Ashtead Group plc

joining Michael, Will, and I for the Ashstead Group Q4 and full year results presentation. Today's update is going to detail the strength of our performance in the year, both in terms of record revenues and profits, as well as the demonstrable delivery within each actionable component of our strategic growth plan, which of course you all know, Sunbelt 3.0. The results of which leave us poised to thrive as we enter the final year of 3.0. I'll cover our full year outlook and, of course, a detailed update on the most current views and forecasts for our end markets, which I'm sure most of you are very interested in this morning. However, before doing that, as I usually do, I'd like to first address our teammates of Sunbelt Rentals across all the geographies that we serve. These team members are so engaged in our business, particularly when it relates to embedding our safety culture. This culture embodies an environment of buy-in, adoption, and leadership. developing a delivering a highly functioning world-class safety program a program of this caliber is not only our leading value but it's a prerequisite for a thriving growing and sustainable business the results we'll cover this morning are quite literally the making of an engaged team of professionals that put the safety of themselves their colleagues our customers and indeed the members of the communities that we serve as mission number one. So for this and all their hard work and dedication, I'm extremely grateful. So as I always say to them, and I'm saying it now, please continue to lead safely and positively out there. Now, let's begin with the four-year highlights on slide three. We delivered a strong and record performance in the fourth quarter, contributing to another set of record results for the full year. Demand remained very strong in our end markets, and obvious signs of structural progression within the market and our industry persist. We continue to gain 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 the relevant and market-forecasted strength. all of which continues to support our view of ongoing structural gains and a strong end market throughout 2023 and beyond. As I've said consistently for some time now, these conditions are very favorable for our business. For the year, group rental revenues increased 22% while U.S. increased 24%. Profit before tax of $2,273,000,000 was a 26% increase, and earnings per share grew 27%. I'm encouraged to report strong EBITDA fall through in the U.S. business of 50% for the year and 50% for quarter four, demonstrating sequential improvement throughout the year and the real strength of this performance in what was a remarkably inflationary environment, coupled with the significant pace of expansion by Greenfield and Bolton acquisition, which, of course, the two of these have an overall drag effect on fall through. So those are extraordinary figures. Thank you. During the period, we continued to advance our SunVault 3.0 strategic growth plan, doing so by executing on all our capital allocation priorities, beginning with 3.8 billion in CapEx, which fueled our existing location and Greenfield additions with new rental fleet and delivery vehicles. We expanded our North America footprint throughout the year by 165 locations, with 77 through Greenfield openings and a further 88 via Bolton. We invested a total of $1.1 billion on 50 bolt-on acquisitions. And finally, we returned $261 million to shareholders through share buybacks and announced today our intention to pay a final dividend of $0.85, making the full-year dividend $1 per share a 25% increase. Despite these levels of capital investment, acquisition, and returns to shareholders, we remain near the bottom end 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 that we will illustrate over more slides throughout the morning. Let's move on to our outlook on slide four. Our initial revenue, capex, and free cash flow outlook set forth herein is derived by taking into account the current and anticipated demand environment, as well as momentum in areas such as pricing, structural growth, and mega project starts. These contributory elements will be covered throughout the operational update this morning, so consistent with our approach in recent years, the slide here frames our current estimate of year-on-year rental revenue growth by business unit, as well as group level capex and free cash flow. Beginning with rental revenue, we anticipate the U.S. to be in the 13% to 16% growth range. Canada to deliver growth of 15% to 20%, and the UK to deliver growth of 10% to 13%. This combines for overall rental revenue growth guidance for the group of 13% to 16%. From a CapEx standpoint, we begin the year with a range of $3.9 to $4.3 billion, of which $3.3 to $3.6 billion is new rental fleet. This is tweaked slightly from the initial guidance in March due to timings of landings, which I will explain when we get to the CAPEX slide. These activities and anticipated business performance lead to expected free cash flow of $300 million in the year. And on that note, I'll hand it over to Michael to give some financial detail.

