Ashtead Group plc

Thank you and good morning everyone. Welcome to the Ashstead Group Q3 in nine months results presentation. I'm speaking this morning from our US support office and joined as usual by Michael Pratt and Will Shaw in London. Given our Sunbelt 4.0 event in Atlanta at the end of April is rapidly approaching, we'll keep it deliberately brief this morning. However, before getting into the meat of the presentation, I'll begin as usual by addressing our Sunbelt team members listening in today. by recognizing our entire team for their focus around our program of Engage for Life in our branches, on our customers' locations, and on the road. In calendar year 23, we experienced our best year on record when it comes to protecting our team members. Further, I'd like to specifically give credit to the thousands of team members we have who drive a company vehicle. our delivery drivers, field service technicians, crew leaders, and our sales force, who not only contributed to our overall safety statistics, but also posted our best ever safety performance behind the wheel. This was a very good year, and I hope all of you share in the pride of being part of a company leading with such intention when it comes to the safety and well-being of our people, our customers, and the members of the communities we serve. So thank you for all you do, and please keep leading positively and safely out there. Now, let's begin with the nine months highlights on slide three. The business delivered strong revenue growth in the first nine months, driven by strength in our North American end markets, the ongoing momentum and execution in our business as we follow our Sunbelt 3.0 playbook, and the very clear structural progression being realized in our industry. For the period, Group revenue and rental revenues increased 14% and 11% respectively, while U.S. revenue improved by 15% and rental revenue by 12%. Group EBITDA improved 12% to $3,752,000,000, while adjusted PBT was flat at $1,785,000,000, leading to EPS of $3.07. As detailed in November and again in December, we faced some year-on-year headwinds in the third quarter as a result of lower levels of emergency response work in North America, as well as the ongoing impact of the actors and writers strike on film and TV activity across the group. As expected, this impacted revenues and profits in the quarter. From a capital allocation standpoint and in accordance with our priorities, we invested $3.5 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 106 locations, with 58 through Greenfield openings and a further 48 via Bolton, investing $906 million on 26 Bolton acquisitions. Following these investments, our net debt to EBITDA leverage is 1.9 times within our long-term range of 1.5 to 2. These activities demonstrate our confidence in the ongoing health of our end markets and the fundamental strength in our cash-generating growth model. So let's move on to our outlook. Slide four details our four-year guidance for rental revenue, CapEx, and free cash flow. For rental revenue growth, we've adjusted down Canada to 11% to 13% growth as a direct result of a somewhat sluggish bounce back in our film and TV business following the strikes. This is an issue of timing, but nonetheless impacts the near term. Based on this reality and the broader Q3 trading, we now expect to be at the low end of our U.S. and group revenue growth range. Our capex guidance for the full year is within our range at circa $4.2 billion, and I'll touch on our initial plans for next year in just a moment. Free cash flow guidance remains at $150 million. 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. As we highlighted in December, our third quarter performance was affected by the lower level of emergency response activity related to natural disasters in North America and the longer than anticipated actors and writers strikes impacting both the film and TV business and adjacencies within our Canadian, U.S., and U.K. businesses. Against this backdrop, the group increased rental revenue 11% in the nine months on a constant currency basis. This growth was delivered with strong margins, an EBITDA margin of 46% and operating profit margin of 27%, delivering an operating profit 7% higher than last year. After an interest expense of $400 million, 56% higher than this time last year, which reflects both higher absolute debt levels and the significantly higher interest rate environment, adjusted pre-tax profit was similar to last year at $1.8 billion. Adjusted earnings per share were 307 cents for the period. Turning now to the businesses. Slide 7 shows the performance in the U.S. Rental revenue for the nine months grew by 12% over last year, which was on top of growth of 27% a year ago. Rental revenue growth 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 cost we face. whether it be interest costs, as you saw on the previous slide, or the impact of inflation on our rental fleet and operating cost base. The total revenue increase of 15% reflects higher levels of used equipment sales than last year. As we've discussed before, fleet landings have become more predictable, enabling us to reduce physical utilization from the record levels we've seen over the last couple of years, although absorption of this additional fleet has been lower than we anticipated. We have used the opportunity this provides to take advantage of strong second-hand markets to catch up on delayed disposals and accelerate the disposal of some older fleet where utilization is lower than optimal. This lower level of utilization is the principal explanation for the depreciation