Ashtead Group plc

Thank you and good morning everyone and welcome to the Ashtead Group Q1 results presentation. I'm speaking this morning from our London office where I'm joined as usual by Michael Pratt and Will Shaw. Today's update will cover the ongoing strength in our performance through strong revenue growth and strong drop through to profits. We continue to deliver on each of the five actionable components of our strategic growth plan, Sunbelt 3.0, the results of which will demonstrate strong momentum, and leave us poised to realize further revenue and profit growth throughout the final year of 3.0 and beyond. Before we get into the detail on the quarter and our latest outlook and end market views, I'll begin by thanking our Sunbelt team members throughout the business for their ongoing progression of our safety culture. Our business is on path to have our safest year yet. In our facilities, on the road, at our customer sites, all of which we celebrate, but not consider it our destination. As such, in early October, we'll be conducting our annual safety week. My ask of each and every one of our team members is to engage. Each of us will get out of safety week what we put into it. So let's go all in and take our world-class safety program and culture to the next level. So thank you for your efforts and commitment and keep leading safely and positively out there. Now let's begin the quarter highlights on slide three. We delivered a strong performance in the first quarter, contributing to another set of record results. Activity in our end markets remained strong, supporting healthy demand in our products and services, and obvious signs of structural progression within the market and our industry persist. We continue to gain greater clarity through 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 end market forecast, all of which continues to support our view of ongoing structural gains in a strong end market into 2024 and beyond. For the quarter, group revenue and rental revenues increased 19% and 14% respectively, while the U.S. revenue improved by 22% and rental revenue by 16. Group PVT was up 11% and EPS grew 14%. I'm encouraged to report strong EBITDA fall through in the U.S. business of 53% in the quarter, despite the drag effects of our fast-paced expansion activity through greenfield openings and bolt-on acquisitions. During the period, we continued to advance our Sunbelt 3.0 strategic growth plan by executing on all of our capital allocation priorities, beginning with $1.1 billion in CapEx, which fueled our existing locations in Greenfield additions with new rental fleet and delivery vehicles. We expanded our North American footprint by 40 locations, with 24 through Greenfield openings and a further 16 via Bolton. We invested $361 million on nine Bolton acquisitions in an environment where the pipeline remains strong. Despite these investment levels, 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. So the results, market update, and guidance we've published today are, in short, more of the same, an affirmation of what we've been demonstrating and saying for many quarters now. We have another quarter of performance in the business, project starts, and increased clarity in the end market forecast. Given things are largely business as usual and this is the first quarter, we'll be reasonably brief. Let's move on to our outlook on slide four. Our rental revenue growth guidance remains largely unchanged. Our outlook for the U.S. is unchanged at 13% to 16% growth. Canada, based on our best guess for when the various strikes impacting the film and TV space will end, still expects to deliver growth of 15% to 20%. In the UK, we've revised down to 6% to 9% growth as a result of some softening in the UK and markets. This combines for overall rental revenue guidance for the group unchanged at 13% to 16% growth. Consequently, our capex and free cash flow guidance for the full year remains the same. 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 first quarter are shown on slide six. We've started the year well with a strong first quarter and good momentum in the business. As a result, group rental revenue increased 14% on a constant currency basis. This growth was delivered with strong margins, an EBITDA margin of 46% and an operating profit margin of 27%. After an interest expense of $118 million, which increased 77% compared with this time last year, reflecting both higher absolute debt levels but more significantly the higher interest rate environment, adjusted pre-tax profit increased 11% to $615 million. Adjusted earnings per share were $107.5 for the quarter. Turning now to the businesses. Slide 7 shows the performance in the U.S. Rental revenue for the quarter grew by 16% over last year, which in turn was up 29% on the prior year. This has been driven by a combination of volume and rate improvement in strong end markets. The rate piece continues to be an important part of the equation, given the increased costs we face, whether it be interest costs, as you saw on the previous slide, or the impact of inflation on our cost base. The total revenue increase of 22% reflects higher levels of used equipment sales than last year. As we discussed in June, fleet landings are now more predictable and in line with our plans. Good fleet landings during the quarter and the fourth quarter of last year have enabled us to reduce physical utilization from the heady levels we have seen over the last couple of years. We've taken advantage of this factor and a strong second-hand market to accelerate the disposal of some of our older fleet planned for