Ashtead Group plc

Thank you, Operator, and good morning, everyone, and welcome to the Ash State Group Q2 results presentation. As usual, I'm joined this morning by Michael Pratt and Will Shaw. I'm also pleased to welcome Alex Pease to the group who is with us today. Alex joined last month as CFO designate and has been active getting to know our people and business and will be joining us on our roadshow this week in London and in the U.S. in January. As always, I'll begin this morning by addressing our Sunbelt team members listening in, specifically recognizing their leadership and the health and safety of our people, our customers, and the members of the communities we serve. In October, we hosted Engage for Life Summits with our leadership team throughout the business. These sessions were designed to give our frontline leaders the tools to discuss and communicate Engage for Life principles embedded within Sunbelt 4.0. Our efforts, processes, and cultural adoption of Engage for Life continues to deliver improved metrics. Notably, another record low total recordable incident rate, or TRIR, now below 0.7 for the calendar year. Thank you. Thank you for your efforts in the half and your ongoing commitment to Engage for Life. We have a full update this morning, including covering the strength of our half-year performance and market forecast and dynamics, early 4.0 plan progression, and second half guidance. However, before getting into these, I'll start by commenting on our announcement this morning, expressing our intentions to move our primary listing to the US. And to do that, I'll be referring to slide three. With consideration of the group strategy and aim to best benefit all our stakeholders, we've concluded that in our view, the U.S. is the natural and best long-term listing venue for this business. This news is not going to come as a great surprise to most. As you are aware, this has been a topic of board conversation for some time. The center of gravity of the group has been moving west over a long period of time, and today we are to all intents and purposes, a US company. We see this move as an exercise where we will be aligning the listing venue with where the vast majority of the operations, leadership, employees, revenues, profits, and future growth are based and derived. Why now? There are a number of reasons of which I'll cover a few to compliment this morning's written announcement. From an operational perspective, successful launch of our strategic growth plan, Sunbelt 4.0 is behind us, and the organization is fully focused on its execution. The advantages of a U.S. primary listing over other markets, such as deeper capital markets, greater liquidity, inclusion into important U.S. indices, et cetera, have become more evident over the last few years. Cultural benefits. such as simplifying share ownership for our wider employee base. Our headquarters, of course, and majority of our executive leadership team are based in the US. And we've had the time to assess the progress of other companies that have made this move before us. This is a reasonably lengthy process, which we expect to take 12 to 18 months, beginning with shareholder dialogue, which we will commence immediately, And following this engagement, we will put forward a formal resolution at a general meeting on a date to be announced. As things progress, we'll naturally keep you updated in conjunction with our quarterly reporting or as any need arises. Let's now touch on the early progress we're making on Sundial 4.0 by reviewing our first half results, beginning with the highlights on slide four. Group rental revenue grew 6% in the first half, with total revenue up 2%. In the U.S., rental revenue improved by 5% and total revenue by 1%, with the delta largely reflecting lower used equipment sales. These rental revenues and strong flow-through delivered group EBITDA growth of 4% to $2,698,000,000, PBT of $1,255,000,000, and EPS of $2.14. These are record first-half revenues and EBITDA, with margins of 47% at the group level and nearly 50% in the U.S., and before the impact of lower gains on asset sales, record PBT as well. From a capital allocation standpoint, in accordance with our priorities, we invested $1.7 billion in CapEx, which fueled existing location fleet needs and the greenfield openings. We expanded our North America footprint by 47 locations in the half, via 36 greenfield openings and a further 11 through two bolt-on acquisitions. Despite these levels of investment, we delivered free cash flow of over 400 million and a half and finished the period at 1.7 times net debt to EBITDA, comfortably within our long-term range of one to two times. Throughout the half, we experienced ongoing dynamics in our construction and markets. megaproject activities and pipeline levels continuing to expand, while on the other hand, local non-residential construction activity is softened, as prolonged higher interest rates have weighed on local and regional developers. This local market softening was more than offset by megaprojects and response activities related to Hurricanes Helene and Milton in the period. However, we think it would be just too fast to expect the local construction market to rebound in the second half of our fiscal year. As a result of these conditions, we're adjusting downwards our guidance for rental revenue growth and our CapEx for the full year. An output of this is an increase in our free cash flow expectations for the year, and in line with our capital allocation priorities, we commence a share buyback program today of up to one and a half billion over the next 18 months, designed over time to put us in the middle of our leverage range. Importantly, this highlights the capital allocation optionality inherent in our business and indeed in our 4.0 plan. Powered by the strength of our business and the disciplined capex and pricing we've demonstrated and has been seen across the industry, further enhancing our cash generation during periods of more moderate growth levels, Our outlook is positive, and our confidence in executing and delivering on our Sunbelt 4.0 plan is high. As such, we look to the future with confidence. And with that, I'll hand it over to Michael to cover the financials and the outlook.

