Earnings Call: Q4 2017

Jun 13, 2017

Hello, and welcome to the Ashton Bank Bond Holding Call for Quarter 4 and the Year End Results. Throughout the call, all participants will be in listen only mode and afterwards, there will be a question and answer session. And just to remind you, this conference call is being recorded. Today, I am pleased to present Suzanne Wood, Finance Director. Please go ahead. Thank you. Good afternoon to everyone on the call. With me today are Jeff Gravel, our Chief Executive and Will Shaw, our Director of Investor Relations. And as always, we appreciate your interest and are happy to have this opportunity to answer any questions you might have. The webcast, our earlier analyst meeting and the related slide presentation are available on our website and we'll refer to those slides during the call today. And so I'll begin by covering some financial highlights from the release in the event you haven't had an opportunity to look at the webcast yet and then we'll open up the call for your questions. So as an overview, we once again had a very strong year with market leading growth in both revenue and profitability. We continue to make progress on our growth and our capital allocation priorities, while importantly still maintaining leverage within our target range. I'll move on now to a bit more detail around our performance starting with our 4th quarter results, which are shown on Slide 5 in the presentation. Here you'll note that our underlying pre tax profit for the quarter was £189,000,000 ahead of last year's £163,000,000 dollars The Group's rental revenue grew by 11% at constant rate of exchange. However, the Q4 this year had 2 fewer billing days than last year. And so on a billings per day basis, rental revenue grew and rental revenue growth in the 4th quarter was 14%, which is right in line with our earlier quarters. This also had some impact on drop through in margins in the quarter. EBITDA margin was unchanged at 46 percent, while operating profit margin was slightly lower at 26%. This resulted from higher depreciation expense associated with our larger fleet and a higher cost base reflecting certain central overhead investments we made. These were mainly in the areas of IT development and stack retention, and I'm sure we'll come on to discuss that further in Q and A. On the next slide, we show the Group's financial results for the full year. At constant rates of exchange, rental revenue increased by 13% with our growth outpacing the markets in both the U. S. And the U. K. Similar to earlier quarters this year, the percentage change in our total revenue of 10% was slightly less than the change in our rental revenue. This resulted from fewer fleet disposals as compared to last year and that had some impact on our performance, which we'll discuss more in a moment. Our EBITDA margin improved to 47% for the year and our operating profit margin reduced slightly to 28%. We think this margin performance was a solid one, particularly considering that we opened 61 new Greenfield locations, completed 15 acquisitions with the associated cost of acquisition and integration and invested in our infrastructure. As a result, our underlying pre tax profit for the year increased by 7% on a constant currency basis to £793,000,000 On Slide 7, it's worth pointing out that our growth rates after adjusting for the effect of the gains on sale really reflect a more accurate picture of our underlying business performance. Excluding the sale of used equipment from both years, revenue increased by 13% and underlying profit by 10%. On the next couple of slides, we've shown the divisional performance for Sunbelt and A Plant. Beginning with Sunbelt, you'll note that rental revenue grew by 12% in the year as it continued to benefit from generally strong end markets. EBITDA margin increased to 49% for the full year, while operating profit margin was broadly flat at 30%, owing to the factors I mentioned earlier. Sunbelt's operating profit increased by 7% as compared to last year, as the continued operational efficiency of the tour locations more than offset the drag effect of new stores. If we normalize for the effect of reduced fleet disposals by excluding gains on sale, then the underlying profit growth rate at Sunbelt was 10% in the year. With respect to A Plant on Slide 9, Whittel revenue grew by 16%. However, the operating cost base grew at a similar rate as core acquisitions were integrated. And as a result margins remained broadly flat for the year. Like Sunbelt, A Plant's operating profit growth percentage change of 7% was adversely affected by fewer fleet disposals in the current year. Excluding the impact of lower gains on equipment sales, our underlying operating profit increased 11% over the prior year. On slide 10, we provided the details of our cash flow. The Group's strong margins resulted in cash flow from operations of 1 £400,000,000 significantly higher than last year. And as we've said many times, ours is an inherently profitable cash generating business and it's that cash flow which gives us substantial flexibility. We used part of £1,400,000,000 to cover what I'll call non discretionary items like interest, tax and replacement CapEx and that left £927,000,000 available for discretionary items such as growth CapEx, M and A and shareholder returns. As in previous years, we chose to invest most heavily this year in growth CapEx to support the activity levels we see on the ground. But even after the investment in growth CapEx, we still generated free cash flow of £319,000,000 We invested a further £421,000,000 on bolt on acquisitions, increased our dividend and repurchased shares. Slide 11 is the usual one on our debt and leverage profile and we continue to show it because it reflects our ongoing commitment to investing responsibly, maintaining leverage within our target range and ensuring that our debt structure remains flexible. At April 30, our leverage ratio was 1.7 times, which was well within our target range. And we also continued to maintain a wide margin between our net debt and the second hand value of our fleet. The gap between those two is now £1,400,000,000 So our strong balance sheet and leverage remains a competitive advantage and positions us well in the medium term. The other topic I'll touch on quickly before moving on to Q and A is our 2018 CapEx plan, which is shown on Slide 24. For 2018, we anticipate that our growth CapEx investment will be broadly similar for the year just ended, approximately 900,000,000 pounds to £1,200,000,000 on a gross basis. As you'd expect, our CapEx is weighted more toward the U. S. And more toward growth than replacement, reflecting our young seed age. This level of CapEx will support the organic growth plans discussed in our last Capital Markets Day when we outlined our Project 2021. At this point, I'm sure you have some questions you'd like to ask, so we will move on to the Q and A session. Operator, if you could give instructions for that, we'd appreciate it. Thank you very much. We have a question now from the line of Sean Wondrack of Deutsche Bank. Please go ahead. Your line is now open. First question. I know you are speaking, but we can't actually hear you. So if I could ask you to wait for one moment while we resolve this technical issue. Thank you very much. My apologies for the delay while we're just trying to resolve this meeting issue so we can hear Sean one next question. Thank you again for your patience. Again, apologies for the delay. Please bear with us while we try to resolve this. Yes. Might I suggest, Sean, hopefully you can hear me. This is Suzanne Wood. If we're having some difficulties with your line, I'm more than happy to speak to you immediately after the call. If you'd like to just ring me in the group office here in London, I suspect you have the number or can get access to that off our website. And Will and I will be happy to chat with you about any questions you might have. Okay, great. So operator, if that hopefully that works, I might suggest we go ahead and see if there are any other questions from participants to see if this technical issue is only relates to Sean's line or is potentially more broad than that. Okay. Unfortunately, the issue which is preventing us from hearing Sean's question is affecting all participants. So while they are able to hear us, we will be unable to hear them if they have a question to ask. All right. Well, I apologize for this. I will have to say this is the first conference call issue I've had in a really long time, if ever, that I can remember. For those of you on the call, I think there are 10 or 11 participants. I am here in the group office. Many of you have my mobile phone number. So please, please do give a call after this and I will be happy to chat with each of you about any questions you might have. Thank you. I think, operator, at this point, we should just conclude the call, and hopefully, we will have the opportunity to speak with the participants individually. Thank you very much. In that case, this now concludes our call. Thank you for attending. Participants, you may disconnect your lines.