Ashtead Group plc

Geoff Drabble - Chief Executive Officer Michael Pratt - Group Finance Director Brendan Horgan - Group Chief Operating Officer

Andy Murphy - Bank of America Merrill Lynch Rajesh Kumar - HSBC Steve Woolf - Numis Will Kirkness - Jefferies Andrew Nussey - Peel Hunt George Gregory - Exane Andrew Wilson - JPMorgan

Good morning everybody, and welcome to the Ashtead Group Half Year Results Presentation. We’ll be following a very usual format.

So, as usual Michael Pratt is here to cover the financials, but also following our recent announcement Brendan Horgan is also here. It is probably very timely, because you are going to actually here what is really happening in America, in American markets.

But also, he is going to cover what we’ve been doing from a Greenfields and Bolt-on perspective in terms of furthering our strategic objectives. So, with that, let me set the scene with some highlights.

Because in a half way, we’ve delivered really impressive revenue growth in markets, which are still very, very supportive. We’ve seen significant progress with our strategic objectives with both greenfields and bolt-ons, and the group has added 80 locations in the half.

And in that period also, we have increased our rental fleet by 15% at constant currency and this was all achieved whilst maintaining very strong levels of physical utilization, again reflecting the strength of our end markets. A real highlight for me this quarter has just been the strength of our margin and as Michael is going to detail in a moment, in the second quarter Sunbelt delivered a very impressive 35% EBITDA margin.

And these margins have been translated into very healthy cash flow. So, after significant investments in growth and after spending £425 million on the December 17 share buyback program, we have still kept net-debt to EBITDA well within our target range at 1.8x.

So, this cash generation gives us a confidence to increase the interim dividend 18% to 6.5p and continue our share buyback program. So, with our business performing well, in supportive end markets, we now expect our full-year results to be ahead of our previous expectations.

And so, with that we’ll get into the detail and I’ll hand over to Michael.

Thanks, Geoff, and good morning. So, returning to Slide 5, which shows the first half results and as Geoff said, it's been both a good quarter and half year with strong growth in revenue and in profitability.

The Group's rental revenue increased 18% on a constant currency basis and we maintained our margins despite opening 47 greenfields and completing 12 acquisitions in the period. The EBITDA margin was 49% and the operating profit margin was 31%.

As a result, pretax profit was [up to] £633 million, that’s a 19% increase at constant exchange rates. The more significant 42% increase in earnings per share, reflects the lower U.S.

tax rate, which result an effective rate of 24% for the half year, compared with 35% in the same period and also there’s a benefit there from the ongoing share buyback program. So, turning to the businesses and Slide 6 sets out the results from Sunbelt in the U.S.

Rental and related revenue increased 18% as Sunbelt continued to benefit from generally strong end markets and to a lesser degree the impact of the clean-up efforts surrounding hurricanes Florence and Michael. Geoff will comment on those in a little bit more detail later.

The operational efficiencies of the mature stores enable us to maintain EBITDA margin of 51%, and as a result, the operating profit increased 21% to $847 million at a margin of 34% for the half-year. Turning now to Sunbelt in Canada, and the slide shows how the scale of our operations have been transformed by the acquisitions of CRS a year ago and then to a lesser extent Voisin's in the earlier part of this year.

So, as a result of that year-over-year comparisons are not particularly meaningful. In absolute terms, Canada generated CAD$167 million in revenue and contributed $36 million in operating profit.

As we discussed in the start of the year, we’re expecting margins in this business for EBITDA of around 40%, and operating profit margin around 20%. Margins in the period were consistent with this with an EBITDA margins of 40% and an operating profit margin of 22%.

Turning now to the UK on Slide 8, A-Plant’s rental and related revenue increased 3% in the period. That was a 5% increase in the pure rental revenue, with a slightly slower growth rate in ancillary revenues.

The market in the UK remains relatively flat and the rate environment is competitive. Good drop through maintained EBITDA margins of 38% and the operating profit margin was 18%.

