Ashtead Group plc

Thank you, operator, and good morning, everyone, and welcome to Ashtead Group Q3 results presentation. I'm speaking from our US support office and joined by Alex Pease and Will Shaw. As you know, Alex joined in October and formally took over from Michael as CFO at the end of February. Since joining, Alex has been highly engaged, getting to know our people and our business and working closely with Michael and the broader finance team to ensure a seamless transition. I speak on behalf of so many of our colleagues when expressing the gratitude we have for the countless contributions Michael has made to the success of our business. To consider just for a moment, the then and the now difference in this business, be it our sheer scale, profitability, financial strength, or track record of success during his 21 years. It's a body of work over a career that anyone should be proud of. And personally, What a pleasure it's been to partner with Michael over the years. So for this, it's more of a see you later than goodbye, as we'll continue to have access to Michael's wise counsel until September when he formally retires from the group. Before turning the slides, and as we always do, I'll begin this morning by addressing our Sunbelt team members listening in, specifically recognizing their leadership in the health and safety of our people, our customers, and the members of the communities we serve. In December, we closed our calendar year with a total recordable incident rate of 0.65 and a lost time rate of 0.11. Both of these metrics represent record performance in frequency and severity, the precise intent of Engage for Life. Additionally, we successfully launched our driver safety profile in January to anyone in our organization operating Sunbelt Rental's vehicle. The driver safety profile is a proprietary system which deploys a risk-based approach to reducing our exposures on the road. And although early in development, we are already seeing positive trends. The key to this really is it's another example of not allowing complacency into our culture. So thank you. Thank you for your efforts to date and your ongoing commitment to engage for life. Given it's Q3, We'll keep today's update relatively brief, starting with the highlights on slide three. The business delivered strong performance in the period, with group and U.S. rental revenues up 5% and 4% respectively, trading in line with our December guidance. Total revenues were flat year-on-year, largely reflecting lower used equipment sales as we expected. These rental revenues and strong fall-through delivered group EBITDA growth of 3%, to 3.9 billion, PBT of 1.7 billion, and EPS of $2.91. These are record revenues and EBITDA for the first nine months, with EBITDA margins of 47% at the group level and 49% in the US. And before the impact of lower gains on asset sales, these are record PBT levels as well. From a capital allocation standpoint, in accordance with our Sunbelt 4.0 priorities, We invested $2.1 billion in CapEx, which fueled existing location fleet needs and greenfield openings. We expanded our North American footprint by 54 locations through 43 greenfield openings and a further 11 through two bolt-on acquisitions. Despite these levels of investment, we delivered free cash flow of $858 million in the nine months. We commenced the new share back program, of course, in December. of up to $1.5 billion over 18 months and finished the period at 1.7 times net debt to EBITDA, comfortably within our long-term range of one to two times. Our team is laser-focused on Sunbelt Ford Auto, advancing each of the five actionable components, which you know as customer, growth, performance, sustainability, and investment. I'll highlight a few successes, beginning with the growth among our largest U.S. customers. specifically our top 200, where our strategic account team and the organization at large are advancing our relationships and positioning to deliver greater than 20% rental revenue growth year on year with these customers. These wins have been gained through mega projects, cross-selling, and embedding win-win partnering programs, all obsessed with the success of our customers. This is a broad group of customers servicing construction and non-construction and markets. Second is our full launch of VDOS 4.0, our vehicle dispatch optimization system, which many of you would have seen when we were in Atlanta at Powerhouse, which has been reimagined and repowered to improve availability, utilization, efficiency, and user experience, resulting in more wins. through a clearer path to say yes to our customers. Every branch and market logistics operation is using this new system and beginning to realize its early benefits. And third is the growth and margin progression of the 401 locations that we opened or we added during Sunbelt 3.0. These locations have collectively grown rental revenues 30% in the nine months versus last year while progressing EBITDA margin in excess of 300 basis points, a key deliverable in our overall plan to improve margin by 3% to 5% over the course of Sunbelt 4.0. These results in investment activities demonstrate our confidence in our end markets and the fundamental strength in our cash-generating growth model. End market conditions remain broadly as they were in December, and accordingly, we expect full-year results in line with our December guidance. In December, we announced our intention to move our primary listing to the U.S. and following extensive engagement with shareholders resulting in broad support of the proposed move, we announced our plans to proceed by seeking shareholder approval at a June EGM with the U.S. listing expected to take effect in the first calendar quarter of 2026. And with that, I'll hand it over to Alex to cover the financials and outlook in more detail. Alex?

