Q2 and Interim Results

Unaudited results for the half year and second quarter ended 31 October 2008 Financial summary 2008 2007 Growth £m £m % First half Revenue 546.3 510.4 +7% Underlying operating profit(1) 110.0 109.7 0% Underlying profit before taxation(1) 76.6 71.5 +7% Underlying earnings per share(1) 10.0p 8.9p +12% Profit attributable to equity shareholers 80.7 46.7 +73% Basic earnings per share 15.8p 8.5p +87% (1) See notes below Highlights * Good first half profits and earnings growth in slowing market conditions * Prompt action initiated to reduce cost base by £45m to right size the business for the levels of demand we anticipate next year * On track to generate £200m cash inflow this year and a minimum of £100m in 2009/10 * All our debt is committed for the long term and structured to remain covenant free * Maintained cash outlay on interim dividend at £4.4m or 0.9p per share (2007: 0.825p) Ashtead's Chief Executive, Geoff Drabble, commented: "Ashtead has continued to perform well against the background of weakening market conditions. Our strong and diversified market positions have and will continue to benefit the Group but it is also important that we take prompt actions based upon realistic assumptions of the future trading environment. We are, today, announcing a restructuring programme which will right size the business for the anticipated lower levels of demand. Based upon the success of our ongoing focus on operational efficiency, we are confident that this programme will generate cost savings of £45m per annum. Whilst generating an exceptional cost to the business the programme also has the benefit of being cash positive due to the fleet disposals. We continue to be confident in the strength of our debt package which is committed for the long term and structured to support us through the cycle. We remain on track to deliver £200m of cash generation this year and expect a minimum of £100m in 2009/10 thereby significantly reducing our future borrowing needs. In addition our asset based debt package is effectively covenant free and we anticipate it remaining so even allowing for a long and deep recession. Whilst the outlook for the operational trading environment in the second half is weaker and difficult to predict, we will benefit significantly both from lower interest costs and the stronger dollar. Longer term, our strong market positions, long term committed debt facilities, cash generative and flexible business model and the decisive restructuring exercise which we are undertaking allow the Board to view the future with confidence." Contacts: Geoff Drabble Chief executive ) 020 7726 9700 Ian Robson Finance director ) Brian Hudspith Maitland 020 7379 5151 Financial definitions a. Underlying profit and earnings per share are stated before exceptional items and amortisation of acquired intangibles. The definition of exceptional items is set out in note 4 to the attached financial information. The reconciliation of underlying earnings per share and underlying cash tax earnings per share to basic earnings per share is shown in note 7 to the attached financial information. b. IFRS requires that, as a disposed business, Ashtead Technology's after tax profits and total assets and liabilities are reported in the Group's accounts as single line items within our income statement and balance sheet with the result that revenues, operating profit and pre-tax profits as reported in the Group accounts exclude Ashtead Technology. Prior year figures have been restated accordingly. Geoff Drabble and Ian Robson will host a meeting for equity analysts to discuss the results at 9.30am on Tuesday 9 December at the offices of UBS at 1 Finsbury Avenue, London EC2. For the information of shareholders and other interested parties, the analysts' meeting will be webcast live via the Company's website at www.ashtead-group.com and there will also be a replay available from shortly after the call 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. There will also be a conference call for bondholders at 3pm (10am EST). Analysts and bondholders have already been invited to participate in the meeting and conference call but anyone not having received dial-in details should contact the Company's PR advisers, Maitland (Kerryn Jahme) at +44 (0)20 7379 5151. Market background The impact of financial constraint and economic uncertainty on our markets has become increasingly apparent towards the end of the first half. All major forward indicators now point towards a somewhat greater reduction in non-residential construction activity than that expected at the end of our first quarter. The private sector has been first to see a slow down, particularly amongst the smaller builders. Sectors which are most exposed to consumer spending, such as retail, are being affected first and a number of projects have been postponed or cancelled. Infrastructure work is likely to remain good for the medium term with particular areas of strength being utilities, prisons, schooling and transportation. Future strength, however, depends on central funding and both US and UK administrations have highlighted the need for increased public sector investment to improve ageing infrastructure and support employment. These statements of intent, whilst encouraging, are not supported as yet by firm financed commitments and, therefore, we have decided to right size our business to the lower level of demand we expect in the near term. We would, however, anticipate that initiatives such as the Obama infrastructure package and the UK government's intention to bring forward £3bn of infrastructure spending could start to impact our markets towards the end of 2009. A combination of financial constraint and uncertain order books will result in contractors, particularly in the US, increasingly choosing the rental option. We therefore anticipate that the established trend towards increased outsourcing of equipment supply in the US will accelerate. In addition, the rental industry remains fragmented with a number of smaller rental companies surviving on leasing finance often with low or zero cost interest rates subsidised by equipment manufacturers. This source of finance has become increasingly scarce and substantially more expensive. We therefore expect the rental market to consolidate further during the downturn, benefitting the larger, better financed players such as ourselves. Therefore, with strong market positions in both the UK and US, supported by young fleets and sound long term debt facilities, we would anticipate emerging from the current downturn with greater market share and, in the US, in a market with enhanced rental penetration. The impact of exchange rate fluctuations on our business Both Sunbelt and A-Plant earn their revenues, pay their costs and fund their working capital needs in their respective currencies of the US dollar and sterling and are unaffected by changes in the exchange rates. The Group`s currency exposure therefore constitutes a translation exposure which only arises in the preparation of the consolidated accounts. When the US dollar strengthens against sterling, as was the case in the second quarter and particularly during the month of October, then the sterling value of Sunbelt's profits and of our dollar based interest cost increases as does the sterling value of Sunbelt's assets and liabilities including its dollar debt which makes up the vast majority (around 97%) of the Group's total debt. In the half year the average rate of exchange used for translating our earnings was $1.88 = £1 whilst the closing exchange rate at 31 October 2008 used for