Ashtead Technology Holdings Plc (AT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the H1 2026 results presentation. I'm Allan Pirie, I'm the CEO, and I'm joined this morning by Ingrid Stewart, our CFO. I'll start with our results overview and some highlights, I'll then pass to Ingrid who will provide a more detailed review of the financials, after which I'll talk about the market and operational review. Following the presentation, we'll open the floor to Q&A. So we could skip the first slide. During H1, the group delivered revenue growth despite short-term headwinds, impacting trading while long-term opportunity remains strong. In a challenging market compared to the prior year, revenue increased by 1.1% and to GBP 100.2 million, being a 1.7% increase on a constant currency basis. Revenue generated from renewables decreased by 2%, reflecting globally softer market conditions. Adjusted EBITDA margin at 25% reflects revenue mix and net debt reduced by GBP 15 million in the period with leverage reducing to 1.4x, which is the lower half of our targeted range of 1 to 2x. These financial result demonstrate the strength of our differentiated global services model and our scale diversified footprint. We continue to make strategic progress through the first half. We're building an increasingly sophisticated and diversified business through our unique portfolio of equipment and services and global footprint to serve the global offshore energy industry across the full life cycle of subsea infrastructure. We acquired Seadraulics creating a strategic footprint in Australia to accelerate growth in that market. We consolidated 3 U.K. Mechanical Solutions operations into 1 creating a global center of excellence to better serve our customers and we continue to build our capability, investing GBP 25.9 million in technology for the long term. Turning to outlook. In our trading update on 20th of August, we disappointingly noted the ongoing conflict in the Middle East and project slippages, which will impact revenue growth in H2. Confidence in the long term, market fundamentals remain strong, with our addressable market forecast to grow at 6% CAGR and through 2029, supported by customer backlog and their opportunity pipelines. Turning to the next slide. We're building unrivaled capability while delivering sector-leading financial performance. So what are the technology differentiators. We're a trusted partner. Service failure offshore carries significant financial consequences leading customers to prioritize reliability, track record and trusted supplier relationships over marginal pricing differences. We have supported all of our top 10 customers for over a decade. We're deepening our service mode. -- increasing focus on integrated solutions and beds Ashtead Technology into customer projects, derisking their execution. We're accelerating in-house innovation. The majority of our Mechanical Solutions and Asset Integrity equipment is designed engineered and assembled in-house, which can be easily bought or replicated by competitors. We have global reach. We support our customers globally with the world's largest independent subsea equipment solutions fleet. And our offering is highly fungible. Our mission-critical flexible service supports offshore construction, inspection, maintenance, repair and decommissioning, giving the business exposure across the full life cycle of subsea energy infrastructure for both oil and gas and offshore wind. If we look at the chart, over the last 10-year period to 2025, we have scaled our business organically and through 10 acquisitions, delivering revenue CAGR of 30% adjusted EBITDA CAGR of 32% and adjusted EBITA CAGR of 67%. Whilst we have a long-term growth track record, growth will not be linear and 2026 has proven to be a challenging year, but the long-term opportunity remains strong in the platform we have provided a great opportunity to drive financial performance and further scale this business. I'll now turn it over to Ingrid, who will talk you through the financials.

