Ashtead Group plc

Good morning and welcome to those who are joining via the webcast and of course all of you with us today. Along with Michael Pratt, I will be covering the full year results for Ashtead Group, and after I touch on some of the highlights, Michael will walk us through the financial detail of our operating units and overall Ashtead, and before we turn it over to Michael of course, I will touch on some of the highlights around our business and the markets as we see them today.

So, let's begin with the highlights slide, Slide 3. We delivered a strong fourth quarter contributing to another very successful year, during which our revenue growth furthered our market share gains with strong profit margins and cash generation.

Profit before tax, which eclipsed £1 billion for the first time enabled us to invest in all components of our capital allocation policy with a nice spread between existing store investments, new Greenfield openings, bolt-on M&A, and returns to our shareholders through dividends and our largest year of share buybacks thus far. These results demonstrate great progress with our 2021 plans, and as we move closer to fully delivering on this five-year plan, it's certainly worth highlighting that we've done so within our targeted leverage range of 1.5 to 2 times.

I'm also pleased to announce our proposed final dividend of 33.5p, which will make for a full year dividend of 40p which is an increase of 21% over last year. These results were achieved in end markets that remain very strong and through the continued execution of our well shared strategy, which of course would not be possible were it not for the dedicated team of professionals we have in the U.S., the UK, and Canada.

And as such, I'd like to thank them and recognize their dedication and leadership, particularly as it relates to their engagement day in and day out and their relentless commitment to our core value of the safety and well being of our team members, our customers, and the members of the communities in which we serve. So, before I dig into the detail, I'll hand it over to Michael to cover the financial results.

Thanks Brendan and good morning. The Group results for the year ended April 2019 as shown on Slide 5 and as Brendan said, it's been another good year.

Group rental revenue increased 18% on a constant currency basis driven by strong growth in the U.S. and in Canada.

Margins were consistent year-over-year with an EBITDA margin of 47% and operating profit margin of 28%. This is an excellent performance considering the fact that we opened 74 Greenfields and added 72 further locations through 24 acquisitions.

The businesses we acquire are generally low margin businesses which bring with them the attendant [ph] costs of integration and acquisition. As a result, underlying pretax profit increased 17% at constant exchange rates to £1.1 billion, while earnings per share increased 33% to 174p.

The earnings per share benefited from the lower U.S. tax rate which resulted in an effective tax rate of 25% for the year compared with 32% a year ago and also the lower share count from the share buyback program.

Turning now to the businesses. Slide 6 shows Sunbelt's U.S.

results. Rental-related revenue was up 19% as Sunbelt continued to benefit from generally strong end markets and to a lesser degree the impact of the cleanup activities following hurricanes Florence and Michael.

EBITDA margin and operating profit margins were healthy at 49% and 31% respectively. These reflect a strong operating performance in a year where we've added 123 locations through openings and acquisitions.

This drove a 20% improvement in operating profit to $1.55 billion. Turning now to Sunbelt Canada.

Slide 7 illustrates how the scale of our operations in Canada have been transformed by the acquisition of CRS a year ago, and to a lesser extent, Voisin's this year. As a result, year-over-year comparisons are not particularly meaningful.

In absolute terms, Canada generated $344 million in revenue and $55 million in operating profit. In a period of rapid growth the key is to balance growth with profitability, and Canada has achieved this with an EBITDA margin of 36% and operating profit margin of 16%.

We expect to see continued margin improvement this year and beyond with EBITDA and operating profit margins moving towards 40% and 20% respectively. Turning now to the UK on Slide 8.

A-Plant’s rental related revenue grew 3% in the year. The UK market remains relatively flat with a degree of uncertainty in the outlook.

Good drop through maintained EBITDA margin at 35% for the year and the operating profit margin was 13%. As a result, operating profit was £62 million, and in the fourth quarter we took a charge for pension fund equalization following the Lloyd's case, and the fleet impairment charge as we look to reshape the fleet and get rid of underutilized assets as Brendan will comment on later.

Turning now to Slide 9 and our cash flows. Our strong margin resulted in cash flow from operations of just over £2 billion, up 17% from the prior year.

Ours is an inherently profitable cash generative business, and it is this cash flow that gives us significant operational and financial flexibility to enhance shareholder value through our capital allocation framework. The cash flow was more than sufficient to fund our replacement and our growth CapEx and still resulting in £368 million of free cash flow.

Consistent with our capital allocation framework, we invested £1.7 billion in capital expenditure to grow the fleet in a strong U.S. market and take market share.

We spent £591 million on bolt-on M&A as we've broadened our specialty businesses and enhanced our geographic footprint. We continued to buy back shares spending £460 million in the year and a total of £675 million under the program we announced in December 2017.

Slide 10 on debt and leverage reflects our ongoing commitment to investing responsibly, maintaining leverage within our target range and ensuring that our debt structure remains flexible. At the end of April, our leverage ratio was 1.8 times in the middle of our target range of 1.5 to 2 times net debt to EBITDA.

Our debt has a weighted average maturity of six years and a weighted average interest cost of less than 5%. We also continued to maintain a wide margin between our net debt and the second hand value of our well-invested fleet which was £1.7 billion at the end of April.

What I like about our debt profile, debt [ph] is its profile, it's got a smooth extended profile through to 2027 with no large individual refinancing needs. As we've highlighted before, this combined with an attractive fleet profile, which Brendan will touch on later, provides us with a high degree of financial flexibility as we anticipate continued earnings growth and strong free cash flow generation.