balance sheet translations was $1.62 = £1. The equivalent rates a year ago were $2.01 = £1 for earnings and $2.08= £1 for the balance sheet whilst the balance sheet rate at both 30 April and 31 July 2008 was $1.98 = £1. This means that whilst the exchange rate impacting half year earnings has strengthened by just 7%, the effect on balance sheet rates is much more significant with 22% appreciation compared to last year of which 18% has occurred in the second quarter. Principally as a result of the large balance sheet rate movement, there is a net translation gain of £40m in first half reserves which represents the amount by which the increase in the sterling value of Sunbelt's assets (primarily its rental fleet and receivables) exceeded the increase in the sterling value of its liabilities (primarily the Group's largely dollar based debt). First half results Revenue EBITDA Operating profit 2008 2007 2008 2007 2008 2007 Sunbelt in $m 821.7 809.1 320.8 330.5 187.0 196.6 ===== ===== ===== ===== ===== ===== Sunbelt in £m 436.8 401.9 170.6 164.1 99.4 97.6 A-Plant 109.5 108.5 38.8 37.6 14.2 16.5 Group central costs - - (3.6) (4.4) (3.6) (4.4) --- --- --- --- --- --- 546.3 510.4 205.8 197.3 110.0 109.7 ===== ===== ===== ===== Net financing costs (33.4) (38.2) ----- ----- Profit before tax, exceptionals and amortisation from continuing operations 76.6 71.5 Ashtead Technology - discontinued operations 2.8 5.2 Exceptional profit (net) 30.5 0.2 Amortisation of acquired intagibles (1.4) (1.2) ---- ---- Total Group profit before taxation 108.5 75.7 ===== ===== Margins: Sunbelt 39.0% 40.8% 22.8% 24.3% A-Plant 35.4% 34.6% 13.0% 15.2% ===== ===== ===== ===== Sunbelt Sunbelt's first half revenues grew 8.7% to £436.8m (2007: £401.9m) as reported in sterling and by 1.6% in dollars to $821.7m (2007: $809.1m). The underlying growth reflected weakness in construction activity in a number of Sunbelt's markets, particularly in Florida and California whilst other markets, particularly Texas, continued to grow strongly. Operating costs grew by 3.6%. Delivery costs increased markedly as a result of both the increased fuel cost in the period and increased expenditure on fleet transfers into busier markets. Costs in other areas increased at rates in line with or below inflation. $207.3m (2007: $313.3m) was invested in the rental fleet which as a result was, on average, 6% larger than in the first half of last year. Physical utilisation in the first half was flat at 70% whilst second quarter rental rates increased 2% sequentially from the rates experienced in the first quarter. As a result the decline in rental yield for the second quarter relative to last year was just 1%, significantly lower than the 5% reduction in the first quarter. For the half year as a whole, the yield decline was 3%. Sunbelt's underlying operating profit declined by $9.6m to $187.0m but grew by 1.8% in sterling to £ 99.4m (2007: £97.6m). A-Plant First half revenues at A-Plant grew 0.9% to £109.5m in a market which was broadly flat in terms of non-residential construction but where there was a substantial fall in residential construction. Whilst residential construction represents only around 10% of A-Plant's revenues, the rapid and substantial decline in UK house building this summer limited overall revenue growth. £51.0m was invested in the UK fleet (2007: £77.2m) in the first half including £21.7m for growth giving a fleet which on average was 14% larger than last year. The reduction in the housing market also had an impact on physical utilisation which was 2% below last year's level at 69% (2007: 71%). Rental rates in the second quarter were broadly unchanged from the first quarter but relative to the previous year, first half yield declined 9% as increasing apprehension about the outlook impacted rates in the competitive UK rental market. Operating costs were kept essentially flat driving a 3.4% increase in underlying EBITDA to £38.8m (2007: £37.6m) but the increased depreciation charge on the enlarged fleet led to a £2.3m decline in underlying operating profit to £14.2m (2007: £16.5m). Group performance After lower Group central costs, the underlying first half operating profit was unchanged at £110.0m (2007: £109.7m). Net interest costs reduced 12% to £33.4m (2007: £38.2m) due to both lower average debt levels and lower interest rates. As a result the underlying Group profit before tax (before the profit from the discontinued Ashtead Technology business, exceptional items and intangible amortisation) rose 7% to £76.6m (2007: £71.5m). The sale of Ashtead Technology in June for £96.0m generated net cash proceeds of £89.8m which were applied to pay down debt. The sale also produced an exceptional disposal profit before taxation of £66.2m. Ashtead Technology's trading profit for the period up to the date of sale at the end of June was £ 2.8m (2007: £5.2m for the whole of the first half). There was also an exceptional charge of £35.8m relating to the programme to position the Group for the future discussed below. As a result the total Group profit before taxation was £108.5m (2007: £75.7m). The effective tax rate was stable at 36% of the underlying pre-tax result (2008 full year: 35%). Reflecting the Group's capital intensive business and the utilisation of brought forward tax benefits, cash tax represented just 2% of underlying profit (2008 full year: 5%) with the balance being deferred tax. During the first half, the Group repurchased 20.2m shares at a total cost of £ 13.5m. Reflecting the beneficial impact of this and the repurchases last year, underlying earnings per share for the half year grew faster than underlying pre-tax profits at 12% to 10.0p (2007: 8.9p) whilst basic EPS, including exceptional items and amortisation, was 15.8p (2007: 8.5p). Positioning the Group for the future Whilst the first half has seen good growth in pre-tax profits and earnings, the trends in our end construction markets discussed above have led us to develop a store closure, fleet downsizing and cost reduction programme. The programme will lower the cost base by about £45m annually. The majority of savings are expected to be realised by end April 2009 providing full benefit in the year to April 2010. The savings derive mostly from store closures, reductions in the number of delivery vehicles, head count reductions and from reduced depreciation as a result of the anticipated 7% reduction in fleet size. Implementation of the programme is underway with significant activity during November although the equipment sales will take place throughout the second half. We have taken an exceptional charge of £36m in the first half relating mostly to the impairment of assets which are to be sold in bulk in this programme and to provisions for future rents on empty properties at locations where closure has already been announced. We expect to take a further charge in the second half of around £19m (at October 2008 exchange rates) to conclude the programme which, under IFRS rules on provisioning, must only be booked as notification is given to the stores which are to be shut. Most of the total expected exceptional charge relates to non-cash asset write downs and provisions for future empty property costs. The fleet downsizing will, however, generate immediate disposal proceeds. The programme is therefore expected to generate net cash inflows of around £25-30m by April 2009. Capital expenditure Capital expenditure in the first half totalled £201.5m (2007: £255.1m), including £179.3m on the rental fleet. Disposal proceeds totalled £40.7m (2007: £40.9m) giving net expenditure in the period of £160.8m (2007: £214.2m) whilst