Ashtead Group plc

Hello, and welcome to the Ashland Group PLC Q1 results analyst call. I'll shortly be handing you over to Brendan Horgan and Alex Pease, who will take you through today's presentation. There'll be an opportunity to ask questions after the presentation. For now, over to Brendan Horgan and Alex Pease of Ashland Group PLC. Please go ahead.

Great. Thank you, operator. Good morning. Thank you for joining, and welcome to the Ashland Group Q1 results presentation. I'm speaking to you this morning from our support office in Fort Mill, South Carolina, where I'm joined by Alex Pease and Kevin Powers, with Will Shaw on the line from London. Given it's the first quarter, we'll keep this relatively brief. You'll see we've updated the presentation format a bit, as we do from time to time, but as usual, I'll start with safety on slide four. To begin, I'd like to address our Sunbelt team members listening in, specifically recognizing their leadership. the health and safety of our people, our customers, and the members of the communities we serve. In particular, I'd like to acknowledge our professional drivers. We're on the road every day and lead from the front in our obsession with Engage for Life and our obsession with customers. They drive over 1 million miles while performing over 30,000 deliveries and pick us every single day. We know that the more we drive, our exposure increases, I'd like to recognize this team for not only delivering on our promise to our customers, but also doing it safely. Just as we invest in our fleet, we also invest in the safety of our people and our communities, and illustrated herein you can see the significant improvement in rear-ending events. Our efforts are delivering results, not only in the performance of the business, which we will discuss, but more importantly in the safety of our people. So, to our drivers, thank you. Thank you for all your efforts and your ongoing commitment to engage for life. Turning now to slide five. Key messages you'll hear from Alex and me today are the following. First, this is a solid set of results with our expectations with group revenue growth of 2.4%. Second, the strength of free cash flow after CapEx investment in fleet and business expansions demonstrating that through the cycle, free cash flow power of the business at our scale and margin. Third, while our key construction and markets remain mixed, we are seeing clear signs of positive momentum in many of our internal and external leading indicators, such as quotes, reservations, and planning momentum. More on these later. Mega project activity continues to be strong, and we're winning share across our regional and national strategic customers. Fourth, We continue to deliver against the five actionable components of our Sunbelt 4.0 strategy with growing momentum every day. Fifth, we're confident in reaffirming four-year guidance for rental revenue growth and CapEx while increasing it for free cash flow. And finally, the work to move the primary listing to the New York Stock Exchange in March 2026 is on track. And as part of this process, we're planning an investor day in New York shortly following our listing I hope to see you there in person. We'll, of course, be sending out a save the date shortly. Moving on to the financial highlights of the first quarter on slide six. Group rental revenues were up 2.4%, consistent with the 0% to 4% guides we gave in June. I mentioned some leading indicators a moment ago, so let me expand. We actively track leading indicators such as quotes, reservations, daily new contract activity, and continuing contracts, as a way to measure the health of our pipeline. And all these indicators are trending positively and favorable to what we experienced a year ago this time. While it's too soon for these leading indicators to form certainty, we're cautiously optimistic that these trends in our business will continue and our early signs of the local non-residential portion of our end markets recover. As when they do, we'll experience accelerated momentum and improved results. Group-adjusted EBITDA was flat at $1.3 billion, and EBITDA margins at 46% reflected the mixed effect of higher ancillary revenue, primarily related to the power and HVAC business, as well as the proactive repositioning of our fleet to drive utilization and unlock pockets of growth. Increased repair costs also represent a headwind to margin as a larger portion of the fleet comes out of warranty coverage as we expected. From a capital allocation standpoint and in line with our Sunbelt 4.0 priorities, we invested $532 million in CapEx, focused on a mix of replacement and growth. Free cash flow was $514 million, which apart from the COVID-impacted fiscal year 2021, is a record for the quarter, and demonstrating the resilience of our business while we continue to invest in growth. This strong free cash flow generation is supporting the current $1.5 billion buyback