Ashtead Group plc

Good day and welcome to the Ashtead Group PLC Q3 analyst call. Please note this call is being recorded and for the duration of the call, your lines will be in listen only. You will have the opportunity to ask questions. This can be done by pressing a star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over to Brendan Horgan, CEO. Please go ahead.

Thank you for that introduction and overview and good morning everyone and welcome to the ASHRAE group Q3 results call. I'm speaking from our field support office in South Carolina and joining on the line from our London office are Michael Pratt and Will Shaw. Before getting into the slides, I'd like to speak to our team members throughout the business to thank them for their ever impressive dedication and engagement to and with one another. and of course for our customers. Without the culture their efforts and actions create, we would not be in the envious position to deliver another set of great results as we are indeed today. But above all, I'd like to recognize and show appreciation for the team's ongoing commitment to safety, safety for themselves, for their coworkers, our customers, and the members of the communities we serve. It's with a mindset of ongoing improvement We are in the early rollout period of what we're calling Engage for Life Amplified, taking a program which has become part of the organization's muscle memory and doubling down. So thank you in advance for your engagement in Amplified. In the meantime, keep leading positively and safely out there, and as I always say, stay focused on people, people, people, customer, customer, customer. With that, let's move on to the highlights on slide three. Our performance picks up where we left off in December at the time of our Q2 results. The ongoing momentum across the group produced another record Q3 and nine months performance with continued strong demand in our end markets and obvious signs of structural progression within the market and our industry. We now have three months greater clarity from current demand levels present in the business paired with the needs, backlogs, and future project expectations we are gathering from our customers, and relevant and market-forecasted strength, all of which continues to support our view of ongoing structural gains in a strong end market throughout 2023 and beyond. As I said in December, these conditions are incredibly favorable for our business. In the nine months, group rental revenues increased 25%, while the U.S. improved 27%. These revenue gains are the primary drivers between PBT and EPS growth of 28% and 30%, respectively. During the period, we continued to advance our Sunbelt 3.0 strategic growth plan, doing so by executing on all our capital allocation priorities, beginning with $2.6 billion in capex, which fueled our existing locations and greenfield additions with new rental fleet and delivery vehicles. We expanded our North American footprint by 120 locations, 51 through Greenfield openings and 69 via bolt-on acquisition. We invested a further $970 million in bolt-on acquisitions in the nine months and returned $240 million to shareholders through buybacks. Despite these levels of capital investment, acquisition, and returns to shareholders, we remain near the bottom of our net debt to EBITDA leverage range at 1.6 times. These activities demonstrate our confidence in the ongoing health of our end markets and the fundamental strength in our cash generating growth model. With this performance and outlook, we now expect full year results to be ahead of our previous expectations. Let's move on to our outlook slide four. Recognizing the performance and momentum in the business, we increase our full year rental revenue growth guidance versus last year as follows. The US increases to a range of 23 to 25% growth. Canada remains in the range of 22 to 25% growth. And we're now expecting a modest amount of growth in the UK. We've lifted and narrowed the gross capex range to 3.3 to 3.7 billion, an uplift of 100 million to the previous top end in US rental fleet, indicating strength in demand and our ability to gain greater share from manufacturers. Free cash flow guidance remains unchanged at $300 million. And on that note, I'll hand it over to Michael, who will cover the financials in more detail.

