1st Quarter Results

Ashtead Group plc Unaudited results for the first quarter ended 31 July 2010 Change 2010 2009 Actual At constant rates £m £m % % Underlying results¹ Revenue 239.1 221.6 +8% +2% EBITDA 78.4 71.6 +10% +3% Operating profit 30.2 23.9 +26% +17% Profit before taxation 11.9 8.8 +35% +18% Earnings per share 1.6p 1.2p +34% +19% Statutory results Profit before taxation 14.0 8.2 +70% +56% Earnings per share 1.8p 1.1p +70% +72% Highlights * Encouraging improvement in year on year Group profit * Return to profit growth in both divisions * Capital expenditure of £51m (2009: £15m) in line with previous guidance * Balance sheet remains strong and our debt well structured with long maturities, lower net debt of £806m (2009: £873m) and conservative leverage of 3.1 times EBITDA 1 Before exceptionals, intangible amortisation and fair value remeasurements Ashtead's chief executive, Geoff Drabble, commented: "We are pleased to announce good Group profit growth for the first quarter, reflecting an improvement in both divisions. Whilst end markets remain fragile, our strong performance in fleet on rent reflects the impact of the responsible correction in fleet sizes throughout the rental industry and increased outsourcing by customers, a trend we expect to continue. Gross capital expenditure totalled £51m (2009: £15m) as we began the fleet reinvestment programme announced in June. Our investment remains flexible and directed towards replacement not growth as we focus on maintaining the momentum we have established in yield improvement in recent months. We continue to believe in the fundamental strength of the underlying demand and opportunities in our end markets. The business is delivering strong margins and gaining market share which, together with its financial strength, means that the Board believes that Ashtead is particularly well placed to benefit as markets recover." Contacts: Geoff Drabble Chief executive +44 (0)20 7726 9700 Ian Robson Finance director Brian Hudspith Maitland +44 (0)20 7379 5151 Trading results Revenue EBITDA Operating profit 2010 2009 2010 2009 2010 2009 Sunbelt in $m 297.3 287.7 100.8 98.9 44.2 38.9 ===== ===== ===== ==== ==== ==== Sunbelt in £m 199.4 179.0 67.6 61.6 29.7 24.3 A-Plant 39.7 42.6 12.3 11.4 2.0 1.1 Group central costs - - (1.5) (1.4) (1.5) (1.5) --- --- --- --- --- --- 239.1 221.6 78.4 71.6 30.2 23.9 ===== ===== ==== ==== Net financing costs (18.3) (15.1) ---- ---- Profit before tax, remeasurements and amortisation 11.9 8.8 Fair value remeasurements 2.5 - Amortisation (0.4) (0.6) --- --- Profit before taxation 14.0 8.2 Taxation (4.9) (2.8) --- --- Profit attributable to equity holders of the Company 9.1 5.4 === === Margins Sunbelt 33.9% 34.4% 14.9% 13.5% A-Plant 31.0% 26.7% 5.1% 2.6% Group 32.8% 32.3% 12.6% 10.8% First quarter results reflect gradually improving conditions in the US with Sunbelt's rental revenues growing 1% to $271m (2009: $268m). Sunbelt's total revenue grew faster at 3% supported by higher used equipment sales as we stepped up fleet replacement. Average US fleet on rent in the quarter grew 1% over Q1 last year. Yield was broadly flat year on year although sequentially the series of small monthly increments in both fleet on rent and yield since January 2010 we reported in June continued throughout the quarter. In the UK, A-Plant's rental revenues declined 6% to £38m (2009: £40m). This reflected good growth of 3% in average fleet on rent with demand for A-Plant's quality service continuing to result in market share gains. UK yield declined 7% year on year principally due to the full year effect of price renegotiations last Autumn with its key accounts (which in aggregate constitute approximately 50% of its revenues). Lower costs, reflecting the full year impact of measures we took in earlier quarters and a reduced depreciation charge on our smaller but well utilised fleet, helped deliver good operating profit growth despite the still weak end construction markets. Underlying pre-tax profit for the quarter grew by 35% to £11.9m (2009: £8.8m) reflecting the operating profit growth and higher net financing costs which increased due to the full year impact of last November's senior debt refinancing. After a credit of £2.5m relating to the remeasurement to fair value of the early prepayment option in our long-term debt and £0.4m of intangible