Summary

  • Ashtead is an international equipment rental company with national networks in the US, UK and Canada, trading under the name Sunbelt Rentals.
  • The company rent a full range of construction and industrial equipment across a wide variety of applications to a diverse customer base.
  • Ashtead is the second largest equipment rental company in North America with 910 stores in 46 states.

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Company Overview

Ashtead (OTC:ASHTF, LSE:AHT) is an international equipment rental company with national networks in the US, UK and Canada, trading under the name Sunbelt Rentals.

The company rent a full range of construction and industrial equipment across a wide variety of applications to a diverse customer base.1

The company's equipment can be used to lift, power, generate, move, dig, compact, drill, support, scrub, pump, direct, heat and ventilate - whatever is required.

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Company History

Ashtead was founded in 1947, in the village of Ashtead, Surrey, as Ashtead Plant and Tool Hire.2

YearMilestone
1947Ashtead plant hire company limited founded
1984Ashtead Group plc formed as a vehicle to acquire what was then a five branch business trading in the south-east of England with revenues of £1m
1986Ashtead Group plc lists on the London Stock Exchange
1990ASHTEAD ACQUIRES SUNBELT RENTALS
2000Ashtead acquires the US equipment rental interests of Rentokil Initial plc, thereby doubling the size of Sunbelt Rentals.
2006ASHTEAD ACQUIRES NATIONSRENT INC
2006Ashtead acquires the US number six in equipment rental, NationsRent Inc, for $1bn and becomes the second largest equipment rental company in the US.
2006Ashtead becomes the UK’s largest provider of rental traffic systems by acquiring Lux Traffic Controls Limited for £15.5m.
2014Sunbelt Rentals enters Southwest Canadian market by acquiring GWG Rentals.
2017Sunbelt Rentals doubles the size of its Canadian business with 30 locations added with the CRS acquisition.
2019Sunbelt Rentals acquires William F. White in Canada.

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Business Overview

The company operate mainly in the US, Canada and UK, under the brand name Sunbelt Rentals.3

US

The second largest equipment rental company in North America with 910 stores in 46 states.

Sunbelt US is its US based construction and industrial equipment rental division with 910 stores.

Sunbelt's principal market is the US non-residential construction market but it rents a full range of construction and industrial equipment across a wide variety of applications to a diverse customer base.

The company rent a wide range of equipment from a network of stores clustered in major metropolitan areas from Washington DC, and Baltimore on the Atlantic Coast through Miami, Tampa and Orlando in Florida to Los Angeles and Seattle on the West Coast. Sunbelt US aims to offer its customers a complete, one-stop shop service for all their rental requirements whether that be cleaning up after a major disaster such as a flood, temperature control or providing accommodation units and power for a sporting event.

Canada

Market share of 7% in Canada with 83 stores.

Ashtead entered the Canadian market under the Sunbelt Rentals brand in 2014 with the acquisition of a General Tool business and now have a broad based business with stores in Alberta, British Colombia, Ontario, Manitoba and Saskatchewan.  Ashtead Group has complemented its General Tool business with the introduction of its Specialty businesses to introduce cross-selling and drive rental penetration.

In 2019, the company expanded its Specialty business into the provision of production set and on-set equipment, services and studio facilities to the motion picture, digital media and television industries through the acquisition of William F. White.  In total, the company now have 83 locations in Canada.

UK

The largest equipment rental company in the UK with 186 stores.

Ashtead’s UK business trades under the Sunbelt Rentals name and rents a broad range of equipment, principally to general industrial and construction orientated customers.

Sunbelt UK operates 186 stores and serves a more mature market in the UK where rental penetration is estimated at around 75%.

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Financial Highlights

Group revenue of £5,031m was 3% for the year ended 30; April 2021 higher than the prior year at constant exchange rates (2020: £5,054m). The company's performance relative to the prior year improved as the company progressed through the year, with all its geographies delivering year-over-year growth in the fourth quarter. The lower activity levels, particularly in the first half of the year, had a significant impact on profit in the year as a large proportion of its costs are fixed in the short term. This profit impact reflects, in part, its decision to not make team members redundant as a result of COVID-19 and ensure the company had a committed workforce ready to take advantage of improving market conditions, when the recovery came. As a result, adjusted profit before tax for the year was £998m (2020: £1,061m).4

Although COVID-19 impacted the Group’s performance adversely, it highlighted the benefits of its strategy to broaden and diversify its end markets, which has contributed to this resilient performance. This has provided the foundation for the launch of the next phase of its strategy Sunbelt 3.0, again underpinned with long-term growth being driven by organic investment (same-store and greenfield) supplemented by bolt-on acquisitions.

In the US, rental only revenue of $3,976m was only 2% lower than the prior year (2020: $4,065m), representing a strong market outperformance and demonstrating the benefits of its strategy of growing its Specialty businesses and broadening its end markets. In the year, its Specialty businesses grew 13% while the General Tool business declined 4%. US total revenue, including new and used equipment, merchandise and consumable sales, decreased 1% to $5,418m (2020: $5,490m).

