Ashtead Technology Holdings (LSE:AT.) — Full Year Results

0:00 Good morning, and welcome to the ASHTEAD TECHNOLOGY HOLDINGS PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be dismissed at any time by the q and a tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives, you know, needs itself. Have the company will review your questions today and publish responses when it's appropriate to do so. Before we begin, I'd like to make the following poll, And I'd now like to hand you over to Alan Piri, CEO. Good

0:31 morning to you, sir. Great. Thanks so much, everyone, for joining the call this morning. I'm joined with Ingrid Stewart, our CFO. And together, we'll run you through the results presentation for 2022 and hopefully answer any questions that you've got. Firstly, it's a really exciting time for the business. There's a great opportunity to capitalize on a very positive market backdrop here, and we've got a leading position and really well pleased to do that. But before we get into that, in terms of last year, we had strong revenue growth across all our markets. Headline growth, 31%, 24% of that was organic. We grew our renewables revenue by 22%, and we also grew oil and gas revenue by 35%.

1:20 There was a favorable movement in FX predominantly around US dollar, which added 5.5%, and we had a small uplift from the acquisitions that we did later on in the year. Through the course of '22, we also increased utilization, we improved pricing, and that drove positive movement in gross margin. We're really well positioned to capitalize on the market opportunity that is in front of us. We invested $13,100,000 in the equipment fleet last year, both to increase the breadth and depth of the fleet. We increased our headcount by 27%. We also completed two acquisitions, one in September and the other in December. Both are now fully integrated and both are demonstrating strong synergies and operating really well. And we continue to build out the pipeline that we've been cultivating since 2015.

2:18 In terms of what we're seeing in the end market, we're continuing to see a strengthening in structural tailwinds and a continued positive outlook. Through 2022, there was the emergence of the energy trilemma, a focus on security, affordability and sustainability of, energy. And both all of these trends are favorable to our business. We saw more than a 50% increase in quote volume through the course of last year, and that has continued into 2023 year to date. With, a combination of what we're seeing in the market, the strength of trading through the first quarter, we have increased guidance materially for, the the remainder of this year.

3:12 So as I said, in sort of the opening remarks, we believe we're really well placed to capitalize on the market opportunity that is in front of us. A number of, factors, play into that. The first one being that we've been doing what we do for thirty eight years. We've got the experience and expertise, to do what's required. We've got the biggest independent fleet in the marketplace. We've got over 19,000 items within our fleet. We've got a really strong quality team of folks in our business, two sixty and continue to grow. We can support our customers' operations globally from our 10 locations around the world, which we continue to expand out both organically and through M and A.

4:03 The seven acquisitions that we've done over the last five years has built a market leading capability in both subsea electronics and mechanical solutions. We've got really strong growth in both renewables and in oil and gas. The three service lines that we've got are, really tuned for further growth, both organically and through M and A. We continue to invest in our fleet. And most importantly, we continue to deliver for our customers. So in summary, we know what we need to do. Our strategy is clear, and the team is very much focused on executing the plan. I'd like to turn over to Ingrid, who will talk us through some financials. Thanks, Alan. I'm very pleased to deliver an excellent financial performance in 2022.

4:52 The growth that we demonstrated in the first half of the year continued through H2, resulted in overall revenue growth of 31%. The strong profit performance delivered EBITDA growth of 47% and a margin of 27.5%, and that was due to increased revenues from rental fleet. We maintained leverage despite drawing our facility to fund the two acquisitions that we completed at the back end of last year. On a pro form a basis, our leverage is 0.8 times. Those strong results delivered an earnings per share of 19.6p, a growth of 48% on the prior year. The one disappointment of the year was our TRIR, total recordable incident rate. We had one incident and one recordable during the year, which should increase that to 0.48, but that does not result in any lost time.

5:47 When you look at the 22 figures in the graphs, you can see the revenue and profit growth in the year. The light blue that I've added in there are the performing numbers for the acquisitions that we completed later in the year. So that shows the full year performance from those. On a performer basis, we delivered $80,900,000 of revenue, dollars 34,400,000 of EBITDA and $25,100,000 of EBITDA. So in terms of growth for this year, those are the base numbers for 2022 to Lucon.