Thanks, Brendan, and good morning. The group's results for the six months are shown on slide six. Group rental revenue increased 6%, while total revenue increased 2%. This lower rate of total revenue growth reflects the lower level of used equipment sales planned for this year. Our growth was delivered with strong margins, an EBITDA margin of 47% and an operating profit margin of 27%. As expected, the lower level of used equipment sales resulted in lower gains on sale of $35 million compared with $113 million a year ago, which affects the absolute level of EBITDA and operating profit. After an interest expense of $287 million, which increased 14% compared with this time last year, reflecting principally higher absolute debt levels, adjusted pre-tax profit was $57 million, or 4% lower than last year, at $1,255,000,000. Adjusted earnings per share were $2.14 for the six months. We've announced an interim dividend of 36 cents per share, reflecting the move to a more typical interim final split that we announced in Atlanta. Turning now to the businesses. Slide seven shows the performance in the US. Rental revenue for the six months grew by 5% over last year, which in turn was up 14% on the prior year. This has been driven by a combination of volume and rate improvement in overall healthy end markets. As Brendan will discuss later, Strength in megaprojects and our hurricane response efforts have mitigated weakness in the local commercial construction market. We estimate that hurricane response efforts contributed $55 to $60 million to rental revenue in the period. The total revenue increase of 1% reflects lower levels of used equipment sales than last year, when we took advantage of improving fleet deliveries and strong second-hand markets to catch up on deferred disposal. The third actionable component of Sunbelt 4.0 is performance, as we look to leverage the infrastructure and scale we developed during 3.0 and improve margins. This, combined with our focus on the cost base and lower scaffold erection and dismantling revenue following a major customer's Chapter 11 filing, contributed to drop through for the six months of 64% and an EBITDA margin of 50%. Reflecting the impact of gains $68 million lower than last year, Due to lower used equipment sales combined with weaker secondhand values and the higher depreciation charge on a larger fleet, operating profit was $1,432,000,000 at the 30 cent margin and ROI was a healthy 21%. Steady now to Canada on slide eight. Rental revenue was 20% higher than a year ago at $459,000,000 aided by the recovery of the film and TV business. The major part of our Canadian business so excluding the film and TV business, is performing well, with rental revenue up 15%, driven by volume and rate improvement as it takes advantage of its increasing scale and breadth of product offering. Following settlement of the strikes in the North American film and TV industry, activity levels in our film and TV business have recovered, although they are below pre-strike levels, which is likely to be the new normal. This contributes to an EBITDA margin of 46% and operating profit of $111 million at a 22% margin, while ROI is 12%. Turning now to slide 9, UK rental revenue was 6% higher than a year ago at £390 million. In line with the 4.0 strategy, the focus in the UK remains on delivering operational efficiency and long-term sustainable returns in the business. While we continue to make progress on rental rates, these need to progress further. As a result, the UK business delivered an EBITDA margin of 29% and generated an operating profit of £36 million at the 10% margin and ROI was 7%. Slide 10 sets out the group's cash flows for the six months and the last 12 months. This emphasises the strong cash generation capability of the business in any condition. we maintain a strong focus on working capital management, particularly the collection of receivables, which is resulting in cash flow from operations of $2.5 billion in six months. A key feature of our business model is our ability to flex capital expenditure in accordance with the environment, increasing it in a higher growth environment and reducing it in a lower growth environment. In this low growth environment, we spent $1.8 billion compared with $2.5 billion last year, funding principally fleet replacement and growth, and generated free cash flow for the six months of $420 million and $1 billion over the last 12 months. The only time in which cash generation was higher in the first half of the year was in our 2021 financial year, which of course was the year of the pandemic, when we spent only $276 million on capital expenditure. While we reduced our capital expenditure this year, this has not been at the expense of the future. We've executed our fleet disposal plan as intended, but with lower demand overall, we're not replacing assets in markets where the demand is not there, rather spending it on growth in markets where demand is higher, particularly within our specialty businesses. This is where we get the phrase growth disguised as replacement when talking about capital expenditure. Slide 11 updates our debt