a net £145.8m was paid out in cash. The average age of the Group's rental fleet at 31 October 2008 was 32 months (2007: 27 months). Including the beneficial impact of the additional fleet sales to be effected in the second half outlined above, net capital expenditure payments in the second half are expected to total only around £15m giving total anticipated net payments for the year of around £160m. Next year's capital expenditure will also reduce significantly but, as usual, we will provide detailed guidance when we release our third quarter results in March 2009. Cash flow and net debt £108.6m of net cash inflow was generated in the first half including £18.8m from operations (2007: outflow of £41.8m) and £89.8m net of disposal costs from the sale of Ashtead Technology in June. £21.9m or 20% of this net inflow was applied in returns to equity shareholders with £86.5m used to reduce outstanding debt. As a result net debt at 31 October 2008 was £1,076m (30 April 2008: £963m) which includes a translation increase of £197m due to the strength of the dollar. The Group's underlying EBITDA (excluding Ashtead Technology) for the last twelve months calculated at constant 31 October 2008 exchange rates was £ 432m. Accordingly the ratio of net debt to underlying EBITDA at constant rates was 2.5 times at 31 October 2008 (30 April 2008: 2.6 times) and we remain on track to achieve our previously announced year end debt target of $1,555m (£ 962m at 31 October 2008 exchange rates). Our debt package is well structured for the challenges of current market conditions. We retain substantial headroom on facilities which are committed for the long term, an average of 4.9 years at 31 October 2008 with the first maturity on our asset based senior bank facility not being due until August 2011. Availability under the $1.75bn asset based loan facility (including suppressed availability of $18m) was $764m at 31 October 2008 ($602m at 30 April 2008) well above the $125m of availability at which the entire debt package is covenant free. The strength of the debt structure is illustrated by our ability to absorb a 60% reduction in rental fleet values from their early 2007 peak more than double the peak to trough decline which occurred in the last cycle. The availability calculation also compares a largely dollar based borrowing base with our substantially dollar based facility utilisation meaning that availability is largely unaffected by exchange rate fluctuations. Return on investment Return on investment (underlying operating profit divided by the weighted average net assets employed, including goodwill but excluding debt and deferred tax) which is measured on a rolling twelve month basis to eliminate seasonal effects was 12.9% for the year ended 31 October 2008 (14.0% for the year ended 30 April 2008). RoI for Sunbelt was 13.8% whilst A-Plant's RoI was 9.1%. Dividends Following the rebasing of dividends last year when there was a 50% increase, the Board has decided to broadly maintain the £4.4m cash cost of last year's dividend on the reduced number of shares now in issue following recent share buy-backs and has therefore declared an interim dividend of 0.9p per share (2007: 0.825p per share). As we stated a year ago when announcing the rebasing, the Board's dividend policy is to seek to increase cash returns to shareholders progressively over time, considering both the underlying performance of the Group and the ongoing cash flow of the business. The interim dividend will be paid on 12 February 2009 to shareholders on record on 30 January 2009. Current trading and outlook Trading in November reflected the slower performance experienced in recent months, a trend that is likely to continue. Whilst the outlook for the operational trading environment in the second half is therefore weaker and difficult to predict, we will benefit significantly both from lower interest costs and the stronger dollar. Longer term, our strong market positions, long term committed debt facilities, cash generative and flexible business model and the decisive restructuring exercise which we are undertaking allow the Board to view the future with confidence. Directors' responsibility statement in respect of the interim financial report We confirm that to the best of our knowledge: * the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the International Accounting Standards Board; * the interim management report includes a fair review of the information required by: i. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and ii. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. By order of the Board of Directors 8 December 2008 CONSOLIDATED INCOME STATEMENT Three months to 31 October - unaudited -------------------------- 2008 2007 Before Before exceptional Exceptional exceptional Exceptional items items items items and and and and amortisation amortisation Total amortisation amortisation Total £m £m £m £m £m £m Revenue 286.8 - 286.8 264.2 - 264.2 Staff costs (79.6) (0.6) (80.2) (78.1) - (78.1) Other operating costs (102.0) (7.4) (109.4) (82.6) - (82.6) Other income 3.0 0.1 3.1 3.4 0.2 3.6 --- --- --- --- --- --- EBITDA* 108.2 (7.9) 100.3 106.9 0.2 107.1 Depreciation (49.9) (27.8) (77.7) (44.6) - (44.6) Amortisation of - (0.7) (0.7) - (0.6) (0.6) intangibles --- --- --- --- --- --- Operating profit 58.3 (36.4) 21.9 62.3 (0.4) 61.9 Investment income 1.0 - 1.0 1.1 - 1.1 Interest expense (18.6) - (18.6) (20.3) - (20.3) ---- --- ---- ---- --- ---- Net financing costs (17.6) - (17.6) (19.2) - (19.2) ---- --- ---- ---- --- ---- Profit on ordinary activities before taxation 40.7 (36.4) 4.3 43.1 0.4 42.7 Taxation: - current (0.3) 1.0 0.7 (5.9) - (5.9) - deferred (14.4) 11.2 (3.2) (9.8) 0.2 (9.6) ---- ---- --- --- --- --- (14.7) 12.2 (2.5) (15.7) 0.2 (15.5) ---- ---- --- ---- --- ---- Profit after taxation from continuing operations 26.0 (24.2) 1.8 27.4 (0.2) 27.2 (Loss)/profit after taxation from discontinued operations - (3.3) (3.3) 1.9 - 1.9 (Loss)/profit attributable --- --- --- --- --- --- to equity shareholders 26.0 (27.5) (1.5) 29.3 (0.2) 29.1 ==== ==== === ==== === ==== Basic earnings per share 5.2p (5.5p) (0.3p) 5.3p - 5.3p ==== ==== ==== ==== === ==== Diluted earnings per share 5.2p (5.5p) (0.3p) 5.3p (0.1p) 5.2p ==== ==== ==== ==== ==== ==== Six months to 31 October - unaudited ------------------------ Revenue 546.3 - 546.3 510.4 - 510.4 Staff costs (155.0) (0.6) (155.6) (154.8) - (154.8) Other operating costs (191.0) (7.4) (198.4) (165.7) - (165.7) Other income 5.5 0.1 5.6 7.4 0.2 7.6 --- --- --- --- --- --- EBITDA* 205.8 (7.9) 197.9 197.3 0.2 197.5 Depreciation (95.8) (27.8) (123.6) (87.6) - (87.6) Amortisation of intangibles - (1.4) (1.4) - (1.2) (1.2) --- --- --- --- --- --- Operating profit 110.0 (37.1) 72.9 109.7 (1.0) 108.7 Investment income 2.1 - 2.1 2.2 - 2.2 Interest expense (35.5) - (35.5) (40.4) - (40.4) ---- --- ---- ---- --- ---- Net financing costs (33.4) - (33.4) (38.2) - (38.2) ---- --- ---- ---- --- ---- Profit on ordinary activities before taxation 76.6 (37.1) 39.5 71.5 (1.0) 70.5 Taxation: - current (1.4) 1.0 (0.4) (9.6) - (9.6) - deferred (26.2) 11.4 (14.8) (16.3) (1.4) (17.7) ---- ---- ---- ---- --- ---- (27.6) 12.4 (15.2) (25.9) (1.4) (27.3) ---- ---- ---- ---- --- ---- Profit after taxation from continuing operations 49.0 (24.7) 24.3 45.6 (2.4) 43.2 Profit after taxation from discontinued operations 2.0 54.4 56.4 3.5 - 3.5 --- ---- ---- --- --- --- Profit attributable to equity shareholders 51.0 29.7 80.7 49.1 (2.4) 46.7 ==== ==== ==== ==== === ==== Basic earnings per share 10.0p 5.8p 15.8p 8.9p (0.4p) 8.5p ===== ==== ===== ==== ==== ==== Diluted earnings per share 10.0p 5.8p 15.8p 8.8p (0.4p) 8.4p ===== ==== ===== ==== ==== ==== * EBITDA is presented here as an additional performance measure as it is commonly used by investors and lenders. Details of risks and uncertainties are given in the Review of Balance Sheet and Cash Flow accompanying these interim financial statements. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Unaudited Unaudited Three months to Six months to 31 October 31 October 2008 2007 2008 2007 £m £m £m £m Net (loss)/profit for the period (1.5) 29.1 80.7 46.7 Effect of the limitation on net pension asset recognised (0.7) - (0.9) - Tax on items taken directly to equity (3.7) 3.5 (3.7) 3.5 Foreign currency translation differences 39.9 (3.3) 39.7 (5.4) ---- --- ---- --- Total recognised income and expense for the period 34.0 29.3 115.8 44.8 ==== ==== ===== ==== CONSOLIDATED MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS Unaudited Unaudited Three months to Six months to 31 October 31 October 2008 2007 2008 2007 £m £m £m £m Total recognised income and expense for the period 34.0 29.3 115.8 44.8 Issue of ordinary shares, net of expenses - 0.4 - 0.4 Re-issue of ordinary shares from treasury 0.1 - 0.2 - Dividends paid (8.4) (6.1) (8.4) (6.1) Share based payments 0.5 1.5 1.0 1.5 Own shares purchased by the Company (0.4) - (13.5) - Own shares purchased by the ESOT (0.4) (1.0) (0.4) (0.8) Realisation of foreign exchange translation differences on Technology disposal (0.1) - 1.2 - --- --- --- --- Net increase in equity shareholders' funds 25.3 24.1 95.9 39.8 Opening equity shareholders' funds 506.7 412.4 436.1 396.7 ----- ----- ----- ----- Closing equity shareholders' funds 532.0 436.5 532.0 436.5 ===== ===== ===== ===== CONSOLIDATED BALANCE SHEET Unaudited Audited 31 October 30 April 2008 2007 2008 £m £m £m Current assets Inventories 21.7 22.5 22.6 Trade and other receivables 213.5 173.3 159.9 Current tax asset 2.8 - 2.2 Cash and cash equivalents 1.9 2.0 1.8 --- --- --- 239.9 197.8 186.5 Assets held for sale - - 26.8 --- --- ---- 239.9 197.8 213.3 ----- ----- ----- Non-current assets Property, plant and equipment - rental equipment 1,193.9 1,020.5 994.0 - other assets 155.3 131.1 136.1 ----- ----- ----- 1,349.2 1,151.6 1,130.1 Intangible assets - brand names and other acquired intangibles 7.4 8.1 8.0 Goodwill 354.6 279.3 291.9 Deferred tax asset 14.7 33.4 19.6 Defined benefit pension fund surplus - 5.7 - --- --- --- 1,725.9 1,478.1 1,449.6 ------- ------- ------- Total assets 1,965.8 1,675.9 1,662.9 ======= ======= ======= Current liabilities Trade and other payables 166.8 180.5 129.1 Current tax liability 3.6 8.0 - Debt due in less than one year 9.3 7.6 7.6 Provisions 11.4 13.0 9.1 ---- ---- --- 191.1 209.1 145.8 Liabilities associated with assets classified as held for sale - - 6.5 --- --- --- 191.1 209.1 152.3 ----- ----- ----- Non-current liabilities Debt due in more than one year 1,068.3 925.6 957.4 Provisions 26.3 18.4 18.8 Deferred tax liability 148.1 86.3 98.3 ----- ---- ---- 1,242.7 1,030.3 1,074.5 ------- ------- ------- Total liabilities 1,433.8 1,239.4 1,226.8 ------- ------- ------- Equity shareholders' funds Share capital 56.2 56.1 56.2 Share premium account 3.6 3.6 3.6 Non-distributable reserve 90.7 90.7 90.7 Own shares held in treasury by the Company (36.3) - (23.3) Own shares held in treasury through the ESOT (6.4) (7.9) (7.0) Cumulative foreign exchange translation differences 9.0 (35.6) (28.2) Retained earnings 415.2 329.6 344.1 ----- ----- ----- Total equity shareholders' funds 532.0 436.5 436.1 ----- ----- ----- Total liabilities and equity shareholders' funds 1,965.8 1,675.9 1,662.9 ======= ======= ======= CONSOLIDATED CASH FLOW STATEMENT Unaudited Six months to 31 October 2008 2007 £m £m Cash flows from operating activities Cash generated from operations before exceptional items 194.9 179.3 Exceptional items paid (1.4) (6.8) --- --- Cash generated from operations 193.5 172.5 Financing costs paid (28.4) (34.7) Tax paid (0.5) (0.3) --- --- Net cash from operating activities 164.6 137.5 ----- ----- Cash flows from investing activities Disposal of business 89.8 - Payments for property, plant and equipment (173.4) (237.2) Proceeds on sale of property, plant and equipment 27.6 57.9 ---- ---- Net cash used in investing activities (56.0) (179.3) ---- ----- Cash flows from financing activities Drawdown of loans 94.1 74.3 Redemption of loans (177.6) (21.3) Capital element of finance lease payments (3.2) (3.8) Purchase of own shares by the Company (13.5) - Purchase of own shares by the ESOT (0.4) (0.8) Dividends paid (8.4) (6.1) Proceeds from issue of ordinary shares - 0.4 Proceeds from re-issue of shares 0.2 - --- --- Net cash (used in)/from financing activities (108.8) 42.7 ----- ---- (Decrease)/increase in cash and cash equivalents (0.2) 0.9 Opening cash and cash equivalents 1.8 1.1 Effect of exchange rate differences 0.3 - --- --- Closing cash and cash equivalents 1.9 2.0 === === NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS 1. Basis of preparation The condensed interim financial statements for the six months ended 31 October 2008 were approved by the directors on 8 December 2008. 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 2008. 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 2008 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, did not include a reference to any matter to which the auditor drew attention by way of emphasis without qualifying the report and did not contain a statement under section 237 of the Companies Act 1985. The exchange rates used in respect of the US dollar are: 2008 2007 ---- ---- Average for the six months ended 31 October 1.88 2.01 At 31 October 1.62 2.08 2. Segmental analysis Operating profit before Exceptional exceptionals items and Operating Revenue and amortisation profit amortisation Three months to 31 October £m £m £m £m 2008 ---- Sunbelt 232.4 52.9 (24.4) 28.5 A-Plant 54.4 7.1 (12.0) (4.9) Corporate costs - (1.7) - (1.7) --- --- --- --- 286.8 58.3 (36.4) 21.9 ===== ==== ==== ==== 2007 ---- Sunbelt 207.8 55.2 (0.5) 54.7 A-Plant 56.4 9.5 0.1 9.6 Corporate costs - (2.4) - (2.4) --- --- --- --- 264.2 62.3 (0.4) 61.9 ===== ==== === ==== Six months to 31 October 2008 ---- Sunbelt 436.8 99.4 (24.9) 74.5 A-Plant 109.5 14.2 (12.2) 2.0 Corporate costs - (3.6) - (3.6) --- --- --- --- 546.3 110.0 (37.1) 72.9 ===== ===== ==== ==== 2007 ---- Sunbelt 401.9 97.6 (1.0) 96.6 A-Plant 108.5 16.5 - 16.5 Corporate costs - (4.4) - (4.4) --- --- --- --- 510.4 109.7 (1.0) 108.7 ===== ===== === ===== Segment Taxation Total assets Cash assets assets ------ ---- ------ ------ At 31 October 2008 Sunbelt 1,569.9 - - 1,569.9 A-Plant 376.3 - - 376.3 Central items 0.2 1.9 17.5 19.6 --- --- ---- ---- 1,946.4 1.9 17.5 1,965.8 ======= === ==== ======= At 30 April 2008 Sunbelt 1,254.4 - - 1,254.4 A-Plant 356.9 - - 356.9 Central items 1.2 1.8 21.8 24.8 --- --- ---- ---- Continuing operations 1,612.5 1.8 21.8 1,636.1 Discontinued operations 26.0 - 0.8 26.8 ---- --- --- ---- 1,638.5 1.8 22.6 1,662.9 ======= === ==== ======= 3. Operating costs 2008 2007 Before Before exceptional Exceptional exceptional Exceptional items and items and items and items and amortisation amortisation Total amortisation amortisation Total £m £m £m £m £m £m Three months 31 October ----------------------- Staff costs: Salaries 72.5 0.6 73.1 71.4 - 71.4 Social security costs 5.7 - 5.7 5.5 - 5.5 Other pension costs 1.4 - 1.4 1.2 - 1.2 --- --- --- --- --- --- 79.6 0.6 80.2 78.1 - 78.1 ---- --- ---- ---- --- ---- Other operating costs Vehicle costs 25.0 - 25.0 18.5 - 18.5 Spares, consumables & external repairs 17.0 1.3 18.3 13.9 - 13.9 Facility costs 11.4 4.5 15.9 10.3 - 10.3 Other external charges 48.6 1.6 50.2 39.9 - 39.9 ---- --- ---- ---- --- ---- 102.0 7.4 109.4 82.6 - 82.6 ----- --- ----- ---- --- ---- Other income: Profit on disposal of fixed assets (3.0) (0.1) (3.1) (3.4) (0.2) (3.6) Depreciation and amortisation: Depreciation 49.9 27.8 77.7 44.6 - 44.6 Amortisation of acquited intangibles - 0.7 0.7 - 0.6 0.6 --- --- --- --- --- --- 49.9 28.5 78.4 44.6 0.6 45.2 ---- ---- ---- ---- --- ---- 228.5 36.4 264.9 201.9 0.4 202.3 ===== ==== ===== ===== === ===== Six months to 31 October ------------------------ Staff costs: Salaries 141.3 0.6 141.9 140.9 - 140.9 Social security costs 10.9 - 10.9 11.3 - 11.3 Other pension costs 2.8 - 2.8 2.6 - 2.6 --- --- --- --- --- --- 155.0 0.6 155.6 154.8 - 154.8 ----- --- ----- ----- --- ----- Other operating costs: Vehicle costs 46.9 - 46.9 36.4 - 36.4 Spares, consumables & external repairs 31.8 1.3 33.1 28.3 - 28.3 Facility costs 21.8 4.5 26.3 20.1 - 20.1 Other external charges 90.5 1.6 92.1 80.9 - 80.9 ---- --- ---- ---- --- ---- 191.0 7.4 198.4 165.7 - 165.7 ----- --- ----- ----- --- ----- Other income: Profit on disposal of fixed assets (5.5) (0.1) (5.6) (7.4) (0.2) (7.6) --- --- --- --- --- --- Depreciation and amortisation: Depreciation 95.8 27.8 123.6 87.6 - 87.6 Amortisation of acquired intangibles - 1.4 1.4 - 1.2 1.2 --- --- --- --- --- --- 95.8 29.2 125.0 87.6 1.2 88.8 ---- ---- ----- ---- --- ---- 436.3 37.1 473.4 400.7 1.0 401.7 ===== ==== ===== ===== === ===== 4. 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 acquired 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. Exceptional items and amortisation are excluded from underlying profit and earnings per share and are set out below: Three months to Six months to 31 October 31 October 2008 2007 2008 2007 £m £m £m £m US cost reduction programme (23.8) - (23.8) - UK cost reduction programme (12.0) - (12.0) - Profit on sale of UK property from closed 0.1 0.2 0.1 0.2 sites Gain on sale of Ashtead Technology (1.1) - 66.2 - Taxation on exceptional items 9.8 - 0.2 (1.8) --- --- --- --- Total exceptional items (27.0) 0.2 30.7 (1.6) Amortisation of acquired intangibles (net of tax credit) (0.5) (0.4) (1.0) (0.8) --- --- --- --- (27.5) (0.2) 29.7 (2.4) ==== === ==== === The US and UK cost reduction programmes relate to store closures, fleet downsizing and other cost reduction measures being taken in advance of expected lower demand for our equipment. The principal costs relate to impairment of rental fleet as a result of the accelerated disposal programme and vacant property costs and the write off of leasehold improvements at profit centres that will be closed. The gain on Ashtead Technology arose on the sale of that business (refer note 13). The items detailed in the table above are presented in the income statement as follows: Three months to Six months to 31 October 31 October 2008 2007 2008 2007 £m £m £m £m Staff costs (0.6) - (0.6) - Other operating costs (7.4) - (7.4) - Other income 0.1 0.2 0.1 0.2 Depreciation (27.8) - (27.8) - Amortisation of acquired intangibles (0.7) (0.6) (1.4) (1.2) --- --- --- --- Charged in arriving at operating profit and profit before tax (36.4) (0.4) (37.1) (1.0) Taxation 12.2 0.2 12.4 (1.4) Profit/(loss) after taxation from discontinued operations (3.3) - 54.4 - --- --- ---- --- (27.5) (0.2) 29.7 (2.4) ==== === ==== === The exceptional depreciation charge of £27.8m relates to impairment of rental assets to be sold during the accelerated disposal programme. 5. Financing costs Three months to Six months to 31 October 31 October 2008 2007 2008 2007 £m £m £m £m Investment income: Expected return on assets of defined benefit pension plan 1.0 1.1 2.1 2.2 --- --- --- --- Total investment income 1.0 1.1 2.1 2.2 === === === === Interest expense: Bank interest payable 6.8 9.5 12.8 18.8 Interest on second priority senior secures notes 9.9 8.8 18.9 17.7 Interest payable on finance leases 0.2 0.4 0.4 0.7 Non-cash unwind of discount on defined benefit pension plan liabilities 0.7 0.8 1.5 1.5 Non-cash unwind of discount on self insurance provisions 0.3 0.2 0.6 0.5 Amortisation of deferred costs of debt raising 0.7 0.6 1.3 1.2 --- --- --- --- Total interest expense 18.6 20.3 35.5 40.4 ==== ==== ==== ==== Net financing costs 17.6 19.2 33.4 38.2 ==== ==== ==== ==== 6. Taxation The tax charge for the period has been computed using an estimated effective rate for the year of 40% in the US (2007: 40%) and 29% in the UK (2007: 31%) applied to the profit before tax, exceptional items and amortisation of acquired intangibles. The blended effective rate for the Group as a whole is 36%. The tax charge of £27.6m (2007: £25.9m) on the underlying pre-tax profit of £ 76.6m (2007: £71.5m) from continuing operations consists of current tax of £ 1.0m relating to the UK (2007: £nil), current tax of £0.4m relating to the US (2007: £9.6m), deferred tax of £6.4m relating to the UK (2007: £9.0m) and deferred tax of £19.8m relating to the US (2007: £7.3m). In addition, the tax credit of £12.4m (2007: charge of £1.4m) on exceptional costs (including amortisation) of £37.1m (2007: £1.0m) relating to continuing operations consists of current tax credit of £1.0m relating to the UK (2007: £nil), deferred tax credit of £1.8m (2007: charge of £1.8m) relating to the UK and deferred tax credit of £9.6m (2007: £0.4m) relating to the US. Tax on discontinued operations is discussed in note 13. 7. Earnings per share Basic and diluted earnings per share for the three and six months ended 31 October 2008 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 are 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 Six months to 31 October 31 October 2008 2007 2008 2007 Profit/(loss) for the financial period (£m) From continuing operations 1.8 27.2 24.3 43.2 From discontinued operations (3.3) 1.9 56.4 3.5 --- --- --- --- From continuing and discontinued operations (1.5) 29.1 80.7 46.7 --- ---- ---- ---- Weighted average number of shares (m) - basic 504.2 553.1 509.8 552.4 ===== ===== ===== ===== - diluted 504.4 556.1 510.1 556.9 ===== ===== ===== ===== Basic earnings per share From continuing operations 0.4p 4.9p 4.8p 7.8p From discontinued operations (0.7p) 0.4p 11.0p 0.7p From continuing and discontinued ---- ---- ----- ---- operations (0.3p) 5.3p 15.8p 8.5p ==== ==== ===== ==== Diluted earnings per share From continuing operations 0.4p 4.9p 4.8p 7.8p From discontinued operations (0.7p) 0.3p 11.0p 0.6p ---- ---- ----- ---- From continuing and discontinued operations (0.3p) 5.2p 15.8p 8.4p ==== ==== ===== ==== Underlying earnings per share (defined in any period as the earnings before exceptional items, amortisation of acquired intangibles and fair value remeasurements 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 Six months to 31 October 31 October 2008 2007 2008 2007 Basic earnings per share (0.3p) 5.3p 15.8p 8.5p Exceptional items and amortisation of acquired intagibles 7.5p 0.1p (5.7p) 0.5p Tax on exceptional items and amortisation (2.0p) (0.1p) (0.1p) (0.1p) ---- ---- ---- ---- Underlying earnings per share 5.2p 5.3p 10.0p 8.9p Other deferred tax 2.8p 1.9p 5.3p 3.2p ---- ---- ---- ---- Cash tax earnings per share 8.0p 7.2p 15.3p 12.1p ==== ==== ===== ===== 8. Dividends During the period, a final dividend in respect of the year ended 30 April 2008 of 1.675p (2007: 1.1p) per share was paid to shareholders. 