Slide 9 sets out the groups cash flows for the half year. The strong margins we discussed earlier contribute to £967 million of cash inflow from operations, which gives a substantial flexibility to remain focused on an enhancing share holder value within our capital allocation framework.

This free cash flow was more than sufficient to fund our replacement and growth CapEx in what is a seasonally high of period of the spend. We invested £959 million in the rental fleet as we look to grow in the U.S.

market, in a strong U.S. market and continue to take market share.

In addition, we spent 335 million on bolt-on acquisitions as we both enhanced our specialty capabilities and broaden the footprint, our geographic footprint in the U.S. We also continue to share buyback program spending £210 million in the half year.

Slide 10 sets out our debt position at the end of October. As expected, net debt rose in the period as we spent on the rental fleet, we spent on M&A and we continue the share buyback program.

As Jeff mentioned, this was all achieved whilst maintaining leverage with little of our target range at 1.8 times EBITDA. It’s also worth noting just the scale of the asset on the other side of the balance sheet that supports that debt.

As you will see in the bottom right-hand corner there is a significant gap between the secondhand value of our rental fleet and the debt on our balance sheet. As both this leverage and well invested fleet will provide us with both flexibility and security as the cycle progresses.

Following the July bond issue, our debt facility is now committed for around about six years and the average interest cost is just under 5%. What’s particularly attractive about the structure is the extended profile of the debt and the fact that there are no significant maturities at any point in time.

And so, with that, I’ll hand back to Geoff.

Thanks, Michael. So, turning to the detail of Sunbelt's U.S.

rental revenue, we continued to outperform our original expectations with 19% growth in the quarter and as you can see, the bolt-on performance is in line with our expectations. So, the principal driver of this outperformance and the principal driver of our growth remains our organic investments.

So, let us turn to Page 13 now, just to look at all of this in a little more detail. As you know, last year was a particularly active hurricane season.

We had three significant events. This year there’s been two, which again unfortunately caused major devastation, but partly due to the timing of the events and partly due to the geographies affected, we’ve generated [$15 million] of revenue from hurricanes this quarter, as compared to $35 million last year.

So, if we adjust for this difference, the underlying revenue growth in Q2 was a very impressive 22%, and this momentum was carried into November, which is why we are tweaking up our revenue and CapEx guidance today. Now, moving to rate, and the significant bump last year, due to the hurricanes does affect the prior year.

As you can clearly see from the chart. So, year-on-year rates are flat as we lap these tough comps.

However, the overall environment is really positive. So, if you look at the chart there on the right and rate as you would expect fell as we sequentially went into winter.

However, our winter low points this year where the same as what the prior year August high points where, pre-the hurricanes. And let me tell you on a historical basis, that is a very, very strong performance for winter.

And since this point, we have seen good seasonal rate improvement, which as I said earlier has encouragingly continued through November also. The noise in the headline rate has also been effective by the scale of the green and bolt-ons we’ve done in the first half and which Brendan is going to talk about in a moment.

Therefore, we’ve added more detail to the rate chart to show the rate evolution, which is the yellow line there for just the same stores, if you take out the drag effect of greenfields and bolt-ons you can see the strong sequential improvement on same stores. I think, this further analysis is just there to confirm that we remain in very healthy and great environment.

Turning to Page 14, and mix remained yield headwind with a multiple portion of our business increasing to 71% and this together with the tough comps contributed to negative 2% yield. So, this yield metric continues to be volatile as it was indeed last year, but I think really important metrics to highlight on this page are, and in the second quarter we grew fleet on rent by 21%.

We delivered 52% EBITDA margin and a 35% EBITDA margin and a 24% ROI. So, clearly, we are seeing significant growth in gaining market share, but also clearly this incremental business is very, very profitable.

Moving on to physical utilization and despite the fleet growth we mentioned earlier, it remained very, very strong. So, I’ve included a frontier.