charge increasing at a faster rate than rental revenue. This factor, combined with the increased level of used equipment sales, is a drag on margins in the near term. Excluding the impact of lower margin used equipment sales, EBITDA margins were the same as last year. In line with our 3.0 strategy, we opened 54 greenfields and added a further 35 locations through bolt-on acquisitions, which also affect margins. As expected, all these factors contributed to lower third quarter drop-through, which was 44%, and as a result, drop-through for the nine months was 51%. This resulted in an EBITDA margin of 48%, while operating profit was $2.1 billion at a 29% margin, and ROI was a healthy 25%. Turning now to Canada on Flight 8. Rental revenue was 9% higher than a year ago at $573 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, which were not settled until December, which has also had some effect on the rest of the Canadian business. While activity in the film and TV business picked up in January and February, this has been slower than we expected. The disconnect between the rental revenue increase and the increased depreciation charge is exaggerated by the film and TV impact, but as in the U.S., physical utilization is lower than we had anticipated. Despite these challenges, Canada delivered an EBITDA margin of 40% and generated an operating profit of $106 million at a 16% margin, while ROI is 12%. Excluding the drag from the film and TV business, EBITDA margins were slightly better than last year. Turning now to slide 9, UK rental revenue was 4% higher than a year ago at £441 million, while total revenue was flat year over year, reflecting the higher level of service revenue associated with the demobilization of the Department of Health work and the Queen's Foon last year. 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 adversely. As a result, the UK business delivered an EBITDA margin of 28% and generated an operating profit of £41 million at an 8% margin, an ROI of 6%. Slide 10 sets out the group's cash flows for the nine months and the last 12 months. This emphasises a strong cash generation capability of the business, and this cash has been deployed in accordance with our capital allocation policy, with capital expenditure of $3.8 billion, funding principally fleet replacement and growth, and $863 million invested in bolt-ons. The significant increase in capital expenditure results in a free cash outflow for nine months of $463 million. Slide 11 updates our debt and leverage position at the end of January. As expected, our overall debt level increased in the nine months. In addition to the capital expenditure and bolt-ons, we returned $368 million to shareholders through our final dividend for 2023 and $60 million through buybacks. As a result, leverage was 1.9 times, excluding the impact of IFRS 16. Our expectation continues to be that we will operate with 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. A strong balance sheet gives us a competitive advantage and positions us well to optimize the structural growth opportunities available in our markets. As shown on slide 12, we access the debt markets in July 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 $750 million of 10-year debt at 5.95% and $850 million of 10-year debt at 5.8%. Following the notes issues, our debt facilities are committed for an average of six years at a waste average cost of 5%. And with that, I'll hand back to Brendan.

Thanks, Mike. We'll move on to some operational detail beginning with the U.S. on slide 14. The U.S. business delivered good rent-to-revenue growth in the quarter, with both general tool and specialty growing 8%. This growth is on top of very strong growth last year in the quarter of 23%. Consistent with what we said in December, and others in the industry have been noting, time utilization is below the record levels we experienced last year, albeit still historically strong. This continues to reflect both ongoing improvements in the supply chain and the nature or profile of megaprojects, which are making up an increasing proportion of the non-res, non-building construction landscape and where utilization levels are typically lower in the earlier phases. Importantly, rental rates have continued to grow year on year throughout the nine months, doing so despite the utilization movement I just covered. This is affirmation of the ongoing positive rate dynamics in the industry, specifically the discipline and structural progress, attributes that we firmly believe are here to stay. Further, there is capacity or scope to better absorb this year's fleet growth as we progress through next year. Moving on to slide 15, we'll cover the outlook for our largest single and market construction. Overall, the construction outlook continues to be very positive. Despite macroeconomic concerns and the pressures that come with inflationary and interest rate realities, you will see construction activity has proven to be incredibly resilient and the forecast notably accurate. The latest five starts data published in February forecast growth in 2024 and the forthcoming years. The biggest constraint on activity levels and projects progressing to start continues to be the availability of labor. Nonetheless, we're experiencing very healthy starts. All this contributes to the forecast for put-in-place activity in both non-res and non-building remaining very healthy for the foreseeable future. These starts and ongoing projects have been fueled in part by the clear momentum behind reshoring or U.S. deglobalization, creating private and public sector projects