amortisation, the statutory profit before tax was £14.0m (2009: £8.2m). The effective tax rate on the underlying pre-tax profit was again stable at 35% (2009: 35%). Underlying earnings per share grew 34% to 1.6p (2009: 1.2p) whilst basic earnings per share were 1.8p (2009: 1.1p). Capital expenditure For the year as a whole we continue to anticipate investing around £225m gross and £175m net of disposal proceeds, principally on fleet replacement and thereby holding fleet age broadly flat over the course of the fiscal year. For the quarter, capital expenditure was in line with this guidance at £51m (2009: £15m) gross and £41m (2009: £9m) net of disposal proceeds of £10m. As a result the average age of the Group's rental fleet at 31 July 2010 was 44 months, unchanged from year end. Cash flow and net debt Reflecting the £32m increase in net capital expenditure and a £20m increase in the value of receivables since April as quarterly revenues regained more usual seasonal patterns, £6m (2009: £57m) of net cash was generated in the quarter and applied to reduce outstanding debt. Reflecting this and currency fluctuations, net debt at 31 July 2010 was £806m (30 April 2010: £829m) whilst the ratio of net debt to EBITDA was 3.1 times at 31 July 2010, unchanged from year end. Availability on the ABL senior debt facility at 31 July 2010 was $584m (30 April 2010: $537m) substantially above the $150m level at which the Group's entire debt package is covenant free. Current trading and outlook August saw both Sunbelt and A-Plant perform in line with expectations and continue the pattern established in the first quarter. We continue to believe in the fundamental strength of our markets. The business is delivering strong margins and gaining market share which, together with its financial strength, means that the Board believes that Ashtead is well placed to benefit as markets recover. Geoff Drabble and Ian Robson will hold a conference call for equity analysts at 9.30am on Tuesday 7 September. Dial in details for this call have already been distributed but any analyst not having received them should contact the Company's PR advisers, Maitland (Emma Stevens), on +44 (0)20 7379 5151. The call will be webcast live via the Company's website at www.ashtead-group.com and there will also be a replay available via the website from shortly after the call concludes. There will, as usual, also be a separate call for bondholders at 3.30pm UK time (10.30am EST). CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTHS ENDED 31 JULY 2010 2010 2009 Before Before exceptionals, Exceptionals, exceptional Exceptional amortisation amortisation items items and and and and remeasurements remeasurements Total amortisation amortisation Total £m £m £m £m £m £m Revenue Rental revenue 219.6 - 219.6 206.8 - 206.8 Sale of new equipment, merchandise and consumables 11.0 - 11.0 11.1 - 11.1 Sale of used rental 8.5 - 8.5 3.7 1.2 4.9 equipment --- -- --- --- --- --- 239.1 - 239.1 221.6 1.2 222.8 ----- -- --- --- --- --- Operating costs Staff costs (70.6) - (70.6) (70.0) - (70.0) Used rental equipment sold (8.3) - (8.3) (4.4) (1.2) (5.6) Other operating costs (81.8) - (81.8) (75.6) - (75.6) ---- -- ---- ---- ---- ---- (160.7) - (160.7) (150.0) (1.2) (151.2) ----- -- ----- ----- ---- ---- EBITDA* 78.4 - 78.4 71.6 - 71.6 Depreciation (48.2) - (48.2) (47.7) - (47.7) Amortisation of intangibles - (0.4) (0.4) - (0.6) (0.6) -- --- ---- -- ---- ---- Operating profit 30.2 (0.4) 29.8 23.9 (0.6) 23.3 Net financing costs (18.3) 2.5 (15.8) (15.1) - (15.1) ----- --- ---- ---- ---- ---- Profit on ordinary activities before taxation 11.9 2.1 14.0 8.8 (0.6) 8.2 Taxation: - current (2.1) - (2.1) (0.9) - (0.9) - deferred (2.1) (0.7) (2.8) (2.1) 0.2 (1.9) ---- -- ---- ---- --- ---- (4.2) (0.7) (4.9) (3.0) 0.2 (2.8) ---- -- ---- ---- --- ---- Profit attributable to equity holders of the Company 7.7 1.4 9.1 5.8 (0.4) 5.4 === === === === ==== === Basic earnings per share 1.6p 0.2p 1.8p 1.2p (0.1p) 1.1p === === === === ==== === Diluted earnings per share 1.5p 0.3p 1.8p 1.2p (0.1p) 1.1p === === === === ==== === * EBITDA is presented here as an additional performance measure as it is commonly used by investors and lenders. All revenue and profit is generated from continuing activities. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED 31 JULY 2010 2010 2009 £m £m Profit attributable to equity holders of the Company for 9.1 5.4 the period Foreign currency translation differences (5.0) (24.4) Tax on share-based payments 0.3 - --- -- Total comprehensive income for the period 4.4 (19.0) === ====== Details of principal risks and uncertainties are given in the Review of the Balance Sheet and Cashflow accompanying these interim financial statements. CONSOLIDATED BALANCE SHEET AT 31 JULY 2010 Unaudited Audited 31 July 30 April 2010 2009 2010 £m £m £m Current assets Inventories 10.2 9.5 9.9 Trade and other receivables 152.2 137.6 134.7 Current tax asset 1.1 1.0 1.1 Cash and cash equivalents 54.6 2.4 54.8 ---- ---- ---- 218.1 150.5 200.5 Assets held for sale - 0.3 - -- --- -- 218.1 150.8 200.5 ----- ----- ----- Non-current assets Property, plant and equipment - rental equipment 948.9 1,011.8 969.7 - other assets 128.8 137.2 131.9 ----- ----- ----- 1,077.7 1,149.0 1,101.6 Intangible assets - brand names and other acquired 2.9 5.0 3.3 intangibles Goodwill 365.4 346.0 373.6 Deferred tax asset 7.8 10.6 7.8 Other financial assets - derivatives 8.0 - 5.7 Defined benefit pension fund surplus - 0.4 - -- --- -- 1,461.8 1,511.0 1,492.0 ------- ------- ------- Total assets 1,679.9 1,661.8 1,692.5 ======= ======= ======= Current liabilities Trade and other payables 137.9 108.5 130.6 Current tax liability 2.8 - 2.1 Debt due within one year 2.3 5.9 3.1 Provisions 11.9 14.3 12.0 ---- ---- ---- 154.9 128.7 147.8 ----- ----- ----- Non-current liabilities Debt due after more than one year 857.8 869.0 880.7 Provisions 28.4 34.3 29.4 Deferred tax liabilities 126.2 122.6 126.6 Defined benefit pension fund deficit 7.6 - 7.7 --- -- --- 1,020.0 1,025.9 1,044.4 ------- ------- ------- Total liabilities 1,174.9 1,154.6 1,192.2 ------- ------- ------- Equity Share capital 55.3 55.3 55.3 Share premium account 3.6 3.6 3.6 Capital redemption reserve 0.9 0.9 0.9 Non-distributable reserve 90.7 90.7 90.7 Own shares held by the Company (33.1) (33.1) (33.1) Own shares held through the ESOT (6.3) (6.3) (6.3) Cumulative foreign exchange translation 15.1 4.7 20.1 differences Retained reserves 378.8 391.4 369.1 ----- ----- ----- Equity attributable to equity holders of the 505.0 507.2 500.3 Company ----- ----- ----- Total liabilities and equity 1,679.9 1,661.8 1,692.5 ======= ======= ======= CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED 31 JULY 2010 Cumulative Own foreign Share Capital Non- shares exchange Share premium redemption distributable Treasury held by translation Retained capital account reserve reserve stock ESOT differences reserves Total £m £m £m £m £m £m £m £m £m At 1 May 2009 55.3 3.6 0.9 90.7 (33.1) (6.3) 29.1 385.8 526.0 Total comprehensive income for the period - - - - - - (24.4) 5.4 (19.0) Share-based payments - - - - - - - 0.2 0.2 --- --- --- --- --- --- --- --- --- At 31 July 2009 55.3 3.6 0.9 90.7 (33.1) (6.3) 4.7 391.4 507.2 Total comprehensive income for the period - - - - - - 15.4 (9.8) 5.6 Dividends paid - - - - - - - (12.8) (12.8) Share-based payments - - - - - - - 0.3 0.3 --- --- --- --- --- --- --- --- --- At 30 April 2010 55.3 3.6 0.9 90.7 (33.1) (6.3) 20.1 369.1 500.3 Total comprehensive income for the period - - - - - - (5.0) 9.4 4.4 Share-based payments - - - - - - - 0.3 0.3 --- --- --- --- --- --- --- --- --- At 31 July 2010 55.3 3.6 0.9 90.7 (33.1) (6.3) 15.1 378.8 505.0 ==== === === ==== ==== === ==== ===== ===== CONSOLIDATED CASH FLOW STATEMENT FOR THE THREE MONTHS ENDED 31 JULY 2010 2010 2009 £m £m Cash flows from operating activities Cash generated from operations before exceptional items and changes in rental fleet 57.3 74.7 Exceptional costs paid (1.3) (2.7) Payments for rental property, plant and equipment (45.7) (16.4) Proceeds from disposal of rental property, plant and equipment before exceptional disposals 7.9 4.7 Exceptional proceeds from disposal of rental property, plant and equipment - 1.2 --- --- Cash generated from operations 18.2 61.5 Financing costs paid (net) (7.5) (2.6) Tax paid (net) (1.3) (0.5) --- ---- Net cash from operating activities 9.4 58.4 --- ---- Cash flows from investing activities Payments for non-rental property, plant and equipment (5.4) (2.7) Proceeds on disposal of non-rental property, plant and equipment 2.0 0.8 --- --- Net cash used in investing activities (3.4) (1.9) --- --- Cash flows from financing activities