6:18 From a P and L perspective, as we said, revenues increased by 31%. We saw growth across all of our geographic markets, and that was driven by higher demand, both in offshore renewables and offshore oil and gas. Our offshore renewables business grew by 22%, and oil and gas saw a strong bounce back at 35% growth. When you split the 31% down, 24% came from organic growth. We had, a good performance as a result of favorable FX, predominantly on the US dollar that contributed to just over 5% of the increase. And then the balance was up from the reported revenue from the acquisitions that we did. Overhead has increased by 39% year on year. This is our first full year trading as a PLC, and so we have some, costs that have been added into the business as a result of being a listed company. We've also continued to invest in our employees, increasing our employee base from 204 to 260 during the year, and we also reintroduced the bonus scheme. And there's more details on there is a slide later in the pack, which you can look at, which shows some of the reason for the increase in overhead. But in terms of going forward again, that's a good base to base the numbers on.

7:32 From a cash flow perspective, we continue to deliver strong cash flow in the year. Our operating cash flow is slightly higher than expected due to working capital. We improved debt days by circa seven days during the year, but the main impact on that working capital is just the timing of creditors, particularly in relation to year end accruals for bonus, timing of CapEx spend. So there was more than than because we increased our CapEx spend, forecast during the year, we had a lot more CapEx at the back end of the year, which resulted in higher creditors as a result of CapEx spend. And there was also some final payments on the HireTech acquisition that were outstanding at the end of December, which increased our accruals.

8:16 From a balance sheet perspective, the main movements in the year, we increased the rental fleet NBB due to the CapEx on the acquisitions that we did during the year. We also increased our intangible and goodwill balances as a result of the two acquisitions. Our increase in trade and other payables, as I said earlier on, were the result of the accruals increase for bonus and some, remaining payments to higher tech in the timing of CapEx. If you look at that on a percentage of revenues basis, you'll see our working capital to revenue percentage reduced to 3%.

8:48 But if you normalize for these things, we would see a 10%, of revenues being more normal, working capital level. So in terms of going forward, this year, we do expect a slight decrease in cash flow as a result of the unwinding of that working capital. From a capital allocation perspective, as I said earlier, we maintained our leverage at one times. But in terms of looking to the future, we have recently increased our banking facility from 60,000,000 to a £100,000,000. We've added ABN and Citi to the group of of banks, and that's about building relationships for the future and building a banking group that can support us for the long term. And they will they've come on in alongside HSBC and Clydesdale who previously supported us.

9:36 That facility now extends out to April 2027 with a one year extend extension. Just in terms of capital allocation, our three priorities remain the same. So number one, organic growth, and we continue to invest in the fleet, as Alan said, pounds 13,100,000,000 of CapEx in our equipment fleet during 2022. We had a budget this year of £15,000,000 of CapEx. We've recently increased that to £20,000,000 and that is a good indicator of where we see the market heading in medium term. We also continue on the M and A path, and we see that as a key growth area for our business, and we'll continue to look at bolt on acquisitions. And then finally, from a shareholder return, perspective, we're delighted to recommend a first dividend, as a biz as a listed business and have recommended a dividend of 1p per share for 2022.

10:27 We've repeatedly, or consistently told, the market that that we would introduce a small progressive, dividend policy, which we've done, this year. Great. Thanks, Matt Singer. So if we turn our attention to the market, we've got very supportive market drop backdrop here. If we start, on the left hand side of the page, for those who have been following the ASHTEAD TECHNOLOGY story, since IPO, this graph will be familiar to you. It's looking at the addressable market for our business across offshore wind decommissioning and, oil and gas. So for the period from 2022 through 2025, 13% CAGR overall. That is an increase from 11% at the time, of the IPO. And in particular, I would draw your attention to offshore wind, 26% CAGR over the same time period, and that is an increase from 19% at the time of the IPO. So our end market continues to strengthen.

