Ashtead Group Regulatory News (AHT)

6 September 2022

Unaudited results for the first quarter ended 31 July 2022

Highlights3

· Strong quarter with ongoing momentum in supportive end markets

· Group revenue up 25%1, US rental revenue up 29%

· Adjusted earnings per share of 94.4¢ (2021: 71.5¢)

· Good progress against all Sunbelt 3.0 actionable components

· $699m of capital invested in the business (2021: $551m)

· $337m spent on 12 bolt-on acquisitions (2021: $123m)

· Net debt to EBITDA leverage1,3 of 1.6 times (2021: 1.3 times)

Ashtead's chief executive, Brendan Horgan, commented:

"The Group has made a strong start to the financial year across all geographies with rental revenue up 26% at constant currency. This market outperformance across the business 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.

Our end markets remain strong and we continue to execute well across all actionable components of our strategic growth plan, Sunbelt 3.0. In the quarter, we invested $699m in capital across existing locations and greenfields and $337m on 12 bolt-on acquisitions, adding a combined 33 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.

Our business is performing well with clear momentum in supportive end markets. We are in a position of strength and have the experience to navigate the challenges and capitalise on the opportunities arising from the market circumstances we face, including supply chain constraints, inflation, labour scarcity and economic uncertainty, all factors which we are convinced are drivers of ongoing structural change. The business is performing strongly, with revenue and operating profit ahead of our previous expectations. This performance is offset by increasing interest costs and therefore, we expect adjusted profit before taxation for the year to be in line with our previous expectations and the Board looks to the future with confidence."

Contacts:

Brendan Horgan and Michael Pratt will hold a conference call for equity analysts to discuss the results and outlook at 10:00am on Tuesday, 6 September 2022. 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, Maitland/AMO (Audrey Da Costa) at +44 (0)20 7379 5151.

Forward-looking statements

This announcement contains forward-looking statements. These have been made by the directors in good faith using information available up to the date on which they approved this report. The directors can give no assurance that these expectations will prove to be correct. Due to the inherent uncertainties, including both business and economic risk factors underlying such forward-looking statements, actual results may differ materially from those expressed or implied by these forward-looking statements. Except as required by law or regulation, the directors undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Trading results

1 Segment result presented is adjusted operating profit.

Group revenue for the quarter increased 22% (25% at constant currency) to $2,259m (2021: $1,852m). This revenue growth, combined with strong operational execution, resulted in adjusted profit before tax increasing 27% to $555m (2021: $437m).

In the US, rental only revenue of $1,389m (2021: $1,102m) was 26% 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 20%, while bolt-ons since 1 May 2021 contributed 6% of rental only revenue growth. In the quarter, our general tool business grew 23%, while our specialty businesses grew 38%. 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 29% to $1,768m (2021: $1,374m). US total revenue, including new and used equipment, merchandise and consumable sales, increased 30% to $1,899m (2021: $1,465m).

The UK business generated rental only revenue of £104m, up 5% on the prior year (2021: £99m). Following the cessation of free mass COVID testing in April 2022, revenue from the Department of Health related to the demobilisation of the testing sites and was significantly lower than the prior year. The demobilisation was completed during the first quarter. Excluding the impact of the work for the Department of Health, rental only revenue increased 19%. Rental revenue increased 11% to £149m (2021: £134m). Total revenue decreased 4% to £182m (2021: £190m) reflecting the high level of ancillary and sales revenue associated with the work for the Department of Health, which accounted for c. 16% of revenue in the quarter.

Canada's rental only revenue increased 18% to C$131m (2021: C$111m). Markets are robust and the original Canadian business is growing in a similar manner to the US with strong volume growth and rate improvement, in a good rate environment. The lighting, grip and lens business continues to be affected by market uncertainty, with the threat earlier this year of strikes by production staff in Vancouver, resulting in productions being delayed or moved elsewhere. Rental revenue increased 20% to C$159m (2021: C$132m), while Canada's total revenue was C$176m (2021: C$149m).