So thanks Brendan and good morning to everyone. The group's results are set out for the year ended April 23 on slide six. Fourth quarter was a strong one, rounding out a year of record performance across the business with good momentum throughout. This momentum drove strong U.S. and Canadian rental revenue growth, while U.K. rental revenue grew despite the Department of Health testing sites closing or being demobilized during the first quarter. As a result, group rental revenue increased 22% on a constant currency basis. The growth was delivered with strong margins, an EBITDA margin of 46% and an operating profit margin of 27%. And as a result, adjusted pre-tax profits increased 26% to $2,273,000,000. Adjusted earnings per share were $0.388, and ROI was close to our peak at 19.2%. Turning now to the businesses, slide 7 shows the performance in the U.S. Rental revenue for the year was 24% higher than last year at $7.5 billion. This has been driven by a combination of volume and rate in what continues to be a favourable demand and supply environment. The strong activity and favourable rate environment have enabled us to pass through the inflation that we've seen in our cost base, both in general as well as the direct costs related to ancillary revenues such as fuel, transportation and erection and dismantling. In addition, we continue to open greenfields, adding 68 in the year, along with complementing our footprint through bolt-on acquisitions, which added a further 67 locations in the US. Inherently, in the early phase of their development, greenfields and bolt-ons are lower margin than our more mature stores. That said, as expected, drop through improved during the year, such that with fourth quarter drop through of 54%, giving us 50% for the year as a whole. This contribution EBITDA margin of 48%, which in further drove 33% increase in operating profit to $2,465,000,000 at a 30% margin with ROI improving to a record 27%. Turning now to Canada on slide eight, rental revenue was 22% higher than a year ago at $696 million. 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. We've now clustered five of the top 10 markets in Canada and 13 in total. The level of bolt-on activity, particularly in McFarland's and Flagrow, which have a higher proportion of lower margin sales revenue than exists in our business, has been a drag on margins. This impact will reduce in the future as we reduce the level of outside sales in these businesses. 2022-23 proved to be a challenging year for lighting, lens and grip business. Performance was affected earlier in the year by the threat of strike action in Canada, while the latter part of the year was affected by the threat and subsequent occurrence of strike by the Writers Guild of America, which is affecting current trading as well. These factors have resulted in a drag in margins and a degree of uncertainty about 23-24 performance in that business, in that part of the business, which I'll come back to in a moment. As a result, Canada delivered an EBITDA margin of 41% and generated an operating profit of $167 million at a 20% margin, while ROI was 18%. Return to the impact of the strike on the Canadian revenue guidance. Lighting, grip and lens accounted for just less than 25% of Canadian rental revenue last year. Our guidance for this year assumes that lighting, grip and lens revenues are down somewhere between 5% and 20% based on the strike ending at some point during our Q2. Turning now to slide 9. UK rental revenue was 3% higher than a year ago at £559 million. This growth is despite the significant reduction in the work for the Department of Health as we completed the demobilisation of the testing sites during the first quarter. As a result, the Department of Health accounted for about 4% of total revenue this year compared with 30% a year ago. The core business continues to perform well with rental revenue 26% higher than a year ago. However, the inflation environment, combined with the scale of the logistical challenge in not only completing the testing site demobilisation within three months, but then getting that large amount of fleet back out on rent, and the significant increase in demand that we saw over the summer, particularly in the returning events market, contributed to some operational inefficiencies, and this has all impacted margins negatively. The principal driver of the decrease in the operating costs is reduction in the work for the Department of Health, partially offset by the costs that I've just referred to above. These factors contributed to an EBITDA margin of 28% and an operating profit margin of 9%. And as a result, UK operating profit was £65 million and ROI was 9%. Slide 10 sets out the group's cash flows for the year. This slide demonstrates the significant cash generating capacity of this business. Free cash flow of $531 million is higher than 2019 or any year prior to that, despite spending $3.5 billion on CapEx. Slide 11 updates our debt and leverage position at the end of April. Our overall debt level increased in the year as we allocated capital in accordance with our policy, spending $1.1 billion on acquisitions and returning $358 million to shareholders through dividends and $277 million through buybacks. As a result, leverage was at 1.6 times, excluding IFRS 16, was towards the lower end of our target range. Our expectation continues to be that we will operate in our one and a half to two times net debt to EBITDA range, but more likely in the lower half of that range as we continue to deploy capital in accordance with our policy. One of the actionable components of Sunbelt 3.0 is dynamic capital allocation. An integral part of that is a strong balance sheet which gives us the competitive advantage positions as well to take advantage of the structural growth opportunities available in our markets. We accessed the debt markets in August last year and again in January this year in order to strengthen our balance sheet position further and ensure that we got the appropriate financial flexibility to take advantage of these opportunities. We issued two lots of $750 million notes, 10-year investment grade notes, at around 5.5%. And following those notes issues, our debt facilities are committed for an average of six years at a weighted average cost of 5%. And with that, I'll hand back to Brendan.