11:30 On the right hand side, this is a thirty year chart that shows free cash generation from upstream oil and gas activities. In 2021, there was USD 800,000,000,000 generated of free cash, from oil and gas upstream activities. In 2022, that increased to 1,350,000,000,000. So there is a wall of cash that has been created in the last two years. And you can see from the comments that's been made from the likes of BP and Shell and others in the last couple of weeks as as they've, announced their q one results. There there's significant capital discipline being applied, increased share buybacks, increased dividends, repayment of debt. But we believe that some of this cash will flow through to increased expenditure in oil and gas and also the acceleration of new energy segments, including offshore wind.

12:34 For ASHTEAD, we play both across oil and gas and in offshore wind. Our equipment is highly fungible. We support broadly the same customers from the same location. So we believe that we're ideally placed to benefit from an uplift in activity. Looking at our customers, sometimes, you know, it's really difficult in any business to take a view, from macro to what actually happens, at our at our operating level. But one of the key indicators for the revenue expectations of ASHTEAD TECHNOLOGY is looking at the backlog of our customers. We are not a backlog business, but our customers do have a backlog business.

13:20 And, you know, there can sometimes be significant time lags between signing contracts and starting offshore operations because of the need to do project engineering and procurement and the like before, they go offshore, at which point we get involved. If we take seven customers of ASHTEAD who represent, you know, significant amount of revenue for us, so it's a good representation of the end market. Their backlog increased by 66% in period twenty twenty to 2022. If we split that group between those who work across both oil and gas and offshore wind, being the first five in the legend, they increased backlog by 52%.

14:06 Demi and Prismium, who are wind specialists, increased their backlog by 174% over the same time period. If you look at the voice of the customer on the right hand side of the slide, and just pick down through the words, this all came or all these sentences came from 22 results presentations, record results for PRYSMIAM, record high order book for DME, multiyear growth cycle being pointed to by TECHNOLOGY HOLDINGS FUGROW point to offshore wind developments gearing up, renewed interest in gas, Subsea seven pointed to highest order intake since 2013. Pricing power has returned to the sector. Boscallis, record sorry, order books increased an all time high.

14:56 Side time backlog continues shifting towards offshore. You know, the the theme here is one of a buoyant market that's very much tightening and underpins our confidence in both, you know, this year, but more importantly, in 2425, and beyond. What we're actually seeing in our business is a step up in tendering activity. So again, if we start on the left hand side of the slide and move right, the volume of quotes by value increased by more than 50% during 2022, And that's that trend has continued again in 2023 through Q1, which would traditionally be our quietest quarter due to seasonality.

15:45 What we're seeing from a cost utilization perspective is an increase of 1%, through the course of last year. Projects are running for longer. Project duration extended by 6% last year from forty seven days to fifty days. And if we look at quote duration, this year so far, it has increased by 26% from twenty seven days to thirty four days. Customers are holding on to equipment that is is certainly good from a cost utilization perspective. And that's what leads into pricing. The market is tightening. We have been able to increase pricing both through 2021 and 2022. The numbers on this slide are point to point pricing. So the real view is that we increased pricing by 8% in both of the last two years, albeit they were in different market conditions than we see currently.

16:41 We continue to take a price leadership position and are making, you know, favorable, movement in that direction, year to date. We've got significant amount of business or sorry, data in this business, and we are using that to maximum effect. We use the data that we've got to manage our fleet to maximize return, and we also use the data to manage and track pricing and concessions on a daily basis. With the market backdrop that we see, we continue to position the business for further growth. We increased headcount by 27% last year to two sixty at year end, and we continue to do so through the course of this year so far. We've increased the bench strength of our senior team through three internal promotions and three external hires during the course of last year. And you can see from the logos on the bottom of the page, all of these guys have either come from, competitors or more importantly from from customers. So they've they've all got a depth of experience in the in the market, from competition or customer perspective.