This supports our plans for 2021 and beyond. Turning now to Slide 11, and slightly more esoteric topic of IFRS 16 and lease accounting.

IFRS 16 is applicable for our financial year ending April 2020. So our first set of results will be those for Q1 in September which we will use IFRS 16.

While the adoption will have a significant impact on the financial statement, it is important just to stress that obviously it will change the economics on the lease transactions, it doesn't change our cash flows, it doesn’t change our business plan, and it doesn’t change our capital allocation policy. We are going to use the modified retrospective transitional approach whereby we will recognize a right to buy, right of use assets, which will equal the discounted liability of the lease liability on transition and we won't bother restating historical figures.

I think it is worth spending a moment on what this lease liability represents. Historically we've had to disclose our minimum lease commitments, minimum lease obligation which at the end of April was round about £500 million.

Under IFRS 16, the lease liability has to take account of the lessee's option to extend leases where it's quite likely or more certain, more likely than not that they are going to do that. As you will have heard us say many times, a key competitive advantage of this business is the platform that we have built and our ability to leverage that platform.

A key element of that platform is the bricks and mortar from which we operate from. Thus when we enter into a new lease we invariably expect to extend or take up those options as and when they arise.

The typical leases we enter into are often a ten-year initial term followed by 2, 3, 5-year extensions. So that when enclosed [ph] with IFRS 16 we have including those renewal options in our liability which gives a liability on transition of round about £900 million.

Turning now to Slide 12 to provide a bit more color on the impact on our financial statements, the adoption of IFRS 16 it will increase our reported leveraged by 0.3 to 0.4 times. So on this basis if you take the position at the end of April then we've said 1.8 would have been up 2.1 times net debt to EBITDA.

So, on that basis we are going to amend our target leverage raise to 1.9 to 2.4 to reflect that change. However, as we go forward, we will continue to report on both a pre-and a post IFRS 16 basis, so that people can get their minds around the new world.

So looking forward to the current year 19-20, so if you compare the current year with a pre-IFRS 16 basis we expect at the moment our best estimates are that EBITDA will go up by round about £100 million, operating profit will go up round about £50 million and underlying profit before tax will go down by about £30 million pounds. This reduction in profit arises from the fact that the front-end loading of the lease expense on the IFRS 16 compared with the old standards.

However, it embodies [ph] in total the overall expense remains the same as the cash payments and over the life of the lease is no different from what it was before, it is just timing. At this stage to use the best estimates, there is an inherent uncertainness because of our pace of growth.

We're going to add another 80 locations this year. We're going to renegotiate the number of our existing leases to extend those terms and so that will impact on ultimately where we end up.

So I just think it is worth reminding you again once more that with the application it doesn’t change our cash payments, it doesn’t change the business plan and it doesn’t change the capital allocation policy. And with that, I'll hand over for an interesting topic to Brendan.

Thank you, Michael. And now that you are all fully up to speed on this exhilarating topic of IFRS 16, albeit necessary, I'm going to move on to some operational color beginning with Slide 14.

So you see here Sunbelt U.S. has delivered rental revenue growth of 22% in the fourth quarter making 20% for the full year.

The organic growth held strong at 15% and as we would have expected throughout the year we saw the ramp-up of the bolt-ons which contributed an additional 7% in the quarter. This growth is the result of the continued execution of our 20-21 plan as well as support of market dynamics as I'll cover over the next several slides.

Our Outlook for 2019-2020 fiscal year is once again modeled around our 20-21 plans while taking into account our current momentum and the bolt-on activity levels that we're experiencing today. So as such our outlook anticipates another year of strong growth.

As we move to Slide 15, you'll see the utilization and rate environment is very strong and as a result we posted another quarter of positive KPIs, and equally strong profit margins and ROI. Within these measures specifically, utilization rate and margin, there can be noise as a result of our growth in Greenfields, bolt-ons and hurricane comps.

It is important to fully understand the strength of this performance and to do so we should look a bit closer at our recent expansion. Moving to Slide 16, you'll see the last two years have been a successful and busy period of our plan.

The team has executed well, adding 185 locations in the U.S. with a nice balance between specialty and general tool.

To me this demonstrates the reliability of our Greenfield program to target, identify, and execute opening while selectively augmenting our plan with bolt-on acquisitions. These additions are strategic to the build-out of our platform and as you will see have advanced another 14 markets to meet our internal definition of a clustered market.

As impressive as this advancement in clusters may be, it's important to note that we have yet to reach this mark of cluster in 76 of our 100 U.S. markets.

Our runway for growth remains very long. This collection of location additions deserves an even closer look.

So as we turn to Slide 17, you'll see just that. On the left of the side is an updated organization of our locations grouped into three cohorts by age of opening or addition.

The groupings cascade for more mature cohorts to those added over the last two years. The margins flow just as you would expect.

The mature stores are consistently producing the 39% operating profit margins while the next five-year cohort has improved 700 basis points in margin in just over the last three years. This demonstrates well the operational leverage opportunity inherent in our maturing locations.

Finally, if you look to that our newest arrival class if you will of the 185 locations that produced an impressive 29% in operating profit margin. This last group which on average are locations less than one year old is further highlighted on the right-hand side of the slide.

That 29% margin that I mentioned translates into $147 million in operating profit. It's in this context that it is important to point out that as profitable as these new locations are, they do operate at lower margins in KPI levels and thus are a drag on our commonly followed metrics.

