0.9
1.0
=== ===
===
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. Basis of preparation
The financial statements for the six months ended 31 October 2006 were approvedby the directors on 11 December 2006. They have been prepared in accordancewith relevant International Financial Reporting Standards (including IAS 34Interim Financial Reporting) and the accounting policies set out in the Group'sAnnual Report and Accounts for the year ended 30 April 2006. They are unauditedand do not constitute statutory accounts within the meaning of Section 240 ofthe Companies Act 1985.The statutory accounts for the year ended 30 April 2006 were prepared inaccordance with relevant IFRS and have been mailed to shareholders and filedwith the Registrar of Companies. The auditors' report on those accounts wasunqualified and did not contain a statement under section 237 of the CompaniesAct 1985.The 2005 comparatives have been restated to include the fair value of embeddedderivatives included within our long term debt instruments in accordance withIAS 39. This increased investment income by ‚£2.2m and total assets by ‚£2.2m inthe six months ended and as at 31 October 2005. In addition, the comparativefigures for operating profit for Sunbelt, A-Plant, Ashtead Technology andCorporate items in note 2 have been restated to include share basedremuneration costs within the operating segment results. In 2005 these costswere included within Corporate items.
The exchange rates used in respect of the US dollar are:
2006
2005
---- ---- Average for the six months ended 31 October 1.8686 1.7988At 31 October 1.9073 1.77032. Segmental analysis Operating profit before Exceptional exceptionals items and Operating Revenue and amortisation amortisation profit ------- ---------------- ------------ ------Three months to 31 October ‚£m ‚£m ‚£m ‚£m2006 ---- Sunbelt 193.2 41.5 (15.9) 25.6A-Plant 47.6 6.6 - 6.6Ashtead Technology 5.8 2.0 - 2.0Corporate items - (2.4) - (2.4) --- --- --- --- 246.6 47.7 (15.9) 31.8 ===== ==== ==== ====2005 ---- Sunbelt 122.8 32.2 2.9 35.1A-Plant 40.9 5.0 - 5.0Ashtead Technology 4.2 1.3 - 1.3Corporate items - (1.6) - (1.6) --- --- --- --- 167.9 36.9 2.9 39.8 ===== ==== ==== ====Six months to 31 October 2006 ---- Sunbelt 319.5 72.3 (16.2) 56.1A-Plant 91.5 11.1 - 11.1Ashtead Technology 11.3 3.3 - 3.3Corporate items - (4.0) - (4.0) --- --- --- --- 422.3 82.7 (16.2) 66.5 ===== ==== ==== ====2005 ---- Sunbelt 226.1 53.4 2.9 56.3A-Plant 79.7 8.6 - 8.6Ashtead Technology 8.0 2.3 - 2.3Corporate items - (3.0) - (3.0) --- --- --- --- 313.8 61.3 2.9 64.2 ===== ==== === ====3. Operating costs 2006 2005 Before ---- ---- exceptional Exceptional Before items and items and exceptional Exceptional amortisation amortisation Total
items items Total
------------ ------------ ----- ----- ----- -----Three months to 31 0ctober ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m-------------------------- Staff costs: Salaries 67.3 7.5 74.8 44.0 0.3 44.3Social security costs 5.0 - 5.0 3.6 - 3.6Other pension costs 1.2 - 1.2 0.8 - 0.8 --- --- --- --- --- --- 73.5 7.5 81.0 48.4 0.3 48.7 ---- --- ---- ---- --- ----Other operating costs: Vehicle costs 17.7 - 17.7 13.4 - 13.4Spares, consumables & external repairs 16.6 - 16.6 10.7 - 10.7Facility costs 12.5 4.0 16.5 7.5 0.4 7.9Other external charges 38.8 1.6 40.4 24.6 - 24.6 ---- --- ---- ---- --- ---- 85.6 5.6 91.2 56.2 0.4 56.6 ---- --- ---- ---- --- ----Other income: Profit on disposal of fixed assets (2.4) - (2.4) (2.0) (3.6) (5.6) --- --- --- --- --- --- Depreciation and amortisation Depreciation 42.2 - 42.2 28.4 - 28.4Amortisation of acquired intangibles - 2.8 2.8 - - - --- --- --- --- --- --- 42.2 2.8 45.0 28.4 - 28.4 ---- --- ---- ---- --- ---- 198.9 15.9 214.8 131.0 (2.9) 128.1 ===== ==== ===== ===== === =====Six months to 31 October ------------------------ Staff costs: Salaries 115.7 7.5 123.2 87.0 0.3 87.3Social security costs 8.9 - 8.9 7.2 - 7.2Other pension costs 2.2 - 2.2 1.6 - 1.6 --- --- --- --- --- --- 126.8 7.5 134.3 95.8 0.3 96.1 ----- --- ----- ---- --- ----Other operating costs: Vehicle costs 31.6 - 31.6 24.8 - 24.8Spares, consumables & external repairs 27.6 - 27.6 20.8 - 20.8Facilities costs 20.4 4.0 24.4 14.7 0.4 15.1Other external charges 65.6 1.9 67.5 45.5 - 45.5 ---- --- ---- ---- --- ---- 145.2 5.9 151.1 105.8 0.4 106.2 ----- --- ----- ----- --- ----- Other income: Profit on disposal of fixed assets (4.6) - (4.6)
(4.2) (3.6) (7.8)
--- --- --- --- --- --- Depreciation and amortisation: Depreciation 72.2 - 72.2 55.1 - 55.1Amortisation of acquired intangibles - 2.8 2.8 - - - --- --- --- --- --- --- 72.2 2.8 75.0 55.1 - 55.1 ---- --- ---- ---- --- ---- 339.6 16.2 355.8 252.5 (2.9) 249.6 ===== ==== ===== ===== === =====
4. Exceptional items, amortisation and fair value remeasurements related to
embedded derivatives
`Exceptional items' are those items of financial performance that are materialand non-recurring in nature. Amortisation relates to the periodic write off ofacquired intangible assets. Non-cash fair value remeasurements relate toembedded derivatives within long term debt instruments. The Group believesthese items should be disclosed separately within the consolidated incomestatement to assist in the understanding of the financial performance of theGroup.