17:57 We increased, we invested 13,100,000 in our fleet, last year. We started this year with a CapEx budget of $15,000,000 of which something like $13,000,000 has been committed year to date, and we've increased that to $20,000,000 now given the market outlook, that we've got. From an M and A perspective, we continue to progress the M and A strategy that we developed in 2015. The strategy is very straightforward. It's very simple. It's to consolidate a highly fragmented market to expand the business, both geographically and through the products and services that we can provide and also expand further into offshore wind.

18:47 What are we looking for? We're looking for firstly companies that have got strong cultural alignment with us, and we see that as one of the key issues in integrating the acquisitions that we do. We're looking for market leading expertise, long term customer relationships, opportunities to grow our service lines and regional capabilities. And ideally, we also want to target acquisitions that have got revenue synergies. Turning to the right hand side, of the page, this is a a graphic that shows, you know, where we believe the opportunities are, both geographically and through the three service lines that we've got and the two end markets. You know, we believe that there are opportunities, you know, across all of these segments, but it's no surprise that the two acquisitions that we did last year are in the mechanical solutions space. You know, that is a highly fragmented space that is ripe for consolidation.

19:49 Turning to the last acquisition that we did, which was higher HireTech. You know, this was an owner managed business established in 2011. 80% of the revenues was coming from rental equipment, of which 70% or or 70% of the revenues were coming from decommissioning and renewables. It's a business that we knew well, because they were one of our key suppliers. So the teams knew each other, which made integration, you know, very straightforward. What attracted us to this business, it was it was, you know, highly complementary to the cutting and dredging business at UCS that we bought in September 2019, and and it was an obvious next step in the development of the group. At the time of the the acquisition we completed in December, last year, at October on a trailing twelve month basis, EBITDA was 4,100,000.

20:46 So we paid £20,000,000 for this business, representing, EBITDA multiple of 4.9 times, and that is very much, you know, in line with what we paid previously. Our average multiple we paid over seven deals is five times. Pleasingly, by the time we got to March 23, EBITDA for this business on a trailing twelve month basis had increased to 5,700,000 or a 39% increase. What we've done since acquiring the business in December is fully integrated, realigned the sales team, realigned the technician team so there's one voice in the marketplace to drive, the synergies across our business, which is consistent with what we've done, with all the other acquisitions, that we've completed to date. And we're now investing CapEx to further expand the fleet to internationalize it through the Ashtab network.

21:47 From an ESG perspective, we've continued to spend a lot of time focusing on the s and g or ESG during the year. But fundamentally, from an environmental perspective, we see, this as a as a strong energy transition play, and and we've continued to increase our exposure in the offshore wind market and growing our revenues by 22, this year. We have, as I said earlier, seen a strong bounce back from oil and gas, but we remain focused on our 50% target of revenues from renewables in the medium

22:17 term. And finally, just in summary, you know, we have got, you know, significant positive momentum in this business. We've got a really strong market outlook. We've got a leading position in what we do. We have traded strongly through the first three months of this year. Activity levels continue to increase. We're getting positive momentum in both utilization and pricing. We believe as a business, we're really well placed to both support the end markets that we've built and accelerate the transition into renewable energy. The refinancing that we completed last month provides additional firepower to continue growing the business both organically and through M and A. And we remain confident in progressing the M and A strategy through the course of this year and beyond.

23:12 So rolling all that out together, the Board expects ITOM for the year to be materially ahead of its previous expectations. Turning to, the questions that's been submitted, to date, and if you've got a question, please, just submit it. First one, how will the move away from fossil fuels affect ASHTEAD technology, and what are you doing to accelerate that move? I think the first point on that is the world needs energy, and it needs to come from all sources. But as a business, we believe we're really well placed to benefit both from the uplift in oil and gas activity and from renewables. You know, last year, renewables, made up 31% of our revenue. If you go back to 2016, that was zero.

