Ashtead plc, parent company of Sunbelt Rentals, has accessed an additional $500 million in credit through its senior secured credit facility for one year, in response to a general business slowdown caused by the COVID-19 pandemic. The additional funding increases the facility size to $4.6 billion for the next 12 months.
Also, in early March, the company took several measures to optimize cash flow, reduce operating costs, and strengthen its liquidity. The measures include reducing capital expenditures for the year ending April 30, 2021, to about £500 million from the initial range of £1.1 to £1.3 billion; suspending all current and prospective M&A activity; pausing its share buyback program from March 19; implementing a groupwide freeze on new hires; and reducing discretionary staff costs, use of third-party freight haulers and other operating expenditures consistent with reduced activity levels.
At the time of the company’s fiscal third quarter results on March 3, Sunbelt and A-Plant were trading in line with expectations and this continued through the second week of March with limited impact from the consequences of the COVID-19 virus pandemic. Since the middle of March, the unprecedented action taken by governments and the private sector to contain the virus has resulted in adverse conditions within the group's end markets.
With few exceptions, the company’s locations in the U.S., U.K., and Canada remain open and active, the company said. Although trading volumes have been impacted negatively by the measures taken to contain the virus, this has been mitigated, in part, by emergency response efforts throughout the company’s business units but particularly its specialty businesses. Sunbelt Rentals is designated as an essential business in the U.S., U.K. and Canada, supporting government and private sector responses to the pandemic. This includes providing vital equipment and services to first responders, hospitals, alternative care facilities, testing sites, food services, telecom and utility companies while continuing to service ongoing construction sites and increased facility maintenance and cleaning.
As a result of these market dynamics, rental-only revenue for Sunbelt U.S. in March was 2 percent higher than the prior year and the company expects April U.S. rental-only revenue to be about 15 percent lower than April 2019. This is principally because of the general tool business being about 18 percent lower than the prior year while the broader based specialty businesses are expected to be approximately 9 percent higher than last year, consistent with its performance in March. The reduction in the general tool business is driven by declines in volume rather than rental rates.
Since April 10, Sunbelt said, the level of U.S. fleet on rent has stabilized and shown a modest improvement. This positive trend follows a period of consistent decline over the previous four weeks. This recent trend in fleet on rent is similar in the company’s U.K. and Canadian businesses.
Given these revenue trends, the group now expects underlying profit before tax for the fiscal year ending April 30, 2020 to be about £1,050 million (approximately U.S. $1,305 million).
A-Plant and Sunbelt have also instituted the following measures:
· Restricted travel and meetings
· Enacted a Business Continuity Plan to facilitate working remotely where possible
· Reinforced guidelines to ensure colleagues and customers follow specific health protection protocols and implemented social distancing
· Provided touchless signature at the point of equipment delivery or pickup
· Put in place curbside pick-up to serve our non-delivered customer transactions
"We are grateful for and extraordinarily proud of our team members who continue to respond as essential service providers during a time when our communities are in need,” said Ashtead Group chief executive Brendan Horgan. “All levels of the organization have quickly adapted our operations to continue servicing our customers while keeping our leading value of safety at the forefront of all we do. Looking forward, I am certain the swift actions we took during these unprecedented times and the strength of our balance sheet will serve the Group well. These factors, when combined with the diversity of our products and end markets, contribute to the strength of our long-term business model and put the board in a position of confidence to look to the coming financial year as one of strong cash generation and strengthening our market position."
The company added that it has made every effort to preserve its committed workforce for the impending recovery.
“Therefore, we have not made any team members redundant as a result of the impact of COVID-19 and currently do not intend to seek assistance from the U.K. government’s Coronavirus Job Retention Scheme,” the company said in its statement.
In response to the COVID-19 crisis the group has modelled a variety of downside scenarios over the coming year reflecting activity levels much lower than those which have been experienced to date. Under all these scenarios the Group remains free cash flow positive throughout the next financial year.