Drawdown of loans 11.8 9.3 Redemption of loans (16.8) (63.6) Capital element of finance lease payments (1.2) (1.4) --- ---- Net cash used in financing activities (6.2) (55.7) --- ---- (Decrease)/increase in cash and cash equivalents (0.2) 0.8 Opening cash and cash equivalents 54.8 1.7 Effect of exchange rate differences - (0.1) -- ---- Closing cash and cash equivalents 54.6 2.4 ==== === NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS 1. Basis of preparation The condensed financial statements for the three months ended 31 July 2010 were approved by the directors on 6 September 2010. They have been prepared in accordance with relevant International Financial Reporting Standards (`IFRS') (including International Accounting Standard - `IAS 34 Interim Financial Reporting') and the accounting policies set out in the Group's Annual Report and Accounts for the year ended 30 April 2010 except for the adoption, with effect from 1 May 2010, of new or revised accounting standards as set out below. The financial statements have been prepared on the going concern basis as described in the corporate governance report included in the 2010 Annual Report and Accounts. They are unaudited and do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The statutory accounts for the year ended 30 April 2010 were prepared in accordance with relevant IFRS and have been mailed to shareholders and filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not include a reference to any matter by way of emphasis without qualifying the report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The following new standards, amendments to standards or interpretations are effective for the Group's accounting period beginning on 1 May 2010 and, where relevant, have been adopted. They have not had a material impact on the consolidated results or financial position of the Group: * Amendments to IFRS 1 Additional exemptions for first-time adopters; * Amendment to IFRS 1 Limited exemption from comparative IFRS 7 disclosures for first-time adopters; * IAS 24 (revised) Related party disclosures; * Amendment to IFRIC 14 Prepayments of minimum funding requirement; * IFRIC 19 Extinguishing financial liabilities with equity instruments. The exchange rates used in respect of the US dollar are: 2010 2009 Average for the quarter ended 31 July 1.49 1.61 At 31 July 1.57 1.66 2. Segmental analysis Operating Revenue profit before before Operating exceptionals amortisation Amortisation profit Three months to 31 July £m £m £m £m 2010 Sunbelt 199.4 29.7 (0.3) 29.4 A-Plant 39.7 2.0 (0.1) 1.9 Corporate costs - (1.5) - (1.5) --- --- --- --- 239.1 30.2 (0.4) 29.8 ===== ==== === ==== 2009 Sunbelt 179.0 24.3 (0.5) 23.8 A-Plant 42.6 1.1 (0.1) 1.0 Corporate costs - (1.5) - (1.5) --- --- --- --- 221.6 23.9 (0.6) 23.3 ===== ==== === ==== Other financial Segment Taxation assets - Total assets Cash assets derivatives assets At 31 July 2010 Sunbelt 1,321.7 - - - 1,321.7 A-Plant 286.4 - - - 286.4 Central items 0.3 54.6 8.9 8.0 71.8 --- ---- --- --- ---- 1,608.4 54.6 8.9 8.0 1,679.9 ======= ==== === === ======= At 30 April 2010 Sunbelt 1,332.0 - - - 1,332.0 A-Plant 290.9 - - - 290.9 Central items 0.2 54.8 8.9 5.7 69.6 --- ---- --- --- ---- 1,623.1 54.8 8.9 5.7 1,692.5 ======= ==== === === ======= 3. Operating costs 2010 2009 Before exceptional Exceptional Before items and items and amortisation Amortisation Total amortisation amortisation Total £m £m £m £m £m £m Three months to 31 July Staff costs: Salaries 65.2 - 65.2 64.4 - 64.4 Social security costs 4.9 - 4.9 5.1 - 5.1 Other pension costs 0.5 - 0.5 0.5 - 0.5 --- --- --- --- --- --- 70.6 - 70.6 70.0 - 70.0 ---- --- ---- ---- --- ---- Used rental equipment sold 8.3 - 8.3 4.4 1.2 5.6 --- --- --- --- --- --- Other operating costs: Vehicle costs 19.2 - 19.2 16.2 - 16.2 Spares, consumables & external repairs 14.6 - 14.6 13.4 - 13.4 Facility costs 12.4 - 12.4 11.4 - 11.4 Other external charges 35.6 - 35.6 34.6 - 34.6 ---- --- ---- ---- --- ---- 81.8 - 81.8 75.6 - 75.6 ---- --- ---- ---- --- ---- Depreciation and amortisation: Depreciation 48.2 - 48.2 47.7 - 47.7 Amortisation of acquired intangibles - 0.4 0.4 - 0.6 0.6 -- --- --- -- --- --- 48.2 0.4 48.6 47.7 0.6 48.3 ---- --- ---- ---- --- --- 208.9 0.4 209.3 197.7 1.8 199.5 ===== === ===== ===== === ===== 4. Exceptional items, amortisation and fair value remeasurements Exceptional items are those items of financial performance that are material and non-recurring in nature. Amortisation relates to the periodic write off of acquired intangible assets. Fair value remeasurements relate to embedded call options in the Group's senior secured note issues. 