The split between general tool and specialty to try and fully explain what’s going on in the markets. So, as you can see a total in general tool utilization remains at or near record levels, but the real development over the last couple of years has been the year around improvement in specialty as we continue to broaden our markets.

Therefore, even though we’re clearly in the strong cyclical period for general tools, the specialty business is now up to 24% of our total and we’ve seen 20% compound annual growth in that area over the last three years. So, even as we grow and enjoy the benefits of strong construction markets, we continue to successfully diverse effect the business.

This broadening of our specialty offering is a trend we expect to continue, that doesn't mean that we don't also see significant opportunities for our general tool business. On the first half, have seen good activity in both areas.

Our overall 2021-plan remains in place, but we have accelerated some greenfields to respond to the significant market consolidation that’s been taking place. So, in the first half, we’ve opened 44 greenfields and expect to complete somewhere in the 70 to 75 range for the full-year.

And we’ve also spent $386 million on bolt-ons and we continue to have a very good pipeline of opportunities. So, to look at what we’ve been doing in this whole area of greenfields and bolt-ons in our strategic development it’s a great time to hand over to Brendan.

Thank you, Geoff. And good morning.

You would have seen Geoff on this last slide here just point out the progress in our greenfields and bolt-ons over a period, but it is clear to see we have a very active expansion. We’ve had an active expansion active, particularly in the period.

And we’ve done this because we see the opportunities in the markets. Both as a result of some of the recent industry consolidation, as well as the overall strong demand that we are feeling and seeing from our customers.

Our strategy is unchanged and our activity levels are simply timing as we take advantage of these market opportunities. What this represents is just an acceleration of our 2021 plan.

Importantly, it demonstrates the flexibility that we have in these plans to react to the market conditions whatever they may be. As Slide 17 illustrates, our expansion is both geographic and product-based.

Adding a nice mix of general equipment and specialty locations through our greenfield and bolt-on program. These additions advance our offerings across many geographies from a service proximity and convenience standpoint, as well as adding a broad range of products through our specialty expansion.

In this half alone, we’ve added locations with product solutions specific to our Power & HVAC pumping, flooring, trench shoring, climate control, ground protection, and industrial focus tools. We’ve done all of this to service our ever broader customer base and our end markets.

As we continue on the expansions theme here on Slide 18, we’ll take a somewhat deeper dive into one of our more recent bolt-ons, specifically the acquisition of Interstate, which we would have completed on 13 August and covered to some degree in our Q1 results. The addition of this business with a real notable presence in the large New York City and Philadelphia markets accelerates our cluster with all the cross-selling and margin enhancements benefits that this will bring.

Even though we have said this many times I’ll point out again, our bolt-on strategy focuses on revenue synergies and the Interstate deal is a really good example of that. It brings this business with a good presence in the market, but also in areas where Sunbelt has historically been underrepresented.

However, if you think about Interstate their product offering would have been purely aerial. So, this creates the opportunity for us to cross sell into the Interstate customers, our much broader product offering, while at the same time it allows us to better service our existing customers with an overall better aerial offering.

As we move to Slide 19, I think this demonstrates really well the revenue synergy impact we’ve had by introducing this broader customer base and the product range and the overall really leveraging of the Sunbelt platform in these markets. So, in the 10-weeks since we’ve owned this business, we’ve increased their time utilization as you can see from 60% to 73%, all while improving the time utilization in our incumbent somewhat locations in these very same markets.

When we look at a rate, it should come as no surprise that the Interstate rates they were lower than ours. This slide shows relative rental rates using Interstate’s four largest product categories, as compared to Sunbelt’s in the same markets and as you’ll see there is anywhere between a 10% and 20% difference in that rate.

I think this brings us back nicely to Geoff's earlier point when he was referencing the impact of bolt-ons and greenfields specifically to our average rates. These always have some drag on rates, but as rate will inevitably and ultimately follow time utilization, we will begin to see these improve as we leverage the overall platform that I mentioned earlier.

