Spending pays off for Ashtead: Plant-hire firm beats analysts' expectations with 22% boost

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The Independent Online
ASHTEAD'S policy of spending its way out of the recession paid off yesterday as the UK's third-biggest plant-hire company announced a better-than-expected 22 per cent jump in pre-tax profits for the year to April.

Peter Lewis, its chairman, said: 'We have maintained investment, reshaped our customer base and entered new markets. Trading in the first quarter of the current year is well up on last year and margins are now strengthening.'

The rate of improvement accelerated during the year with more than three-quarters of the pre-tax jump from pounds 2.3m to pounds 2.8m coming in the second half. Profits rose 50 per cent in the second half compared with a 7 per cent increase at the interim stage. Sales were 10 per cent higher at pounds 33.9m.

Unusually for the plant-hire industry, Ashtead operates a system of profit-related bonuses for all 52 outlets in its core UK plant-hire business, all of which were profitable during the year. Billings per day are running at a higher rate than at any time over the last three years.

The company has increased its market share since 1990 from 4 per cent to more than 6 per cent, putting it into the industry's number three spot behind Hewden Stuart and Vibroplant.

Mr Lewis said that many companies in the fragmented British market had been severely weakened by the recession but cautioned against expecting acquisitions. Ashtead decided against buying BET's plant-hire operation, picked up last week by Hewden Stuart.

Ashtead's capital expenditure last year of pounds 10.5m takes its total for the last three years to pounds 25m, more than half the original cost of the fleet.

That attention to maintaining up- to-date plant has pushed gearing up to 50 per cent but kept volumes buoyant. After a successful drive to increase rental prices in the spring, margins are also now recovering.

The decisions to move into new product areas and to attack the US market were also vindicated by yesterday's figures. Supplying survey and inspection equipment to the oil industry generated trading profits of pounds 1.35m during the year, up from pounds 1.09m in 1992. Plant hire in the south-eastern states of the US saw an improvement from pounds 428,000 to pounds 470,000.

The only black spot in Ashtead's figures was a lengthening in the average number of days taken to collect debts from customers. Mr Lewis said, however, that at 70 days, up from 66, the company was still collecting cash faster than the rest of the industry.

After a low tax charge of 20 per cent, which Ashtead says will apply this year as well, earnings per share were 35 per cent higher at 9.7p. A final dividend of 3.4p makes a total for the year of 4.54p, a 10 per cent increase. Ashtead shares closed yesterday up 19p at 236p.