9. Property, plant and equipment 2008 2007 Rental Rental equipment Total equipment Total Net book value £m £m £m £m -------------- At 1 May 994.0 1,130.1 920.6 1,048.0 Exchange difference 157.7 176.5 (25.3) (28.3) Reclassifications (0.3) (0.1) (0.1) 0.1 Additions 179.3 201.5 234.0 255.1 Disposals (33.1) (35.2) (30.2) (33.0) Depreciation (103.7) (123.6) (78.5) (90.3) ----- ----- ---- ---- At 31 October 1,193.9 1,349.2 1,020.5 1,151.6 ======= ======= ======= ======= Included in depreciation is an impairment charge of £27.8m (see note 4). 10. Called up share capital Ordinary shares of 10p each: 2008 2007 2008 2007 Number Number £m £m Authorised 900,000,000 900,000,000 90.0 90.0 =========== =========== ==== ==== Allotted, called up and fully paid 561,572,726 561,440,420 56.2 56.1 =========== =========== ==== ==== Since 30 April 2008, the Company has purchased 20,172,770 shares at a total cost of £13.5m, which are held in treasury and the ESOT has purchased 472,417 shares at a total cost of £0.4m. In addition, during the period, 675,559 ordinary shares of 10p each were re-issued out of treasury at an average price of 23p per share raising £0.2m, and 922,207 shares were re-issued out of the ESOT at an average price of 106p per share raising £1.0m, both being under the share award plans. 11. Statement of changes in shareholders' equity Cumulative Own foreign Non shares exchange Share Share distributable Treasury held by translation Distributable 31 Oct capital premium reserves stock ESOT differences reserves Total 2007 £m £m £m £m £m £m £m £m Total recognised income and expense - - - - - 36.0 79.8 115.8 44.8 Shares issued/ re-issued - - - 0.5 - - (0.3) 0.2 0.4 Dividends paid - - - - - - (8.4) (8.4) (6.1) Share based payments - - - - - - 1.0 1.0 1.5 Vesting of share awards - - - - 1.0 - (1.0) - - Own shares purchased - - - (13.5) (0.4) - - (13.9) (0.8) Realisation of foreign exchange translation differences - - - - - 1.2 - 1.2 - --- --- --- --- --- --- --- --- --- Net changes in shareholders' equity - - - (13.0) 0.6 37.2 71.1 95.9 39.8 Opening shareholders' equity 56.2 3.6 90.7 (23.3) (7.0) (28.2) 344.1 436.1 396.7 ---- --- ---- ---- --- ---- ----- ----- ---- Closing shareholders' equity 56.2 3.6 90.7 (36.3) (6.4) 9.0 415.2 532.0 436.5 ==== === ==== ==== === === ===== ===== ===== 12. Notes to the cash flow statement Six months to 31 October 2008 2007 £m £m a) Cash flow from operating activities Operating profit before exceptional items and amortisation: - continuing operations 110.0 109.7 - discontinued operations 2.8 5.2 --- --- 112.8 114.9 Depreciation: - continuing operations 95.8 87.6 - discontinued operations - 2.7 --- --- EBITDA before exceptional items 208.6 205.2 Profit on disposal of property, plant and equipment (5.5) (7.7) Decrease in inventories 4.9 0.9 Increase in trade and other receivables (16.6) (20.6) Increase/(decrease) in trade and other payables 1.6 (0.5) Exchange differences 0.8 0.6 Other non-cash movements 1.1 1.4 --- --- Cash generated from operations before exceptional items 194.9 179.3 ===== ===== b) Reconciliation to net debt Decrease/(increase) in cash in the period 0.2 (0.9) (Decrease)/increase in debt through cash flow (86.7) 49.2 ---- ---- Change in net debt from cash flows (86.5) 48.3 Exchange difference 196.8 (34.2) Non-cash movements: - deferred costs of debt raising 1.3 1.1 - capital element of new finance leases 0.9 0.1 --- --- Movement in net debt in the period 112.5 15.3 Opening net debt 963.2 915.9 ----- ----- Closing net debt 1,075.7 931.2 ======= ===== c) Analysis of net debt 1 May Exchange Cash Non-cash 31 October 2008 movement flow movements 2008 £m £m £m £m £m Cash (1.8) (0.3) 0.2 - (1.9) Debt due within 1 year 7.6 1.3 (0.2) 0.6 9.3 Debt due after 1 year 957.4 195.8 (86.5) 1.6 1,068.3 ----- ----- ---- --- ------- Total net debt 963.2 196.8 (86.5) 2.2 1,075.7 ===== ===== ==== === ======= 13. Disposal of Ashtead Technology The Group sold its Ashtead Technology division on 26 June 2008 for a cash consideration of £96.0m which has been applied to reduce outstanding debt. Ashtead Technology has been accounted for as a discontinued operation and accordingly the after tax profit for the period from its operations and the gain on the sale of its assets and liabilities has been shown as a single line item within the Group's income statement. The profit after taxation from operations of the business sold comprises: Two months to Six months to 30 June 31 October 2008 2007 £m £m Revenue 4.7 13.1 Operating costs (1.9) (5.5) Other income - 0.3 --- --- EBITDA 2.8 7.9 Depreciation - (2.7) --- --- Operating profit 2.8 5.2 Net financing costs - - --- --- Profit before taxation from operations 2.8 5.2 Taxation (0.8) (1.7) --- --- Profit after taxation from operations 2.0 3.5 Gain on sale of Ashtead Technology, after taxation 54.4 - ---- --- Profit after taxation from discontinued operations 56.4 3.5 ==== === The £0.8m tax charge consists of a deferred tax charge of £0.4m (2007: £0.8m) relating to the UK, a deferred tax charge of £0.3m relating to the US (2007: £ 0.7m) and a current tax charge of £0.1m (2007: £0.2m) relating to Singapore. The assets and liabilities of Ashtead Technology as at the date of disposal were: At 26 June 2008 Assets £m Cash and cash equivalents 2.8 Inventories 0.1 Trade and other receivables 5.8 Taxation assets 0.8 Property, plant and equipment - rental equipment 18.9 - other assets 0.3 --- 19.2 Goodwill 2.0 --- Total assets of the disposal group 30.7 ---- Liabilities Trade and other payables 4.6 Taxation liabilities 2.8 --- Total liabilities of the disposal group 7.4 --- Net assets 23.3 ==== The proceeds from the sale of Ashtead Technology which have been included in the profit after tax from discontinued operations are as follows: Sale of Ashtead Technology 2008 £m Consideration received 96.0 Less: Costs of disposal (5.3) --- Net disposal consideration 90.7 Less: Carrying amounts of net assets disposed of (23.3) Less: Recycling of cumulative foreign exchange translation differences (1.2) --- Gain on sale before taxation 66.2 (11.8) ---- Taxation 54.4 ==== The results of the discontinued operations which have been included in the consolidated cash flow statement are as follows: Two months to Six months to 30 June 31 October 2008 2007 £m £m Cash flows attributable to discontinued operations -------------------------------------------------- Cash flows from operating activities 3.7 7.1 Cash flows from investing activities (0.9) (3.8) Cash flows from financing activities (0.3) (3.2) --- --- 2.5 0.1 === === Net cash inflow on disposal --------------------------- Consideration received in cash 96.0 Less: Cash and cash equivalents balance sold (2.8) Less: Costs of disposal paid (3.4) --- Net consideration reported on cash flow statement 89.8 ==== 14. Contingent liabilities and contingent assets There have been no significant changes in contingent liabilities from those reported at 30 April 2008. The Group remains subject to periodic legal claims in the ordinary course of its business. However, the claims outstanding at 31 October 2008 are not expected to have a significant impact on the Group's financial position. As part of the NationsRent acquisition, the Group has agreed to pay deferred contingent consideration of up to $89m. The amount of the deferred contingent consideration is linked to the Company's share price performance over the three years from 1 September 2006 to 31 August 2009. In the event that the Company's share price (measured on a five day average basis) rises by more than 22.2% above the reference price of 204p (as adjusted for the bonus element of the rights issue), contingent consideration becomes payable at the rate of $5m for every additional 1% rise in the share price up to a maximum of 40% above the reference price. Accordingly, deferred contingent consideration starts to become payable when the Company's share price