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 revenue, profit and earnings per share are stated before exceptional items, amortisation of acquired intangibles and fair value remeasurements. Exceptional items, amortisation and fair value remeasurements are set out below. Three months to 31 July 2010 2009 £m £m Fair value remeasurements 2.5 - Taxation on fair value remeasurements (0.8) - --- --- Net fair value remeasurements 1.7 - Amortisation of acquired intangibles (net of tax credit) (0.3) (0.4) --- --- 1.4 (0.4) === === The items detailed in the table above are presented in the income statement as follows: Three months to 31 July 2010 2009 £m £m Sale of used rental equipment - 1.2 Used rental equipment sold - (1.2) Amortisation of acquired intangibles (0.4) (0.6) Charged in arriving at operating profit (0.4) (0.6) --- --- Net financing costs 2.5 - --- --- Charged in arriving at profit before tax 2.1 (0.6) Taxation (0.7) 0.2 --- --- 1.4 (0.4) ==== ==== 5. Financing costs Three months to 31 July 2010 2009 £m £m Investment income: Expected return on assets of defined benefit pension plan (0.9) (0.8) --- --- Interest expense: Bank interest payable 4.5 2.9 Interest payable on second priority senior secured notes 11.9 11.1 Interest payable on finance leases 0.1 0.1 Non-cash unwind of discount on defined benefit 0.9 0.8 pension plan liabilities Non-cash unwind of discount on self-insurance provisions 0.4 0.3 Amortisation of deferred costs of debt raising 1.4 0.7 --- --- Total interest expense 19.2 15.9 ---- ---- Net financing costs before exceptional items 18.3 15.1 Fair value remeasurements (2.5) - ---- ---- Net financing costs 15.8 15.1 ==== ==== 6. Taxation The tax charge for the period has been computed using an estimated effective rate for the quarter of 37% in the US (2009: 36%) and 30% in the UK (2009: 29%) applied to the profit before tax, exceptional items, amortisation of acquired intangibles and fair value remeasurements. The blended effective rate for the Group as a whole is 35%. The tax charge of £4.2m (2009: £3.0m) on the underlying pre-tax profit of £ 11.9m (2009: £8.8m) can be explained as follows: Three months to 31 July 2010 2009 £m £m Current tax 2.1 0.9 Deferred tax 2.1 2.1 --- --- Tax on underlying activities 4.2 3.0 === === Comprising: - UK tax 3.2 2.6 - US tax 1.0 0.4 --- --- 4.2 3.0 === === In addition, the tax charge of £0.7m (2009: credit of £0.2m) on exceptional costs (including amortisation and fair value remeasurements) of £2.1m (2009: £ 0.6m) consists of a deferred tax charge of £0.4m relating to the UK (2009: £ nil) and a deferred tax charge of £0.3m (2009: credit of £0.2m) relating to the US. 7. Earnings per share Basic and diluted earnings per share for the three months ended 31 July 2010 have been calculated based on the profit for the relevant period and on the weighted average number of ordinary shares in issue during that period (excluding shares held in treasury and by 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: Three months to 31 July 2010 2009 Profit for the financial period (£m) 9.1 5.4 === === Weighted average number of shares (m) - basic 497.7 497.6 ===== ===== - diluted 504.4 497.7 ===== ===== Basic earnings per share 1.8p 1.1p ==== ==== Diluted earnings per share 1.8p 1.1p ==== ==== 7. Earnings per share (continued) Underlying earnings per share (defined in any period as the earnings before exceptional items and amortisation of acquired intangibles for that period divided by the weighted average number of shares in issue in that period) and cash tax earnings per share (defined in any period as underlying earnings before other deferred taxes divided by the weighted average number of shares in issue in that period) may be reconciled to the basic earnings per share as follows: Three months to 31 July 2010 2009 Basic earnings per share 1.8p 1.1p Exceptional items and amortisation of acquired (0.4p) 0.1p intangibles Tax on exceptional items and amortisation 0.2p - ---- ---- Underlying earnings per share 1.6p 1.2p Other deferred tax 0.4p 0.4p ---- ---- Cash