Exceptional items, amortisation and fair value remeasurements are excluded from underlying profit and earnings per share. They are set out below:
Three months to Six months to Year to 31 October 31 October 30 April 2006 2005 2006 2005 2006 ---- ---- ---- ---- ---- ‚£m ‚£m ‚£m ‚£m ‚£m
Redemption costs for senior notes 42.3 4.8 42.3 4.8 4.8 Write off of deferred financing
costs relating to debt redeemed 10.6 - 10.6 - -Acquisition integration costs 13.0 0.1 13.0 0.1 0.8Rebranding costs 0.1 - 0.4 - -Litigation proceeds - - - - (11.3)Profit on sale of scaffolding - (3.0) - (3.0) (2.9)Other financing costs 0.5 - 0.5 - - --- --- --- --- ---Total exceptional items 66.5 1.9 66.8 1.9 (8.6)Amortisation of acquired intangibles 2.8 - 2.8 - -Fair value remeasurements of embedded derivatives - (0.9) 15.4 (2.2) (5.6) --- --- ---- --- --- 69.3 1.0 85.0 (0.3) (14.2) ==== === ==== === ====Senior note redemption costs include `make-whole' payments and associated costsof ‚£25.6m paid at closing on 31 August 2006 in connection with NationsRent's$400m secured and unsecured loan notes and ‚£16.7m paid on the same date inconnection with the redemption of the ‚£78m Ashtead secured loan notes due 2014.The write off of deferred financing costs relates to deferred costs previouslycarried forward on both Ashtead's sterling senior notes and its $800m assetbased bank facility which was replaced on 31 August 2006 by a new $1.75bn assetbased bank facility. Acquisition integration costs relate primarily to employeeretention and severance costs and vacant property costs following theNationsRent acquisition. The items detailed in the table above are presented inthe income statement as follows: Three months to Six months to Year to 31 October 31 October 30 April 2006 2005 2006 2005 2006 ---- ---- ---- ---- ---- ‚£m ‚£m ‚£m ‚£m ‚£m Staff costs 7.5 0.3 7.5 0.3 0.3Other operating costs 5.6 0.4 5.9 0.4 1.3Other income - (3.6) - (3.6) (15.0)Amortisation of acquired intangibles 2.8 - 2.8
- -
--- --- --- --- ---Charged/(credited) in arriving at operating profit 15.9 (2.9) 16.2 (2.9) (13.4)Net financing costs/(income) 53.4 3.9 68.8 2.6 (0.8) --- --- ---- --- ---Charged/(credited) in arriving atprofit before tax 69.3 1.0 85.0 (0.3) (14.2) ==== === ==== === ====5. Financing costs Three months to Six months to Year to 31 October 31 October 30 April 2006 2005 2006 2005 2006 ---- ---- ---- ---- ---- ‚£m ‚£m ‚£m ‚£m ‚£m (restated) (restated) Investment income: Interest and other financial income - 0.1 - 0.2 0.5Expected return on assets of defined benefit pension plan 1.0 0.7 2.0 1.3 2.2Fair value gains on derivatives - 0.1 - 0.1 - --- --- --- --- --- 1.0 0.9 2.0 1.6 2.7Fair value remeasurements of embedded derivatives in long term debt - 3.1 - 4.4 7.8 --- --- --- --- ---Total investment income 1.0 4.0 2.0 6.0 10.5 === === === === ==== Interest expense: Bank interest payable 8.8 3.3 13.5 7.0 16.3Interest on second priority secured notes 8.0 5.4 13.3 9.0 19.7Interest payable on finance leases 0.4 0.5 0.7 1.0 1.85.25% unsecured convertible loan note, due 2008: - interest payable - - - 1.9 1.9- non-cash unwind of discount - - - 1.0 1.0Non-cash unwind of discount on defined benefit pension plan liabilities 0.6 0.7 1.3 1.4 2.2Non-cash unwind of discount on self insurance provisions 0.2 - 0.3 - 0.4Fair value losses on derivatives not accounted for as hedges - - - - 0.3Amortisation of deferred costs of debtraising 0.6 0.6 1.2 1.3 2.7Other - (0.6) - 0.1 - --- --- --- --- --- 18.6 9.9 30.3 22.7 46.3Exceptional costs and fair value remeasurements of embedded derivativesin long term debt 53.4 7.0 68.8 7.0 7.0 ---- --- ---- --- ---Total interest expense 72.0 16.9 99.1 29.7 53.3 ==== ==== ==== ==== ==== Netfinancing costs before exceptional items and fair value remeasurements of embeddedderivatives 17.6 9.0 28.3 21.1 43.6Net exceptional items and fair value remeasurements of embedded derivatives 53.4 3.9 68.8 2.6 (0.8) ---- --- ---- --- ---Net financing costs 71.0 12.9 97.1 23.7 42.8 ==== ==== ==== ==== ====6. Taxation
Following the refinancing of the Group at the time of the NationsRent acquisition and the improved trading results at A-Plant, the Group has recognised in full, as an exceptional profit, the previously unrecognised UK deferred tax asset of ‚£37.3m.