Specifically, again as you'll see here, utilization rate, for these new locations they are lower by 9% and 6% respectively when compared to the other more mature cohorts shown here. This should demonstrate well the obvious underlying improvement in both of these metrics.

In fact, without drag effects like this, our underlying rate improvement year-on-year is a positive 2%. As we move to Slide 18, we've set out to illustrate that our growth is not just coming from our aggressive expansion, rather a combination of our same-store Greenfield and bolt-ons throughout all of the geographies and sectors that we serve we're experiencing growth.

Our strategy and execution has delivered growth rates significantly higher than the overall market and I think it is really important to point out that our same-stores alone are growing at an impressive two times that the rate of the market. It is worth highlighting of course is the powerful 30% growth rate in our Specialty business which continues to outpace our overall growth in a segment with a clear and a long path forward for continued growth.

I think this demonstrates well two things about our Specialty business; one we're in the early stages of structural change with rental penetration still very low. It's not very different at all, as a matter of fact it is very similar to the track that we've seen present throughout the last several years in our general equipment business it's only earlier.

And two, the fact that this growth is not tied to construction and will as such be far less cyclical regardless of end market conditions. Remember, the majority of our Specialty business is born from everyday maintenance, repair and operations of the markets we serve and thus remain central to our ongoing growth strategy.

Through our focused growth we are creating reliable alternatives to ownership that previously did not exist. At a total U.S.

performance level, we do believe our platform and strategy is part of our successful growth. However, it also demonstrates very strong end market conditions which is a good segue to take a closer look at some market indicators on Slide 19.

So here we have our usual lineup of macroeconomic end market and industry forecast and statistics. We are only 15 weeks removed from our Q3 results and what we're seeing in today's market and these forecasts remain strong.

As I've said in early March and can comfortably say again today, there is no debating the fact that on the ground in our markets it is busy out there. So the markets are strong and the various external forecast favor a view of continued strength.

Furthermore, and I think it's very important to point out, our managers and sales reps on the ground have constant and considerable communication with our broad customer base, including commercial and industrial construction contractors, developers, events and convention businesses, as well as the many large and small participants in the MRO and square footage and the roof space that we participate in daily. The feedback gathered from these customers on their current and anticipated activity levels remains very strong.

Of course there's no one market indicator or a forecast that tells the full story or that should be overreacted to. What we are seeing today remains a broad set of internal and external data point to a continued period of stronger activity levels.

But given the level of attention and discussion around market conditions, specifically construction, we thought it would make sense to look in a little bit more detail as we to move to Slide 20. To begin this slide, I think a challenge in the financial markets as it relates to understanding Ashtead and trying to pick the cycle is that the attention is too much and too often on when the construction markets may turn rather than to what extent they may turn.

Let me add some perspective. On the top left of this slide you'll see a history of the U.S.

construction market, all the way from 1990 through today. Although we've had a rather long recovery it's been in the form of modest progression.

And as a result, we're still well below the prior peaks of 2006, 2000 and 1990 on an adjusted dollar basis. Moving to the top right of the slide you'll see Dodge's latest put in place construction forecast through 2023.

Their forecast for 2019 supports what we're seeing on the ground as we'll have another year of construction market growth. In 2020 and in 2021 they have forecasted a slowing of 1% and 2% respectively followed by growth years again in 2022 and 2023.

The key here is to look at the levels. If these Dodge forecasts are broadly correct 2021 would be the forecasted trough which would be the same size in absolute terms as the year 2018 was.

This year we just finished and during which had our best results to-date producing over £1 billion in PBT. At forecast levels like this, there is every likelihood we would continue to grow right through that cycle and of course beyond the 20-21 as indicated here.

Clearly at some point there will be construction markets that take a turn. However, it's important to understand the degree in which they may turn as we've discovered and in which our business has lessened its reliance on construction as we diversify into other end markets as demonstrated by our continued growth in the MRO space and further evidenced by the strong specialty growth you've seen in our results.

So moving on to some business outside of the U.S. we'll begin with Sunbelt Canada.

Another year of progress as we continue to build out our recently established scale in Canada. The 13 additions in the year were a mix of general tool and specialty locations designed to develop a cluster model and broaden the customer and markets that we serve, a result that all of our locations will benefit from.

Remember, when we look at Canada this is a business that started with a small 6 locations, 15 million revenue business in November 2014 that has grown to a 350 million revenue business over a relatively short period of time. the Sunbelt brand is now very much a part of the Canadian rental landscape, all in a market with years of exciting growth opportunity remaining for us.

Shifting to our UK market, Slide 22 gives a little more color on A-Plant business. Throughout the year we realized softening volume as the market came off near peak levels, but the business maintained strong time utilization.

As I covered in the Q3 results, there seems to be a bit of an oversupply in the UK market and as a result we've built our plan accordingly, which for us can be addressed relatively quickly due to our fleet age profile and flexibility inherent within our maintenance CapEx. Given these developments, I think it's worth taking a bit closer look at A-Plant.

Slide 23 is a reminder of our UK market coverage which is comprised of well-positioned general tool locations and a broad set of specialty businesses. A-Plant has a long-standing presence in the UK higher market and as you can see is clearly well-positioned.

With the forecast indicating a flattish market and some relatively uncertain times in the UK, we felt it important to leverage the scale and flexibility of the business. Specifically we're focused on delivering ever improving customer service through this network I've just covered together with realizing the benefits of operational leverage.