tax earnings per share 2.0p 1.6p ==== ==== 8. Property, plant and equipment 2010 2009 Rental Rental equipment Total equipment Total Net book value £m £m £m £m At 1 May 969.7 1,101.6 1,140.5 1,294.0 Exchange difference (15.8) (17.7) (95.5) (107.1) Reclassifications (0.2) - 0.3 - Additions 45.2 51.3 12.2 15.2 Disposals (7.8) (9.3) (4.3) (5.4) Depreciation (42.2) (48.2) (41.4) (47.7) ---- ---- ---- ---- At 31 July 948.9 1,077.7 1,011.8 1,149.0 ===== ======= ======= ======= 9. Share capital Ordinary shares of 10p each: 2010 2009 2010 2009 Number Number £m £m Authorised 900,000,000 900,000,000 90.0 90.0 =========== =========== ==== ==== Allotted, called up and fully 553,325,554 553,325,554 55.3 55.3 paid =========== =========== ==== ==== There were no movements in shares authorised or allotted during the period. At 31 July 2010, 50m shares were held by the Company and a further 6m shares were held by the Company's Employee Share Ownership Trust. 10. Notes to the cash flow statement Three months to 31 July 2010 2009 £m £m a. Cash flow from operating activities Operating profit before exceptional items and amortisation: 30.2 23.9 Depreciation 48.2 47.7 ---- ---- EBITDA before exceptional items 78.4 71.6 Profit)/loss on disposal of rental equipment (0.3) 0.7 Profit on disposal of other property,plant and equipment (0.6) (0.1) Increase in inventories (0.5) (0.1) Increase in trade and other receivables (20.2) (2.2) Increase in trade and other payables 0.3 4.4 Exchange differences (0.1) 0.2 Other non-cash movements 0.3 0.2 --- --- Cash generated from operations before exceptional items and 57.3 74.7 changes in rental equipment ==== ==== Three months to 31 July 2010 2009 £m £m b. Reconciliation to net debt Decrease/(increase) in cash in the period 0.2 (0.8) Decrease in debt through cash flow (6.2) (55.7) --- ---- Change in net debt from cash flows (6.0) (56.5) Exchange differences (19.8) (107.6) Non-cash movements: - deferred costs of debt raising 1.4 0.7 - capital element of new finance leases 0.9 - --- --- Reduction in net debt in the period (23.5) (163.4) Opening net debt 829.0 1,035.9 ----- ------- Closing net debt 805.5 872.5 ===== ===== c. Analysis of net debt 1 May Exchange Cash Non-cash 31 July 2010 movement flow movements 2010 £m £m £m £m £m Cash (54.8) - 0.2 - (54.6) Debt due within 1year 3.1 (0.1) (1.4) 0.7 2.3 Debt due after 1 year 880.7 (19.7) (4.8) 1.6 857.8 ----- ---- --- --- ----- Total net debt 829.0 (19.8) (6.0) 2.3 805.5 ===== ==== === === ===== Details of the Group's debt are given in the Review of Balance Sheet and Cashflow accompanying these interim financial statements. 11. Contingent liabilities and contingent assets There have been no significant changes in contingent liabilities from those reported at 30 April 2010. REVIEW OF BALANCE SHEET AND CASH FLOW Balance sheet Fixed assets Capital expenditure in the quarter was £51.3m (2009: £15.2m) with £45.2m invested in the rental fleet (2009: £12.2m). Expenditure on rental equipment was again entirely for replacement and comprised 88% of total capital expenditure with the balance relating to the delivery vehicle fleet, property improvements and to computer equipment. Capital expenditure by division was as follows: 2010 2009 Sunbelt in $m 62.4 17.0 ==== ==== Sunbelt in £m 39.8 10.3 A-Plant 5.4 1.9 --- --- Total rental equipment 45.2 12.2 Delivery vehicles, property improvements & computers 6.1 3.0 ---- --- Total additions 51.3 15.2 ==== ==== The average age of the Group's serialised rental equipment, which constitutes the substantial majority of our fleet, at 31 July 2010 was 44 months (2009: 37 months) on a net book value basis. Sunbelt's fleet had an average age of 46 months (2009: 40 months) comprising 47 months for aerial work platforms which have a longer life and 44 months for the remainder of its fleet while A-Plant's fleet had an average age of 38 months (2009: 29 months). Rental fleet at original cost LTM LTM 31 July 2010 30 April 2010 LTM LTM rental dollar physical average revenue utilisation utilisation Sunbelt in $m 2,117 2,094 2,118 992 47% 65% ===== ===== ===== === === === Sunbelt in £m 1,351 1,368 1,352 665 47% 65% A-Plant 327 321 321 150 47% 69% --- --- --- --- === === 1,678 1,689 1,673 815 ===== ===== ===== === Dollar utilisation is defined as rental revenue divided by average fleet at original (or "first") cost