The remaining tax credit for the period of ‚£6.3m has been calculated byapplying the directors' best estimate of the effective annual tax rate(estimated at 39% for the US and 17% for the UK) to the Group's profit beforetax for the period. This includes a deferred tax credit of ‚£25.4m related toexceptional items and amortisation of acquired intangibles. The remaining taxcredit comprises a credit of ‚£4.3m related to the UK (2005 - ‚£1.2m), a creditof ‚£2.1m (2005 - charge of ‚£16.2m) related to the US and a charge of ‚£0.1m(2005 - nil) related to Singapore.
7. Earnings per share
Basic and diluted earnings per share for the three and six months ended 31October 2006 have been calculated based on the profit for the relevant periodand on the weighted average number of ordinary shares in issue during thatperiod (excluding shares held by the ESOT over which dividends have beenwaived). Diluted earnings per share is computed using the result for therelevant period and the diluted number of shares (ignoring any potential issueof ordinary shares which would be anti-dilutive). These are calculated asfollows: Three months to Six months to Year to 31 October 31 October 30 April 2006 2005 2006 2005 2006 ---- ---- ----
---- ---- Profit for the financial period (‚£m) 12.0 17.8 13.0 25.5 55.6
==== ==== ====
==== ====
Weighted average number of shares (m)
- basic 514.2 429.6 474.3 390.1 410.9 ===== ===== ===== ===== ===== - diluted 520.1 436.6 481.1 397.2 419.9 ===== ===== ===== ===== =====Basic earnings per share 2.3p 4.1p 2.7p 6.5p 13.5p ==== ==== ==== ==== =====Diluted earnings per share 2.3p 4.1p 2.7p 6.4p 13.2p ==== ==== ==== ==== =====
The weighted average number of shares shown as being in issue in previous periods has been adjusted to take account of the bonus element of the rights issue on 29 August 2006.
Underlying earnings per share (defined in any period as the earnings beforeexceptional items, amortisation of acquired intangibles and fair valueremeasurements for that period divided by the weighted average number of sharesin issue in that period) and cash tax earnings per share (defined in any periodas underlying earnings before other deferred taxes divided by the weightedaverage number of shares in issue in that period) may be reconciled to thebasic earnings per share as follows: Three months to Six months to Year to 31 October 31 October 30 April 2006 2005 2006 2005 2006 ---- ---- ---- ---- ----Basic earnings per share 2.3p 4.1p 2.7p 6.5p 13.5pExceptional items, amortisation of acquired intangibles and fair valueremeasurements 13.5p 0.3p 17.9p - (3.4)pDeferred tax on exceptional items, amortisation and fair valueremeasurements (4.9)p (0.1)p (5.3)p (0.1)p 1.2pDeferred tax credit for previously unrecognised UK tax losses (7.3)p - (7.9)p - - --- --- --- --- ---Underlying earnings per share 3.6p 4.3p 7.4p 6.4p 11.3pOther deferred tax 3.3p 1.8p 4.1p 3.3p 5.1p --- --- --- --- ---Cash tax earnings per share 6.9p 6.1p 11.5p 9.7p 16.4p === === ==== === ====
8. Property, plant and equipment
2006 2005 ---- ---- Rental Rental equipment Total equipment Total --------- ----- --------- -----Net book value ‚£m ‚£m ‚£m ‚£m--------------- At 1 May 559.9 646.7 452.9 537.1Exchange difference (19.0) (21.4) 23.7 27.1Additions 173.0 192.4 120.0 131.3Acquisitions 386.6 423.8 31.7 34.7Disposals (20.6) (23.4) (27.4) (29.7)Depreciation (62.7) (72.2) (46.6) (55.1) ---- ---- ---- ----At 31 October 1,017.2 1,145.9 554.3 645.4 ------- ------- ----- -----9. Called up share capital Ordinary shares of 10p each: 31 October 30 April 31 October 30 April
2006 2005 2006 2006 2005 2006 ---- ---- ---- ---- ---- ---- Number Number Number ‚£m ‚£m ‚£m Authorised 900,000,000 900,000,000 900,000,000 90.0 90.0 90.0 =========== =========== =========== ==== ==== ====Allotted, called up and fully paid 558,294,829 401,876,408 404,334,066 55.8 40.2 40.4 =========== =========== =========== ==== ==== ==== On 29 August 2006 the Group issued 152,240,015 ordinary shares of 10p each at ‚£1 per share through a 3 for 8 Rights Issue which raised ‚£152.2m before issueexpenses of ‚£5.5m. A further 1,720,748 shares were issued in the six monthsended 31 October 2006 at an average price of 41.8p per share under share optionplans raising ‚£0.7m.