Thank you, Allan. Good morning, everyone. While disappointing, our financial performance in the first half has been resilient given the challenging market backdrop. Our revenue of GBP 100.2 million is 1.1% up on prior year and 1.7% up on a constant currency basis. Our adjusted EBITA of GBP 25.1 million represents a margin of 25%, which falls short of our target of high 20s and is below the 27.3% achieved in the comparable period last year. This is a result of a higher proportion of our revenues coming from non-rental areas and an increase in our depreciation costs as a result of recent investment. Our adjusted EPS of [ 20.6 ] is down 6% on prior year. But as a reminder of where we've come from since IPO, this is 2.5x what we have delivered 4 years ago in 2022. Our return on capital remains ahead of our cost of capital and our internal targets at 2.5%. Our balance sheet remains strong with half year leverage at 1.4x. Our revenue growth of 1.1% comes from oil and gas, which saw a 1.9% increase year-on-year with our renewables revenue shown a small drop of $0.4 million, representing a decline of 1.6%. On a regional basis, we've seen a solid performance from our European business, which has grown by 7.5% year-on-year, with all 3 business lines performing well in this region. In the Americas, revenues have increased by 2% year-on-year with a strong performance in Survey and robotics and Asset Integrity, offset with lower Mechanical Solutions revenues due to project timings. As previously flagged, our Middle East business has seen some impact from the conflict with a reduction in revenues of 7% being a more robust performance than initially feared at the start of the conflict. The largest lag comes from our APAC business, which is down 30% year-on-year, in part due to H1 2025, including revenues from the larger decommissioning project and slower offshore renewables activity in 2026. Our EBITDA margin at 37.8% remains within a high 30% target. Our EBITA margin of 25% is below target, as I said earlier, due to the impact of the higher depreciation charge due to investment in CapEx. Our adjusted profit after tax of GBP 20.8 million compared to GBP 21.6 million in the comparative period last year and represents an adjusted basic earnings per share of [ 20.6p. ] We've maintained our strong balance sheet with leverage currently at 1.4x in the lower half of our target range. While short-term headwinds prevail on trading, long-term growth opportunities remain strong for our business and we continue to invest for future growth through investment in CapEx and inventory with a particular focus on our manipulator repair and cable modern activities that we acquired through the Citronic and J2 Subsea acquisitions. And on building a stock of proprietary Ashtead items for sale. Our opening net debt was GBP 109 million, representing leverage of 1.3x. We've utilized our free cash flow and RCF to continue to invest in both organic growth and acquisitions, spending a combined GBP 27 million on these growth initiatives in the first half. We've also witnessed our working capital outflow in part due to seasonality and in part due to investment in inventory and timing of CapEx spend. As a result, our net debt has increased slightly during the period, but is expected to reduce to the seasonally cash positive second half. Our net debt leverage is expected to reduce to 1.3x at the year-end. I worked well too much on our cash flow slide as much of this has been covered by my previous commentary. Whilst our operating cash flow conversion remained strong at 79%, we've reduced our free cash flow conversion due to timing of CapEx spend and higher tax payments in the period. Touching briefly on our working capital, we've seen a steady increase in the percentage of working capital against LTM revenues, which is in part due to investment in inventory. Our working capital can also fluctuate due to timing of CapEx spend. Our internal target is 17% of LTM revenues. On capital allocation, there is no change to our strategy with priorities focused on investing for growth and maintaining our leverage within the target 1 to 2x range. Our business has grown significantly over the past 5 years falling over GBP 270 million of investment in both CapEx and acquisitions, which has delivered a 3.7x increase in our EBITA. We have sustained high returns with ROIC in the 20% and continue to deliver industry-leading margins. All of our investments to date have been funded through free cash flow and RCF whilst maintaining low leverage. As mindful current performance, going forward, we see the opportunity to continue to invest utilizing our sustainable and growing operating cash flows to fund the growth in our business and to capture the opportunities within a growing market. In line with prior years, the board has not proposed an interim dividend and intends to continue with its annual small progressive dividend policy. I will now pass you back to Allan to give an update on the market and operational review.