Thanks, Brendan, and to our colleagues in the U.S., good morning, and to those of you in the U.K., good afternoon. Thanks for joining. The group's results for the nine months are shown on slide five. Group rental revenue increased 5%. Total revenue was flat, reflecting the planned lower level of used equipment sales. Our growth was delivered with strong margins, an adjusted EBITDA margin of 47%, and an operating profit margin of 26%. As expected, the lower level of used equipment sales resulted in lower gains on sale of $58 million compared with $165 million a year ago, which affects the absolute level of EBITDA and operating profit. After an interest expense of $429 million, adjusted pre-tax profit was 5% lower than last year at $1.7 billion. The higher interest expense, which increased 7% compared with this time last year, reflects principally higher absolute debt levels. In the press release, you'll notice that we have amended our disclosures to adjust out non-recurring costs associated with the move of the group's primary listing to the U.S. These amounted to $5.8 million in the period. We will continue to track these as we move through this and the next fiscal year. Adjusted earnings per share were $2.91 for the nine months. Turning now to the businesses. Slide 6 shows the performance in the U.S., Rental revenue for the nine months grew by 4% to a record $6.6 billion. This has been driven by a combination of volume and rate improvement, demonstrating the power of our diversified business model as well as our disciplined execution. As Brendan will discuss later, strength in megaprojects and our hurricane response efforts have also mitigated ongoing weakness in the local commercial construction markets. We estimate that hurricane response efforts contributed between $90 and $100 million to rental revenue in the nine months, weighted more heavily in the second quarter. The flat total revenue reflects the lower levels of used equipment sales compared to last year, which I referred to earlier. The third actionable component of Sunbelt 4.0 is performance, as we look to leverage the infrastructure and scale developed during 3.0 and improve margins. The team is making strong progress, driving value from our significant investments in logistics, telematics, and maintenance execution, and we're already seeing results. The team's also demonstrating strong cost control discipline with operating costs almost 3% below prior year. These actions contributed to a drop through for the nine months of 71% and an EBITDA margin of 49%. Reflecting the impact of lower gains on disposals and the higher depreciation charge on a larger fleet, operating profit was approximately $2 billion at a 28% margin and ROI was a strong 20%. Turning now to Canada on slide 7. Rental revenue was 16% higher than a year ago at $662 million Canadian dollars or $478 million U.S. dollars. The major part of our Canadian business, excluding the film and TV business, is performing well with rental revenue up 12% 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 North American film and TV industry, activity levels demonstrated a reasonable recovery but remained somewhat soft, which, when combined with some uncertainty related to tariffs and non-resi construction, is leading to a weaker outlook, which I will discuss in a few minutes. Overall, the segment contributed an EBITDA margin of 45% and an operating profit of $139 million Canadian dollars and $101 million U.S. dollars at a 19% margin, while ROI is 12%. Turning now to slide 8. U.K. rental revenue was 4% higher than a year ago at 461 million pounds or $589 million U.S. dollars. 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 farther and will in the future. As a result, the UK business delivered an EBITDA margin of 29% and generated an operating profit of £44 million, or US$56 million, at an 8% margin and ROI was 7%. Across all three segments, our results have shown the resilience of our business model and our disciplined execution despite challenging market conditions. Slide 9 sets out the group's cash flows for the nine months in the last 12 months. This emphasizes the strong cash generation capability of the business across a wide range of market conditions. We maintain a strong focus on working capital management, particularly the collection of receivables, which has resulted in cash flow from operations of $3.7 billion in the nine months. As many are aware, two of the key attributes of our business model is both the resilience across a range of market conditions, which I've mentioned previously, as well as the agility with which we can control capital spending, reallocating capital dynamically to maximize value for the enterprise. In this environment, where demand is lower and we have some latent capacity, we spent $2.4 billion compared with $3.8 billion last year. We adjusted our priorities to principally fund fleet replacement as well as some pockets of growth. This strategy generated free cash flow for the nine months of $858 million and $1.5 billion over the last 12 months, despite some of the transitory softness that we have discussed. While we've reduced our capital expenditure this year, this has not been at the expense of the future. We've executed on our fleet disposal plan as intended. We have isolated areas of the business with lower demand, and we've dynamically reallocated our spending to growth markets, such as power and HVAC, our specialty businesses more broadly, as well as megaprojects where the demand is higher. We're also using our improved logistics and telematics systems to proactively reposition existing fleet to higher growth markets. One example of this is utilizing latent capacity in our network to fund more than 60% of the equipment required in our greenfield locations. This is how we can continue to grow, even when our absolute spending in capital dollars is lower. Slide 10 updates our debt and leverage position at the end of January. The decrease in debt in the period relates to a reduction in external borrowings partially offset by an increase in lease liabilities. In addition to the capital expenditure, we return $387 million to shareholders through our dividend and $88 million through share buybacks at an average price of just over 51 pounds per share. As a result, excluding lease liabilities, leverage was 1.7 times net debt to EBITDA, well within our stated range of between one and two times, and we expect to be in the 1.5 to 1.6 range at the end of April. This includes the impact from the share buyback program, but does not include any potential impact of M&A activity. On the M&A front, we have a robust pipeline which we continue to develop and will pursue opportunistically as long as it is accretive to growth and generates margins and return in line with our capital allocation expectations. On slide 11, we show the structure of our debt. We've said previously that a strong balance sheet gives us a competitive advantage and positions us well for the medium term. In November, we amended and extended our senior credit facilities such that we now have $4.75 billion committed until November of 2029. Pricing has been adjusted down slightly and is based now on the applicable interest rate plus a margin of between 1.25% to 1.38%. Other principal terms and conditions remain unchanged. One key feature of our debt is the maturity schedule, and we have no imminent maturities. The extended profile is smooth with no large individual refinancing needs. That being said, we do have a $550 million maturity coming due in August of 2026. Given our extremely strong liquidity, low-cost ABL, and attractive rate of 1.5% on that bond, we will likely not undertake to refinance the paper until much closer to the August 2026 timeframe. As a last point on the capital structure, our debt facilities are committed for an average of six years at a weighted average cost of 5%. Now turning to slide 12 and our guidance for revenue, capital expenditures, and pre-cash flow for this year. At a consolidated level, results are in line with expectations that we set in December, with group revenue growth unchanged within our original range of between 3 and 5%. By region, we're providing the following updates. We expect U.S. rental revenue growth within our original range of between 2 and 4%. In Canada, we expect rental revenue growth between 9 and 13%, and in the U.K., rental revenue growth at the low end of our original range of 3 to 6%. As a reminder, Our Canada business total rental revenue represents approximately 6% of the total group revenue, and the revised outlook represents approximately $35 million, or less than one half of 1% of our consolidated fiscal year 2024 group rental revenue. From a capital expenditure standpoint, our range of $2.5 to $2.7 billion is unchanged as we continue to reallocate our capital dynamically and optimize our fleet size to drive utilization. Based on this guidance, We expect free cash flow for the year of at least $1.4 billion. As we mentioned to a number of you following our first half results, we're planning to update our fiscal year 2026 capital and revenue guidance when we report our fiscal year 2025 results and our fiscal year 2026 budgeting process is complete, which is in line with more normal practices. And with that, I'll turn the call back over to Brendan.

Thanks, Alex. We'll now move on to some operational detail, beginning with the U.S. on slide 14. The U.S. business delivered good rental-only revenue growth in the nine months of 4%. Specialty performed strongly with growth of 14 in the period, with general tool up one. This, of course, includes some puts and takes as it relates to the hurricane response efforts, as Alex covered. As expected, we continued to realize somewhat softer local non-res construction market activity through the quarter. all set in part by the ongoing strength of the mega project landscape and the broader non-construction markets. 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 ongoing affirmation of the progressing structural change in the business and leveraging our internal pricing tools and disciplined rate approach. Moving on to slide 15, we'll cover the activities and outlook for the construction and market. 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. Outlook for construction growth continues to be underpinned by megaprojects and infrastructure work, which continue to gain momentum. This is a portion of the market where we enjoy outside share and continue to be positioned extraordinarily well as more of these very large projects begin and enter planning. Our cross-function sellers and solutions experts are highly engaged with these contractors, our customers, and in many cases, the owner or developer themselves, bringing a broad range of solutions and capabilities to bear on these not only large but highly complex projects. At the same time, the local commercial construction space is softer than it was in recent years, as the prolonged higher interest rate environment has weighed on local and regional developers. This predominantly impacts some of the small, mid, and regional-sized contractors, SMEs, as some will refer to it, which is a powerful and important segment of our customer base. It'll take some time for this segment to see meaningful uptick. However, it will rebound. And when it does, I think it will quite strongly. When this inevitability happens, we're in a position of strength to benefit with customer relationships, coverage of products, services, and markets, and capacity, all part of our long-held clustered market strategy. There are some recent positive indications, which you'll gather from the Improving Momentum Index on the bottom of the left slide. This Dodge Momentum Index grew 6% in January, coming from both commercial and institutional planning increases. In fact, the growth was diverse to the extent that every tract non-residential vertical experienced positive momentum in the month. This DMI measure was up 26% when compared to a year ago, with the commercial segment up 37% from January of 24 and institutional up 9%. Of the projects entering planning, 33 were valued at 100 million or more. Notably, six of the 33 meet our definition of megaprojects. We, of course, define that as 400 million and above internally. And therefore, 27 were below that level, which was a nice mix of lodging, hospitals, schools, warehouse, and smaller data centers. So it's examples like this. that highlight the inevitability of heightened activity to which I've covered our readiness to benefit. Moving on to Canada on slide 16. Our business in Canada continues to deliver good results with rental revenue growth in the nine months of 16%, coming from existing general tool and specialty locations as well as greenfields and bolt-ons. And as is the case in the U.S., rental rates continue to progress in the nine months. which we expect to continue to be the case moving forward. Alex has touched on the more current trends. Despite this, our focus in Canada is clear, and the actions embedded in the Ford Auto Plan are to continue to increase our addressable markets beyond construction, as we've done so well over the years in the US. Our runway for growth, improved density, market diversification, and margin improvement remains. Turning to the UK on slide 17, The UK delivered rental revenue growth of 4%, 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 Ford Auto plan for the UK will lead to an ever more diverse customer base and increased TAM, while bringing greater focus and discipline on the necessary levers and actions to 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 now to the summary on slide 18. Our performance has been strong and we are very well positioned in overall healthy end markets. Trading is in line with our December guidance and we've reaffirmed our full year expectations for the group. Our roadmap is clear, and the organization is laser focused on 4.0 execution. We're making good initial progress with our plans to move our primary listing to the US. 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 disciplined approach to profitable growth. These factors, combined with our strong margins and cash flow through the cycle, provides us a great amount of flexibility and capacity in our allocation of capital in line with our clear and well-understood priorities. 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're happy to open the call for Q&A.