Thank you, Michael. We'll now go on to some operational and market detail, beginning with the U.S. on slide 13. As you'll see, U.S. growth remained very strong through the fourth quarter, with General Tool growing 19% and 20% for the full year. Specialty delivered 22% growth in the quarter and 30% for the full year. The strength of this performance, once again, broad, extending through every single geographical region and specialty business line. Consistent with recent updates, the supply and demand equation remains favorable. These trends are driving increased rental penetration for those benefiting most are the larger, more experienced, more capable rental companies who can position themselves to be there for this increasing customer base and therefore realizing a larger share of what is without question a larger and growing market. Importantly, we continue to progress rental rates in the quarter, and it is our intent and actually expectation that there will be ongoing positive rate gains in our business throughout 2023 and 2024. Our rental rate improvement determination seems to coincide with all indications pointing to further and ongoing efforts to advance rental rates within the industry as well at large. Let's take a closer look at our specialty business performance on the next slide. The year-on-year rental revenue movement illustrated herein demonstrates the ongoing and compounding growth across all specialty business lines. U.S. specialty rental revenues increased a remarkable 30% on top of last year's 24% growth. To add context, our specialty business in North America is now double the size it was just three years ago, and it's 70% larger than it was two years ago. This growth continues to tangibly demonstrate the structural shift our customers are making from ownership to rental as we provide a more trusted and a more reliable alternative to ownership. You'll notice the year-on-year impact our temporary structure business has on the specialty growth rate, particularly in the fourth quarter. I'll remind you there was a very large one-off temporary structure project related to the Afghan refugee circumstance underway when we acquired Mahaffey in December of 2021 that generated roughly $75 million in revenue just over a five-month period, therefore explaining the impact that you'll see. Finally, remember our specialty business lines principally service non-construction and markets and therefore act as a good proxy for the strength of this incredibly large market, which makes up almost 60% of our revenue. To take a closer look, we'll move to slide 15. as our specialty and general tool businesses, service a heightened demand in our non-construction markets where there continues to be huge opportunities to drive rental penetration from a low base and increase into what is a very large addressable market. We commonly refer to an incredibly large component of this non-construction and market as MRO, the maintenance, repair, and operations in the geographic markets in which we serve, such as facility maintenance, which is clearly defined as a market in which hundreds of billions of dollars are spent annually running and maintaining facilities. From cleaning, to painting, to decorating, to planting, to temporarily powering, to cooling, to repairing, and I could go on. Of the many, many types of facilities that make up the 100 billion square feet under roof of commercial space in the US alone. The scale and growing revenue opportunities for our business within this space are immense. The rental of our broad range of specialty and general tool products will increase in what is a very much structural growth arena in the very early stages of a long runway for growth. With other non-construction examples being live events, emergency response, and municipal spend, these incredibly large addressable markets make up the majority of our collective specialty business revenues, however, increasingly benefit our general tool business as we continue to advance our prowess of cross-selling throughout the organization. Now that we've touched on specialty and non-construction markets, let's turn to slide 16 and cover the latest construction market trends and forecasts. Despite macroeconomic concerns and the pressures that come with inflationary and interest rate realities, you'll see construction levels have proven to be incredibly resilient. In fact, historically strong in the most recent year, and it's forecasted to continue as such. I'm going to spend a bit of time on the current and next few slides and attempt to put into context the construction landscape, what its drivers are, and how our business is poised to be a material benefactor. Starting on the top left with Dodge Construction Starts, this clearly indicates the strength of recent starts and the forecasted growth all the way through 2027. These starts figures are indexed to the year 2000. So what you won't see, but you'll have to take my word on, is that US construction starts eclipsed $1 