Ashtead Group Regulatory News (AHT)

19 June 2018

Audited results for the year and unaudited results

for the fourth quarter ended 30 April 2018

Highlights

· Revenue up 20%; rental revenue up 21%1

· Pre-tax profit2 of £927m (2017: £793m)

· Earnings per share1,2 up 26% to 127.5p (2017: 104.3p)

· Post-tax profit of £969m (2017: £501m)

· £1.2bn of capital invested in the business (2017: £1.1bn)

· £386m of free cash flow generation3 (2017: £319m)

· £392m spent on bolt-on acquisitions (2017: £437m)

· Net debt to EBITDA leverage1 of 1.6 times (2017: 1.7 times)

· Proposed final dividend of 27.5p, making 33.0p for the full year, up 20% (2017: 27.5p)

Ashtead's chief executive, Geoff Drabble, commented:

"I am delighted to be able to report another very successful year for Ashtead with rental revenue increasing 21% and underlying pre-tax profit increasing 21% to £927m, both at constant exchange rates.

Our end markets remain strong and are supported by the continued structural changes in our market as customers rely increasingly on rental while we leverage the benefits of scale. We continue to execute well on our strategy through a combination of organic growth and bolt-on acquisitions, investing £1.2bn by way of capital expenditure and £392m on bolt-on acquisitions in the year.

Our strong margins and lower replacement capital expenditure are delivering good earnings growth and significant free cash flow generation. This provides us with significant operational and financial flexibility, enabling us to invest in the long-term structural growth opportunity and enhance returns to shareholders while maintaining leverage within our target range of 1.5 to 2.0 times net debt to EBITDA. We have spent £200m under the share buyback programme announced in December.

All our divisions continue to perform well in supportive end markets. Looking forward, we anticipate a similar level of capital expenditure in 2018/19 consistent with our strategic plan. So, with all divisions performing well and a strong balance sheet to support our plans, the Board continues to look to the medium term with confidence."

Contacts:

Geoff Drabble and Michael Pratt will hold a meeting for equity analysts to discuss the results and outlook at 9am on Tuesday, 19 June 2018. The meeting will be webcast live via the Company's website at www.ashtead-group.com and a replay will also be available via the website from shortly after the meeting concludes. A copy of this announcement and the slide presentation used for the meeting will also be available for download on the Company's website. The usual conference call for bondholders will begin at 3.30pm (10.30am EST).

Analysts and bondholders have already been invited to participate in the analyst meeting and conference call for bondholders but any eligible person not having received dial-in details should contact the Company's PR advisers, Maitland (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

Group revenue for the year increased 16% to £3,706m (2017: £3,187m) with strong growth in each of our markets. This revenue growth, combined with our focus on drop-through, generated underlying profit before tax of £927m (2017: £793m).

The Group's strategy remains unchanged with growth being driven by strong organic growth (same-store and greenfield) supplemented by bolt-on acquisitions. Sunbelt US, A-Plant and Sunbelt Canada delivered 20%, 13% and 152% rental only revenue growth respectively. The significant growth in Sunbelt Canada reflects the acquisition of CRS in August 2017.

Sunbelt US's revenue growth continues to benefit from cyclical and structural trends and can be explained as follows:

Sunbelt US's revenue growth demonstrates the successful execution of our long-term structural growth strategy. We continue to capitalise on the opportunity presented by our markets through a combination of organic growth (same-store growth and greenfields) and bolt-ons as we expand our geographic footprint and our specialty businesses. We added 62 new stores in the US in the year, around half of which were specialty locations.

Rental only revenue growth was 20% in strong end markets. This growth was driven by increased fleet on rent, with yield flat year-over-year. Sunbelt US has made a significant contribution to the clean-up efforts following hurricanes Harvey, Irma and Maria. While it is difficult to assess the overall revenue impact of these efforts, we estimate that these events resulted in incremental total rental revenue in the year of c. $100m. Average physical utilisation for the year was 72% (2017: 71%). Sunbelt US's total revenue, including new and used equipment, merchandise and consumable sales, increased 18% to $4,153m (2017: $3,525m).

A-Plant generated rental only revenue of £344m, up 13% on the prior year (2017: £304m). This was driven by increased fleet on rent, partially offset by yield. The adverse yield reflects a combination of product mix and rate pressure in the competitive UK market. A-Plant's total revenue increased 13% to £472m (2017: £418m).

The acquisition of CRS in August 2017 more than doubled the size of the Sunbelt Canada business. The underlying business performed strongly with rental revenue growth of 20% and, with the addition of CRS, Sunbelt Canada generated revenue of C$223m (2017: C$77m) in the year.