10. Statement of changes in shareholders' equity
Own Cumulative shares foreign Non held in exchange Share Share distributable treasury translation Distributable 31 Oct 30 April capital Premium reserves (ESOT) differences reserves Total 2005 2006 ------- ------- -------- ------ ----------- -------- ----- ---- ---- ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Total recognised income and expense - - - - (7.2) 13.0 5.8 45.4 71.2Shares issued 15.4 (1.2) - - - 133.2 147.4 68.4 70.9Dividends paid - - - - - (4.0) (4.0) - (2.0)Share based payments - - - - - 1.4 1.4 0.5 1.3Vesting of share awards - - - 0.5 - (0.5) - - -Own shares purchased - - - (4.9) - - (4.9) (2.8) (2.8) --- --- --- --- --- --- --- --- ---Net changes in shareholders' equity 15.4 (1.2) - (4.4) (7.2) 143.1 145.7 111.5 138.6Opening shareholders' equity 40.4 3.2 90.7 (4.2) (17.2) 145.4 258.3 119.7 119.7 ---- --- ---- --- ---- ----- ----- ----- -----Closing shareholders' equity 55.8 2.0 90.7 (8.6)
(24.4) 288.5 404.0 231.2 258.3
==== === ==== === ====
===== ===== ===== =====
11. Notes to the cash flow statement
Six months to Year to 31 October 30 April 2006 2005 2006 ---- ---- ---- ‚£m ‚£m ‚£ma) Cash flow from operating activities ----------------------------------- Operating profit 66.5 64.2 124.5Depreciation and amortisation 75.0 55.1 113.6Exceptional items 13.4 (2.9) (13.4) ---- --- ----EBITDA before exceptional items 154.9 116.4 224.7Profit on disposal of property, plant and equipment (4.6) (4.2) (9.1)Decrease/(increase) in inventories 3.9 (0.2) 2.2Increase in trade and other receivables (12.4) (18.7) (11.2)Increase in trade and other payables 12.2 5.5 7.5Exchange differences 0.4 (0.2) (0.3)Other non-cash movements 1.3 0.6 1.4 --- --- --- Cash generated from operations before exceptional items 155.7 99.2 215.2 ===== ==== ===== Six months to Year to 31 October 30 April 2006 2005 2006 ---- ---- ---- ‚£m ‚£m ‚£mb) Reconciliation to net debt -------------------------- (Increase)/decrease incash in the period (0.2) 1.2 1.2Increase in debt through cash flow 274.4
13.5 1.4
----- ---- ---Change in net debt from cash flows 274.2 14.7 2.6Debt acquired 233.1 - -Exchange difference (19.9) 13.9 3.7Non-cash movements: - deferred costs of debt raising 11.8
2.8 4.0
- convertible loan note -
(1.0) (1.0)
- capital element of new finance leases 1.1
2.9 2.0
--- --- ---Movement in net debt in the period 500.3 33.3 11.3Opening net debt 493.6 482.3 482.3 ----- ----- -----Closing net debt 993.9 515.6 493.6 ===== ===== ===== c) Analysis of net debt -------------------- 1 May Exchange Cash Debt
Non-cash 31 October
2006 movement flow acquired movements 2006 ---- -------- ---- -------- --------- ---- ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Cash (1.0) - (0.2) - - (1.2)Debt due within 1 year 10.6 (0.3) (8.1) 7.5 3.2 12.9Debt due after 1 year 484.0 (19.6) 282.5 225.6 9.7 982.2 ----- ---- ----- ----- --- -----Total net debt 493.6 (19.9) 274.2 233.1 12.9 993.9 ===== ==== ===== ===== ==== ===== Details of the changes in the Group's debt following the NationsRentacquisition are given in the Business and Financial Review accompanying theseinterim financial statements.d) Acquisitions Six months to 31 October Year to 30 April ------------------------ ---------------- 2006 2005 2006 NationsRent Lux Total Total Total ----------- --- ----- ----- ----- ‚£m ‚£m ‚£m ‚£m ‚£m Cash consideration 311.2 15.8 327.0 56.9 57.0
Less: cash/overdrafts acquired (6.5) 0.3 (6.2) -
-Attributable costs paid 6.0 - 6.0 - - --- --- --- --- --- 310.7 16.1 326.8 56.9 57.0 ===== ==== ===== ==== ==== 12. Acquisitions
NationsRent Companies Inc ("NationsRent")
On 31 August 2006, Sunbelt acquired the entire issued share capital ofNationsRent for a total consideration of US$592m plus acquisition costs. Aspart of the NationsRent acquisition, the Group has agreed to pay deferredcontingent consideration of up to $89m. The amount of the deferred contingentconsideration is linked to the Company's share price performance over the threeyears from 1 September 2006 to 31 August 2009. In the event that the Company'sshare price (measured on a five day average basis) rises by more than 22.2%above the reference price of 204p (as adjusted for the bonus element of therights issue), contingent consideration becomes payable at the rate of $5m forevery additional 1% rise in the share price up to a maximum of 40% above thereference price. Accordingly, deferred contingent consideration starts tobecome payable when the Company's share price reaches 250p with the maximum$89m being payable at 286p. The contingent consideration is payable on aquarterly basis in cash. It is not practicable to estimate reliably the amountof contingent consideration which will become payable and accordingly noprovision has been made.The book value of NationsRent was stated under US GAAP which differs in anumber of ways from IFRS. In particular, on emergence from bankruptcy in 2003NationsRent adopted `fresh start' accounting which resulted in a significantwrite down in the carrying value of its assets and liabilities, particularlyproperty, plant and equipment. Accordingly, it is not practicable to presentthe book value of the acquired NationsRent assets under IFRS. Similarly, it isimpractical to present the profit of the acquired business pre-acquisitionunder IFRS due to the effect of `fresh start' accounting. NationsRent's revenueand EBITDA, excluding gains and losses on disposal of rental equipment (whichare distorted by `fresh start' accounting), in the period from 1 May 2006 to 31August 2006 were $230.7m and $57.1m, respectively.Due to the operational integration of NationsRent and Sunbelt sinceacquisition, in particular the movement of rental equipment between profitcentres and the merger of some profit centres, it is not practical to reportthe revenue and profit of the acquired business post acquisition. However, weestimate that NationsRent contributed approximately $110m (‚£58.9m) of revenuein the two months since acquisition.