trillion for the first time ever in 2022. of which $694 billion was non-res and non-building, which is also another high. These recent construction starts are an early wave of new projects derived from a combination of private investment and legislative project funding and incentives. On the top right of the slide, the starts are translated into a duration of project format known as put in place. This all makes clear that the non-residential cycle has been considerably de-linked from the residential cycle as a result of years of change in construction composition, reshoring, and larger than ever seen before federal government spending acts, all contributing to the rise of an era of megaprojects. Let's dig in a bit further on slide 17. Get it? Dig in. Lively bunch. Anyway, the drivers behind the recent level of unprecedented starts fall into three main categories, with many projects being driven by more than one. I think this is really, of all the slides, one that really frames, if you will, how we view the end market shaping up. And, of course, it says what these drivers are. A combination of geopolitical risk, supply chain challenges, environmental changes, and the experience of the pandemic are all leading to a reversal of globalization, and in particular, a reshoring of manufacturing and production in the United States. This is being seen in many industries, but notably for semiconductors, LNG, automotive, and their tier one component parts suppliers. Secondly, There is an ongoing growth in technology-related construction, contributing in part to a modernization of U.S.-based manufacturing. We experienced significant technology-related construction and indeed benefited from this for many years, of which you'll all be familiar with, with projects such as data centers, warehousing, and distribution. But now there are additional drivers in areas like artificial intelligence, electric vehicles, gigafactories, and utilities. Finally, are the benefits coming from the three legislative acts, which amounts to over $2 trillion of direct or indirect funding of a broad range of projects. So each of the three of these, onshoring, technology and manufacturing modernization, and legislative acts on their own would be significant. But when you combine them, one could well make the claim that we are in the early days of a modern era U.S. Industrial Revolution. Let's look at the progress we're seeing from just one of these, that is the legislative acts on slide 18. This is an update of a slide that we would have first shared with you in December. Beginning with the Infrastructure Investment and Jobs Act, the headline figure of $1.2 trillion may best be understood by compartmentalizing $650 billion as a renewing of the ordinary run rate, federal investment in roads, bridges, rails, utility, etc., The key to this act, however, is not only reassuring the baseline investment, as I've just touched on, but is delivering an incremental 550 billion of new project spending throughout the U.S. We've now seen 32,000 specific projects announced, which will mostly start in 23, 24, and 25. You'll see that on the slide. And for matter of reference, when we first put this out in December, there were only 10,000 identified projects. So you can see in a relatively short period, 22,000 more projects have been named. 80% of these are new funds or 80% of the new funds apply to these five segments that are on the slide, all of which are segments where we have a strong product offering, therefore will benefit from. Secondly, with the Chips and Science Act, which puts in motion a revitalization of domestic semiconductor manufacturing, whereas for decades the U.S. experienced a decline from 40% of the world's semiconductor production to only 12%. Also worth noting, the U.S. consumes 46% of the world's production, but again only produces today 12%. The overall act will invest $250 billion to progress American semiconductor research, development, and manufacturing. The act is designed to support directly or through tax credits nearly $140 billion in new semiconductor manufacturing projects. Four semiconductor plants, or fabs as they call them, have just recently started, worth about $30 billion, with more on the way, as you'll see. And finally, the Inflation Reduction Act. $370 billion of this bill will fund directly, or again by way of tax credits, a broad basket of renewable energy production and manufacturing, ranging from solar field construction, which will triple the current U.S. capacity by 2030, to battery factories, to wind farms, to electric vehicle production. the details of which are illustrated on the slide. So what we have here is a trifecta of government investment equaling nearly $2 trillion, an investment that will indeed create thousands and thousands of projects, which Sunbelt is well poised to be a benefactor of. Let's now look into detail at one of the outputs of all of these drivers I've now mentioned. That is megaprojects on slide 19. Here we attempt to summarize