reaches 250p with the maximum $89m being payable at 286p. The contingent consideration is payable on a quarterly basis in cash. It is not practicable to estimate reliably the amount of contingent consideration which will become payable and accordingly no provision has been made. REVIEW OF RESULTS, BALANCE SHEET AND CASH FLOW Results Segmental results Divisional results before exceptional items and amortisation of acquired intangibles for the three months and six months ended 31 October 2008 are summarised below: Revenue EBITDA Operating profit Three months to 31 October 2008 2007 2008 2007 2008 2007 -------------------------- Sunbelt in $m 418.3 420.6 162.3 179.8 95.1 111.8 ===== ===== ===== ===== ==== ===== Sunbelt in £m 232.4 207.8 90.3 88.8 52.9 55.2 A-Plant 54.4 56.4 19.6 20.5 7.1 9.5 Group central costs - - (1.7) (2.4) (1.7) (2.4) --- --- --- --- --- --- Continuing operations 286.8 264.2 108.2 106.9 58.3 62.3 ===== ===== ===== ===== Net financing costs (17.6) (19.2) Profit before tax, exceptionals and ---- ---- amortisation from continuing operations 40.7 43.1 Ashtead Technology - discontinued - 2.9 operations Exceptional items (36.8) 0.2 Amortisation (0.7) (0.6) --- --- Total Group profit before taxation 3.2 45.6 === ==== Six months to 31 October ----------------------- Sunbelt in $m 821.7 809.1 320.8 330.5 187.0 196.6 ===== ===== ===== ===== ===== ===== Sunbelt in £m 436.8 401.9 170.6 164.1 99.4 97.6 A-Plant 109.5 108.5 38.8 37.6 14.2 16.5 Group central costs - - (3.6) (4.4) (3.6) (4.4) --- --- --- --- --- --- Continuing operations 546.3 510.4 205.8 197.3 110.0 109.7 ===== ===== ===== ===== Net financing costs (33.4) (38.2) Profit before tax, exceptionals and ---- ---- amortisation from continuing 76.6 71.5 operations Ashtead Technology - discontinued 2.8 5.2 operations Exceptional items 30.5 0.2 Amortisation (1.4) (1.2) --- --- Total Group profit before taxation 108.5 75.7 ===== ==== Three months ended 31 October ----------------------------- Revenue from continuing operations increased 8.6% to £286.8m (2007: £264.2m) but decreased 1.1% at constant 2008 exchange rates. Underlying operating profit decreased by 6.4% to £58.3m (2007: £62.3m) and 15.6% at constant 2008 exchange rates. Reflecting the benefit of lower debt and lower interest rates, profit before tax, exceptionals and amortisation for the quarter decreased to £40.7m (2007: £43.1m) and, after discontinued operations, exceptional items and amortisation, the profit before tax for the quarter was £3.2m (2007: £45.6m). Sunbelt's dollar revenues of $418.3m were comparable to the prior year. This reflected a fleet 4.0% larger on average than last year, physical utilisation for the quarter slightly lower at 71% (2007: 72%) and a 1% lower achieved yield. Dollar utilisation was 61% at 31 October 2008 compared to 62% at 30 April 2008. This reflects the weakening economic environment for our end markets and contributed to EBITDA and operating profit margins in the quarter of 38.8% and 22.7% respectively. The economic slowdown in the UK, and particularly the collapse in UK house building, led to the 4% decline in A-Plant's second quarter revenues. This reflected more fleet on rent than a year ago with a 13% increase in average fleet size to £384.2m but physical utilisation lower at 68% (2007: 73%) and 9% lower average yield. In these more difficult conditions, A-Plant's EBITDA and operating profit margins declined to 36.1% and 13.1% respectively. Six months ended 31 October --------------------------- Revenue increased 7.0% to £546.3m (2007: £510.4m) in the six months ended 31 October 2008 at actual rates of exchange and by 1.4% at constant 2008 exchange rates. Underlying operating profit was flat at £110.0m (2007: £109.7m) at actual rates of exchange but decreased by 5.6% at constant rates. Profit before tax, exceptionals and amortisation for the six months rose 7.2% to £76.6m (2007: £71.5m) and by 2.7% at constant rates. After exceptional items and amortisation, the total Group profit before tax (including Ashtead Technology) was £108.5m (2007: £75.7m). Balance sheet Capital expenditure in the six months was £201.5m of which £179.3m was invested in the rental fleet (2007: £255.1m in total). Expenditure on rental equipment was 89% 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: 2008 2007 Growth Maintenance Total Total Sunbelt in $m 61.7 145.6 207.3 313.3 ==== ===== ===== ===== Sunbelt in £m 38.2 90.1 128.3 150.8 A-Plant 21.7 29.3 51.0 77.2 ---- ---- ---- ---- Continuing operations 59.9 119.4 179.3 228.0 Ashtead Technology - - - 6.0 ---- --- --- --- Total rental equipment 59.9 119.4 179.3 234.0 ==== ===== ===== ===== Delivery vehicles, property improvements & 22.2 21.1 computers ---- ---- Total additions 201.5 255.1 ===== ===== As market conditions slowed the Group spent £59.9m of its rental equipment capital expenditure on growth (2007: £129.2m) and £119.4m on replacing existing fleet (2007: £104.8m). The growth proportion is estimated on the basis of the assumption that maintenance capital expenditure in any period is equal to the original cost of equipment sold. The average age of the Group's serialised rental equipment, which constitutes the substantial majority of the fleet, at 31 October 2008 was 32 months (2007: 27 months) on a net book value basis. Sunbelt's fleet had an average age of 34 months (2007: 29 months) comprising 36 months for aerial work platforms which have a longer life and 32 months for the remainder of its fleet and A-Plant's fleet had an average age of 23 months (2007: 21 months). The original cost of the Group's rental fleet and the dollar utilisation for the twelve months ended 31 October 2008 are shown below: LTM rental & rental LTM LTM Rental fleet at original cost related dollar physical 31 October 30 April LTM revenues utilisation utilisation 2008 2008 average Sunbelt in £m 2,375 2,314 2,349 1,439 61% 67% ===== ===== ===== ===== === === Sunbelt in £m 1,470 1,168 1,214 744 61% 67% A-Plant 381 360 369 210 57% 70% --- --- --- --- === 1,851 1,528 1,583 954 60% ===== ===== ===== === === Dollar utilisation is defined as rental and rental related revenues divided by average fleet at original (or "first") cost. Dollar utilisation at Sunbelt for the twelve months ended 31 October 2008 was 61%, down slightly from 62% in the year ended 30 April 2008. Dollar utilisation of 57% at A-Plant reflects the lower pricing (relative to equipment cost) prevalent in the competitive UK market. 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. Trade receivables ----------------- Receivable days at 31 October 2008 were 53 days (2007: 51 days). The bad debt charge for the six months ended 31 October 2008 as a percentage of total turnover was 1.0% (2007: 0.8%). Trade and other payables ------------------------ Group payable days were 54 days in 2008 (2007: 60 days). Capital expenditure related payables at 31 October 2008 totalled £37.4m (2007: £74.4m). 