We continue to focus on operational efficiency and improving margins. In Sunbelt US, 50% of revenue growth dropped through to EBITDA. The strength of our mature stores' incremental margin is reflected in the fact that this was achieved despite the drag effect of greenfield openings and acquisitions. This resulted in an EBITDA margin of 50% (2017: 50%) and contributed to a 20% increase in operating profit to $1,293m (2017: $1,081m).

A-Plant's drop-through of 36% reflects its greater proportion of specialty businesses and ongoing integration of recent acquisitions. This contributed to an EBITDA margin of 35% (2017: 37%) and an operating profit of £70m (2017: £72m), representing a good performance in a competitive market.

Reflecting the strong performance of the divisions, Group underlying operating profit increased 16% to £1,037m (2017: £898m). Net financing costs increased to £110m (2017: £104m) reflecting higher average debt levels. As a result, Group profit before amortisation of intangibles, exceptional items and taxation was £927m (2017: £793m). After a tax charge of 32% (2017: 34%) of the underlying pre-tax profit, underlying earnings per share increased 22% to 127.5p (2017: 104.3p). The reduction in the Group's underlying tax charge from 34% to 32% reflects the reduction in the US federal rate of tax from 35% to 21% with effect from 1 January 2018, following the enactment of the Tax Cuts and Jobs Act of 2017. The cash tax charge was 10%. This reflects the lower federal tax rate in the US from 1 January 2018 and full expensing of capital expenditure from 27 September 2017.

Exceptional net financing costs of £22m (including cash costs of £25m) related to the redemption of our $900m 6.5% senior secured notes in August 2017. After the net exceptional charge of £22m (2017: £nil) and amortisation of £43m (2017: £28m), statutory profit before tax was £862m (2017: £765m).

The exceptional tax credit of £401m consists of principally a credit of £402m arising from the remeasurement of the Group's US deferred tax liabilities at the newly-enacted US federal tax rate of 21% rather than the historical rate of 35%. As a result, basic earnings per share were 195.3p (2017: 100.5p).

Capital expenditure and acquisitions

Capital expenditure for the year was £1,239m gross and £1,081m net of disposal proceeds (2017: £1,086m gross and £917m net). Reflecting this investment, the Group's rental fleet at 30 April 2018 at cost was £6.6bn. Our average fleet age is now 32 months (2017: 29 months).

We invested £392m (2017: £437m), including acquired debt, in 17 bolt-on acquisitions during the year as we continue to both expand our footprint and diversify into specialty markets.

We expect a similar level of capital expenditure next year, consistent with our strategic plan, which anticipates high single digit to low teen growth through to 2021.

Return on Investment

Sunbelt US's pre-tax return on investment (excluding goodwill and intangible assets) in the 12 months to 30 April 2018 was 24% (2017: 22%). In the UK, return on investment (excluding goodwill and intangible assets) was 11% (2017: 13%). In Canada, return on investment (excluding goodwill and intangible assets) was 11% (2017: 6%). For the Group as a whole, return on investment (including goodwill and intangible assets) was 18% (2017: 17%).

Cash flow and net debt

As expected, debt increased during the year as we continued to invest in the fleet and made a number of bolt-on acquisitions. This was partially offset by £140m of currency translation benefit as sterling has strengthened since 30 April 2017. During the year, we spent £161m on share buybacks.

Net debt at 30 April 2018 was £2,712m (2017: £2,528m) while, reflecting our strong earnings growth, the ratio of net debt to EBITDA was 1.6 times (2017: 1.7 times) on a constant currency basis. The Group's target range for net debt to EBITDA is 1.5 to 2 times.

The Group's debt package remains well structured and flexible, enabling us to take advantage of prevailing end market conditions. Following the issue of the 4.125% $600m senior secured notes due in 2025 and the 4.375% $600m senior secured notes due in 2027, and the redemption of the 6.5% $900m senior secured notes in August 2017, the Group's debt facilities are committed for an average of six years.

At 30 April 2018, availability under the senior secured debt facility was $1,115m, with an additional $2,329m of suppressed availability - substantially above the $310m level at which the Group's entire debt package is covenant free.

Dividends

In accordance with our progressive dividend policy, with consideration to both profitability and cash generation at a level that is sustainable across the cycle, the Board is recommending a final dividend of 27.5p per share (2017: 22.75p) making 33.0p for the year (2017: 27.5p), an increase of 20%. If approved at the forthcoming Annual General Meeting, the final dividend will be paid on 14 September 2018 to shareholders on the register on 17 August 2018.

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, balancing capital efficiency and security with financial flexibility in a cyclical business and an assessment of whether it would be accretive to shareholder value. 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.

In December 2017, we announced a share buyback programme of at least £500m and up to £1bn over the following 18 months. At the date of this announcement, we have spent £200m under this programme and now expect to spend a minimum of £600m.