program, we are on track to complete in the current fiscal year, in addition to repaying $90 million in long-term borrowings in the quarter. Moving on to our segmental performance on slide seven, revenue growth for North America General Tool was 1% in the quarter, reflecting positive volume momentum and resilient rates in end markets, which continue to be mixed. As expected, we continue to be in a moderated, local, non-residential construction market through the first quarter. part by the ongoing strength of the mega project landscape and the broader non-construction markets. During the quarter, we repositioned rental fleet as we focused on improving time utilization across General Tool with good results. As expected, specialty performed well, growth of 5%, despite the drag from oil and gas and the film and TV business in Canada, both of which were not previously reported in specialty and were down in the quarter. The specialty segment strength was led by the power and HVAC business, which grew double digits as we continued to provide a wider scope of value-added services to our customers. On a cost and currency basis, U.K. rental revenue was down 2%, reflecting the ongoing challenges in the U.K. markets. This slide shows fleet-on-rent for North America over the last four fiscal years, and you can clearly see that our efforts to drive growth existing fleet has resulted in improved time utilization. While this has come with temporarily higher transportation costs, it's the right tradeoff to make for the business as it will support a more constructive rate environment and improve ROI over time. It also demonstrates our disciplined and flexible capital allocation approach. On the next couple of slides, we'll cover the activities and outlook for the North American construction and market. On slide nine, we've set out the main lead indicators for the construction sector. Dodge Stars, Dodge Momentum Index, the Architectural Billing Index, and the Fed Funds Rate. The outlook for construction growth continues to be underpinned by megaprojects and infrastructure work, which remains strong, and many cases are gaining further momentum. We've made great progress in megaproject wins in the quarter, with a growing funnel of future projects and advancing market share with our strategic customers, both regional and national. This clearly demonstrates the cross-selling prowess across the specialty and general to businesses, as well as the advantage of Sunbelt's significant breadth and depth of products, solutions, and expertise. Combined with technology platform that is able to deliver efficiencies and value in a range of complex applications. As it relates to our local non-residential market, we remain in a moderated environment. However, in addition to the previously mentioned internal leading indicators, quotes, reservations, and activity, where we are seeing positive trends, I'd like to call your attention to the Dodge Momentum Index in the bottom left of the slide. This index represents non-residential projects excluding manufacturing that are below $500 million and entering the planning phase for the first time. This is therefore highly representative of future velocity in what we refer to as the local non-residential market. This clearly indicates strong demand and development, and we are confident that the strengthening and planning activity across our non-residential construction and markets will lead to an increase in starts, likely within a period of 12 to 24 months. So, while clearly a positive leading indicator, it will take some time for this planning to translate into project starts. However, when it does, we are poised to benefit. On slide 10, you can see how the STARS forecast translated to the latest Dodge put in place figures. It's worth flagging that Dodge have now increased their 2026 forecast for growth in construction, excluding residential, from 2% to 4% in their June report, reflecting some of the more positive lead indicators we're now seeing. It's also important to note that these numbers are significantly influenced by the strength of megaprojects, which affect our large strategic customers as opposed to the SME portion of our customer base. Before I hand it over to Alex, I'll just touch on our Sunbelt 4.0 strategic plan on slide 11. We're now five quarters into a 20-quarter plan, and as I detailed in June, our teams have been laser-focused on advancing each of the five actionable components, which are customer, growth, performance, sustainability, and investment. While I'm not going to give you a further detailed progress report today, I will say that our clarity and mission throughout the organization is certain and our momentum is building. We'll share more details as we progress throughout the year and in particular during our upcoming investor day. With that, I'll hand it over to Alex to cover the financials in more detail. Thanks, Brendan, and good morning, Timothy.