With this focus we anticipate not only improving our ROI but benefiting from the cash generative properties in our business particularly enhanced in times of CapEx moderation. So speaking of CapEx, let's turn to Slide 24 to review the CapEx plan from an overall Group perspective.

And as you'll see her little has changed since our Q3 update, Sunbelt U.S. rather modest increase from a replacement CapEx perspective as the investment from several years ago comes to fruition from a replacement standpoint and our growth CapEx levels are very similar to what we had in the year that we're presenting now as market demands as we've said remain very high.

Although the early CapEx guidance for Canada indicates a bit less spend, don't forget, a substantial portion of FY2019's spend has been follow on investment related to the bolt-on activity of the last two years. This is in no way signaling a lack of enthusiasm for our early build out of the Canadian market, rather we do not have bolt-on's in the pipeline to the scale or to the degree in which we did a year ago, and hence have indicated this investment.

Consistent also with what I've just covered for A-Plant, we'll focus on delivering on our priorities and utilize the flexibility inherent in the replacement CapEx, and thus our growth CapEx plan for the year is zero as I've indicated. But similar to my comments on Canada, this in no way is signaling our lack of commitment to the A-Plant business, rather prudently managing the market and importantly, we will demonstrate over time the powerful impact of well executed CapEx replacement investments.

As we said for some time now, these plans are not set in stone and can change according to prevailing market conditions. We place relatively small orders on relatively small lead times and we can utilize an incredible level of flexibility as a result of our overall fleet make up.

And specific to that, let's take a closer look. On Slide 25, you'll see for the first time we're sharing our fleet age profile for the Sunbelt U.S.

business. Over many years of investment in our growth strategy and conscious fleet planning, we've achieved a profile which puts us in an incredibly good position; one that has its obvious procurement benefits as a result of a high level of predictability as we look over the years, but perhaps most important is the inherent flexibility this brings us in any market circumstance.

It's with this outlook, predictability and flexibility that gives us such confidence in our ongoing opportunities from a capital allocation standpoint, as I'll covers specifically on Slide 26. The order of our capital allocation priorities remain unchanged.

We've invested £1.6 billion in existing location fleet, in Greenfield openings, and a further £622 million bolt-ons, in total, adding 146 locations group wide for the year. We've completed £675 million of share buybacks under the 18-month program that we launched back in December of 2017 as of today's results.

This ongoing policy has returned £1.1 billion to our shareholders over the last three years, as we continue with our previously announced buyback of a minimum of £500 million during this fiscal year. Moving on to our final slide.

I hope you take away from this set of results and our update today are clear. However, in summary, I'd like to emphasize some key points.

This is a great set of results, delivering another year of profitable growth in end markets that remain strong. The runway for growth in our business is long.

We will continue to take advantage of the ongoing structural changes; and importantly, continue our progress of diversifying our end markets beyond construction in all of our business lines, but notably through the continued strong growth of our specialty businesses. As a result of these factors and our significant cash generation and strong balance sheet, we will execute according to our capital allocation plan, delivering an anticipated 15% to 20% EPS growth in our fiscal year 2019-2020, all while remaining inside our targeted leverage range.

And finally as a result of these points, I'm happy to report that the Board looks to the medium term with confidence. And with that, we'll turn it over to Q&A.

Thanks, it's Will Kirkness from Jefferies. I've got a couple of questions please.

Firstly, on drop-through's, the drop-through for North America as a whole improved year-on-year for the full year and for the fourth quarter. How should we think about that in outlook terms as there’s a few puts and takes, and I guess you've got embedded maturity within those 18-19 sites you've opened, and you've got further sites to come, Canada margin should improve.

I was just wondering how we should think about that?

Well, I mean, I think you've almost answered the question. So, if you look at fall-through as it would be of course in the results themselves, you'll see fall-through dampened a bit in the U.S.

in Q4, but a better way given some of the one off's we would have gone through last year Q4, as it related to some of our acquisitions in Canada, I think it is probably better for the year look at North American fall-through. So as you rightly pointed out, North American fall-through was better year-on-year, fiscal year 2019 versus fiscal year 2018.

And importantly, Q4 fall-through North America, I think it is 45%-46% this year -- I'm sorry, last, this year versus 42%-43% for the quarter. So, the quarter fall-through is improving.

And again, when you talk about 185 locations, 123 of those would have been in the current year, as I said, less than one year old, they're actually 10 months. So, 10 months on average, so we are going to have obvious drag effect from a fall-through standpoint.

In terms of looking forward, I would look forward more as what we've done year-in and year-out with fall-throughs in the 50s.

Okay thanks. And then the second one just about the growth outlook, given the level of CapEx where you are starting the year and it would be interesting to get May’s growth, Brendan if it is okay, organic growth outlook of 9 to 12 looks pretty conservative?

Yes, well, May was 19. So, we did have growth.

I think -- look, specific to our outlook, look we've given the outlook in terms of existing locations or organic. We've tweaked down just a bit the bolt-on piece, which is simply just a matter of having less more material deals in the hopper as we sit here today, but I want to touch on your point here if I can in terms of runway.

So, maybe more perspective, more so than just this one year as I pointed out. So as we said or as I said previously, only 24 of the top 100 U.S.

markets are at a cluster status today. I think oftentimes in this, in terms of when we're looking at what the growth opportunities are, we just do the straight math.

So, if you look at the top 25 for instance here, you'll see that our internal definition through years and years of practice at this would say that we should have more than 15 locations, but what happens when you're doing the math is everyone might just plot 16 in that top 25. They might plot 11 in the 26 to 50 and they come up with a location count number.

But in reality, when we think of our runway, let's look at it like this: Minneapolis, Minnesota for instance is the 25th largest DMA in the U.S., and there's about 4 million people there and the put in place and population would kind of follow one another. So, in Minneapolis, we would say we would need about 16 locations.

Then, if you go to New York City or LA, which would have populations of about say 20 million, 20 million in New York and about 14 million in LA, so you could say we would need about 45 locations now. Certainly, you could sit here today and say we're a bit on the conservative end from an outlook standpoint, but I guess I would just go to last year and say we probably were a bit as well then.

Thanks.

Hi, Rajesh Kumar from HSBC. When you look at the Dodge Momentum Index or the outlook which you've highlighted your growth plans seem unfazed by a potential slowdown in the end market.

Which segments of your end market do you think may be impacted by that and where you need to be a bit more cautious, or is it something you're not giving a lot of credibility given what the interest rate discussions in the U.S. might be?

Yes. Well, I mean, look, I think, first of all in general, we use a combination of our internal feedback that we're hearing from our customers and the best possible external forecast that we can find.

So I think we would generally agree that Dodge is the most focused from a construction end-market standpoint that's out there. So, when we do look at forecasts like this and we look at ‘20 and we look at ’21, look, geographically, will there be pockets?

Well, we monitor that every day anyway. So, it's really no different than anything else.

If we have a part of Florida, if Orlando, Florida is softening a bit, we won't put as much investment in Orlando Florida, but that will not alter our views for San Francisco, California, where we may have 2.5% share. But I think, again, as I put it in the actual results here, everyone I think would agree the focus externally has been more on when will construction downturn come rather than to what extent.

So using the forecast that we do have available to us, I'll make it very clear again, we would expect if this forecast is about right, it won't be precise but if it's about right, we think there's every likelihood that we grow right through it.

Okay, that's helpful, and the second one is you've very helpfully shown the mix of your fleet by the year you bought in. And given your 7 to 8 years of holding period, you will have more replacement and disposals coming through in the coming years.

Are you worried about impairments of the carrying value of assets at all?

No, absolutely. Look, we monitor, as you can imagine, from a borrowing base standpoint, we monitor ROEs [ph].

We look at the third party. The key in all of this is the flexibility.

So if we look at this even distribution which has been years and years of hard work to get to a point of this level of flexibility. But let's just say for conversation sake, the year here indicated 2014.

So that year is about $1 billion of fleet that would be due for replacement. What do we do with it?

So let's just say we're going through, that would coincide with that minus 1 or minus 2 year, right? We see what the market curtails.

Keep in mind that minus 1, minus 2. I would bet most in this room couldn't tell the difference in the end market of construction if the construction market were off by minus 1 and minus 2.

We could at a very granular basis at a very specific market level, but beyond that you couldn't really. But the point is really to answer your question is the flexibility inherent in that.

I don't need to sell it. If we want to sell it and the end markets are okay, we will sell it.

If we want to use the key, I think on this one is as we say flexibility to turn replacement into growth. I like to say it like this: We have growth CapEx embedded in our replacement that is disguised as replacement.

So said another way, if things are a bit slower as I said in Orlando, Florida; and there are 10 tele handlers for replacement in Orlando, Florida, off of that year, we may indeed decide to replace five of them, but we don't need the other five. It doesn't mean we won't buy five.

We may bring five to San Francisco to use my point that I said earlier. So embedded in this is extraordinary flexibility which is incredibly rare in our space.

So the impairment we have this time has no bearing with this replacement?

Oh you mean the impairment with A-Plant?

Yes.

No, no, no, no. Look, we had a - let's put in perspective first of all.

So we're talking about a total 4 million Q4 charge, most of which was pensions and we had 1 million and a bit in impairment for assets as we took a decision to sell about £30 million or £40 million worth of our assets in Q4. So, no, there is no correlation there whatsoever.

And the U.S. market in terms of the residual values compared to your account?

Yes, so the specific assets which are underutilized, we could hang on to them. But why hang on to the?

You better off getting the cash, improve that cash and spend it somewhere else. Back to Brendan's point on the on the U.S.

in terms of fleet; yes, we've got a number in there for CapEx for A-Plant. But what you'll find there is we'll be selling underutilized assets.

So you actually by selling them actually you don't change the revenue earning potential of those assets, but actually then buy stuff where there is growth. So actually you can grow the revenues.

So it's just a switch between the two. So there's nothing to read across from the two.

Thank you.

Jane Sparrow from Barclays. Just on rate and utilization.

I know you are sort of healthy, but there's charts in every quarter and people like to talk about them. But internally, how do you think about those metrics?

Because obviously they look quite different for specialty versus general tool and also driving Greenfields. All of these things you sort of actively manage or are they really just outputs rather than inputs?

Yes, well, first of all I'll say John Washburn is here today. So if you have even more specific questions about rate, you can get to him.

They're in the back. But both, is the real answer.

So certainly we manage rate internally. We manage the flow of fleet, we manage the overall metrics.

But you're right in pointing out both rate and time utilization as it relates to specialty. Look, I mean, over time in reality and that's why we will have come on to the slide highlighting the 185 locations that we've added, they are less relevant metrics, right.