Current trading and outlook

All our divisions continue to perform well in supportive end markets. Thus, with a strong balance sheet to support our plans, the Board continues to look to the medium term with confidence.

Directors' responsibility statement on the annual report

The responsibility statement below has been prepared in connection with the Company's Annual Report & Accounts for the year ended 30 April 2018. Certain parts thereof are not included in this announcement.

"We confirm to the best of our knowledge:

a) the consolidated financial statements, prepared in accordance with IFRS as issued by the International Accounting Standards Board and IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

b) the Strategic Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces; and

c) the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide information necessary for shareholders to assess the Group's performance, business model and strategy.

By order of the Board

Eric Watkins

Company secretary

18 June 2018"

CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS ENDED 30 APRIL 2018

* 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.

Details of principal risks and uncertainties are given in the Review of Fourth Quarter, Balance Sheet and Cash Flow accompanying these condensed consolidated financial statements.

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 APRIL 2018

* 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

CONSOLIDATED BALANCE SHEET AT 30 APRIL 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 APRIL 2018

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 APRIL 2018

NOTES TO THE CONDENSED CONSOLIDATED 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 financial statements as at, and for the year ended, 30 April 2018 comprise the Company and its subsidiaries ('the Group').

The financial statements for the year ended 30 April 2018 were approved by the directors on 18 June 2018. This preliminary announcement of the results for the year ended 30 April 2018 contains information derived from the forthcoming 2017/18 Annual Report & Accounts and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

The statutory accounts for the year ended 30 April 2017 have been filed with the Registrar of Companies. The statutory accounts for the year ended 30 April 2018 will be delivered to the Registrar of Companies and made available on the Group's website at www.ashtead-group.com in July 2018. The auditor's report in respect of both years 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 financial statements for the year ended and quarter ended 30 April 2018 have been prepared in accordance with relevant IFRS and the accounting policies set out in the Group's Annual Report & Accounts for the year ended 30 April 2017. There are no new IFRS and IFRIC Interpretations that are effective for the first time for this financial year which have a material impact on the Group.

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 these condensed consolidated financial statements and summarised in the Glossary on page 36.

The 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 11), 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.

The exchange rates used in respect of the US dollar ($) and Canadian dollar (C$) are:

3. Segmental analysis

Following the acquisition of CRS Contractors Rental Supply Limited Partnership by Sunbelt Canada on 1 August 2017 (see note 14), the Group has reassessed its reportable operating segments and concluded that it is now appropriate to disclose Sunbelt Canada separately from the Sunbelt US business. The revised operating segments provide greater clarity as to the operating performance in each territory and align with other reporting by the Group.

Prior period disclosures have been restated to reflect this change in reportable segments.

4. Operating costs and other income

5. Exceptional items and amortisation

Exceptional items are those items of financial performance that are material and non-recurring in nature. Amortisation relates to the periodic write-off of intangible assets. The Group believes these items should be disclosed separately within the consolidated income statement to assist in the understanding of the financial performance of the Group. Underlying profit and earnings per share are stated before exceptional items and amortisation of intangibles.

The costs associated with the redemption of the $900m 6.5% senior secured notes in August 2017 have been classified as exceptional items. The write-off of deferred financing costs consists of the unamortised balance of the costs relating to the notes, whilst the release of premium related to the unamortised element of the premium which arose at the time of issuance of the $400m add-on to the initial $500m 6.5% senior secured notes. In addition, an early redemption fee of £24m ($31m) was paid to redeem the notes prior to their scheduled maturity. The call period interest represents the interest charge on the $900m notes for the period from the issue of the new $1.2bn notes to the date the $900m notes were redeemed. Of these items, total cash costs were £25m, whilst £3.5m (net income) were non-cash items and credited to the income statement.

The US Tax Cuts and Jobs Act of 2017 was enacted in December 2017 and, amongst other things, reduced the US federal tax rate from 35% to 21%. The exceptional tax credit of £402m ($543m) arises from the remeasurement of the Group's US deferred tax liabilities at the new rate of 21% rather than the historical rate of 35%. The exceptional deferred tax charge of £21m ($28m) relates to the reassessment of historical amounts deductible for tax purposes in the US.

The items detailed in the table above are presented in the income statement as follows:

6. Net financing costs

7. Taxation

The tax charge for the year has been computed using a tax rate of 34% in the US (2017: 39%), 19% in the UK (2017: 20%) and 27% in Canada (2017: 27%). The blended rate for the Group as a whole on underlying profit is 32% (2017: 34%).

The tax charge of £295m (2017: £273m) on the underlying profit before taxation of £927m (2017: £793m) can be explained as follows: