Ashtead Technology Holdings Plc (AT) Earnings Call Transcript

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 the 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 if we could just go to 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% 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 EBITA 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 target range of 1 to 2x. These financial results 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 a 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 one creating a global center of excellence to better service our customers, and we continue to build out group capability, investing GBP 25.9 million in technology for the long term. Turning to outlook. In our trading update on 20th of August, we disappointedly 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 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 Ashtead 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 moat. Increasing focus on integrated solutions embeds 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 into 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 and the platform we have provides a great opportunity to drive financial performance and further scale this business. I'll now turn it over to Ingrid, who will talk us through the financials.

Thank you, Allan. Good morning, everyone. Whilst 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 nonrental areas and an increase in our depreciation cost as a result of recent investment. Our adjusted EPS of 20.6p 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 20.5%. 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 showing a small drop of GBP 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 Tapti decommissioning project and slower offshore renewables activity in 2026. Our EBITDA margin at 37.8% remains within our 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 compares to GBP 21.6 million in the comparative period last year and represents an adjusted basic earnings per share of 20.68p. 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 moulding activities that we acquired through the Seatronics 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 a 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, which is expected reduce through the seasonally cash positive second half. Our net debt leverage is expected to reduce to 1.3x at the year-end. I won't dwell too much on our cash flow slide as much of this has been covered by my previous commentary. Whilst our operating cash flow conversion remains 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, following 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. Whilst mindful of current performance, going forward, we see the opportunity to continue to invest, utilizing the sustainable and growing operating cash flows to fund 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 Strait of Hormuz will likely reshape global energy markets and force governments to prioritize energy security, resilience and supply diversification at the same time as energy demand is increasing. Ashtead Technology's total 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 inspection, maintenance, repair and construction work is forecast to grow at 4% CAGR through to 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're 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 the 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 on new offshore energy infrastructure is 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 historical 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 in which headwinds persist, evident by muted project FIDs, field tenders and developers exiting developments, the long-term structural case remains intact. Offshore wind is 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 203 to 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 and 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. 2026 backlog is 3% lower than December '25 due in part to timing of contract awards. While Subsea7 and Technip backlogs remained stable at high levels, Saipem's backlog is 15% lower compared to the year-end at December '25. Saipem in the Q2 trading update noted their confidence that 2026 order intake will exceed that of 2025. On the right-hand chart, the opportunity pipelines for Technip, which is on a 24-month basis and Saipem 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 of the 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. Whilst our 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 ROV 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 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 seafloor clearance operations. Hiretech 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 ACE Winches was acquired in 2023 for its lifting, pulling 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 one 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 and better communication across our technical specialists and it's 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 equipment 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 and 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 a 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.

Why don't we go ladies first?

Victoria McCulloch at RBC. Can we start with your guidance for the remainder of the year? A couple of moving parts in that. Can you give us an idea in terms of both the non-rental income portion and also APAC, what your expectations are within your revised guidance? And then maybe on the renewables and just medium to short-term view, some of your customers have highlighted their caution on into '27, '28. Subsea7 has been very clear, Stewart, on his risk of a lower order intake, things being a bit more delayed because of the bid rounds. How do you adjust your capabilities and manage that? And how confident do you feel that the market is aware of that? So that's probably about 6 questions within that.

I go to the first one?

Yes, why don't you take the first one? I'll take the wind one.

Yes. So when we announced our trading update about 10 days ago now, we mentioned some project slippages. So a number of those projects, a lot of the revenue on those was on the rental side. So in terms of revenue mix, we're not expecting a major change sort of first half -- second half versus first half. In terms of APAC, we've already taken out -- there was a couple of projects, which you mentioned early in the year, which were canceled, those were already taken out the numbers some months ago. We are seeing a bit of a recovery in that region, but nothing kind of that's going to change the numbers specifically. And then in Middle East, we're just really expecting much of the same. Some of the slippage that's come out of the second half is projects in the Middle East that aren't going to go ahead during the remainder of the year, some of which we've been told will actually still go ahead in Q4, but we've actually taken them out of our numbers and push them into 2027.