Great. Thanks, Ingrid. So the market continues to provide a strong growth runway for the business. The Middle East conflict and prolonged disruption in the state of Hormez likely reshape global energy markets and forced governments to prioritize energy security, resilience and supply diversification. At the same time, as energy demand is increasing. Ashtead Technology addressable market is forecast to grow by 27% to GBP 3.4 billion by 2029, at 6% CAGR. Starting with the left-hand graph. Despite recent headwinds, the offshore wind market is forecast to grow at 10% CAGR through to 2029. Offshore wind activity has been slow this year, but it is forecast to increase as we move towards the end of the decade, and offshore activity related to recent auction awards starts to increase. Oil and gas and spectrum maintenance, payer and construction work is forecast to grow at 4% CAGR through 2029. Oil and gas is an important part of the future energy mix with stronger demand forecast for decades to come. If we look at the right-hand chart, this graph shows the key regional addressable markets for Ashtead Technology. which are global excluding China. We support our customers' operations across the key offshore regions, and we are well placed to benefit from the forecast growth. As we continue to build out our business, geographical expansion is a core theme and establishing a footprint in Australia through the acquisition of Seadraulics in June is another step forward. With a platform we have built our team's domain knowledge and expertise and through the deep domain value we deliver to our customers, we are very well placed to benefit from the long-term growth across all our key markets. Turning to the next slide. Spend a new offshore energy infrastructure forecast to increase over the next few years. In terms of oil and gas, greenfield oil and gas CapEx is forecast to increase to GBP 139 billion per annum through to 2029, up from a historic average of GBP 101 billion. Whilst there will be a time lag between projects being sanctioned and that translating into work, for Ashtead Technology. This increase in forecast spend supports our growth ambitions for the business. In terms of offshore wind, despite a new market reality for offshore wind and which headwinds persist, evident by muted project FIDs, field tenders and developers exiting developments, the long-term structural case remains intact. Offshore wind expected to play a key role for European countries, underpinned by heightened energy security agendas and the drive to diversified energy sources. Europe installed capacity is forecast to double from 37 gigawatts to 71 gigawatts by 2030. Globally, the number of operational wind farms, excluding China, is forecast to increase from GBP 203 million to GBP 312 by 2030, an increase of 54%. The medium-term market forecast outlook for the offshore energy market is strong. Turning to the next slide, customer backlog. Subsea activity for the next 3 years is evident through customer backlogs, which are multiyear. The left-hand chart shows the backlog of 7 subsea contractors and how that's changed since 2020, increasing from GBP 36 billion to GBP 84 billion. These customers account for just under 40% of our revenue. Q2 2026 backlog is 3% lower than December 25, due in part to timing of contract awards. While Subsea 7 and Technip backlogs remained stable at high levels, CIP's backlog is 15% lower compared to the year-end at December 25. Saipem in our Q2 trading update noted our confidence that 2026 order intake will exceed that of 2025. On the right-hand chart, the opportunity pipeline for Technip, which is on a 24-month basis, and Spin on an 18-month basis, both continue to increase, pointing to a backlog rebound in 2027. From this multiyear customer backlog, we expect a strong pipeline of revenue opportunities. Turning to geographical expansion. Geographic and service line capability expansion are cornerstones of our strategy to better support our customers and to position Ashtead Technology as an integrated solutions provider. There are growth opportunities to expand our service capabilities across both geographical and end markets. Survey and robotics will continue to benefit from increasing customer propensity to rent. Significant opportunities exist to expand our mechanical solutions capability by internationalizing what we already have. We are continuing to make progress building out our U.S. capability, having opened a facility in Houston last year and we took possession a new mechanical solutions facility in Norway yesterday. Asset Integrity has opportunities to add significant value to customers globally through consultancy services, own product development and deployment of niche technologies. And if we look at end markets, oil and gas continues to provide an excellent opportunity for our business globally. Offshore wind opportunities will likely be restricted to Europe and Asia in the short term with policy disruption slowing U.S. growth. We're delighted to have acquired Seadraulics in June this year. Wilsor equipment is highly mobile for certain regions having boots on the ground will allow us to further increase market share. We have supported the Australian market from Singapore for over 30 years, but our customer proposition and the market opportunity has changed. We have listened to our customers and now is the right time to establish an operation in country. The acquisition of a small ROV tooling operations creates a platform to accelerate the build-out of a full service Ashtead Technology capability in Australia and at the same time, strengthen our RV tooling capabilities globally. We continue to cultivate these type of M&A opportunities, which act as catalysts of change to better support our customers. In terms of Mechanical Solutions, firstly, the history lesson. The foundations of our Mechanical Solutions offering was created through the acquisition of 3 market-leading businesses. UCS was acquired in 2019 and for its specialist underwater cutting capabilities and its range of tools have been significantly expanded through in-house design and CapEx over the last few years to be the market leader in sea floor clearance operations. Higher tech was acquired in 2022 for its back deck power and pumping capabilities, which supports both direct customers and complements our cutting and lifting operations. And as Winches was acquired in 2023 for its lifting pooling and deployment capabilities. Which has allowed Ashtead Technology to provide the market with a fully integrated back deck support proposition. Each of these businesses were successful in their own right. We are harnessing that and creating something new and differentiated. Looking ahead, everything that we do at Ashtead Technology is customer focused. To enhance our ability to win, deliver and support integrated project, it made sense to further integrate our U.K. Mechanical Solutions capability on 1 site which is a natural next step given the evolution of our service offering. This consolidation took place very recently, but we have already seen the benefits of a one-team approach in better communication across our technical specialists, and is also delivering efficiency in operations through consistency of standards and approach. The key benefits, however, are customer-related, greater visibility of our capabilities, reduced points of contact, reduced equivalent interface risk and the benefit of offshore team cross-training leading to cost reduction and less people offshore. As we bed in this new consolidated operation, we look forward to 2027, we're in a far better place to support our customers. And then finally, to outlook, the Board's expectations for the full year remain in line with those set out in our trading update on 20th of August. We've got clear growth strategy, and we're executing the plan. Our unique service offering is highly differentiated, adding real value to our customers. The market we operate in has got strong fundamentals, as we've seen representing attractive multiyear growth opportunities. High multiyear customer backlogs create a strong sustainable revenue runway for us and our highly flexible business model is creating multiple geographic and end market opportunities. With continued focus on strong cash generation, balance sheet strength and disciplined capital allocation. We are well placed to further our growth strategy, both organically and inorganically. Thank you for listening, and now we're happy to take questions.