The UK business generated rental only revenue of £362m, an increase of 10% on a comparable basis (2020: £349m). This was a strong performance as the breadth of its product offering and commitment of its team members enabled it to provide essential support to the Department of Health in its COVID-19 response efforts. Total revenue increased 35% to £635m (2020: £469m) reflecting the higher level of ancillary and sales revenue associated with the work for the Department of Health, which accounted for c. 29% of UK revenue in the year.

Canada’s rental only revenue increased 27% on a reported basis. Excluding the contribution from William F. White (‘WFW’), rental only revenue of the legacy business declined only 2% and returned to growth in the fourth quarter (18%). Canadian total revenue was C$501m (2020: C$421m).

In all its markets the company took action to reduce operating costs and eliminate discretionary expenditure. However, its broad customer base ensures there continues to be good opportunities to grow the business and the company focused on disciplined investment as the Group returned to growth towards the end of the year. The company took early decisions not to make any team members redundant as a result of COVID-19 or seek assistance from any government support programmes but to continue investment in the business, including its technology platform and its rental fleet. As a result, in the US, 50% of the rental revenue decline dropped through to EBITDA. This contributed to a reported EBITDA margin of 49% (2020: 50%) and a 7% decrease in operating profit to $1,445m (2020: $1,560m) at a margin of 27% (2020: 28%).

Last financial year the company launched Project Unify in the UK with the objective of improving operational efficiency and returns in the business. This has resulted in significant investment in the operational infrastructure of the business which, when combined with the impact of COVID-19, contributed to an EBITDA margin of 30% (2020: 32%). Operating profit of £61m (2020: £36m) at a margin of 10% (2020: 8%) reflected these factors and a property impairment charge of c. £10m as the company reshape the business to drive operational improvement.

Canada is in a growth phase as the company invest to expand its network and develop the business. In December 2019 the company acquired WFW, which serves the film and TV production industries. While WFW contributed virtually no revenue in the first quarter, it bounced back strongly from September onwards generating record levels of revenue for the business and an operating profit of C$29m at a 23% margin. The legacy Canadian business, excluding WFW, increased its EBITDA margin to 43% (2020: 38%) and generated an operating profit of C$69m (2020: C$56m) at a 18% margin (2020: 15%). This performance reflects a strong focus on operational efficiency and the cost base.

Overall, Group adjusted operating profit decreased to £1,197m (2020: £1,285m), down 3% at constant exchange rates. After financing costs of £199m (2020: £224m), Group profit before amortisation of intangibles and taxation was £998m (2020: £1,061m).

Statutory profit before taxation was £936m (2020: £983m). This is after amortisation of £62m (2020: £62m) and, in the prior year, an exceptional interest cost of £16m.

The adjusted tax charge for the year was £254m (2020: £262m), representing an effective rate of 25% (2020: 25%) of adjusted pre-tax profit of £998m (2020: £1,061m). The cash tax charge was 34%.

The exceptional tax credit of £15m (2020: £19m) relates to a tax credit in relation to the amortisation of intangibles and exceptional items.

Adjusted earnings per share were 166.0p (2020: 175.0p) while basic earnings per share decreased to 155.7p (2020: 162.1p). Details of these calculations are included in Note 8 to the consolidated financial statements.

October 2021 Results

Effective from 1 May 2021, the Group changed its presentational currency from sterling to US dollars to allow for greater transparency in the Group’s performance for investors and other stakeholders and to reduce exchange rate volatility in reported figures, given that c. 80% of the Group’s revenue and c. 90% of the Group’s operating profit originate in US dollars. Accordingly, the Group’s financial statements within this announcement are presented in US dollars.5

Group revenue increased 19% (18% at constant currency) to $3,884m in the first half (2020: $3,258m) against COVID-19 affected comparatives. This revenue growth, combined with strong operational execution, resulted in adjusted profit before tax increasing 43% to $979m (2020: $687m).

In the US, rental only revenue of $2,342m (2020: $2,025m) was 16% higher than the prior year (and 9% higher than 2019), representing continued market outperformance and demonstrating the benefits of its strategy of growing its specialty businesses and broadening its end markets. In the first half, its general tool business grew 13%, from the depressed activity levels in the prior year, while its specialty businesses, which grew throughout last year, grew 23%. While rental revenue growth has been driven by volume, it has benefitted from improved rates in what is a better rate environment than Ashtead Group has seen for a number of years. The company estimate that hurricane efforts contributed $60-65m of revenue in the second quarter. US total revenue, including new and used equipment, merchandise and consumable sales, increased 14% to $3,124m (2020: $2,747m).

The UK business generated rental only revenue of £203m, up 18% on the prior year (2020: £172m). While its performance continues to benefit from its essential support to the Department of Health in its COVID-19 response efforts, its core business is performing strongly and is benefitting from the operational improvements in the business which are ongoing. Total revenue increased 35% to £368m (2020: £273m) reflecting the higher level of ancillary and sales revenue associated with the work for the Department of Health, which accounted for c. 32% of UK revenue in the half year. Ashtead Group is supporting c.500 testing sites at the moment, which the company expect to continue through the winter before reducing significantly in Spring 2022.