The provisional goodwill arising on acquisition is as follows:
At estimated fair value ---------- ‚£m Net assets acquired: Inventory 29.9Trade and other receivables 54.4Cash and cash equivalents 6.5Property, plant and equipment: - rental equipment 382.5- other assets 36.1Intangible assets - tradename and distribution agreements 17.4Trade and other payables (86.7)Deferred tax liability (35.0)Debt (232.9) -----Net assets acquired 172.2 ----- Consideration paid: Cash 311.2Directly attributable costs 6.0 --- 317.2 ----- Goodwill 145.0 =====
Fair values have been estimated for the half year and will be refined and adjusted as the year progresses.
$28.0m of the consideration payable for the ordinary equity share capital ofNationsRent was paid at closing to an escrow agent to secure the warranties andindemnities given by the vendors in the merger agreement. This amount willeither be released to the vendors in stages over the 12 months following theacquisition as the related warranties and indemnities expire or will be used tomeet any agreed warranty or indemnity claims.
Lux Traffic Controls Limited ("Lux")
On 16 October 2006, A-Plant purchased the entire issued share capital of Luxfor an estimated total consideration of ‚£15.8m and attributable costs of ‚£0.3m.The acquisition included arrangements for the vendor to acquire from Lux forcash immediately after closing assets valued at ‚£0.3m and consequently, beforecosts, there was a net cash outflow of ‚£15.5m in connection with theacquisition. The net assets acquired and the provisional goodwill arising onthe acquisition are summarised in the table below: Acquiree's At estimated book value fair value ---------- ---------- ‚£m ‚£m Net assets acquired: Inventory 0.3 0.3Trade and other receivables 3.0 3.0
Assets acquired by the vendor immediately after closing 0.2 0.3 Property, plant and equipment
4.7
4.9
Intangible assets (tradenames, customer list and non-competes - 5.0Trade and other payables (3.1) (3.1)Short term borrowings (0.3) (0.3)Deferred tax liabilities (0.4) (1.9)Debt (0.2) (0.2) --- --- 4.2 8.0 === ===Consideration paid: Paid in cash at closing 15.8Directly attributable costs 0.3 --- 16.1 ---- Goodwill 8.1 ===
Fair values have been estimated for the half year and will be refined and adjusted as the year progresses.
The consideration payable is subject to downwards only adjustment to the extentthat Lux's net assets at closing are less than ‚£4.25m. Preparation andagreement of the closing balance sheet is currently in progress and, pendingthis agreement, ‚£0.5m of the total consideration paid is being held by anescrow agent for release to the vendor or purchaser as appropriate followingagreement of the closing balance sheet.Lux's revenue and profit in the period from 1 May 2006 to 16 October 2006 was ‚£9.6m and ‚£0.3m, respectively. In the two weeks post acquisition, revenue of ‚£0.8m and profit of ‚£44,000 were included for Lux.
13. Contingent liabilities and contingent assets
There have been no significant changes in contingent liabilities from thosereported at 30 April 2006 or to the amount of performance guarantees issued bysubsidiaries and guaranteed by Ashtead Group plc. The Group remains subject toperiodic legal claims in the ordinary course of its business. However, theclaims outstanding at 31 October 2006 are not expected to have a significantimpact on the Group's financial position.
BUSINESS AND FINANCIAL REVIEW
Second quarter (to 31 October) results compared with prior year
Overview-------- 2006 2005 ---- ---- Before Exceptional exceptionals items and Before Exceptional and amortisation amortisation Total exceptionals items Total ---------------- ------------ ----- ------------ ----- ----- ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 246.6 - 246.6 167.9 - 167.9Staff costs (73.5) (7.5) (81.0) (48.4) (0.3) (48.7)Other operating costs (85.6) (5.6) (91.2) (56.2) (0.4) (56.6)Other income 2.4 - 2.4 2.0 3.6 5.6 --- --- --- --- --- ---EBITDA* 89.9 (13.1) 76.8 65.3 2.9 68.2Depreciation (42.2) - (42.2) (28.4) - (28.4)Amortisation of intangibles - (2.8) (2.8) - - - --- --- --- --- --- ---Operating profit/(loss) 47.7 (15.9) 31.8 36.9 2.9 39.8Investment income 1.0 - 1.0 0.9 3.1 4.0Interest expense (18.6) (53.4) (72.0)
(9.9) (7.0) (16.9)
---- ---- ---- --- --- ----Profit/(loss) before taxation 30.1 (69.3) (39.2) 27.9 (1.0) 26.9Taxation: - current 5.4 (0.1) 5.3 (1.8) - (1.8)- deferred (16.8) 62.7 45.9 (7.6) 0.3 (7.3) ---- ---- ---- --- --- --- (11.4) 62.6 51.2 (9.4) 0.3 (9.1) ---- ---- ---- --- --- --- Profit for the quarter 18.7 (6.7) 12.0 18.5 (0.7) 17.8 ==== === ==== ==== === ====
* EBITDA is presented here as an additional performance measure as it is commonly used by investors and lenders.
Second quarter revenue increased 52.2% at constant 2006 exchange rates to ‚£246.6m and by 46.9% at actual rates. EBITDA before exceptional items grew by42.9% at constant exchange rates to ‚£89.9m and by 37.6% at actual rates.Operating profit before exceptional items of ‚£47.7m in the quarter increased34.9% at constant 2006 exchange rates and 29.3% at actual rates. Beforeexceptional items, EBITDA margins declined from 38.9% to 36.5% and operatingmargins fell from 22.0% to 19.3% reflecting the effect of including the lowermargin NationsRent business for two months of the quarter. Total EBITDAincreased 12.6% to ‚£76.8m, at actual rates whilst total operating profitdeclined to ‚£31.8m.