24:05 And through that period, we've also deliberately invested in, decommissioning businesses to focus not only in inspection, maintenance, repair aspect of oil and gas, but also at the end of life of oil and gas in terms of decommissioning. So we believe we're really well, placed to benefit from, you know, the the movements in the market. There's a question around, the market forecast for for the current year. We haven't as yet updated the consensus on our website. We're waiting for one, for the analysts to produce their numbers, but we will do that over the weekend. So by Monday, if you look on our investor page, you'll find the the market forecast for for the current year. There's a number of questions around fleet and the, depreciation policies, life of the fleet. So our depreciation policy is four to eight years.

25:01 The majority of our equipment's depreciated over seven years. That is fairly well, industry standard. During the year, we spend around £6,000,000 on maintaining the fleet that goes through the p and l. In addition to that, we would say that around 5 to £6,000,000 of the CapEx that we spend annually is in replacement CapEx. But in in terms of the life of the fleet, some of the fleet can survive, or still continue to generate revenue beyond the seven years, particularly if it's well maintained. So that main maintenance spend that we spend during the during the seven years and and beyond can allow us to continue to generate some revenues, beyond that. And I think one of the questions was, do we see that, as being sustainable? And, absolutely, we do see that as as being sustainable.

25:54 Part of the question, just building on, the comments that's been made by Ingrid, is what level of CapEx is required to maintain and grow the business going forward? Do you want to think about So if we look at our our CapEx spend, last year, 13,100,000, in our fleet. This year, we've just increased our our our CapEx to 20,000,000. Of that, you know, broadly 18,000,000 plus will be spent in our fleet. We would say about 5 to £6,000,000 of that is replacement CapEx and the and the balances for growth. There's a question around the percentage of revenue split between oil and gas and renewables. So last year, 31% of our revenue came from renewables and the balance from oil and gas. The second part of the question is regarding, percentage of our oil and gas revenues that come from decommissioning, that's broadly 15%.

26:51 It's a question about, leverage ratio. So we have a three times leverage ratio on new debt package. Just a a reiteration of what our target leverage is, it does remain the one to two times. That three times just gives us a bit extra headroom in the event we ever need it. But in terms of, any other covenants, the other only other covenant is an interest interest covenant of four to one, and there's no asset base, or springing covenant involved. So next question, who are your competitors, and and how is ASHTEAD delivering a lot relative to them? Across the three service lines, we've got different competitors. So in serving the botox, we've got three main competitors, all private equity backed, Acteon, Unique, and STR.

27:41 In survey in mechanical solutions, the market is very fragmented. So we've got different competitors, in terms of dredging, in terms of cutting, ROV tooling. And in asset integrity, there's nobody really doing what we do. Our biggest competitor is actually our customer because they own significant, fleets of equipment. But one of the challenges that they have is around maintaining and operating that fleet. The easy thing to do in our business is to is to buy equipment. The much harder thing to do is to make sure that you've got the people, the processes, and the systems to manage that equipment, to put it in the right place at the right time, in the right configuration.

28:30 And we believe, you know, we've got through the combination of the the biggest independent fleet in the market, the quality of our team, the systems, the processes, the data that we've got in the business, and the relationships that we've got with the customer gives us a leading position in everything that we do. I think that was it. Probably other questions, I don't know if there's any more to come. No. Alan, Ingrid, thank you very much. I think you actually managed to address every single question from investors. And, of course, the company will review all the questions submitted today, and we'll publish those responses on the investor meet company platform. But just before redirecting investors to provide you with their feedback, which you know is particularly important to both, Alan, could I just ask you for a few closing comments? Yes. Thanks. Thanks, everyone, for joining the call today.

29:18 You know, I think the the one thing that we would emphasize is the great market opportunity that we've got in front of us that, hopefully, you'll have picked up through the presentation. You know, there is a strong growth runway in in front of us. We believe that we've got market leading position. We're doing the right things. Our strategy is our strategy is clear, and the focus is on executing the plan. Our performance since we came to market in 2021, you know, has been strong, And we believe that we've got the momentum, the market conditions, and the plan to continue, on that growth journey in the months and years ahead. So thank you very much for following NASH technology story.

30:10 Alan, Ingrid, thanks you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of ASHTEAD TECHNOLOGY HOLDINGS PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.