So obviously with the drag effect that I mentioned of the 185, but also the specialty business. So the specially business from a time utilization standpoint will definitely operate at a lower time utilization.

Interestingly enough this morning as I was - as we were waiting to get started here, just outside of the London Exchange, there was a janitorial crew doing all of the ground cleaning of the pavers that are just outside of us here and they were using all of the flooring, sweeping and scrubbing products, which is a new division for us. We've just had it open for three years and over three years we have a $90 million fleet of sweepers and scrubbers.

We're on a run rate of doing 70 million a year in revenue. We have 32% ROI for the year that just ended.

And our time utilization is 48%. So what's time utilization have to do with it?

So in the end, both rates and utilization, they just don't mean maybe what they once did.

And then just a second one on, you may not wish to discuss in too much detail, but in terms of sort of mixture of rates and profitability by customer type; if there is a downturn in non-resi, is it fair to assume that because that's the higher rental penetration a sector that's a more competitive end market in terms of profitability by customer?

The key is the range. If you look at last time around, which is a rather draconian look, but if you look at a market like that, where we made the mistake through internal controls and the way that we pulled the levers which today John will pull differently going forward is, we got competitive on the big projects which, believe me, we will do again.

We do today, in our rate mix today we have very aggressive pricing in different subsets. But we lower the rates across the board, because we didn't have the tools that we have embedded in our business today.

So today if it was that contractor I just mentioned that was outside this morning, they're going to pay exactly what they did last time because it's 1% of their overall OpEx. Whereas on the other big projects, whether it be some of the data centers we talked about or the distribution centers that we talked about or some of the long-term industrial contracts, perhaps we see those get a bit more competitive.

But overall, I think you'll see a very-very different outcome.

Good morning. It's George Gregory from Exane BNP Paribas.

I've got three please. Firstly just on the revenue contribution in 2019-2020 from the deals you've already done, and also the annualization of the 123 and A-Plant, what would those two components give you in terms of U.S.

rental revenue growth as you currently see it?

That's for Mike.

Again, you're talking about the 20 year.

This is the year we're looking into. So fiscal 2019-2020, so April 20, what would you get from the M&A you've already done, the 589 or whatever it was in there?

Yes, so about half of the outlook. Well that's when we say low teens and as I said before, my view of low teens is 12%-13%.

So that sort of 12%-13% range reflects what we've got - the acquisition we've done to date. So last year's acquisitions and the growth in fleet last year, if you roll that through with our fleet plans for this year, the fleet plans for this year include the Greenfields we talked about.

The only thing they don't include is what extra M&A we may do.

Surely that - would it not give you a bit more than 2 to 3, Mike? I mean you've just spent $589 million on deals.

But it is also the timing when they come through the - when that comes through the year. So it's around about that number.

Okay and second question; just looking at the CapEx program, if we compare the disposals to the replacement CapEx, is the - it looks to me like the implied disposal value is perhaps a little lower than it was in 2019. Is there anything behind that?

Do you mean the secondhand values?

Just if I look at the disposal proceeds versus the replacement CapEx, the implied disposal value looks a bit low?

As you'd expect is with all of this stuff, there'll be a degree of caution. Secondhand values are still strong.

There have been Q4 secondhand values were not much different from the rest of the year. So we're not seeing any real change in secondhand values at the moment.

And then just one for Brendan. Online penetration, where are we in terms of utilization of your e-commerce platform?

Are you seeing any uptake increase and how do you see that kind of phasing over the coming years please?

I mean, it's a yes. The answer is we continue to see momentum in that both by way of our customers ordering directly on our mobile apps and on the website, certainly an increase in traffic of our own sales force in particular using that as an avenue.

We see that as a huge opportunity going forward. A bit more of the same as we move through this year, but I will tell you in from a next Capital Markets Day standpoint, which will be spring of 2020, I think you'll find it'll be a rather large topic.

Hi there. Steve Goulden from Deutsche Bank.

Three questions if I may. So firstly on the replacement CapEx, as you replace the old cohorts, what's the price inflation of the kit and within that factoring in recent tariffs et cetera?

Second question, so obviously we've sort of done this to death somewhat, but in terms of what the financials look like into a slowing U.S. construction cycle?

Obviously, you say that in a miles downturn, you couldn't move kits around, you can add to areas that are less weak than others et cetera. But clearly obviously utilization rates are very high, pricing is relatively strong.

There will be some impact. And so, the return on investment of that incremental new kit, will we assume be lower than is currently the case in a mile downturn?

Now if the downturn is worse than you expect, how would you cope with that? What [indiscernible] have you got to [indiscernible] to minimize the damage potential?

Yes, so look, we'll come back to inflation. The painting the sort of recession; again, are we talking more like a 2002, 2003 for us as we lag, are we talking more a 2006, 2007 or 2008, 2009 really more for us.

Don't forget how different the business has become. So here we have a business that is more than half non-construction.

And the part that we're talking about specifically MRO, I would argue doesn't change much at all. It may be hard to get your minds around, but in terms of the events we do, those events go on.

We just finished doing the Super Bowl draft week. Super Bowl draft week is going to happen either way, and I would argue that the pricing with that event customer is not going to change at all.

In general, if we see the sort of end market forecast that is in the forecast that we've just covered with you or end markets that are in the forecast we've just covered with you; again, I don't think we see much at all. The key is really what are the levers.

