Ashtead Group plc

Hello and welcome to the Ashton Group PLC Q2 Results Analyst Call. I will shortly be handing you over to Brendan Horgan and Alex Pease, who will take you through today's presentation. There will be an opportunity for Q&A with a limit of two questions per participant. For now, over to Brendan Horgan at Ashton Group PLC.

Thank you, Operator, and good morning. Thank you for joining everyone. and welcome to the ASHTED group half one and Q2 results presentation. I'm joined this morning by Alex Pease and Kevin Powers with Will Shaw on the line from London. Let's get into it, beginning as usual with safety on slide four. I'll begin by addressing our Sunbelt team members to specifically recognize their leadership in the health and safety of our people, our customers, and the members of the communities we serve. Our total recordable incident rate and lost time rates that you see here continue to be best in class. However, despite these results and momentum behind our Engage for Life program, there are incidents that remind us there is never a finish line in safety, rather improvement milestones, nor is there room for complacency. With this said, I'll share with our team members that in 2026, we'll be taking on a significant effort to conduct Engage for Life culture and compliance assessments at every one of our branches. These third-party reviews will address local health and safety compliance, leadership engagement, along with a deep dive into the systems and programs our locations have in place to manage tasks that could potentially lead to a serious event if not controlled properly. The safety of our team will always be the top priority at Sunbelt, and this will be one of the most important initiatives that we have in calendar year 26. So, thank you for your dedication and engagement thus far, and in advance for welcoming these assessments in the months to come as we continue to pursue perpetual improvement in our safety culture. Turning now to slide five. The key messages you'll hear from Alex and me today are the following. First, This is a solid set of results in line with our expectations with group rental revenue growth at 2% for the first half and 1% in the second quarter, despite a non-existent hurricane season compared to an active period in the second quarter last year. On an underlying basis, growth in the second quarter was 3%, a sequential improvement from the first quarter. Second, the strength of free cash flow after CapEx investment in fleet and business expansion demonstrates the through-the-cycle free cash flow power of this business at our scale and margin, generating $1.1 billion of free cash flow, which is a 164% growth on last year. Third, while our key construction and markets remain mixed, we're seeing signs that the local non-residential market is now in equilibrium, in terms of completions and starts, as well as continued positive momentum, many of our internal and external leading indicators. Mega project activity continues to be strong, and we're winning share across our regional and national strategic customers. Fourth, our strong free cash flow generation has enabled us to return over $1 billion to shareholders in the half, through dividend payments and share buybacks, and we've announced today a new share buyback program of up to $1.5 billion that we intend to commence on March 2nd, which will follow on from the completion of the existing program and will coincide with our expected relisting date on the New York Stock Exchange. And finally, we are confident in reaffirming four-year guidance for rental revenue growth, CapEx, and free cash flow. Moving on to the financial highlights of the first half on slide six. Despite the quiet hurricane season, group rental revenues were up 2% in the first half, consistent with the 0-4% guidance we gave in September. The leading indicators, both internal and external, that we track have continued to trend positively. And therefore, we remain cautiously optimistic that these trends in our business will continue and are early signs of the local non-residential portion of our end markets recovering. As when they do, we will experience accelerated momentum and improved results. Group adjusted EBITDA was $2.7 billion at a 46% margin. As we explained in the Q1 results, these margins reflect the mixed effect of higher ancillary revenue, the proactive repositioning of our fleet to drive utilization and unlock pockets of growth, and increased repair costs as a larger portion of the fleet comes out of warranty coverage. From a capital allocation standpoint and in line with our Sunbelt 4.0 priorities, we invested $1.3 billion in CapEx focused on a mix of replacement and growth. Free cash flow in the six months was just over $1.1 billion, which is a record. demonstrating the resilience of our business while we continue to invest in growth. The strong free cash flow is supporting the current $1.5 billion buyback program, which we are on track to complete by the end of February 26th, before commencing the new $1.5 billion program that I've just referred to. Moving on to our segmental performance on slide seven. As I've already mentioned, performance in the second quarter was impacted by a very quiet hurricane season compared to Q2 last year, when we reported that