Thank you to the management team for the presentation. [Operator Instructions] Glad to start with the first question. Which part of the business are growing fastest at the moment? And where do you see the biggest opportunity?

Thank you. Good morning, everybody. Just in terms of answering this question, I'm just going to walk through to the regions in terms. So in Europe, we actually saw the biggest growth in the first half. So just over 7%, excuse me. That's not necessarily coming from the U.K. I think 1 of the things that's a little bit misunderstood around Ashtead's segmentation is that the way that we segment the business is where the business works actually kind of run from rather than where it actually takes place. So a lot of the growth that we're seeing in Europe is actually coming from West Africa and Brazil and places like Guyana, et cetera. So not necessarily from the U.K. as such. And we've also, in recent years invested quite significantly in our Norwegian business. And we've seen some great growth over the last few years, and we see great opportunities ahead in that region. Turning to Americas. 2% growth in the first half of the year. We've actually seen some really good growth in our survey and robotics business. That's been offset a little just because of project time outs on our MS side. But we have been investing in our MS capability and seen an opportunity to localize the business there because when we bought as ventures, they had a strong presence or not presence, but they actually had strong revenues coming from Americas that they didn't have a presence. So we've been investing in our Winchers capability in that region, and we see a really good opportunity there. In the Middle East, obviously, that business is impacted this year, particularly because of the conflict we're down 7% year-on-year. But in terms of that region, we have been spending a lot of time and investment build in our mechanical solutions capability, and we see a really good opportunity, particularly once things settle down with a conflict, we can see there's a great opportunity ahead for us in the Middle East. And then finally, turning to APAC, that business is the biggest lag, as I said earlier in the presentation, we're down 30% year-on-year on revenue. We had a couple of projects in Taiwan that didn't happen in renewables sector, but it's also been a slightly quieter region for us, but we just thought the business Seadraulics in Australia, we see a fantastic opportunity to build out our capability there. There's a great opportunity coming for us, particularly in decommissioning in that market, and we see that, that could be a strong area for growth for us in the future.

Moving on to our next question. I think this is directed Allan, how long do you feel you both have left in -- both have left in as leaders in Ashtead Technology. You are doing a great job. Are you thinking 5 years, 15 years or maybe holding hope for 50 years?

Well, I'll be delighted if I'm still on this planet in 50 years' time. But joking aside, I'll let Ingrid give her answer to this question. But I joined Ashtead in 2009 as CFO. I became CEO in 2012. So I've spent coming on to 17 years in this business, but it feels as though we've just got started. One of the graphs that we had -- in the presentation, the second graph showed the 10-year track record that we've had since 2016 through '25, revenue CAGR of 30%. Adjusted EBITDA CAGR at 67%. There is so many opportunities out there. And it's just -- it's an exciting business to be involved in. If anyone's interested in how old I am, it's pretty easy to work it out, put it into ChatGPT and the answer is 53. So I feel as though we've still got plenty of years in the tank, and I'm excited to be here, excited to see what else we can do with the business.

And likewise, I'm slightly younger than Allan, but not by much. I've been here for 5.5 years. It's been an incredible journey. We've obviously IPOed the business. We moved to me. We've done a number of acquisitions. There's always something new happening and exciting happening in Ashtead Technology and when you look at the market opportunity in front of us, it just feels like we've got a really, really great platform to move forward. So we've got -- I've certainly got no intention to move on.

