Ashtead sounds alert on US setback

ASHTEAD Group has warned its full-year profits would crash amid falling demand for hire equipment in the US and further heavy write-downs in the value of plant. The stock slumped a further 11p to 69p as the company said profits for the year to 30 April would be materially lower than the £43.7m the previous year.

Ashtead had already revealed it would take a £25m charge this year following a strategic review of its plant. But chief executive George Burnett said this cost had risen to £31.3m following a further assessment.

He also warned that Ashtead's US business, which generates about 70% of the group's turnover, would be hit hard in the current half by the American recession.

Ashtead enjoyed like-for-like sales growth of 6% in the US in the six months to 31 October. But results had been flat in November and December. 'We are assuming it will remain flat for the rest of this financial year,' Burnett said. It opened 19 businesses in the US in the first half and had hoped to take this tally to 30 for the year. But it had cut this target to 22 due to the economic deterioration.

Interim pre-tax profit rose to £11.2m from £4.1m previously. Operating profit before goodwill and one-offs rose 13% to £50.3m.

Profits from Sunbelt, its US business, rose 19% to £35.9m, cementing its position as one of America's top five equipment rental groups. But the A-Plant arm in the UK suffered a 4.9% fall in operating profit to £11.6m as margins were squeezed. Burnett said the market was highly competitive, adding that signs of a decline in the Irish economy had also taken a toll on revenues.

He added that the British asset write-downs were part of a bid to quit industries in which returns on capital were significantly lower than those achieved in the US. 'The strategic decision to discontinue lower margin, high-risk business has been to the short-term detriment of revenues,' he said.