and leverage position at the end of October. The increase in debt in the period relates to lease liabilities, with external borrowings broadly flat. In addition to the capital expenditure, we returned $387 million to shareholders through our final dividend. As a result, excluding lease liabilities, leverage was 1.7 times net debt to EBITDA. Our expectation continues to be that we'll operate within our new target leverage range of 1 to 2 times net debt to EBITDA, but most likely towards the middle of that range. We expect to be in the 1.5 to 1.6 range at the end of April, including the impact from the shared buyback program announced today. The structure of our debt is shown on slide 12. We've said previously that a strong balance sheet gives us a competitive advantage and positions as well for the median term. In November, we amended and extended our senior credit facilities so that we now have $4.75 billion committed until November, 2029. Pricing has been adjusted down slightly and is now based on the applicable interest rate plus a margin of one and a quarter to one and three-eighths. Other principal terms and conditions remain unchanged. A key feature of our debt is the profile. We have no imminent maturities and the extended profile is smooth with no large individual refinancing needs. Our debt services are committed for an average of six years at a weighted average cost of 5%. Moving now to slide 13 and our guidance on revenue, capital expenditure and free cash flow for this year. This updated guidance reflects the dynamic nature of our business model and illustrates the levers we can pull to drive shareholder value depending on market conditions. In terms of revenue, we now expect US rental revenue growth to be in the range of two to 4%. The change reflects principally the impact of local commercial construction market dynamics. Our guidance for Canada and the UK is unchanged with 15% to 19% rental revenue growth in Canada, aided by the recovery of the film and TV business, and 3% to 6% rental revenue growth in the UK. As a result, we're guiding to group rental revenue growth of 3% to 5%. From a capital expenditure standpoint, we've reduced our capital expenditure plans to reflect these market dynamics and now expect capital expenditure for the year to be in the range of $2.5 to $2.7 billion, This is a reduction of $550 million at the midpoint of the range and relates principally to lower U.S. rental fleet expenditure. In addition, you will see we have reduced expected disposal proceeds by $50 million, reflecting weaker secondhand prices, which will reduce gains on disposal by a similar amount. The usual date detail on this is included in the appendix on slide 27. Based on this guidance, we now expect free cash flow for the year of around $1.4 billion, the main variable being where we land on capital expenditure and the timing thereof. And with that, I'll hand back to Brendan.

Thanks, Michael. We'll now move on to some operational detail. I'll begin with the U.S. on slide 15. U.S. business delivered good rental-only revenue growth in the half of 6%. Specialty performed strongly with growth of 15% in the half, with general tool up 2%. Importantly, Rental rates have continued to progress year on year, doing so despite industry utilization levels still lagging highs reached in previous years. This is, again, affirmation of the ongoing good rate discipline in the industry as a result of the ever-clear structural progression we've experienced over the years. Moving on to slide 16, we'll cover the outlook for our largest single-end market, construction. Consistent with our usual reporting of construction activity and forecast, the slide lays out the latest dodge figures and starts, momentum, and put in place. As I've previously covered and others whose end markets include construction have noted, we continue to see cross-currents in our end markets. Overall outlook for construction growth continues to be underpinned by megaprojects and infrastructure work, which continue to gain momentum, albeit slowly. which I'll detail in just a moment. At the same time, there's an ongoing softening within the local commercial construction space as the prolonged higher interest rate environment has weighed on local and regional developers. This, of course, impacts some of the small, mid, and regional-sized contractors. While some things have started to move in the right direction, e.g., beginning of interest rate cuts, some clarity following the U.S. election, and we're seeing increased planning activity, So this will rebound, and I think quite strongly. It'll take some time for this segment of the construction market to see a meaningful uptick in projects actually breaking ground. And in reality, we're unlikely to see this before the back half of calendar year 2025. Just touching briefly on megaprojects on slide 17. This is a slide you should now be familiar with. delineating mega project starts in count and value over the previous three years as well as the next three. What you should draw from this update, particularly when compared to our April CMD figures, is one, some have been pushed a bit