Seasonality
-----------
Our business is subject to significant fluctuations in performance from quarterto quarter as a result of seasonal effects. Commercial construction activitytends to increase in the summer and during extended periods of mild weather andto decrease in the winter and during extended periods of inclement weather.Furthermore, due to the incidence of public holidays in the US and the UK,there are more billing days in the first half of our financial year than thesecond half leading to our revenues normally being higher in the first half. Ona quarterly basis, the second quarter is typically our strongest quarter,followed by the first and then the third and fourth quarters.Additionally, our equipment is used extensively in the recovery from naturaldisasters such as floods, wind and storm damage (including hurricanes),earthquakes etc. and the incidence of such events can impact the level of ourrevenues.Divisional performance----------------------Divisional results before exceptional items and amortisation of acquiredintangibles for the quarter are summarised below: Revenue EBITDA* Operating profit+ ------- ------- ----------------- 2006 2005 2006 2005 2006 2005 ---- ---- ---- ---- ---- ----Sunbelt in $m 363.0 220.0 137.2 90.5 78.1 57.6 ===== ===== ===== ==== ==== ====Sunbelt in ‚£m 193.2 122.8 73.0 50.5 41.5 32.2A-Plant 47.6 40.9 16.1 14.2 6.6 5.0Ashtead Technology 5.8 4.2 3.2 2.2 2.0 1.3Group central costs - - (2.4) (1.6) (2.4) (1.6) --- --- --- --- --- --- 246.6 167.9 89.9 65.3 47.7 36.9 ===== ===== ==== ==== ==== ====* before exceptional items + before exceptional items and amortisation of acquired intangibles
Sunbelt
Revenue increased 65.0% to $363.0m (2005 - $220.0m). This growth reflected a19% increase in average fleet size, excluding the acquired NationsRent assets,a slight decrease in utilisation to approximately 72% from 74% last year andbroadly unchanged prices. Additionally, the acquired NationsRent businesscontributed approximately $110m (‚£58.9m) to revenue in the quarter. Excludingthe acquired revenues, growth in quarter was 15% which was a good performancegiven that utilisation and prices benefited significantly in 2005 fromunusually high hurricane activity in Florida and the Gulf of Mexico which hasnot been repeated this year.Operating costs (excluding depreciation) rose 74.5% to $225.8m in 2006 (2005 -$129.4m) reflecting, principally, the inclusion of the NationsRent business.EBITDA grew 51.5% to $137.2m and the EBITDA margin for the quarter fell to37.8% from 41.2% in 2005. Sunbelt's operating profit increased 35.6% to $78.1mrepresenting a margin of 21.5% (2005 - 26.2%). The decline in margins reflectsthe inclusion in the quarter's results for two months of the lower marginNationsRent business. Sunbelt's results in sterling reflected the factorsdiscussed above and the weaker US dollar.
A-Plant
Second quarter revenue increased 16.4% to ‚£47.6m (2005 - ‚£40.9m) reflectingrental rates approximately 2% higher than last year, a fleet size which wasapproximately 6% larger than in the equivalent period a year ago andutilisation at approximately 70% compared to approximately 66% last year. Theinclusion from 16 October of the acquired Lux fleet contributed approximately2% of the revenue increase. Costs (excluding depreciation) increased 17.6% yearover year mainly reflecting increased salary and fuel costs as well as theeffect of the Lux acquisition. As a result EBITDA increased 14.2% to ‚£16.1m andthe EBITDA margin was 33.9% (2005 - 34.5%). A-Plant's operating profitincreased 30.2% to ‚£6.6m representing a margin of 13.8% (2005 - 12.3%).
Ashtead Technology
Ashtead Technology delivered strong second quarter revenue growth of 40.1% to ‚£5.8m at actual rates (43.1% at constant exchange rates). Operating profit of ‚£2.0m increased from ‚£1.3m in 2005 at both actual and constant exchange rates.These results reflect higher offshore exploration and construction activity aswell as continued growth in our on-shore environmental business. These trendsare expected to continue.
Exceptional items, amortisation and fair value remeasurements -------------------------------------------------------------
‚£m ‚£m -- -- Cash amounts paid at closing:
`Make-whole' paid to redeem the NationsRent bonds, including costs
25.6
`Make-whole' paid to redeem the Ashtead sterling bonds, including costs
16.7 ---- 42.3Non cash items Write off of deferred financing costs on debt repaid at closing 10.6 Amortisation of acquired intangibles (mainly the NationsRent name) 2.8 --- 13.4 Cash items
Integration costs to deliver the $37m (‚£20m) of integration savings
13.0 Other cash exceptional costs including rebranding costs 0.6 --- 13.6 ----Total pre-tax costs 69.3 Tax credit on the pre-tax costs (25.3)
Recognition in deferred tax of previously unrecognised UK tax losses
(37.3) Net exceptional items, amortisation of acquired intangibles and fair value remeasurements after tax 6.7 ===Exceptional items related principally to the NationsRent acquisition as did theamortisation of acquired intangibles, both of which are more fully describedearlier in note 4 to the interim financial statements.Net financing costs-------------------Net financing costs before exceptional items increased to ‚£17.6m from ‚£9.0m in2005 reflecting higher debt levels following the acquisition of NationsRent on31 August 2006. Compared to the previous year, average interest rates werebroadly unchanged reflecting the repayment of our 12% notes offset by increasesin US dollar interest rates payable under our floating rate first prioritysenior facility. Exceptional financing costs of ‚£53.4m comprised the seniornotes redemption costs and the write off of previously deferred financing costson debt repaid.Taxation--------
Following the refinancing of the Group at the time of the NationsRent acquisition and the improved trading results at A-Plant, the Group has recognised a deferred tax asset of ‚£37.3m relating to the UK which has been included in exceptional items.
