Hello, ladies and gentlemen, and welcome to this Ashtead Group Plc Quarter One bondholder call. On the call are Chief Executive Brendan Horgan and Finance Director Michael Pratt. Before I hand over, can I just remind you that this call is being recorded? During the call, all participants will be in listen-only mode, and afterwards, there will be an opportunity for questions and answers. I'm now delighted to introduce Michael Pratt. Please begin your presentation.
Good afternoon. The webcast of our earlier Analyst meeting and the related slide presentation are available on the website and I'll refer to these slides during the call. I'll begin by coming through the financial highlights from the release and event units of the webcast, and then open the call up for questions. As an overview, we perform strongly in all our geographies in challenging circumstances. The group's results for the first quarter are set out on slide six. Group rental revenue declined 8% on a constant currency basis.
This revenue decline had a negative impact on margins, reflecting in part our decision not to make any team members redundant as a result of COVID-19, not to take advantage of any government support programs, and use the opportunity presented by lower activity levels to ensure our fleets were serviced, well maintained, and rent-ready in advance of the recovery in activity. This contributed to a still healthy EBITDA margin of 46%, and with an operating profit margin of 22%, underlying pre-tax profit was GBP 208 million. On the next three slides, I'll review the divisional performance. Following the rebranding in the U.K., I will just refer to performance by geography, beginning with the U.S. on slide seven. Rental-related revenue for the quarter was 8% lower than last year at $1.2 billion.
As we discussed in June, we took a number of actions to manage the cost base, including a hiring freeze and reducing discretionary staff costs, use of third-party rent holders, and other operating expenses, consistent with reduced activity levels. However, a significant part of our cost base is our people, and we took an early decision not to lay off anyone as a result of COVID-19 or reduced pay levels. This enabled us to maintain customer service levels and prepare for market reopening. As a result, drop-through of rental revenue to EBITDA for the quarter was 74%. While this approach has had a negative impact on margins, I think you'll agree our approach has been more than vindicated by our market outperformance as we take share. Margins were also affected adversely by used equipment sales.
While second-hand values remained strong overall, our proceeds were affected by both the type of assets we sold and the sales channels selected for disposal. We disposed of old oil and gas assets, which typically have a harder life, and sales were predominantly through the auction channel, which results in lower realizations. This was a 1%-2% drag on margins. Despite these factors, the EBITDA margin was still healthy at 48%. Operating profit was $324 million at a 25% margin, and ROI was 19%. Turning now to Canada on slide eight, rental-related revenue was 3% lower than a year ago on a reported basis at $74 million. On a more comparable basis, excluding the impact of William F. White acquired in December, rental revenue was 11% lower than a year ago. The White's business was our most severely affected business by the pandemic.
It had performed strongly since acquisition, but in March, it ground to a halt as all film and TV production stopped and is only now just about to restart. As a result, it contributed virtually no revenue in the quarter, but we retained all the team members and the infrastructure of the business. This resulted in a loss for the White's business of $11 million in the quarter, which impacted Canadian margins adversely. The legacy Canadian business, excluding White, maintained its EBITDA margin at 40% and generated an operating profit of $11 million at a 13% margin. This good performance demonstrates strong cost discipline in what is still an immature business, which does not yet have the benefit of well-developed clusters or the depth and breadth of our full range of specialty businesses.
Slide nine shows performance in the U.K., where rental and related revenue was 10% lower than a year ago at GBP 99 million. This was a strong performance as the breadth of our product offering and commitment of our team members enabled us to support all our customers and more and provide essential support in response to COVID-19. The cost base reflects not only our continued investment in the operational infrastructure of the business as part of Project Unify, but also our decision not to lay anyone off nor utilize the government's coronavirus job retention scheme. These factors resulted in an EBITDA margin of 29% and operating profit margin of 7%. As a result, U.K. operating profit was GBP 8 million for the quarter. Slide 10 sets out the group's cash flows for the quarter and the last 12 months.
This slide again tells a powerful story and demonstrates the strength of our business model. We've maintained a strong focus on working capital management, particularly the collection of receivables, which has resulted in cash flow from operations of GBP 543 million for the quarter, the same as in this period last year. This, combined with the decisive action we took to reduce capital expenditure in the current environment, resulted in record free cash flow for the quarter of GBP 447 million, more than we generated in the whole of our second best ever year for cash flow generation in 2018. As a result, we generated GBP 1.1 billion of free cash flow in the last 12 months, and that is after GBP 1.3 billion of capital expenditure.
It is this cash flow dynamic within the business that gives us confidence to expect free cash flow generation this year in excess of GBP 1 billion, compared with last year's GBP 792 million. Slide 11 updates our debt and leverage position at the end of July. We used the cash generated in the quarter to reduce debt and leverage, which, at 1.8 times, excluding the impact of IFRS 16, was in the middle of our target range. As we have said on many occasions, a strong balance sheet gives us a competitive advantage and positions us well for the medium term. This balance sheet strength and strong cash flow has enabled us to reduce leverage from 1.9x in April, despite the severe economic shock from the pandemic.