Starting with the first quarter results for the group on slide 13, group total The EBITDA margin and EBITDA margin were 46% and 24% respectively. The slight drop in margins reflects a number of factors, including the higher level of ancillary revenue, most notably E&B work in our power business, which is typically at a lower level of margin. An increased level of internal repair costs, which we anticipated, and an expected increased cost of repositioning the fleet to higher growth markets, driving improved time utilization and ongoing rates. After an interest expense of $131 million, reflecting lower average debt levels, adjusted pre-tax profit was 4% lower than last year at $552 million. As explained previously, we're adjusting for non-recurring items associated with the move of the group's primary listing to the U.S. in the quarter. Adjusted earnings per share were 95.3 cents, and ROI on a trailing 12-month basis was 14%. Slide 14 illustrates group revenue and EBITDA progression over the last five years, and in the first quarter, highlighting the significant track record of growth over a range of economic conditions. Turning now to the individual segments and starting with general tools. Slide 15 shows the performance for our North American general tools. Rental revenue for the quarter grew by 1% to $1.5 billion, driven by improved volume, time utilization, and stable rates. As I explained previously, margins were impacted in the period primarily by investments in replenishing the fleet for growth, as well as higher internal repair costs largely related to warranty of the coverage. EBITDA was $871 million at a strong 53% margin. Operating margins were 32% and ROI was 20%. Turning now to North American specialty on slide 16. Rental revenue was 5% higher than the first quarter last year at $854 million as the non-construction market continues to be strong, particularly in power and HVAC and climate control. primarily impacted by the inclusion of both film and TV and oil and gas, which were not included in the results prior to our resegmentation. Margins especially were flat with EBITDA margin of 48% and an operating margin of 33% as mixed related to high ancillary revenue impacted margin as well as the higher internal repair costs. These headwinds were offset by continued strength and rate and will pay dividends in the back half of the year. ROI was 31%, again, clearly demonstrating the higher returns achievable in the specialty business. Turning now to the U.K. on slide 17, and please note that all of these numbers are in U.S. dollars. U.K. rental revenue was 4% higher than a year ago at $212 million. The U.K. business delivered an EBITDA margin of 25% and generated an operating profit of $16 million at a 7% margin, and ROI was 6%. In line with the 4.0 strategy, we continue to focus on improving the business's operational efficiency and long-term sustainable returns through a broad range of efforts, including footprint realignment, targeted asset sales, and GMA disciplines. Across our North American segments, we've shown the resilience of our business and return to growth and significant cash flow generation while continuing to invest for the future. While our U.K. business continues to be challenged, Our discipline operating model, robust transformation plans, and strong execution gives us a high level of confidence for the future. Combined, our results clearly demonstrate the full power of Sunbelt and the strength of our Sunbelt for auto strategy. Slide 18 illustrates the flexibility and agility of our capital allocation framework. When markets are experiencing the transitory headwinds we have experienced recently, we manage our capital budget to support strong utilization and rate discipline. When markets are more robust, we accelerate capital spending to capture growth and market share. In all cases, we generate significant free cash flow in excess of our investments, which we return to shareholders in the form of dividends, debt repayment, and share buybacks. You see this clearly in fiscal years 2021 and 2025, when we generated around $1.8 billion of free cash flow in both years. And as you can see, we have started the year strongly with over $500 million generated in the first quarter. over three times the level generated in the first quarter of last year. And we're well on track to deliver record-free cash flow generation this year. Slide 19 updates our debt and leverage position at the end of July. We reduced external borrowings by $91 million in the quarter, in addition to the $523 million reduction in borrowings last year. We also returned $332 million through share buybacks at an average price of just over $45 million. As a result, excluded lease liabilities leveraged was 1.6 times net debt to EBITDA, well within our stated range of between one to two times net debt to EBITDA. We expect to be in the 1.5 to 1.6 range at the end of April, including the impact from the share buyback program, but not including any potential impact of M&A activity. While we're speaking of M&A, we have a robust pipeline, which we continue to develop, and generates margins and returns in line with our capital allocation expectations. Turning now to slide 20 and our latest guidance for revenue, capital expenditure, and free cash flow for fiscal year 2026. Our guidance for group rental revenue growth is unchanged at between flat and plus 4%, reflecting the ongoing dynamics in some of our end markets. The plan for gross capital expenditure is unchanged in the range of 1.8%, to $2.2 billion. Finally, we expect free cash flow to be between $2.2 and $2.5 billion, which is an increase of $200 million over June's guidance and reflects the expected cash tax benefit from the reintroduction of 100% bonus depreciation based on our current CapEx plans. And so with that, I'll hand it back to Brendan to close us out.