Canada’s rental only revenue increased 47% to C$233m (2020: C$159m). This rate of growth reflects, in part, the depressed comparatives last year, when lock-downs affected Canada more severely than the US and its lighting, grip and studios business generated minimal revenue in the March to July 2020 timeframe as most film and TV production activities ceased. Canada’s total revenue was C$310m (2020: C$220m).

Last year, the company took action to reduce operating costs and eliminate discretionary expenditure in all its markets. While the company continue to maintain a focus on the cost base, a number of these costs have returned to the business, reflecting the increased activity levels. In addition, the company continue to invest in its technology platform and face inflationary pressures, particularly in relation to labour, transportation and fuel costs. As a result, in the US, 44% of the rental revenue increase dropped through to EBITDA. This contributed to a reported EBITDA margin of 50% (2020: 50%) and a 24% increase in segment profit to $969m (2020: $782m) at a margin of 31% (2020: 28%).

The UK business continues to be focused on delivering operational efficiency and improving returns in the business, while continuing to support the Department of Health. These factors contributed to an EBITDA margin of 31% (2020: 32%) and a segment profit of £54m (2020: £20m) at a margin of 15% (2020: 7%).

The development of its Canadian business continues as it invests to expand its network and broaden its markets. Growth has been achieved across the business while delivering a 48% EBITDA margin (2020: 42%) and generating a segment profit of C$81m (2020: C$33m) at a margin of 26% (2020: 15%). The margin improvement reflects principally the contribution from the lighting, grip and studio business, which was loss-making in the same period last year.

Overall, Group adjusted operating profit increased to $1,095m (2020: $824m), up 32% at constant exchange rates. After net financing costs of $116m (2020: $137m), Group profit before exceptional items, amortisation of intangibles and taxation was $979m (2020: $687m). After a tax charge of 26% (2020: 26%) of the adjusted pre-tax profit, adjusted earnings per share increased 43% at constant currency to 162.4ȼ (2020: 113.6ȼ). The tax charge in the period includes a $10m charge, reflecting an increase in the UK deferred tax liability due to UK legislation being substantively enacted which increases the UK corporate tax rate from 19% to 25% from 1 April 2023.

Statutory profit before tax was $890m (2020: $646m). This is after amortisation of $42m (2020: $41m) and, in the current year, exceptional interest costs of $47m. Included within the total tax charge is a tax credit of $22m (2020: $10m) which relates to exceptional items and the amortisation of intangibles. As a result, basic earnings per share were 147.5¢ (2020: 106.7¢). The overall cash tax charge was 16%.

In line with its policy of providing a progressive dividend, having regard to both underlying profit and cash generation and to sustainability through the economic cycle, the Board has increased the interim dividend 28% to 12.5¢ per share (2020: 9.76¢ per share).

Capital expenditure and acquisitions

Capital expenditure for the first half was $1,176m gross and $1,035m net of disposal proceeds (2020: $438m gross and $245m net). Fleet deliveries were slower than expected throughout the half year due to supply chain delays and therefore Ashtead Group has deferred certain fleet disposals to meet strong demand. As a result, the Group’s rental fleet at 31 October 2021 at cost was $12.8bn and its average fleet age is now 40 months (2020: 39 months).

The company invested $428m (2020: $nil) in 10 bolt-on acquisitions during the half year as the company continue to both expand its footprint and diversify its end markets. Since the period end, Ashtead Group has invested a further $320m in bolt-ons.

Chief Executive, Brendan Horgan, Commented

“The Group’s strong performance continues with rental revenue up 20% for the half year over the prior year, but more importantly up 14% when compared with the first half of 2019/20, both at constant currency. This market outperformance across the business is only possible through the dedication of its team members who deliver for all its stakeholders every day, while ensuring its leading value of safety remains at the forefront of all the company do.

Sunbelt 3.0 has been embraced by the business and Ashtead Group is making good progress across all actionable components. In the period, the company invested $1.2bn in capital across existing locations and greenfields and $428m on 10 bolt-on acquisitions, adding a combined total of 58 locations in North America. Ashtead Group has a healthy bolt-on pipeline and have already spent a further $320m in the third quarter. This investment takes advantage of the ongoing structural growth opportunity that the company continue to see in the business as the company seek to deliver on its strategic priorities to grow general tool and amplify specialty.

References

  1. ^ https://www.ashtead-group.com/about-us/
  2. ^ https://www.ashtead-group.com/about-us/our-history/
  3. ^ https://www.ashtead-group.com/our-businesses/
  4. ^ https://www.ashtead-group.com/files/downloads/reports/Ashtead_Group_plc_Annual_Report_and_Accounts_2021.pdf
  5. ^ https://www.ashtead-group.com/files/downloads/InvestorCentre/2021/Q2-2022-results-press-release.pdf
Created by Asif Farooqui on 2021/12/28 14:36
     

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