Furthermore, we have continued to invest in the business, whether that be through retaining our people or returning to greenfield openings, enabling us to outperform the market and take market share. Our debt facilities are committed for an average of six years at a weighted average cost of 4%. Both our leveraged and well-invested fleet continue to provide a high degree of flexibility and security and enable the business to be on the front foot despite these more uncertain times. The final slide I will reference is slide four, where we have summarized our reintroduced guidance and tried to add some clarity by providing revenue guidance by business units and overall group capital expenditure and free cash flow information.
In terms of the U.S., we anticipate rental revenue being down on the prior year mid to high single digits, while in Canada and the U.K., revenue will be at a similar level to last year. In terms of capital expenditure, our range is consistent with our June guidance at around GBP 500 million, and the result of all of that, we expect free cash flow in excess of GBP 1 billion. That concludes my comments, and so we'll move to Q&A. Operator, please review provided instructions for Q&A.
Thank you. Ladies and gentlemen, if you now wish to ask a question, can you please press star two on your telephone keypad? That is star two on your telephone keypad. There will be a brief pause while questions are being registered. Our first question is from the line of Yilmaz [Audio Distortion] from JP Morgan. Your line's open. Please go ahead.
Hi, this is actually Yilmaz Bur from JP Morgan. I guess, firstly, if we can talk about the used equipment market, you talked about it being relatively strong. As, I guess, a lot of rental companies are trying to dispose fleet, are you surprised in the strength around the used equipment market?
Yeah, I'm happy to take that one. This is Brendan. I don't know if I would use the word surprised to describe it. I think we knew that we were still in a relatively robust period from second-hand market value. They had come down a bit before COVID. The key to it really is, as we've said, if we look at Q1 last year versus Q1 this year, again, there was virtually no movement in the results of our own disposals. Our retail proceeds as a percentage of original cost were the same as a year ago, and auction was the same, literally all within 100 basis points in either of those two measures. I think it really just speaks to, one, the condition of the equipment, the overall lack thereof from a supply standpoint, from an OEM supply side.
We'll see how it hangs in for the balance of the year, but thus far, again, maybe not surprised, but affirmation of what we may have thought would have been the case.
Ashtead, thank you. I guess the next question I wanted to sort of touch on is in terms of restart of projects that have been paused due to COVID versus new greenfield type of projects as it's driven demand. Can you comment on that? Are you seeing activity around sort of new projects being restarted as opposed to paused projects being resumed?
Yeah, there's definitely both. When you have that big of a falloff in starts, you're going to have some degree of pent-up demand, so to speak. There's certainly a degree of that. I think there's also just been a relatively healthy return to starts in more ordinary case. Earlier on the call, for instance, we would have sort of cited some of the projects that have come to bear over this period of time, ranging from distribution centers to some infrastructure work. I had referenced the big project in Seattle, tech campuses, data centers. Those are emerging, and they're going as was planned. Certainly, there could have been some of those that would have been caught up in a bit of a delay. I think one of the notes, one of the areas that we spoke to a bit this morning was the bid pipeline.
Dodge, of course, tracks very closely starts, but also bids. Before something can start, you will have a bid period that it's in. We saw a significant drop in just actual bid activity right when you would have thought. In that week of March 9, we began to see a decline there. That decline was quite pronounced through sort of mid to late April. We began to see that bid activity level getting closer to where it was last year. In the latter part of July and through August thus far, it does not look very different than last year. I think that is a healthy sign in terms of bidding. Also worth noting is the statistical data between bid time to start.
What's interesting is in all this time that's passed, there's nothing statistically different versus the bid to start time as what we would have seen a year ago. I hope that gives some color.
Yeah, yes, thank you. That's good color. The final question I had is really around financial policy. Maybe if you can update us if there have been any changes in terms of your financial policy, capital allocation, leverage targets, or anything like that in light of sort of this most recent downturn as you look forward here. Maybe perhaps a little bit more specifically, your commitments to maintaining the current ratings on the bonds.
Michael.
Yeah, in terms of our capital allocation point, and we've seen really from the quarter, it is, and we're affirming in the slides, it is unchanged. In practice in the quarter, you have seen as we've been spending capital expenditure. We've moved back to opening greenfields, so we opened three greenfields in the quarter, and we've talked to a plan of 25-30 for the coming year. We continue to look at bolt-on M&A opportunities. Now, from our perspective, it's got to be the right transaction, etc. Typically, when you buy good businesses, if their earnings are depressed, they're unlikely to be in a position where they want to sell. They are prepared to wait. We're in no rush. If it makes sense and it's right for the business at the right time, we'll continue to do M&A.