So the levers would be: remember, we could run the business at an even higher time utilization if we so choose. It's not every plan where you add 185 locations in two years, a big 60% of those are Greenfields that are carrying a 9% lower time utilization.

So you have those various levers to pull. And I think, again, as you'll see what we've been exercising in terms of changing what our end markets are, will have the biggest implications and impact on that.

And remember, again, I'll say, every day we're pulling these levers that we talked about in various nooks and crannies of our business.

Okay, final one from me just on the IFRS 16, so the new 1.9 to 2.4, is that going to be the new comfort level over the medium term post IFRS 16? Super Bowl draft week

Yes before -- Mike will address it specifically, but the key is, it's no change.

Got it, and I think so you just pointed to the opening of 80 stores over the next year, which again would have upfront lease recognition of high level. So is that going to have an incremental impact on balance sheet?

We believe it would be within the 0.3 to 0.4. So in terms of the impact on leverage, which is hence why we've gone to 2.4 of the top end and we're going to 1.9 at the lower end because we think the stuff will be coming off and we'll be adding new stuff.

So obviously we'll continue to track it. But we don't know what pace will grow out in the future but we believe that's where we should be.

Thanks a lot.

Good morning. Steve Woolf from Numis.

Just to sort of go back to that point, what proportion of the business was non-construction in 2008, 2010 and any sort of other areas you'd point to like obviously MRO was virtually nothing, but if you go through to say some of the specialty business, which I appreciate are also very new, just other bits on how you've changed through that particularly on non-construction?

Yes, you'll see as we say, so let's just call that proxy 2007-2008 with at the time 55% of our business was construction as you can see today. If anything, I would say that, given the way that we are so good at compiling this today, the construction element may even have been a bit higher than what we say here for 2007.

But the specialty businesses around MRO in our broader focus is the key there is, let's think about the definition of specialty. The definition of specialty is different -- specialty is probably a terrible term for overall other than maybe the return on investment that they make would be quite special.

But in general, remember, it is products and services that previously did not have a reliable alternative to ownership. So they're very-very early in their rental penetration.

I mean, a number of our specially businesses are in the low single digits of overall rental penetration and what we're seeing now is the climb and all that and the progression. And the vast majority of that specialty business is specifically in non-construction market.

So it doesn't take much to model out. If you just think about the growth that we've shown here, if you look at our general tool business, which remember, as we grow specialty in more of this MRO, even our general tool businesses are far less construction.

But if general tool is growing at 16 and specialty is growing at 30, you'll see that 54:46 composition that we put on the slide continue to change over time.

Thank you. [Indiscernible] Bank of America.

Maybe just to follow-up on the last one, plus a couple of more if I may. If we see the sort of low single digit decline in construction, would you actually expect that the run toll penetration could accelerate?

Considering everybody will assume maybe things will get worse, maybe there's lower visibility on the business outlook, so that could be actually an incremental growth driver rather than this here drag on your volumes, obviously if things turn drastically it may be a different story, but is a mild construction downturn actually potentially a positive for you? That's my first question.

Secondly, just to be too cautious [ph] there is no increase in your center of cost if anything is actually going down that maybe currencies. But shouldn't we stop to see as you'll be - you know, you grow 20% a year and maybe another 10%, 15% or something next year.

And also the clusters are becoming larger or at least some of them, should we start to see more central cost more SG&A in the system? That's my second question.

And lastly many reports about lots of rain in May. Mississippi floods, also rains in the western part of the U.S.

Is that a positive or negative for you or indifferent?

I'll start with your May, because it's an easy. May was up 19% year-on-year in the U.S., so strong, but you're right, soggy.

Would we be better without it? We will be better without it.

So I suppose that doesn't help me at all with will in terms of our outlook. But you have heard some others talk about it, but nonetheless it's strong.

I'm really glad you asked your first question, which is around rental penetration, when we go through a cycle? I think look, it maybe odd because we maybe one of a very small sampling that would say let's get on with it.

Like, let's get on with some sort of construction slowdown or economic downturn because we will demonstrate some of the key attributes as to what we've been building this business on all along. And, yes, over a period of time when you do go through some sort of downturn again, it will not only reinforce the rental penetration but it will propel it again.

So over time what you really see as you see it it's almost there stair-stepping in terms of how penetration changes over time and there's always that upward trajectory coming right out of a recession. The difference with this time is, you didn't see abate at all.

So you saw it continue to kind of trickle up and of course our specialty business significantly move forward. So, yes, I think that would be more an accelerant to the rental penetration or structural change in that regard than not - and our central cost, where did we have here, I think first of all you can see it going from 5 to 6.

So certainly you're seeing the investment that we should be making, but you're also seeing the operational leverage that should be present in our business. Some of you I'm sure will go back to a previous slide that would have had a 2017 in there for a - 2018 rather for Capital Markets Day that we did in the spring in New York in 2018.

And that central figure would have actually been 7. So I think you're seeing both, our willingness to invest in some of the platforms that will really truly power this business that we've been working on in building, but you'll also see the operational leveraging gearing come through.

And I guess the other point is in terms of what are we actually spending? That 6% of the revenue number that is 40, I'm going with 40% or 50% higher than it was back in 2016.

So it's not that we're not spending in that area, it's just you've got a lot more revenue as well.

Thank you. It's Charlie Campbell, Liberum.

I think in your first Slide 25, that's pretty useful, the fleet profile. So the U.S.

fleet look looks to be on average about three years old. If you put a brake on CapEx to kind of the fleet than ages, as we think about downturns and so on, what's the kind of optimal age for the fleet?