hurricanes had contributed $55 to $60 million in incremental revenue. Rental revenue on a billions-per-day basis for General Tool grew 2% in the second quarter and 1% in the first half, 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-res construction market through the first half, offset in part by the ongoing strength of the mega project landscape and the broader non-construction markets. Specialty growth is more impacted by lower hurricane activity with growth in the quarter flat. Adjusting for the hurricane impact, underlying growth in specialty was 5%. The strength in specialty segments was broad-based, led by pattern HVC, temporary fencing, structures and walls, and trench safety, all delivering strong growth in the half. On a constant currency basis, UK rental revenue was down 2% in the quarter, reflecting the ongoing challenges in the UK and markets. As a response to this, and consistent with our 4.0 strategy, we're undertaking a series of one-time restructuring actions, including location consolidation, people transitions, exiting non-core lines, and G&A reductions. These actions will enable better service to our customers, unlock value, deliver sustainable double-digit return on investment, and produce consistent free cash flow while continuing to lead as the premier rental platform in the UK. Alex will cover the financial implications of these actions shortly. Slide 8 shows fleet on rent for North America over the last four years. You can clearly see that our efforts to drive growth with existing fleet has resulted in improved time utilization. This supports a more constructive rate environment and contributes to our strong ROI. It also demonstrates our disciplined and flexible capital allocation approach. Over the next couple of slides, we'll cover the activities and outlook for the North American construction and market. On slide nine, we set out the main leading indicators for the construction sector, namely Dodge Starts, Dodge Momentum Index, the Architects Billing Index, and Fed Funds Rate. The outlook for construction growth continues to be underpinned by megaprojects and infrastructure work, which remains strong and in many cases gaining further momentum. We made great progress in mega project wins in the first half with a growing funnel of future projects and advancing market share with our strategic customers, both regionally and nationally. Exercising the cross-selling power across the specialty and general tool businesses, as well as the advantage of Sunbelt's significant breadth and depth of products, solutions, and expertise is a strategic differentiator. Combine this with a technology suite, that is second to none, creates a platform that can deliver world-class customer experience, efficiencies, and value across a wide range of complex applications. As it relates to our local non-residential end market, we remain in a moderated environment. However, as I flagged with the Q1 results, both our internal leading indicators, such as quotations, reservations, and continuing contract activity, and key external indicators are encouraging. The DOC Momentum Index in particular remains near record highs. Just to remind you, this index represents non-residential projects excluding manufacturing that are below $500 million and entering the planning phase for the first time, and is therefore representative of future velocity in what we refer to as the local non-residential construction market. This clearly indicates ongoing strong planning activity across our non-res construction markets will lead to an increase in starts, likely within a period of 12 to 24 months. So while clearly positive leading indicators, it may take some time for this planning to translate into project starts. When it does, as we've said, we are poised to benefit. On slide 10, you can see how these starts forecast translate into the latest Dodge put in place forecast and the S&P forecast for the North American rental market. As we expected, Dodge's September report lowered their forecast for construction excluding residential by 2% for 25 and 3% for 26. Although we've not updated the mega project slide, which you can find in today's slides, appendix number 37, I can confirm that the outlook for ongoing growth in the megaproject space is strong, as new project plans are entering the funnel often. Further, the makeup of projects is broad in sector and geography. And finally, the team's done a great job year-to-date, winning more than our fair share, and are very active in current RFPs. More details to come in this megaproject landscape in March. Before I hand it over to Alex, I'll just touch on our Sunbelt 4.0 strategic plan on slide 11. We're now six quarters into a 20-quarter plan. As I previously mentioned, our team has been laser-focused on advancing each of the five actionable components, which are customer, growth, performance, sustainability, and investment. Well, I'm not going to give you a further detailed progress report today, I will say that our clarity of mission throughout the organization is certain, and our momentum is building. We'll share more detail as we progress through the year, and in particular, during our upcoming Investor Day this coming March. With that, I'll hand it over to Alex to cover the financials in more detail. Alex?