how these drivers are translating into the overall mega project landscape. Just to remind you, we define internally a mega project of one that has a overall cost of 400 million or more. In the fiscal year just ended, 175 new projects broke ground with a total value of $300 billion and an average value per project of $1.7 billion. In the fiscal year we've just begun, we're expecting over 250 megaprojects to break ground worth almost $350 billion. And then in the two years after, a further 180 projects are already identified with planned start dates totaling $350 billion. In anticipation of a question that you may ask looking at this slide, the 180 projects slated for fiscal years 25 and 26 is not an indication of a slowing pace. Rather, that's what has been planned thus far. We would expect this number to grow. They just have to get to it, but as you can appreciate, there is a lot of work going on. On the right of the slide, I've listed just a selection of top projects which broke ground in the fiscal year just ending. You can see these include a very wide range of project type, from semiconductor to energy to healthcare to public transport. Projects of this scale and sophistication. are often ideal for resident on-site solutions, meaning we, Sunbelt, often have dedicated storage and working space on the actual project, housing a large and broad offering of our products and the associated services, ranging from on-site maintenance and repair technicians, telematic-equipped products, producing efficiency-gaining benefits, to our on-site and remote teams, and, of course, to our customers. Coming through for their mandates in areas such as reduced carbon emissions and, of course, living up to our mantra of availability, reliability, and ease. All of these things, it's important to understand, we're realizing more and more every day, we and what we do is absolutely essential for the success of these megaprojects. So the solutions that I've just outlined require a rental company with the scale, experience, technology, expertise, breadth of product, and of course, financial capacity. I hope you understand that this is a material contributor to structural change in our industry, which again, we are certain to be benefactors of. Let's now turn to our business units outside of the U.S., and we'll begin with Sunbelt Canada on slide 20. Our business in Canada continues to expand and perform well as the power of our brand strengthens and customers recognize evermore the growing breadth of products and services that we offer. This growth is coming from existing general tool and specialty businesses, complemented by well-placed additions of greenfield openings and bolt-on acquisitions. These conditions are not dissimilar to the U.S. in terms of activity, demand, and the supply environment, and thus we're experiencing equally strong performance as it relates to time utilization and rental rate improvement. Michael touched on the impact of the Writers Guild of America strike impacting our film and TV business. The strike has been in effect, again, as Michael said, since the 2nd of May, and there is no clear timeline. However, there is some general thought that we could see an end to it in late summer or perhaps early in the fall. Either way, we're pulling the levers that you might expect as it relates to cost. However, let's be clear. We're in the business, this business, for the long term and fully expect a post-COVID style boon shortly after the strike. And we will be the company that is most prepared to benefit past this inevitable and to an unfortunate short-term circumstance. On a very positive note, we very recently, June 1st recently, acquired Lufois, a leading provider of power and HVAC rental solutions with four locations across Canada based in Montreal. This adds to our largest North American specialty business line and is a material step change to our capabilities offering throughout Canada. Further, this gives us critical infrastructure in French-speaking Quebec. requisite for building out that market with our broader product and service offering. Turning now to slide 21 to cover the U.K., The business did a great job this year redeploying the large quantity of fleet from the COVID test sites, which were demobilized at the start of the year and indeed increased rental revenue year over year, which indicates a combination of share gains and a reassuring level of end market activity. There's real momentum in the U.K. business as it relates to increasing progress in markets such as facility maintenance and further develops in specialty offerings in areas like power and the lighting and grip business, all emphasizing the unique cross-selling capabilities in the U.K. throughout our unmatched products and services portfolio, all now, of course, under the brand umbrella of Sunbelt Rentals. You'll see on the top right of the slide, there's a good mix of large projects in the UK as well, which we are, without question, best positioned to serve. As I