Michael? Thanks, Brendan, and good morning. The group's results for the nine months are shown on slide six. It was another strong quarter, and hence nine months, with good momentum across the business. This momentum drove strong growth in the US and Canada, while UK rental revenue grew despite all the Department of Health testing sites being demobilized in the first quarter. As a result, group rental revenue increased 25% on a constant currency basis. This growth was delivered with strong margins, an EBITDA margin of 46% and an operating profit margin of 28%. As a result, adjusted pre-tax profit increased 28% to $1,778,000,000 and adjusted earnings per share were 304 cents. Turning now to the businesses, slide seven shows the performance in the US. Rental revenue for the nine months was 27% higher than last year at $5.7 billion. This has been driven by a combination of volume and rate improvement in what continues to be a favorable demand and supply environment. The strong activity and favorable rate environment have enabled us to pass through the inflation we've seen in our cost base, both in general as well as in the direct cost related to ancillary revenues such as fuel, transportation, and erection and dismantling, which are growing at a higher rate than pure rental. In addition, we continue to open Greenfields, adding 47 in the period, and complement our footprint through bolt-on acquisitions, adding 49 locations in the US. Inherently, in the early phase of their development, Greenfields and bolt-ons are lower margin than our more mature stores. As expected, drop-through has improved as we've progressed through the year, and with third quarter drop through of 54%, drop through for the nine months was 49%, contributing to an EBITDA margin of 49% for the nine months. This drove a 34% increase in operating profits to $1,890,000,000 at a 31% margin, while ROI was 27%. Turning now to Canada on slide eight. Rental revenue was 25% higher than a year ago at $524,000,000. The original Canadian business goes from strength to strength, taking advantage of its increasing scale and breadth of product offering as we expand our specialty businesses and build out our clusters in that market. The level of bolt activity, particularly the McFarland's and Flager acquisitions, which have a higher proportion of lower margin sales revenue than our business, has been a drag on margins. This impact will reduce in the future as we reduce the level of outside sales of these businesses. Our lighting, grip, and lens business has recovered from the market disruption seen in the earlier part of this year, but that impact remains a drag on margins. As a result, Canada delivered an EBITDA margin of 42% and generated an operating profit of $131 million at a 22% margin, while ROI is 19%. Turning now to slide 9, UK rental revenue was 4% higher than a year ago at £424 million. This growth is despite the significant reduction in work for the Department of Health as we completed the demobilization of the testing sites during the first quarter. As a result, the Department of Health accounts for only 66% of total revenue for the period compared with 32% a year ago. The core business continues to perform well with rental revenue 20% higher than a year ago. However, the inflationary environment combined with the scale of the logistical challenge in not completing the testing site demobilization within three months, but also then getting the large volume of returning fleet back out on rent, and a significant increase in demand over the summer, particularly in the returning events market, contributed to some operational inefficiencies, which impacted margins negatively. The principal driver of the decrease in operating costs is a reduction in the work for the Department of Health. offset by the additional cost referred to earlier. These factors contributed to an EBITDA margin of 29% and an operating profit margin of 11%. As a result, UK operating profit was £55 million for nine months and ROI was 10%. Slide 10 sets out the group's cash flows for the nine months and the last 12 months. Despite increased replacement expenditure and significant growth capital expenditure, this has all been funded from the cash flow of the business while still generating free cash flow of $295 million. Slide 11 updates our debt and leverage position at the end of January. Our overall debt level increased in the nine months as we allocated capital in accordance with our policy, spending $933 million on acquisitions and returning $293 million to shareholders through our final dividend for 2022 and $256 million through buybacks. As a result, leverage was 1.6 times, excluding the impact of ARAFA 16, towards the lower end of our target range. Our expectation continues to be that we'll operate within our target leverage range of one and a half to two times net debt to EBITDA, but most likely in the lower half of that range, as we continue to deploy capital in accordance with our capital allocation policy. Turning now to slide 12, one of the five actionable components of Sunbelt 3.0 is dynamic capital allocation. An integral part of this is a strong balance sheet which gives us a competitive advantage and positions as well as we take advantage of the structural growth opportunities available in our markets. We access the debt markets in August and again in January in order to strengthen our balance sheet position further and ensure we have appropriate financial flexibility to take advantage of these opportunities. We issued two lots of $750 million 10-year investment grade notes at around 5.5%. Following the note issues, our deficits are committed for an average of six years at a weighted average cost of 5%. And with that, I'll hand back to Brendan.