Thanks, Brendan, and good morning, everybody. Starting with the second quarter results for the group on slide 13. Group total revenue and rental revenue both increased 1% in the quarter, reflecting the impact of the quiet hurricane season that Brendan has already mentioned. Adjusting to the impact of the hurricane, underlying rental revenue growth in the quarter was around 3%. The EBITDA margin and EBITDA margin continue to be strong at 47% and 27% respectively. In line with the Q1 performance, the slight drop in margins primarily reflects the fact that top-line growth is being driven by higher activity levels in both the megaproject space and large strategic accounts, as opposed to the more transactional business, as well as a planned repositioning of fleet to drive both growth and utilization. Margins have also been impacted by a higher level of ancillary revenue associated with the growth in the non-construction markets, an increased level of internal repair costs with a greater portion of our fleet out of warranty coverage, just as we expected, and lower gains on disposals of used equipment. Adjusted for depreciation at $592 million was up 1% matching rental revenue growth as the challenges associated with the slight overfleeting of the industry has evaded. At an interest expense of $133 million, reflecting lower average debt levels, adjusted pre-tax profit was 4% lower than last year at $656 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. These costs amounted to $19 million in the quarter and $32 million in the first half. In addition, we've taken a one-time exceptional charge of $37 million in the quarter relating to the restructuring of the UK business that Brendan has already mentioned. The bulk of this charge is non-cash in nature, and the full scope of the actions taken in the year are expected to be cash accretive. Adjusted earnings per share were up at 116.8 cents, reflecting the benefits of the ongoing share buyback program and ROI, strong 14%. Slide 14 shows the first half results in a similar format. Rental revenue growth in the half was up 2% and up 3% on an underlying basis, adjusting for the lack of hurricanes. The EBITDA margin and EBIT-A margin remained strong at 46% and 26% respectively. Adjusted PBT was down 4% and adjusted EPS down 1% for the half. Slide 15 illustrates group revenue and EBITDA progression over the last five years, and in the first half, highlighting significant track record of growth and margin strength over a range of economic conditions. Turning now to the individual segments. Slide 16 shows the performance for North American General Tool. Rental revenue for the first half grew by 1% to $3.2 billion, driven by improved volume, time utilization, and stable rates. Excluding the hurricane-related impacts, rental revenue increased about 3% in the first half. As I explained previously, margins were impacted in the half, primarily by growth being driven by higher activity levels. EBITDA was $1.8 billion at a strong 54% margin. Operating margins were 33%, and ROI was 20%. Turning now to North American specialty on slide 17. Rental revenue was 2% higher than the first half of last year at $1.8 billion, as the non-construction market continues to be strong, particularly in power and HVAC, climate control, and flooring solutions. On an underlying basis, adjusting for hurricanes, rental revenues were up around 5.5%. Margins in specialty were broadly flat, with EBITDA margin of 48% and an operating margin of 33%. ROI was 31%, again, clearly illustrating the higher returns achievable in the specialty businesses. Turning now to the U.K. on slide 18, and please note all of these numbers are in U.S. dollars. U.K. rental revenue was 3% higher than a year ago at $422 million, benefiting from favorable FX movements. The U.K. business delivered an EBITDA margin of 26% and generated a of $35 million at a 7% margin. ROI was 5%. As Brendan has already mentioned during the quarter, we commenced a restructuring of the UK business, better positioning it for the future, and aimed at delivering improved margins and returns at a sustainable level while positively impacting the customer experience. This involves aligning the network of locations to current business needs, right-sizing the staff, and disposing of non-core fleet and business lines, including the sale of the UK hoist business in October for $16 million. Slide 19 illustrates the flexibility, resilience, and agility of our capital allocation model. When markets are experiencing transitory headwinds, we have experienced over the last few quarters we remain disciplined in our deployment of capital to support strong utilization and rate discipline. When markets are growing more rapidly, we accelerate capital spending to capture opportunities 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 the fiscal years 2021 and 2025, and we have started this year strongly with $1.1 billion generated in the first half, a record and significantly ahead of the comparable period of last year. We are well on track to deliver record-free cash flow generation for the full year. Slide 20 updates our debt and leverage position at the end of October. This, again, clearly demonstrates the strong cash generative characteristic of the business as we have lowered net borrowings by over $500 million in the last year to $7.6 million. This is despite the fact that we returned over $1 billion to shareholders in the half through ShareViveX and dividends, invested $1.3 billion in CapEx, and invested $143 million on seven bolt-on acquisitions. In addition to that, we opened 22 grain fields in North America, of which 12 were in general tool and 10 were in specialty, with a clear line of sight to achieving around 60 grain fields in the full year. As a result, excluding lease liabilities. Leverage 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 activity, but not including any potential impact of additional M&A activity. On the M&A front, we have a robust pipeline, which we continue to develop and pursue opportunistically as long as it is accretive to growth and generates margins and returns in line with our capital allocation expectations. Turning now to slide 21, our latest guidance for revenue, capital expenditure, and free cash flow for fiscal year 2026. We're pleased to reaffirm the guidance that we gave in September. Our guidance for group rental revenue growth is between flat and plus 4%. The plan for growth capital expenditure is in the range of $1.8 to $2.2 billion. And finally, we expect free cash flow to be between $2.2 and $2.5 billion. And with that, I'll turn it back to Brendan to close us out.