You will see we declared a final dividend back in June. We will pay that later this week. Within our one and a half to two times that has been in IFRS, which is still our target leverage range, surplus after that, depending on our outlook and view of those market conditions, other opportunities, etc., we would look to buy back shares. We have had this long-term leverage commitment. We would expect to stay within that range. We have always talked about ratings being an output rather than an input, but we are well ensconced in that investment-grade rating. I would say this would not tie, but I think Moody's review of where we were back in April, May, June, they took the right answer. We got to the right answer, and they left the rating unchanged. Fitch and S&P moved it to negative.
I think you will see we were 1.9 when we went into all of this. We're 1.8 in the middle of our range. In reality, that 1.8 is always around our numbers. That's actually 1.77, so we're as close to the middle as we can be. We will continue to generate this cash this year. Nothing in terms of our policies or practice has really changed. We're just doing what we've said for a long time we're going to do, and we will do in the downturn.
Thank you very much. That's all I had.
Thank you. Before we go to the next line, can I remind anyone still wishing to ask a question to please press star two on their telephone keypad? I'm now going to open up the line of James Kay, Bank of America. James, your line's open. Please go ahead.
Thank you. Hey, guys. How are you doing?
Good. Thank you.
Good, good. I skimmed the transcript from the earlier call quickly, and it looked like you had some comments about utilization kind of getting closer back to par as we got into August. I guess maybe just could you speak a little bit to what you're seeing with utilization and pricing as the summer has?
Yeah, I think I lost it. Was there a last part there? You said utilization, pricing, and then you dropped off.
Oh, yeah. Just sort of as the summer has gone on, as we've gotten into August, sort of what you've seen with the trajectory for those?
Yeah, sure. On utilization, as we would have spoken to on the earlier call, we do not quote utilization like for like specifically. Clearly, there is some capacity that we still have, although we are now getting back to fleet on rental levels in general tool that we had a year ago. We do have a bit larger fleet than we had a year ago, so therein lies the delta. By no means is it an extraordinary gap. We are pleased with that progress. As I would have mentioned, when we are managing the supply side of things, it is why we are obviously curtailing landings as we speak, particularly in the general tool business, but going ahead as having planned on our disposals. Obviously, that brought up the question of the second-hand values.
I think you're going to see, as some of our peers continue to report through the year, there's been quite a lot of fleet that has been disposed of outside of the largest rental fleets in North America. That's a trend that I think continues for a bit. Remember, before all this, I think most would have said there was a bit of overcapacity just given the sort of years of growth and what was a flattening construction market before this. All in all, I think it's demonstrating good discipline in supply, and that's extending, of course, to good discipline as it relates to rates.
Through this period, rates have been absolutely sequentially flat from March through August, which I think is a great sign or certainly, again, I'll use the term affirmation of the discipline we believe that was in the space, having all learned from what happened back in 2008, 2009. I think both are healthy. Remember, there's a fundamental aspect of our business, whereas supply works itself out pretty quickly just due to the nature of the replacement cycle. If you have an asset that is at the end of its useful life and you do not have demand, you sell the asset and you do not replace it. There is a nice one-seventh or one-eighth of your overall fleet that goes away every year. That does not just apply to us. It applies to the industry.
Very good. Just one other question, sort of outlook question. The commentary about Dodge and the bidding activity was very helpful. To the extent that the sort of pause and then resumption of bidding does lead to sort of an air pocket, I guess, when would you where does that end up showing up? I assume projects that were underway restarted relatively quickly. How big is that gap where the market really slowed down? And where does that fall?
Yeah, it's going to fall not too terribly different to the same time next year. I think really, when you look at the forecast, that's what you'll find. Obviously, you have to get into a layer of detail you may not see in terms of precision around any one month or any one quarter. That's what you'll see. You'll have that natural lag from starts, from the planning all the way to the start. I think that's what's in the forecast. If you look out to the forecasted 2020 and 2021, you'll see a bit of that late in this year and certainly some of that carrying into next year. I think one of the things I always find useful to look at is just the forecast from a square footage standpoint.
Departing from what precisely is being built and more to just things being built. We would have been somewhere in the, it was 1.2 or 1.3, 1.2-1.3 billion sq ft in 2019. That is dropping to under 1.1 billion in 2020. That climbs a bit in 2021. Although you're seeing that sort of lapse and start, so to speak, when you look at the makeup of that work, I think it, to me anyway, brings into view perhaps some of this changing landscape when you look at areas like big, big expansion in distribution centers, continuing investment in data centers, that sort of thing. To me, that tends to add some clarity.
Great. Very helpful.
We currently have no questions waiting. Can I just ask anyone still wishing to ask a question to please press star two on their telephone keypad? I think that was probably our final question on today's call. I'll now hand the call back to Michael for closing comments.
Thanks very much. Thank you to everyone for dialing in. With that, we'll close and we look forward to catching up with you in December after our half-year results. Thanks very much.
Thank you, everybody. You may now disconnect your line.