The remaining tax credit for the quarter of ‚£13.9m (2005 - ‚£9.1m) comprised acredit for current tax of ‚£5.3m and a credit for deferred tax of ‚£8.6m. Thisincludes a deferred tax credit of ‚£25.3m related to exceptional items andamortisation of acquired intangibles. Overall for the first six months theeffective accounting tax rate on the underlying profit before taxation is 35%whilst the cash tax rate is nil.
Balance sheet
Property, plant and equipment----------------------------- 31 October 2006 31 October 2005 --------------- --------------- Rental Rental Net book value equipment Total equipment Total --------- ----- --------- ----- ‚£m ‚£m ‚£m ‚£m At 1 May 559.9 646.7 452.9 537.1Exchange difference (19.0) (21.4) 23.7 27.1Additions 173.0 192.4 120.0 131.3Acquisitions 386.6 423.8 31.7 34.7Disposals (20.6) (23.4) (27.4) (29.7)Depreciation (62.7) (72.2) (46.6) (55.1) ---- ---- ---- ----At 31 October 1,017.2 1,145.9 554.3 645.4 ======= ======= ===== =====Capital expenditure in the six months was ‚£192.4m of which ‚£173.0m was investedin the rental fleet (2005 - ‚£131.3m in total). Expenditure on rental equipmentwas 89.9% of total capital expenditure with the balance relating to ourdelivery vehicle fleet, property improvements and to computer equipment.Capital expenditure by division was as follows: 31 October 2006 2005 --------------- ---- Growth Maintenance Total Total ------ ----------- ----- ----- Sunbelt in $m 145.5 78.7 224.2 151.8 ===== ==== ===== =====Sunbelt in ‚£m 76.3 41.3 117.6 85.8A-Plant 20.2 29.2 49.4 30.8Ashtead Technology 5.3 0.7 6.0 3.4 --- --- --- ---Total rental equipment 101.8 71.2 173.0 120.0 ===== ==== ===== =====Delivery vehicles, property improvements and computers 19.4 11.3 ---- ----Total additions 192.4 131.3 ===== =====With strong US market conditions and a much improved performance at A-Plant,the Group spent ‚£101.8m of its rental equipment capital expenditure on growthin the first half. ‚£71.2m was also spent on replacing existing fleet. Thegrowth proportion is estimated on the basis of the assumption that maintenancecapital expenditure in any period is equal to the original cost of equipmentsold.The average age of the Group's serialised rental equipment, which constitutesthe substantial majority of our fleet, at 31 October 2006 was 31 months (2005 -39 months) on a net book value basis. Sunbelt's fleet had an average age of 33months (2005 - 40 months) comprising 41 months for aerial work platforms whichhave a longer life and 25 months for the remainder of its fleet and A-Plant'sfleet had an average age of 30 months (2005 - 39 months).Trade receivables-----------------Receivable days improved to 46 days (2005 - 51 days). The bad debt charge as apercentage of total turnover was 0.6% in 2006 compared with 0.9% in 2005.Trade and other payables------------------------Group payable days were 73 days in 2006 (2005 - 58 days). Capital expenditurerelated payables at 31 October 2006 totalled ‚£63.4m (2005 - ‚£40.6m). Paymentperiods for purchases other than rental equipment vary between 7 and 45 daysand for rental equipment between 30 and 90 days.Currency translation--------------------Following the NationsRent acquisition approximately 97% of our debt isdenominated in US dollars. At 31 October 2006 our dollar denominated debtrepresented approximately 87% of the value of our dollar denominated net assets(other than debt) providing a partial, but substantial, hedge against thetranslation effects of changes in the dollar exchange rate. The dollar interestpayable on this debt also limits the impact of changes in the dollar exchangerate on our pre-tax profits and earnings. Based on the currency mix of ourprofits we anticipate prevailing in the coming year and on current dollar debtlevels and interest rates, every 1% change in the US dollar exchange rate wouldimpact pro-forma pre-tax profit by 0.8%.
Cash flow and net debt
Free cash flow (defined as the net cash inflow from operations less netmaintenance capital expenditure, financing costs paid and tax paid) issummarised below: Six months to LTM to Year to 31 October 31 October 30 April 2006 2005 2006 2006 ---- ---- ---- ---- ‚£m ‚£m ‚£m ‚£m EBITDA before exceptional items 154.9 116.4 263.2 224.7 ===== ===== ===== =====Cash inflow from operations before exceptional items 155.7 99.2 271.7 215.2Cash efficiency ratio* 100.5% 85.2% 103.2% 95.8%Maintenance rental capital expenditure (65.0) (70.2) (144.7) (149.9)Non-rental capital expenditure (18.4) (8.6) (26.6) (16.8)Proceeds from sale of used rental equipment 28.8 22.4 56.8 50.4Tax paid (6.2) (0.6) (8.4) (2.8) --- --- --- ---Free cash flow before interest 94.9 42.2 148.8 96.1Financing costs paid (24.1) (18.6) (44.2) (38.7) ---- ---- ---- ----Free cash flow after interest 70.8 23.6 104.6 57.4Acquisitions and disposals (326.8) (45.1) (325.9) (44.2)Issue of ordinary share capital 147.4 68.4 149.9 70.9Dividends paid (4.0) - (6.0) (2.0)Purchase of own shares by ESOT (4.9) (2.8) (4.9) (2.8)Pension plan funding - - (17.1) (17.1)Exceptional costs paid (net) (51.8) (13.3) (40.7) (2.2) ---- ---- ---- ---Increase in total debt (274.2) (14.7) (262.1) (2.6) ===== ==== ===== ===
* Cash inflow from operations before exceptional items as a percentage of EBITDA before exceptional items.