right, showing projects of this scale and sophistication take some time to get started, not to be confused with being canceled. And two, The funnel keeps getting added to as megaproject landscape continues to expand and strengthen. This is driven by deglobalization, manufacturing modernization, technology, and infrastructure. Combined over the two periods, this represents a 12% increase in project value from what our figures were in April. We continue to experience a very strong win rate in this arena. and are highly engaged in project planning and solutions with customers and project owners associated with these projects. Moving on to our end markets beyond construction on slide 18, let's not forget that over half of our business is outside of commercial construction. As we've detailed over the years and perhaps showcased most clearly during the Anytown exhibit as part of our April CMD, these markets are both large and expansive. So many of our product categories have remarkably universal applications, which presents a vast opportunity to progress rental penetration ever more broadly. Whether planned or unplanned, there are abundant activities throughout these non-construction markets where our products and services deliver solutions. We've made great progress across these segments over the years and will continue to do so throughout 4.0. So these are big, big end markets with equally big opportunity. Moving on to Canada on slide 19. Our business in Canada continues to deliver good results with rental revenue growth in the half of 20%, coming from existing general tool and specialty locations, as well as greenfields and bolt-ons. And as is the case with the U.S., rental rates continue to progress in the half, which we expect to continue to be the case moving forward. Our focus in Canada, embedded in our 4.0 plan, is to continue to increase our addressable markets beyond construction, as we've done so well over the years in the U.S. The runway for growth, improved density, market diversification, and margin remains significant. Turning to the U.K. on slide 20. U.K. delivered rental revenue growth of 6%. driven by market share gains in an end market, which continues to favor our unique positioning through the industry's broadest offering of general tool and specialty products, which is unmatched. The Sunbelt 4.0 plan for the UK will lead to an ever more diverse customer base and increased TAN, while bringing greater focus and discipline on the necessary levers and actions to deliver acceptable and sustainable levels of ROI and free cash flow. This business has transformed in recent years, and as I've said previously, Sunbelt 4.0 is designed to add the final piece to this transformation. Turning to capital allocation on slide 21. Michael and I have covered most of these capital allocation elements throughout this morning's presentation. However, I'll highlight again our launching of a new buyback program today of up to $1.5 billion over the next 18 months. This program takes into account our latest CapEx plans for the year and demonstrates the optionality and competence which comes from the fundamental strength of our cash generative growth model. With this buyback in place, we expect to maintain leverage broadly in the middle of our target range of one to two times. And, of course, there is a robust bolt-on M&A landscape, which we've so often exercised. Our business development team continues to work our pipeline to find opportunities that align with our strategy, which will surely result in future additions. All this is incredibly consistent with our long-held policy and will continue to allocate capital on this basis throughout 4.0. Moving on to slide 21, and speaking of 4.0, we've made a promising start to this plan. in each of our operating geographies, and although only two quarters into a five-year plan, I'm pleased to demonstrate progress across all five actionable components. Illustrated here, you'll pick up some of the specifics related to each. We'll keep the scorecard updated throughout 4.0 and periodically highlight an area, and we'll begin with our Connect360 technology platform rollout, which we'll cover with our Q3 results. To conclude, let's turn to slide 23. Our performance has been strong, and we are very well positioned in healthy end markets. Our roadmap is clear, and the organization is laser-focused on 4.0 execution. We've announced our intentions to move our primary listing to the U.S. And finally, I'll highlight a few key takeaways from today's update. The strength and optionality of our business model, clear demonstration of the outputs of structural progression in our business and our industry, specifically disciplined capital expenditure and pricing environment. These factors, combined with our strong margin and cash flow through the cycle, provides us with the ability to exercise this optionality through today's buyback of up to $1.5 billion. Our outlook is positive and our confidence in executing and delivering our Sunbelt 4.0 plan is high. And as such, we look to the future with confidence. And with that, operator, we will open the call to questions.