At what point does it get old? You have to kind of keep spending on replacements and how long a holiday could you have in a downtown?

I think one of the problems with fleet age has to do with the waiting. So you remember very early on it was just math.

When you're growing at the rate we're growing and you're entering 1 billion, 1.25 billion, 1.5 billion, it has a big effect. In the end given this composition that we have, look we could go to 48 months.

Because in the end, if you have seven or eight years then you have a well distributed banding, it's just then it's math. It's right in the middle.

So it's not a matter of what you're at. We have a lot of leverage I guess is the short answer to your question in terms of letting that go.

We don't anticipate that. But it is a tool that we have at our disposal.

But we have - it's a matter of the mix. From a customer's perspective it's not so much getting a brand new piece of equipment or a one year old or a three year old or an eight year old.

The problem you run into is when you deliver them 10 and they're all 8, right. So it's a matter of having a nice - a mix for the customer to have overall and we have really high standards.

So in terms of what the product is, but there are machines that we keep for eight years, there are machines we keep for 14 years. A 2 megawatt diesel generator the age doesn't really matter, it's all a matter of electricity.

And all that comes back to what we told our operational and financial flexibility by where we are on leverage, where we are on the fleet age. It just gives you that optionality when you go through - if you go in any of these mile downturns that we've talked about, you'll still be spending on fleet.

So you could be replacing, you could be spending, replacing all these chunks as they fall due, but the reality of it is, if it's in Florida, it's probably you're not spending as much because you might be shrinking the fleet a little bit in Florida. But out in California, to use that example, you'd be growing.

So you would still be looking to spend that money you won't necessarily be aging the fleet. Now if you have an Armageddon type of downturn, then you might take a different view.

But with the flexibility we've got in where we are on leverage, where we've got the fleet profile, then we have plenty of choices when we encounter that situation.

Hi, it's Andrew Wilson from JPMorgan. Couple to start on competition.

And I guess it's a little bit of question in terms of how much visibility you get from this. But if you kind of look at the logic behind expanding in specialty, and I appreciate how broad that is, are you seeing more of your competitors trying to do more in that space?

Because if they're not, I'm not really sure why they wouldn't be? Maybe you can help me on that.

And then I guess secondly, and again a question on visibility I guess. You can say is that in terms of the technology platform that you guys have and you see your biggest competitor has similar things from which I understand are you seeing more of I guess smaller guys developing similar offerings or is it just that kind of hamstrung by not being able to spend as much on that part of business?

Yes, your last question first. Look, it is us and basically one other who have the ability to invest.

As Mike said, that 6% is a big number when you take into account the size that's going against. There is nothing to even - it's nothing even worth mentioning as it relates to the littles and middles if you will having access to any sort of the technology like we have today.

Your question is a good one on specialty. And part of it was, you don’t understand why others wouldn't.

You have to start with you have to actually have the ability to invest from a CapEx standpoint and a platform standpoint. And I have this general belief in business that in business you're either growing or shrinking.

There's kind of no way to just stay in the middle. And there's one other who I think does a really good job in investing in their specialty business.

We take a slightly different view in some of our more sealings [ph] that we've seen grow from concept and design to actual $200 million, $300 million, $400 million businesses. It's easier said than done.

More importantly from an independent, when you get bit further down the list, right. So when you get into RER 20, RER 25 or RER 100 [ph], over the years we've seen that it gets to be a slippery slope for them when they either leave the geography that they're good at and understand the customer's or when they branch off into too many things.

It seems easy to start a pump business. I can tell you over 23 years it's not.

So that's a big difference. Your scale and the platform is so much.

It wasn't exactly the question, but I should point out, the 185 locations we've added over last two years would be RER rental company in North America number eight. So when you have a platform that you can actually invest in, you can leverage, you can play off of the platform that John and Brad and the team have built over the years, it really-really is powerful in terms of the results.

And maybe a second question, I guess unrelated, but just thinking about the M&A guidance that you've given for this year of the kind of 2% to 3%. I'm not obsessing about 2% to 3% at all, but just in terms of thinking more broadly about capital allocation between kind of organic and M&A and buybacks or returns.

It seems you made a kind of quick comment around that was less in the pipeline or less attractive maybe or big enough in the pipeline. Can you just give us kind of a bit more around that?

I mean is that you are less, you are just saying less things at the right price that are interesting and therefore buybacks become much more interesting at this kind of share price or just a bit more kind of or if I'm reading too much into it and that's fine as well?

Yes, no I think it's a fair question. First of all, let me be perfectly clear.

There is a very long careers worth of bolt-on M&A. So there's no, it's not like we're running out of shorter taps or potential.

But we buy good businesses and we buy good businesses with good relationships. More often than not they are – Brad, who's here today has sparked up so many of those conversations that we have with others.

So it's a timing thing. So there are good quality assets out there that over time we will put in.

Just so happens to be here we are in June and our coffers aren't quite as full. Now, from a capital allocation standpoint, we spent £622 million in M&A in the year just ended.

That's our largest ever M&A year since we bought NationsRent in 2006. We don't expect it to be unless something comes up that we're not engage with today, we don't expect anything to be.

And, yes, we've talked about our £500 million in buybacks that will continue. But also with the most goals we are today, we wouldn't hesitate at all in terms of increasing that as we have more free cash flow.

Thanks.

Okay. Well, thank you all very much.