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 Free cash flow (defined as the net cash inflow from operations less net maintenance capital expenditure, financing costs paid and tax paid) is summarised below: Six months to LTM to Year to 31 October 31 October 30 April 2008 2007 2008 2008 £m £m £m £m EBITDA before exceptional items 208.6 205.2 383.4 380.0 ===== ===== ===== ===== Cash inflow from operations before exceptional items 194.9 179.3 372.0 356.4 Cash efficiency ratio* 93.4% 87.4% 97.0% 93.8% Maintenance rental capital expenditure (103.2) (114.0) (184.5) (195.3) Non-rental capital expenditure (19.4) (21.5) (33.7) (35.8) Proceeds from sale of used rental equipment 27.6 57.9 62.4 92.7 Tax paid (0.5) (0.3) (6.6) (6.4) --- --- --- --- Cash flow before interest & growth capex 99.4 101.4 209.6 211.6 Financing costs paid (28.4) (34.7) (70.1) (76.4) ---- ---- ---- ---- Cash flow before growth capex after 71.0 66.7 139.5 135.2 interest Growth capital expenditure (50.8) (101.7) (69.5) (120.4) Exceptional costs paid (net) (1.4) (6.8) (4.1) (9.5) --- --- --- --- Free cash flow 18.8 (41.8) 65.9 5.3 Business disposals/(acquisitions) 89.8 - 83.9 (5.9) ---- --- ---- --- Total cash generated/(absorbed) 108.6 (41.8) 149.8 (0.6) Dividends paid (8.4) (6.1) (12.8) (10.5) Purchase of own shares by the ESOT (0.4) (0.8) (1.2) (1.6) Purchase of own shares by the Company (13.5) - (36.4) (22.9) Proceeds from issues of ordinary shares - 0.4 0.1 0.5 Proceeds from re-issue of shares 0.2 - 0.2 - --- --- --- --- Reduction/(increase) in total debt 86.5 (48.3) 99.7 (35.1) ==== ==== ==== ==== * Cash inflow from operations before exceptional items as a percentage of EBITDA before exceptional items. Half year cash inflow from operations increased 9% to £194.9m and the cash efficiency ratio was 93.4% (2007: 87.4%). Tax payments remain low reflecting tax depreciation in excess of book and utilisation of tax losses. Financing costs paid differ from the accounting charge in the income statement due to the timing of interest payments in the year, with accrued unpaid interest at 31 October 2008 totalling £14.9m (2007: £15.5m) and due to non-cash interest charges. As noted above, capital expenditure slowed in the first half with net payments for capital expenditure of £145.8m this year compared to £179.3m in 2007. As a result the Group generated positive free cash flow (after growth as well as maintenance capital expenditure) in the first half for the first time since the end of the last US slow down in 2004. Including £89.8m generated from the sale of Ashtead Technology (net of disposal costs), the Group generated free cash of £108.6m in the first half compared to the outflow of £41.8m last year. On a last twelve months basis free cash flow generated totals £65.9m (year to 30 April 2008: £5.3m) whilst total cash generation including the Technology sale is £149.8m (year to 30 April 2008: outflow of £0.6m). Included in the last twelve months' figures are payments for net capital expenditure in the second half of last year of £79.5m. Including the disposal proceeds to be generated as a result of the fleet downsizing programme, we expect a substantially lower net spend in the second half of the current fiscal year with positive implications for the amount of total cash we anticipate generating in the year to 30 April 2009. Net debt 31 October 30 April 2008 2007 2008 £m £m £m First priority senior secured bank debt 578.4 540.9 556.2 Finance lease obligations 15.3 17.7 15.2 8.625% second priority senior secured notes, due 2015 150.9 116.1 122.2 9% second priority senior secured notes, due 2016 333.0 258.5 271.4 ----- ----- ----- 1,077.6 933.2 965.0 Cash and cash equivalents (1.9) (2.0) (1.8) --- --- --- Total net debt 1,075.7 931.2 963.2 ======= ===== ===== Net debt at 31 October 2008 was £1,076m (30 April 2008: £963m) which includes a translation increase of £197m due to the strength of the dollar. The Group's underlying EBITDA (excluding Ashtead Technology) for the last twelve months calculated at constant 31 October 2008 exchange rates was £432m. Accordingly the ratio of net debt to EBITDA was 2.5 times at constant exchange rates at 31 October 2008 (30 April 2008: 2.5 times). The Group's debt facilities are now committed for a weighted average period of approximately 5 years with the earliest significant maturity being in August 2011. The weighted average interest cost of these facilities (including non-cash amortisation of deferred debt raising costs) is approximately 7%, most of which is tax deductible in the US where the tax rate is 39%. Financial performance covenants under the two senior secured notes 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 EBITDA before exceptional items not to exceed 4.25 times (4.0 times from April 2009), and * a fixed charge ratio comparing EBITDA before exceptional items less net capital expenditure paid in cash to the sum of scheduled debt repayments plus cash interest, cash tax payments and dividends paid which is required to be equal or greater to 1.1 times. These covenants are not, however, required to be adhered to when availability (the difference between the borrowing base and facility utilisation) exceeds $125m. At 31 October 2008 availability under the bank facility, including suppressed availability of $18m, was $764m ($602m at 30 April 2008). Although the covenants were therefore not required to be measured at 31 October 2008, the Group was in compliance with both of them at that date. 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 2008 Annual Report and Accounts on pages 25 to 27. 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 revenues 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. Approximately 97% of our debt was denominated in US dollars at 31 October 2008. At that date dollar denominated debt represented approximately 85% of the value of dollar denominated net assets (other than debt) providing a partial, but substantial, hedge against the translation effects of changes in the dollar exchange rate. 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 currency mix of our profits currently prevailing and on dollar debt levels and interest and exchange rates at 31 October 2008, a 1% change in the US dollar exchange rate would impact pre-tax profit by 0.7%. In addition, the market background and current trading and outlook sections 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 October 30 April 31 October 30 April 2008 2007 2008 2008 2007 2008 Sunbelt 430 441 430 7,007 7,163 7,039 A-Plant 180 195 192 2,361 2,435 2,422 Ashtead Technology - 13 13 - 129 120 Corporate office - - - 13 11 13 --- --- --- --- --- --- Group 610 649 635 9,381 9,738 9,594 === === === ===== ===== ===== Sunbelt's profit centre numbers include 90 Sunbelt at Lowes stores at 31 October 2008 (90 at 30 April 2008 and 95 at 31 October 2007). INDEPENDENT REVIEW REPORT TO ASHTEAD GROUP PLC We have been engaged by the Company to review the condensed interim financial statements for the six months ended 31 October 2008 which comprise the income statement, the balance sheet, the statement of recognised income and expense, the cash flow statement and related notes 1 to 14. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed financial statements. This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 issued by the Auditing Practices Board for use in the United Kingdom. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdoms' Financial Services Authority. As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union and the International Accounting Standards Board. The condensed financial statements included in this half-yearly financial report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union and the International Accounting Standards Board. Our responsibility Our responsibility is to express to the Company a conclusion on the condensed financial statements in the half-yearly financial report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed interim financial statements for the six months ended 31 October 2008 are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the International Accounting Standards Board and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. Deloitte LLP Chartered Accountants and Registered Auditors 8 December 2008 London, UK

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