and, measured over the last twelve months to 31 July 2010, was 47% at both Sunbelt and A-Plant. Physical utilisation is time-based utilisation, which is calculated as the daily average of the original cost of equipment on rent as a percentage of the total value of equipment in the fleet at the measurement date. Measured over the last twelve months to 31 July 2010, average physical utilisation was 65% in Sunbelt (2009: 66%) and 69% at A-Plant (2009: 67%). At Sunbelt, physical utilisation is measured for equipment with an original cost in excess of £7,500 which comprised approximately 90% of its fleet at 31 July 2010. Trade receivables Receivable days at 31 July were 47 days (2009: 48 days). The bad debt charge for the quarter ended 31 July 2010 as a percentage of total turnover was 1.2% (2009: 1.1%). Trade receivables at 31 July 2010 of £127.2m (2009: £117.1m) are stated net of allowances for bad debts and credit notes of £16.3m (2009: £ 16.6m) with the allowance representing 11.3% (2009: 12.4%) of gross receivables. Trade and other payables Group payable days were 54 days in 2010 (2009: 47 days) with capital expenditure-related payables, which have longer payment terms, totalling £28.6m (2009: £4.9m). Payment periods for purchases other than rental equipment vary between 7 and 45 days and for rental equipment between 30 and 120 days. Cash flow and net debt Three months to LTM to Year to 31 July 31 July 30 April 2010 2009 2010 2010 £m £m £m £m EBITDA before exceptional items 78.4 71.6 261.9 255.1 ==== ==== ===== ===== Cash inflow from operations before exceptional items and changes in rental equipment 57.3 74.7 248.2 265.6 Cash conversion ratio* 73.1% 104.4% 94.8% 104.1% Maintenance rental capital paid (45.7) (16.4) (65.4) (36.1) Payments for non-rental capital (5.4) (2.7) (9.4) (6.7) expenditure Rental equipment disposal proceeds 7.9 5.9 28.8 26.8 Other property, plant and equipment 2.0 0.8 5.2 4.0 disposal proceeds Tax (paid)/received (net) (1.3) (0.5) (0.5) 0.3 Net financing costs paid (7.5) (2.6) (59.6) (54.7) ---- ---- ----- ---- Cash flow before payment of exceptional 7.3 59.2 147.3 199.2 costs Exceptional costs paid (1.3) (2.7) (6.8) (8.2) ---- ---- ---- ---- Total cash generated from operations 6.0 56.5 140.5 191.0 Business disposals/(acquisitions) - - (0.7) (0.7) --- ---- ----- ----- Total cash generated 6.0 56.5 139.8 190.3 Dividends paid - - (12.8) (12.8) --- ---- ----- ----- Decrease in net debt 6.0 56.5 127.0 177.5 === ==== ===== ===== * Cash inflow from operations before exceptional items and changes in rental equipment as a percentage of EBITDA before exceptional items. Cash inflow from operations before exceptional items and changes in rental equipment decreased 23.3% to £57.3m. The cash conversion ratio was 73.1% (2009: 104.4%) reflecting a £20m increase in trade and other receivables since April as quarterly revenues regained more usual seasonal patterns. Total payments for capital expenditure (rental equipment and other PPE) were broadly in line with capital expenditure delivered into the fleet whilst disposal proceeds received totalled £9.9m. Net cash capital expenditure was therefore £41.2m in the quarter (2009: £12.4m). Financing costs paid differ from the accounting charge in the income statement due to the timing of interest payments in the quarter and non-cash interest charges. After exceptional costs paid of £1.3m, representing mostly vacant property costs all of which were provided for at 30 April 2010, the Group generated £ 6.0m of net cash inflow in the quarter which was applied to reduce outstanding debt. Net debt 31 July 30 April 2010 2009 2010 £m £m £m First priority senior secured bank debt 355.5 396.5 367.5 Finance lease obligations 3.1 6.1 3.5 8.625% second priority senior secured notes, due 2015 156.6 147.3 160.2 9% second priority senior secured notes, due 2016 344.9 325.0 352.6 ----- ----- ----- 860.1 874.9 883.8 Cash and cash equivalents (54.6) (2.4) (54.8) ---- ---- ---- Total net debt 805.5 872.5 829.0 ===== ===== ===== Net debt at 31 July 2010 was £805.5m with the reduction since April reflecting the cash generation set out above and currency fluctuations. The Group's underlying EBITDA for the twelve months ended 31 July 2010 was £261.9m and the ratio of net debt to underlying EBITDA was therefore 3.1 times at 31 July 2010 (30 April 2010: 3.2 times). Under