So picking up on the offshore wind point. The offshore wind market has had its challenges. That is evident for everyone to see, but we're pointing to a market that's going to grow at 10% CAGR. Certain of our listed customers have made various points around offshore wind. The margins in offshore wind for our customers are different than they are in oil and gas. And the opportunity certainly for the Tier 1 contractors in oil and gas at the moment is really, really good. Where we play in offshore wind at the moment is very much around site characterization, which is early stage. And therefore, the data that we see and what we're hearing from our customers is that whilst 2026 has been a very slow year, it will start to pick up in '27 and ramp up as we go through the rest of the decade. Do we see a bit of slippage in that? Possibly. But we come back to the point that our equipment is highly fungible. It moves across both oil and gas and offshore wind. And one of the key strengths around Ashtead Technology is our ability to move the equipment around the world. Depending on where the demand is. I think we can be pretty clear that the U.S. wind market is not going to come back anytime soon. So the opportunity is very much in Europe, which is the biggest offshore -- biggest wind market outside China and in Asia. So I think we're well placed. We're being cautious. But overall, if we take a combination of the wind opportunity and the oil and gas opportunity, the market outlook for this business remains strong.

It's David Brockton from Deutsche Numis. Can I ask 2, please. Could you firstly give a bit more color on the scheduling changes that you referenced just over a week ago? I appreciate it's sort of part and parcel of the business, but are you seeing a higher level of scheduling changes? And can you give any more insight into the sort of the number and the types of changes that you're seeing within the business there? And then secondly, just going back to sort of the outlook into next year. When I look at the Rystad forecast, Europe to me looks flat on those charts or down and most of the growth coming elsewhere from a sort of regional perspective. Does that sort of tally with your sort of view of the outlook for the regions next year?

Great. So in terms of scheduling changes, yes, as you pointed out in the question, scheduling changes is very much part of our business. We are agile. We move with what our customers are doing. I think what we've seen is because of the ongoing conflict in the Middle East, that has caused its issues. Whilst there is activity ongoing in that market, and our team has done a fantastic job through the course of this year in terms of difficult circumstances to work. The overriding desire from the end customers and our customers is to continue to work in that market. But what we've seen is we've seen a small number of predominantly mechanical solutions decommissioning projects push out. They haven't been lost. They simply moved out into 2027. And they're a bit binary. So we changed our forecast because there was no opportunity to fill that hole. Elsewhere, we made a statement in the trading update that we saw scheduling changes in Europe and also in the Americas, which is true. Again, it's a small number of opportunities. The vast majority are in Mechanical Solutions. But had the market been different, had it not been for the conflict in the Middle East, had our customers had 2 projects in Taiwan not been canceled and not happened at all, we wouldn't have been talking about those because our numbers wouldn't be where the numbers are. So I think the good thing here is we see this very much as a bump in the road. We don't see this as structural change in the market. It doesn't diminish our view or our growth opportunity in the years ahead. It's simply -- it's disappointing. We don't want to be here missing our numbers. But in terms of 2027, on the charts, if you actually look at the data, whilst there's a 6% CAGR through to 2029, the increase year-on-year on the Rystad data is 10% for 2027. We would obviously want to be cautious on that. Projects do move. But we are -- whilst we're not a backlog business, we are sitting on a number of projects going into next year, and we're in better shape going into next year than we are into this year.

Andrew Nussey from Peel Hunt. Another couple of questions, please. In very general terms, has this short-term market headwinds led to any change in whether it be customer behavior in terms of how they're looking to engage with you, but equally in terms of competitor behavior as they look to build presumably higher levels of utilization is the first question, please?

So in terms of customer behavior, I don't think there's necessarily been a change. We have seen evidence of a step-up in propensity to outsource from a couple of customers, which is encouraging because that's a trend that we have seen developing over the last decade, but it's quite difficult to be tangible about that. The things that we are doing within the business to move towards being more of an integrated supplier continues. That means that we're engaging earlier in discussions with customers even before sometimes they win the work. And the acquisition of ACE Winches has been very helpful for that because of the inquiries that we get this week, I'm pretty sure that the vast majority of those will be for opportunities in 12, 18 months out. And that allows us to get involved in these opportunities earlier and pull through the other Ashtead services. If we look at competitor behavior, there is no one competitor that competes with us. We've got a range of competitors across Survey and Robotics, Mechanical Solutions and Asset Integrity. I would say we have consolidated the market in Survey and Robotics through the acquisition of Forum Subsea Rentals back in 2017 and the acquisition of Seatronics now a couple of years ago. We have done a great job to maintain that market share and really ring-fence it. And we have seen some competitive pressure building. But I think that's a factor of the lower end of the market being slower rather than the top-tier contractors where the vast majority of our work is coming from. And that has resulted in more flexibility in concessions, but nothing of any material note.

Andy Edmond, Equity Development. On nonorganic growth, and nobody knows how long the Middle East dislocation is going to actually last. But is there a chance that people will want to be keener to talk to you to be part of a well-financed group, the portfolio of services that you're offering if delays go on and on, some smaller people may be suffering. So do you think that might be the case?