later in the year. However, one consequence of this is a drag on reported margins. Furthermore, in line with our 3.0 strategy, we opened 22 greenfields and added a further 12 locations through bolt-on acquisitions, which are also at dragon margins. So, excluding greenfields and bolt-ons, same-store EBITDA margins increased year over year, as did the overall EBITDA margin when you exclude the impact from lower-margin used equipment sales. All these factors contributed to a drop-through for the quarter of 53% and an EBITDA margin of 48%. while operating profit was $692 million at a 30% margin, and ROI was a healthy 27%. Turning now to Canada on slide 8. Rental revenue was 15% higher than a year ago at $183 million. The major part of our Canadian business is performing well, as it takes advantage of its increasing scale and breadth of product offering as we expand our specialty businesses and look to build out our clusters in that market. In contrast, our film and TV business has been impacted significantly by the strikes in the North American film and TV industry. This has also had some impact on the rest of the Canadian business, given our success in cross-selling our more traditional rental product into the film and TV space. Despite these challenges, Canada delivered an EBITDA margin of 44% and generated an operating profit of $40 million at a 19% margin, while ROI is 17%. Turning now to slide 9, UK rental revenue was 1% higher than a year ago at £150 million. This is the last quarterly comparison that is affected by the work for the Department of Health as we completed the demobilisation of the testing sites during the first quarter last year. The core business continues to perform well with rental revenue of 18% excluding the Department of Health work as we continue to take market share. While we continue to make progress on rental rates, this has not kept pace with the inflationary environment in the UK, which has impacted margins. As a result, the UK business delivered an EBITDA margin of 28% and generated an operating profit of £16 million at a 9% margin, and ROI was 7%. Slide 10 updates our debt position at the end of July. As expected, debt increased in the quarter as reaction to all components of our capital allocation policy. resulting in leverage of 1.6 times net debt to EBITDA, excluding the impact of IFRS 16. Our expectation continues to be that we will operate within our target leverage range of 1.5 to 2 times net debt to EBITDA, but most likely in the lower half of that range. A strong balance sheet gives us a competitive advantage and positions as well to optimize the structural growth opportunities available in our markets. Therefore, as shown on slide 11, we accessed the debt markets in July in order to strengthen our balance sheet position further and ensure we have appropriate financial flexibility to take advantage of these opportunities. We issued $750 million of 10-year investment-grade debt at 5.95%. Following the notice issue, 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.

Thanks, Michael. We'll now move on to some operational color beginning with the U.S. on slide 13. The U.S. business delivered strong rental revenue growth in the quarter with general tool and specialty growing 14% and 17% respectively. This growth is on top of very strong growth last year in Q1 of 23% in general tool and 39% in specialty. The strength of this performance remains very broad. extending through virtually all geographic regions and specialty business lines. Consistent with what others in the industry have been noting, time utilization is slightly below the record levels we experienced last year, albeit still strong. This reflects some improvement in supply constraints and the fact we received a higher level of deliveries than normal out of season. A very, very important thing to understand. is that we continued to progress rental rates during the first quarter at our planned level and pace. Despite this utilization movement, reflecting the ongoing positive rate dynamic in the industry, specifically the discipline and structural progress, attributes that we firmly believe are here to stay. Moving on to slide 14, let's cover the latest construction market trends and forecasts. With another three months of construction starts and project continuations, I'll sound like a broken record. Despite macroeconomic concerns and the pressures that come with inflationary and interest rate realities, you'll see construction activity has proven to be incredibly resilient. In fact, historically strong in the most recent year and is forecasted to continue as such. These charts are broadly in line with those we shared in June, but it's worth noting that that the put-in-place forecast on the top right all edged upward from the previous forecast. As I've said before, this all makes clear that the non-residential cycle has been considerably delinked from the residential cycle as a result of years of change in construction composition. And the more recent reshoring or U.S. deglobalization and larger than ever before seen federal government spending acts, all contributing to the rise of an era of megaprojects. Let's explore the drivers behind these forecasts on slide 15. We introduced this slide in June, and I thought it would be useful to just touch on it here again. The drivers behind the recent level of unprecedented starts fall into three main categories, with many projects being driven by more than one. To understand the current era of construction in the U.S., it's very important to put in context these drivers in terms of both the scale of circumstance