the terms of our extended asset-based senior bank facility, $1.3bn is committed until November 2013 whilst an additional $0.5bn continues to be available until August 2011. Our debt facilities remain committed for the long term, with an average of 4.8 years remaining at 31 July 2010. The weighted average interest cost of these facilities (including non-cash amortisation of deferred debt raising costs) is approximately 7.5%. Financial performance covenants under the two senior secured note issues are only measured at the time new debt is raised. There are two financial performance covenants under the asset-based first priority senior bank facility: * funded debt to LTM EBITDA before exceptional items not to exceed 4.0 times; and * a fixed charge ratio (comprising LTM EBITDA before exceptional items less LTM net capital expenditure paid in cash over the sum of scheduled debt repayments plus cash interest, cash tax payments and dividends paid in the last twelve months) which must be equal to or greater than 1.1 times. These covenants do not, however, apply when excess availability (the difference between the borrowing base and net facility utilisation) exceeds $150m. At 31 July 2010 excess availability under the bank facility was $584m ($537m at 30 April 2010) making it unlikely that covenants will be measured. Additionally, although the senior debt covenants were not required to be measured at 31 July 2010, the Group was in compliance with both of them at that date. Accordingly, the Board continues to believe that it is appropriate to prepare the accounts on a going concern basis. Principal risks and uncertainties Risks and uncertainties in achieving the Group's objectives for the remainder of the financial year, together with assumptions, estimates, judgements and critical accounting policies used in preparing financial information remain unchanged from those detailed in the 2010 Annual Report and Accounts on pages 23 to 31. Our business is subject to significant fluctuations in performance from quarter to quarter as a result of seasonal effects. Commercial construction activity tends to increase in the summer and during extended periods of mild weather and to 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 the second half leading to our revenue normally being higher in the first half. On a quarterly basis, the second quarter is typically our strongest quarter, followed by the first and then the third and fourth quarters. Fluctuations in the value of the US dollar with respect to the pound sterling have had, and may continue to have, a significant impact on our financial condition and results of operations as reported in pounds due to the majority of our assets, liabilities, revenues and costs being denominated in US dollars. All our debt was denominated in US dollars at 31 July 2010 and represented approximately 80% of the value of dollar-denominated net assets (other than debt) providing a partial, but substantial, hedge against currency fluctuations. The dollar interest payable on this debt also limits the impact of changes in the dollar exchange rate on our pre-tax profits and earnings. Based on the current currency mix of our profits and on dollar debt levels, interest and exchange rates at 31 July 2010, a 1% change in the US dollar exchange rate would impact pre-tax profit by £40,000. In addition, the current trading and outlook section of this interim statement provides a commentary on market and economic conditions for the remainder of the financial year. OPERATING STATISTICS Profit centre numbers Staff numbers 31 July 30 April 31 July 30 April 2010 2009 2010 2010 2009 2010 Sunbelt Rentals 344 398 393 5,328 5,818 5,334 A-Plant 103 115 105 1,849 1,933 1,872 Corporate office - - - 10 12 12 --- --- --- -- -- -- Group 447 513 498 7,187 7,763 7,218 === === === ===== ===== ===== Sunbelt's store numbers include 40 Sunbelt at Lowes stores at 31 July 2010 (90 at 31 July 2009 and 89 at 30 April 2010). By agreement with Lowes 50 underperforming Sunbelt at Lowes stores were closed in July 2010 and at the same time Lowes agreed an extension to the lease for the remaining 40 stores until October 2012. The revenue and contribution from the closed stores in the 12 months ended 31 July 2010 was not significant to Sunbelt's overall performance.

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