flagged for several quarters now, and will continue to do so, an ongoing area of focus for the UK business is to advance rental rates and the associated fees that we charge to provide our market-leading services. We bring great value to our customers, and in the inflationary period we've experienced, increasing our rates is a must-do. We did gain some rental rate improvement focus and some material momentum in the back half of the year just reported, and I fully expect that this trend will continue in the business. Turning now to slide 22, you'll see our normal Sunbelt 3.0 scorecard. I've covered the main points within the highlight slide, so I won't dwell on this other than to quantify the early effect of our expansion efforts. In just two years, we've added 288 locations in North America via greenfield openings and bolt-on acquisitions. These locations alone generated nearly $900 million in revenue in the fiscal year just ended. Stand alone, this would be a top 10 North American rental company, which we've created in the last two years. Importantly, we're well established. underway in the development of the next phase to our growth strategy should come as no surprise we'll call it sunbelt 4.0 which we will be launching at a capital markets event in atlanta georgia in 2024. we're particularly excited about this because it will coincide with our internal power of sunbelt event where we will launch 4.0 to thousands of our team members And that will give the capital markets community the opportunity to interact and gain a tangible appreciation for our culture. Something that slides and figures alone don't really do justice for, at least when it comes to Sunbelt. We'll circulate the appropriate invites with further details in the coming weeks. Turning now to slide 23. CapEx for the full year ended up around $100 million above the top end of the guidance range that we gave in March. This was purely down to timing of landings with around $100 million of rental equipment in the U.S. we expected to land in May coming in before the end of April. Consequently, we've reduced our initial guidance for 2023-2024 by the same amount to reflect this early landing. We therefore now anticipate rental fleet capex in the U.S. to be between $2.9 and $3.2 billion. And after our non-rental capex across the group and ongoing rental fleet investment in Canada and the U.K., we guide to a total of $3.9 to $4.3 billion for the group in the full year. This investment will fuel our ongoing ambitious growth plans incumbent in Sunbelt 3.0 and demonstrates our confidence in the current and forecasted demand environment, competitive positioning, the strong relationship we have with our key suppliers, and our business model in general. However, as always, These plans can be flexed as we progress through the year to reflect our latest views on future market conditions. This leads on to capital allocation. On slide 24, Michael or I have covered most every capital allocation element as part of the highlights or financial slides, all incredibly consistent with our long-held policy. Worth noting, however, is our new buyback program of up to $500 million over the new fiscal year, which we would have put in place in May. And as indicated with the launch of that buyback program, we've commenced this at a relatively low level, reflecting the significant opportunities to deploy capital for growth that we've already covered, including what is still an attractive acquisition pipeline. So to conclude, let's turn to 25. This has been another great year of profitable growth, location expansion, and clear momentum in our business. Furthermore, there's improved clarity to the strength of our end markets in 2023, 2024, and beyond, driven by the recent realities of onshoring, technology and manufacturing modernization, and federal legislative acts. These actualities add to what was already a plentiful level of market activity, flush with day-to-day MRO, small to mid-sized projects, and the very present and growing mega project landscape which we've covered this morning. also clears the increased pace of rental penetration and considerable market share gains for select businesses in our industry who possess the scale, experience, equipment purchasing influence, and financial strength. Our business is positioned to win in the near, medium, and long term. This update should demonstrate once again the strength of our financial performance and the execution of our strategy, Sunbelt 3.0. So for these reasons, and coming from a position of ongoing strength and positive outlook, we look to the future with confidence in executing on our well-known and understood strategic growth plan, which will strengthen our business for years to come. So before getting into questions, I'd like to actually thank the Numis team for allowing us to use this really great venue. And with that, when we do open it to questions, it's only fitting that we give the microphone to Steve first, if you have one, Steve. Just here.