and the very likely long duration they exist. I'll spare you the detail we covered in June and rather ask you think of the material construction consequence of each. First, reversing a multi-generation globalization of U.S. manufacturing and production to domestic onshoring and reshoring. The role technology now plays in society, business, and manufacturing, and by relation, making up a larger portion of the U.S. construction landscape. And three, legislative acts, three of them, injecting $2 trillion of direct funding or stimulus amounting to a once-in-a-lifetime trifecta of acts. Let's now look into the detail of one of the outputs of this group of drivers, megaprojects on slide 16. Illustrated here is the U.S. megaproject landscape, which will give you an appreciation for just how significant this market opportunity is. As a reminder, our internal definition of a megaproject is one that has a cost of $400 million and above. We've included all projects meeting this definition where construction is either underway or planned to start by this coming April 2024. When viewed on a map, one can't help but realize the geographic breadth and the sector depth of these projects. There are 501 projects underway, mega projects underway, or soon to begin, ranging in size from 400 million to 17 billion, totaling 600 billion, 660 billion of projects funded by private and public sectors. As we've covered and demonstrated consistently, Projects of this scale and sophistication require suppliers with relatable scale, but also expertise, experience, breadth of products and services, and the financial strength to meet the customer's needs. Make no mistake, Sunbelt is performing very well in this sea of megaprojects and will continue to do so. Let's now turn to our business units outside of the U.S. We'll begin with Sunbelt Canada on slide 17. Our business in Canada continues to deliver strong growth and expansion as customers recognize 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. The market conditions are not dissimilar to the U.S. in terms of activity and demand, as we continue to experience strong performance from a utilization and rate improvement standpoint. Michael touched on the financial impact of the writers and actors strike impacting our film and TV business. Although there's no clear timeline, there is some general thought that we could see a resolution in the fall. Regardless, we continue to pull the levers you might expect as it relates to cost. However, we are in the business for the long term and fully expect a post-COVID style boon shortly after the strike. We will be the business who is most prepared to benefit when the inevitable end to this unfortunate short-term event comes. Helping to offset this impact is the June acquisition of LUFOIS, a leading provider of power and HVAC rental solutions with four locations across Canada and a base in Montreal. This added to our largest North American specialty business line and is a material step change to our capabilities offering throughout Canada. Further, this has given us a base presence in Quebec requisite for building out the market with our broader products and services. Turning to Sunbelt UK on slide 18, UK business performed strong in Q1 with rental-only revenue growth of 15%, particularly when considering a somewhat softer end market than previously anticipated, which has now been incorporated into our revenue growth outlook. The key to understanding our positioning is Sunbelt's uniquely broad offering of general tool and specialty products and project service capabilities, which are unmatched in the UK. Regardless of the somewhat softer end market conditions, the business improved rental rates 4% in Q1. As I flagged for several quarters now, an ongoing mandate for the UK business is to advance rental rates and the associated fees we charge to provide our customers the most modern fleet in the market, and market leading services. 4% is below the cost of general inflation and wage increases in our business, and therefore needs to be higher, and our team is focused on delivering just that. Turning now to slide 19, you'll see our normal Sunbelt 3.0 scorecard. I've covered the main points within the highlights, so I won't dwell on this other than to reiterate that we have added 40 locations in North America in the quarter. and delivered on a 3.0 milestone, surpassing the target of 1,234 locations. So to conclude, let's turn to slide 20. This has been another great quarter of profitable growth, location expansion, and momentum in our business. We're experiencing strong demand from our product and services and gaining improved clarity to the strength of our end markets in 2023, 2024, and beyond. driven in part by the recent realities of U.S. onshoring, technology and manufacturing modernization, and federal legislative acts. These actualities add to what was already a strong underlying level of end market activity, flush with day-to-day MRO, small to mid-sized projects, and the very present and growing mega project landscape. We are positioned to win in the near, medium, and long term as we both influence and benefit from the structural advancement and secular outcome for our business and industry. This update should demonstrate once again the strength of our financial performance and the execution of our strategy now in the final year of 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 it on our well-known and understood strategic growth plan, which will strengthen our business for the years to come. And with that, operator, we'll turn it back over to you and open the line for questions.