I think just to finish that question off, never underestimate is the benefit of how corporate memory in the business -- in the senior management team. I think we've built the senior management team likes here quite a bit over the last few years. [ Brendan Stranger ] CEO, has been with us for 7, 8 years line. We've got a strong management team. But actually having that length of service and having the memory of what's been successful and not successful in the past and having applied that to day-to-day operations and also strategic views that we've got in the business, I think, will deliver -- has delivered value and will continue to deliver value into the future.

Brilliant. We'll move on to our next question here. what do you think the market is currently underestimating about Ashtead Technology?

That's a good question. I think I'll go back to the track record slide that we spoke about in the last question. We have got strong track record of building growth in this business. We've got unparalleled capability in the sector is completely unique in terms of capability, strength, size of fleet, quality of team. One of the challenges of being a public market is growth is never linear. 2026 has been a difficult year. We a conflict in the Middle East. Last year, we had U.S. tariffs and the U.S. market or offshore wind market in the U.S. slowing down. So I think sometimes the market can be quite short term is sticky. But I think our job here is to drive shareholder value with a medium and long-term view, not get distracted by short-term headwinds. And and push through. So I think we would just remind everyone of the strategy that we've got in this business, it was first put together in 2015. It's been nuanced since -- it continues to be challenged and refined. But fundamentally, this is about continuing to do, but we've done very, very well for quite a period of time line.

Brilliant. And next question, can you quantify the impact from the Middle East, please?

So I mean year-on-year, we're down 7% in the half year just GBP 0.6 million. So it's not really a lot. And actually, the business performance has been pretty resilient compared to what we feared it could have been when that kicked off. I think what's missing in that number and what you do and see is what the opportunity was as we were coming into the year. So we expected pretty significant growth in the Middle East, partly because of the stuff I was talking about earlier around the event that we've made in Mechanical Solutions, but also in our more traditional survey analytics business as well in that region. And on top of that, it was felt when we put the budget together, there was quite significant upside. So we kind of also felt a bit headroom in. So that bit has really been chopped off as a result. But as I said, we're actually -- it's disappointing to go backwards in any region. But given the backdrop that's happened in there, I think we're actually quite pleased with the performance of that business. But in terms of the opportunity going forward, it is very significant.

I think the thing I would add to that is our team in the Middle East has done a tremendous job this year in what has been very [indiscernible] situation certainly around Easter time and the performance that we've had year-to-date in that market is very much linked to that.

The next 1 here is, is M&A still a key part of the growth strategy?

That's an easy answer, yes. But maybe I can just expand on that. We've done 10 acquisitions in the last 10 years. We see M&A as being a way to expand capability. We started this business or if we go back to 2016, we had a Serbian abiotic business. We've added 2 service lines. The recent acquisition, I think Seadraulics is not the biggest business we'll ever buy. That we've acquired a really good team. We've acquired a facility. We've acquired infrastructure and customer relationships, which, for us, is a root to accelerate our access into that market. So it should just be -- I think everyone should just think of this as a continuation of the ongoing fee which is continue to consolidate a fragmented market, continue to expand geographically and continue to add products and services to the portfolio mix through both M&A and organic growth.

Moving on to the next question. How do you seeing stronger opportunities in offshore wind elsewhere to offset Taiwan?

I think it's -- like in Taiwan, we had 2 projects that we had budgeted for earlier this year, both of which did not go ahead. So we didn't lose that work if the work just simply didn't happen. If you want to look for bad news in offshore wind, it's pretty easy to find it. There's been field tenders, there's been field auctions. There's been developers walking away from developments. However, Offshore wind is a key growth driver for us. You see the opportunities in Europe and in Asia. Our simple view in the U.S. is that until there's a change of administration, but there won't be too much movement in that market. It's been forecast to grow at a strong CAGR. We also feel that we're in a bit of a bad, tough moment at the moment. Where we get the vast majority of our revenue from offshore wind is around site characterization, installation and maintenance or installation and construction support. And we do see a ramp-up in that market in '27, '28, '29 as recent auction awards or the results of recent auction awards goes into the offshore phase and infrastructure starts to get built out. So we absolutely see a great opportunity in offshore win 25% of our revenue comes from the market but the timing of the uplift might be a bit sensitive in the short term.

We have here with CapEx running well ahead of depreciation. Are you close to the peak of your investment cycle?