UPDATE 2-Ashtead Q1 profit up 26 pct, sees year in line
(Adds comment from interview with chief executive)
LONDON Sept 1 (Reuters) - UK-based equipment hire firm Ashtead Group Plc (AHT.L) had a strong first quarter and expects to trade in line with expectations for the rest of the year, despite a weakening construction sector, it said on Tuesday.
It said underlying pretax profit rose 26 percent to 35.9 million pounds ($64.8 million) for the three months to July 31, on revenue up 5 percent at 259.5 million.
Shares in Ashtead were up 5.8 percent at 81.75 pence at 0829 GMT.
"Despite the current economic uncertainty, our operating businesses continue to perform well, and our financing costs continue to be lower than last year as we reduce debt," Chief Executive Geoff Drabble said in a statement on Tuesday.
Ashtead, which leases equipment from forklift trucks to ladders, said it was on track to meet its target to reduce net debt to 785 million pounds by April 2009. The company, which has a high gearing position, reduced net debt by 111 million pounds in the quarter to 852 million pounds at the end of July.
The disposal of A-Technology, its oil-related rental business, will contribute 90 million pounds to paying off debt, it added.
"We are on track to meet our targets. But we expect it to get a little tougher in the second half of the year," Drabble said in an interview with Reuters. The second half historically yields lower profits because of a slowdown in the construction industry during the winter months.
OUTLOOK FEARS
Difficulties in the construction sector and economic uncertainty have raised concerns for the company's outlook, but Drabble was upbeat.
"On the ground, its not as bad out there as people have been predicting," he said, referring to the U.S. market, which accounts for 85 percent of its business.
"There remains the need to invest in infrastructure, schooling, transport, hospital care. That demand hasn't gone away," he added, demonstrated by a 1 percent rise in rental utilisation in the U.S. market.
But margins are being squeezed by lower yields, which were down 5 percent there. The rental company said it was seeing a shift towards larger projects which generate lower yields but offer a longer rental period and lower transactional costs.
The shift in the nature of the business is set to continue for the next few years, said Drabble.
The company's exposure to the residential sector, hardest hit by the credit crunch, is negligible, he added.
"There is a short-term impact in the UK. We are moving our equipment to the non-residential sector. This will affect us for the quarter as we adapt our models," said Drabble.
Drabble added that the full-year outlook may be positively affected if the dollar remains at its current levels.
But as a late-cycle business, with many of its current projects started before the credit crunch, the full impact of the economic downturn may not be felt this year.
"We believe the group will see a significant downturn at some stage, and although it may not be this year, it is likely to happen next year," said Panmure in a note to clients. (Editing by Will Waterman)