Cash inflow from operations increased 57% to ‚£155.7m and the cash efficiencyratio was 100.5% (2005 - 85.2%). After net maintenance capital expenditure of ‚£54.6m (2005 - ‚£56.4m) and tax, free cash flow before interest was ‚£94.9m (2005- ‚£42.2m). Financing costs (excluding exceptional financing costs) paid of ‚£24.1 were again lower than the ‚£28.3m accounting charge reflecting non-cashitems included in the latter. After interest, there was a free cash inflow of ‚£70.8m (2005 - ‚£23.6m).Including payments of ‚£104.9m in respect of growth capital expenditure, ‚£326.8min respect of acquisitions, ‚£4.9m for the purchase of shares by the ESOT andexceptional costs of ‚£51.8m and taking into account net proceeds received fromshare issues of ‚£147.4m and dividends paid of ‚£4.0m, there was a net draw underour bank facilities in the six months of ‚£274.2m. This reflected principallythe NationsRent acquisition.Net debt-------- 31 October 30 April ---------- -------- 2006 2005 2006 ---- ---- ---- ‚£m ‚£m ‚£mFirst priority senior secured bank debt 560.6 274.7
263.2
Finance lease obligations 27.0 30.2
23.2
12% second priority senior secured notes, due 2014 - 75.4 75.58.625% second priority senior secured notes, due 2015 126.4 136.2 132.79% second priority senior secured notes, due 2016 281.1 - - ----- --- --- 995.1 516.5 494.6Cash and cash equivalents (1.2) (0.9) (1.0) --- --- ---Total net debt 993.9 515.6 493.6 ===== ===== =====Group net debt doubled from ‚£493.6m at 30 April 2006 to ‚£993.9m at 31 October2006 reflecting the impact of the NationsRent acquisition which, together withthe Lux acquisition increased net debt by ‚£466.1m (net of the net rights issueproceeds of ‚£146.7m).
New first and second priority senior secured loan facilities
In connection with the NationsRent acquisition, on 31 August 2006, the Grouprepaid the outstanding borrowings under its $800m first priority asset basedsenior secured loan facility and replaced it with a new $1.75bn facility onsubstantially the same terms as the previous facility. The interest rate onborrowings under the new facility varies, according to a grid linked to theratio of funded debt to EBITDA before exceptional items, between LIBOR plus150bp and LIBOR plus 225bp. Currently the Group borrows at LIBOR plus 175bp. Inaddition, during August 2006 the Group raised $550m of new ten year secondpriority senior secured notes carrying an interest rate of 9% per annum.The Group used these new debt facilities and the ‚£146.7m net proceeds of theRights Issue to fund the acquisition of NationsRent, repay NationsRent's $400mof secured and unsecured 9.5% loan notes, including a `make-whole' payment of$48m and to repay the Group's outstanding ‚£78m 12% senior secured notes as wellas the borrowings under its old $800m bank facility discussed above.The Group's debt facilities are now committed for a weighted average period ofapproximately 7 years with the earliest significant maturity being in August2011. The weighted average interest cost of these facilities (includingnon-cash amortisation of deferred debt raising costs) is approximately 8%, mostof which is tax deductible in the US where the tax rate is 39%. Financialperformance covenants under the two senior secured notes issues are onlymeasured at the time new debt is raised. There are two financial performancecovenants under the asset based first priority senior bank facility (fundeddebt to EBITDA before exceptional items and a fixed charge ratio comparingEBITDA less net capital expenditure to the sum of scheduled debt repayments,interest, tax and dividends paid). These covenants are not, however, requiredto be adhered to when availability (the difference between the borrowing baseand facility utilisation) exceeds $125m. At 31 October 2006 availability underthe bank facility was $478m ($283m under the old facility at 30 April 2006).OPERATING STATISTICS Profit centre numbers Staff numbers --------------------- ------------- 31 October 30 April 31 October 30 April ---------- -------- ---------- -------- 2006 2005 2006 2006 2005 2006 ---- ---- ---- ---- ---- ----Sunbelt Rentals 473 206 209 7,939 4,061 4,266A-Plant 236 198 193 2,595 1,997 2,081Ashtead Technology 11 10 11 112 87 104Corporate office - - - 14 14 14 --- --- --- --- --- ---Group 720 414 413 10,660 6,159 6,465 === === === ====== ===== =====
INDEPENDENT REVIEW REPORT TO ASHTEAD GROUP PLC
Introduction
We have been instructed by the company to review the financial information forthe six months ended 31 October 2006 which comprise the income statement, thebalance sheet, the statement of recognised income and expense, the movements inequity shareholders' funds, the cash flow statement and related notes 1 to 13.We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information.This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone otherthan the company, for our review work, for this report, or for the conclusionswe have formed.Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority and the requirements of IAS 34 whichrequire that the accounting policies and presentation applied to the interimfigures are consistent with those applied in preparing the preceding annualaccounts except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management andapplying analytical procedures to the financial information and underlyingfinancial data and, based thereon, assessing whether the accounting policiesand presentation have been consistently applied unless otherwise disclosed. Areview excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit performed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 October 2006.
Deloitte & Touche LLP London, 11 December 2006
Chartered Accountants
ASHTEAD GROUP PLCRelated Shares:
Ashtead Group