further supported by the well-documented federal government spending acts, all contributing to the rise of an era of megaprojects. Let's touch on megaproject activity in a bit more detail on slide 16. Illustrated herein, as we've done since our full year results in June of 23, is once again the U.S. megaproject landscape, which gives you an appreciation for just how significant this market opportunity is. As a reminder, our internal definition of 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 April of this year. There are 453 projects underway or soon to begin, ranging in size from 400 million to 12 billion, totaling 555 billion of projects funded by private and public sectors. Some of the projects that were scheduled to start in the back end of calendar 2023 or early 2024 are now planned to start as we progress through fiscal year 2025. Worth noting, we see very little in the way of project cancellations, something we always pay close attention to. As we've covered and demonstrated consistently, projects of this scale and sophistication require suppliers with relatable scale, but also expertise, experience, breadth of product, and services. and the financial strength to meet the needs of the customer. Since December, we continue to win more than our fair share of projects, which will begin in 2024. These include data centers, EV factories, battery plants, and semiconductor fabs, just to name a few. We'll give a fresh update on the megaproject landscape at our capital markets event, which will include forecasted starts over the next three years. What you'll see is that this activity is not a flash in the pan, rather a fixture of the U.S. construction market for years to come. Let's now turn to our business units outside of the U.S. We'll begin with Canada on slide 17. Our business in Canada continues to deliver strong growth, coming from existing general tool and specialty locations, as well as greenfield and bolt-on acquisitions activity. Through nine months, we've added 17 locations, further contributing to advancing our clusters as we execute on our 3.0 plan. This progress enables us to increase our addressable markets beyond construction, as we've done so well over the years in the U.S. Our runway for growth, improved density, market diversification, and margin improvement remain significant in Canada. Importantly, as is the case in the U.S., rental rates continue to grow year over year, which we expect to continue to be the case moving forward. Turning to the U.K. on slide 18, the business delivered strong rental-only revenue growth of 9%, driven by market share gains and an end-market composition which favors our unique positioning through the industry's broadest offering of general tool and specialty products, which are unmatched. We've made progress better than prior years as it relates to rental rates and charges. However, we have a way to go. The team is focused on this now and will be going forward as we continue to work on passing through the necessary rate increases and charges for the leading services which we provide. Let's move on to our initial CapEx outlook for next fiscal year on slide 19. As touched on in the outlook slide, for the current fiscal year, our CapEx guidance remains unchanged. As usual, with Q3 results, we set out our initial CapEx guidance for next fiscal year by country and then group. Beginning with the U.S., we plan to invest $2 to $2.3 billion in rental fleet and a further $550 million in non-rental assets. A significant portion of this is planned for fleet replacement while adequately portioning growth for fiscal year 25 greenfields and follow-on investment for recently opened and added locations as well as recent and anticipated mega project wins and same store highly utilized categories. After accounting for Canada and the UK, total group CapEx is planned for between three and 3.3 billion. As we employ the growth element of this CapEx and improve current year fleet investment absorption, we anticipate mid to high single digit rental revenue growth and strong free cash flow. It's important to note that as supply chain constraints have eased, we can, again, more easily flex capex levels and timing during the course of the year as the demand environment necessitates. Let's summarize on slide 20. There's been another period of good growth, location expansion, and momentum in our business. We're experiencing strong demand for our products and services and gaining improved clarity to the strength of our end markets throughout the year into 2025 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 megaproject landscape. Our business is 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. We've had a very successful Sunbelt 3.0 campaign which positions us well for future success. For these reasons and coming from a position of ongoing strength and positive outlook, we look to the future with confidence. So speaking of the future and finally turning to slide 21, We're very much looking forward to launching our next strategic growth plan, Sunbelt 4.0, which will detail our runway for successful growth, increased resilience, and performance for our customers, our people, and our investors. When we're together in April, it will afford us the opportunity to share the detailed Sunbelt 4.0 plan, while at the same time inviting you to get a deeper understanding of the mechanics of our business, and importantly, an appreciation of our culture as you'll be interacting with some 5,000 Sunbelt team members from throughout the business. So we hope to see you then. And with that, we'll be happy to take your questions.