In common with many businesses, we face inflationary pressures across most cost lines, but particularly in relation to labour, transportation and fuel. While our strong performance on rate, combined with our scale, has enabled us to navigate this inflationary environment, driving strong revenue and profit growth, it is a drag on drop through and margins. This, combined with our targeted investment in the infrastructure of the business as part of Sunbelt 3.0, particularly our technology platform, and in bolt-ons, which are typically lower margin businesses, has resulted in US rental revenue drop through to EBITDA of 43%. This contributed to a reported EBITDA margin of 48.2% (2021: 49.5%) and a 31% increase in segment profit to $567m (2021: $432m) at a margin of 29.9% (2021: 29.5%).

The UK business remains focused on delivering operational efficiency and improving returns in the business. However, this year will be a transition year as we accelerated the demobilisation of the assets dedicated to the Department of Health testing centres and look to redeploy them elsewhere in the business. As a result, the UK generated an EBITDA margin of 31.4% (2021: 32.7%) and a segment profit of £26m (2021: £31m) at a margin of 14.2% (2021: 16.5%).

Our Canadian business continues to develop and enhance its performance as it invests to expand its network and broaden its markets. The growth and margin improvement in the original Canadian business has been more than offset by the drag from the lighting, grip and lens business resulting in a 43.1% EBITDA margin (2021: 45.0%) and a segment profit of C$38m (2021: C$35m) at a margin of 21.8% (2021: 23.3%).

Overall, Group adjusted operating profit increased to $622m (2021: $498m), up 26% at constant exchange rates. After net financing costs of $67m (2021: $61m), Group profit before amortisation of intangibles and taxation was $555m (2021: $437m). After a tax charge of 25% (2021: 27%) of the adjusted pre-tax profit, adjusted earnings per share increased 33% at constant currency to 94.4ȼ (2021: 71.5ȼ).

Statutory profit before tax was $527m (2021: $416m). This is after amortisation of $28m (2021: $21m). Included within the total tax charge is a tax credit of $7m (2021: $5m) which relates to the amortisation of intangibles. As a result, basic earnings per share were 89.7¢ (2021: 68.0¢).

Capital expenditure and acquisitions

Capital expenditure for the quarter was $699m gross and $593m net of disposal proceeds (2021: $551m gross and $477m net). We continue to navigate the supply chain challenges but given strong demand and slower fleet deliveries than expected during the period, we again deferred certain fleet disposals. As a result, the Group's rental fleet at 31 July 2022 at cost was $14.0bn and our average fleet age is now 40 months (2021: 41 months).

We invested $337m (2021: $123m) including acquired borrowings in 12 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 $183m in bolt-ons.

Return on Investment

In the US, return on investment (excluding goodwill and intangible assets) for the 12 months to 31 July 2022 was 26% (2021: 22%). In the UK, return on investment (excluding goodwill and intangible assets) was 12% (2021: 14%). The decrease reflects reduced volumes, particularly service and sales, supporting the Department of Health as we have demobilised testing sites. In Canada, return on investment (excluding goodwill and intangible assets) was 20% (2021: 21%). This slight reduction reflects the drag from our lighting, grip and lens business. For the Group as a whole, return on investment (including goodwill and intangible assets) was 18% (2021: 17%). Return on investment excludes the impact of IFRS 16.

Cash flow and net debt

The Group generated free cash flow of $91m (2021: $420m) during the period after capital expenditure payments of $667m (2021: $333m). However, as expected, debt increased as we continued to invest in bolt-ons and returned capital to shareholders. During the quarter, we spent $119m (£97m) on share buybacks (2021: $104m (£75m)) under the two-year buyback programme launched in May 2021 of up to £1bn.

Net debt at 31 July 2022 was $7,716m (2021: $5,705m). Excluding the effect of IFRS 16, net debt at 31 July 2022 was $5,630m (2021: $4,033m), while the ratio of net debt to EBITDA was 1.6 times (2021: 1.3 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 2.0 times (2021: 1.8 times) on a constant currency basis.

At 31 July 2022, availability under the senior secured debt facility was $2,064m with an additional $3,380m of suppressed availability - substantially above the $450m level at which the Group's entire debt package is covenant free.

In August 2022, the Group issued $750m 5.500% senior notes maturing in August 2032. 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 4%.

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 is performing well with clear momentum in supportive end markets. We are in a position of strength and have the experience to navigate the challenges and capitalise on the opportunities arising from the market circumstances we face, including supply chain constraints, inflation, labour scarcity and economic uncertainty, all factors which we are convinced are drivers of ongoing structural change. The business is performing strongly, with revenue and operating profit ahead of our previous expectations. This performance is offset by increasing interest costs and therefore, we expect adjusted profit before taxation for the year to be in line with our previous expectations and the Board looks to the future with confidence.

1 Represents change in year-over-year rental revenue at constant exchange rates

2 UK total revenue down c. 10% due to NHS impact

3 Stated at C$1=$0.77 and £1=$1.20

CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS ENDED 31 JULY 2022

*EBITDA is presented here as an alternative performance measure as it is commonly used by investors and lenders.

All revenue and profit is generated from continuing operations.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED 31 JULY 2022

CONSOLIDATED BALANCE SHEET AT 31 JULY 2022

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED 31 JULY 2022

CONSOLIDATED CASH FLOW STATEMENT FOR THE THREE MONTHS ENDED 31 JULY 2022

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. General information

Ashtead Group plc ('the Company') is a company incorporated and domiciled in England and Wales and listed on the London Stock Exchange. The condensed consolidated interim financial statements as at, and for the three months ended 31 July 2022, comprise the Company and its subsidiaries ('the Group').

The condensed consolidated interim financial statements for the three months ended 31 July 2022 were approved by the directors on 5 September 2022.

The condensed consolidated interim financial statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The statutory accounts for the year ended 30 April 2022 were approved by the directors on 13 June 2022 and have been mailed to shareholders and filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, did not include a reference to any matter by way of emphasis and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

2. Basis of preparation

The condensed consolidated interim financial statements for the three months ended 31 July 2022 have been prepared in accordance with relevant United Kingdom adopted International Financial Reporting Standards ('IFRS'), including IAS 34, Interim Financial Reporting, and the accounting policies set out in the Group's Annual Report & Accounts for the year ended 30 April 2022.

The directors have adopted various alternative performance measures to provide additional useful 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 within the Glossary of Terms on page 28.

The condensed consolidated interim financial statements have been prepared on the going concern basis. The Group's internal budgets and forecasts of future performance, available financing facilities and facility headroom (see Note 12), provide a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future and consequently the going concern basis continues to be appropriate in preparing the financial statements.

In preparing the financial statements, the exchange rates used in respect of the pound sterling (£) and Canadian dollar (C$) are:

3. Segmental analysis

4. Operating costs and other income

5. Amortisation

Amortisation relates to the write-off of intangible assets over their estimated useful economic life. The Group believes this item should be disclosed separately within the consolidated income statement to assist in the understanding of the financial performance of the Group. Adjusted profit and earnings per share are stated before amortisation of intangibles.

6. Net financing costs

7. Taxation

The tax charge for the period has been computed using a tax rate of 25% in the US (2021: 25%), 19% in the UK, rising to 25% from 1 April 2023 (2021: 19%) and 26% in Canada (2021: 26%). This results in a blended effective rate for the Group as a whole of 25% (2021: 27%).

The tax charge of $138m (2021: $117m) on the adjusted profit before taxation of $555m (2021: $437m) can be explained as follows:

In addition, the tax credit of $7m (2021: $5m) on amortisation of $28m (2021: $21m) consists of a current tax credit of $3m (2021: $2m) relating to the US, $0.1m (2021: $0.2m) relating to the UK and $0.2m (2021: $0.1) relating to Canada and a deferred tax credit of $3m (2021: $1m) relating to the US, $0.2m (2021: $0.2m) relating to the UK and $1m (2021: $1m) relating to Canada.

8. Earnings per share

Basic and diluted earnings per share for the three months ended 31 July 2022 have been calculated based on the profit for the period and the weighted average number of ordinary shares in issue during that period (excluding shares held by the Company and the ESOT over which dividends have been waived). Diluted earnings per share is computed using the result for the relevant period and the diluted number of shares (ignoring any potential issue of ordinary shares which would be anti-dilutive). These are calculated as follows:

Adjusted earnings per share (defined in any period as the earnings before exceptional items and amortisation for that period divided by the weighted average number of shares in issue in that period) may be reconciled to the basic earnings per share as follows:

9. Property, plant and equipment

10. Right-of-use assets