On Slide 20, you will see here from our market view standpoint, look it’s easy for me to stand here and say, on the ground the markets are very active. Virtually irrespective of the geography in which we operate, the markets are active.

And they’re active from a very broad aspect. We can look at construction and say sure construction is busy and it’s busy with a nice mix, but what really stands out to me is the activity across our general equipment and specialty businesses in areas like special events and maintenance, and the many rentals taking place in ordinary square footage under roof applications every day across our entire business.

So, the outlook remains strong whether we look at the latest IHS ARA forecast, which was released in November, increasing industry revenue to 66 billion in 2022 just for the U.S. and 72 billion for North America in total.

In this they project greater rental revenue growth in every one of the component years through 2022 then they did just in their previous forecast from six months ago. So, very recent uptick there.

Their forecast of course takes into account more than just construction, as they have some understanding of rental penetration and areas like MRO and square footage under roof like we’ve also pointed out in the slide. Another measure worth mentioning is the most recent America's builders and contractor indicator, backlog indicator, sorry.

So, as you’ll see here, it is showing improved momentum and it’s actually at an all-time high. This is an interesting one to me, given if you really think about what the make-up of the participating members of ABC would be.

It is a very broad range of contractors who work in very, very varying range of end markets project size et cetera. This outlook is further supported by the spend from this year's corporate tax cuts, which will really only begin to translate in the projects in 2019 and beyond and we’re actually seeing the early signs of this with significant sized projects nearing start.

Things like data centers, distribution warehouses and multiple examples of office expansion and renovation. We have to look no further really than the Amazon HQ2 project or better now said HQ2 projects that were just announced last month.

So, the trends in our business and in the forecast like those I’ve just covered are easily clouded it seems at the moment. It’s been a long recovery and as a result it’s normal for people to ask how much longer will it be?

My answer to that question goes back to what I said in the beginning. We see good end markets, and on the ground, we continue to see growing backlogs.

Nonetheless we watch closely key lead indicators and sure the pace of growth will at some point and inevitably slow. We just don't believe there is evidence of that being anytime soon.

Moving on to Canada. Like the U.S., the markets are very strong.

And I think it’s important mentioning that we’re uniquely supported by the increase in demand from our customers both those that are originating in Canada and those where the relationships would have begun in the U.S. Not similar to what we would have experienced in the U.S.

We find these customers wanting a broader product range coupled with the convenience and coverage of added locations. I'm very happy also with the integration of our recent acquisitions in Ontario, specifically those of CRS and Voisin's from which we now have the platform.

We have the platform to gain further share in the general equipment and specialty space, again some of the progress we would have demonstrated in the U.S. over the last several years.

In fact, in the quarter alone, we’ve added a power generation in flooring business, that’s the beginning of folding specialty businesses into that platform I referenced earlier in the Ontario market. And in the financials as you will see, we have continued progress with pro forma rental revenue growth of 21% and as Michael would have said earlier, margins becoming in-line with our near-term expectations.

So, with that I will turn it back over to Jeff.

Thanks, Brendan. So, let’s complete the set by turning to A-Plant and we’re very much on plan to deliver what we expected and continuing to get sensible volume growth.

We’re pushing at physical utilization and we’re trying to keep a sensible handle on rate, which as Michael pointed out earlier, is allowing us to deliver consistent margins. We’re going to continue to control costs and fleet until we get greater clarity on end markets, but we expect to remain on plan for the balance of the year.

And what does all this mean for CapEx here on Page 23? Well our strong momentum with fleet on rent is reflected in our increased guidance for both the U.S.

and Canada. As you might expect from what I’ve just said, the UK remains on its original plan.

Therefore, the group's anticipated net spend has been increased to between £1.25 and £1.4 billion as we respond to the needs of the market and our market share and opportunities. Turning to capital allocation on Page 24.

Look our priorities remain absolutely unchanged. Obviously, when your cash flow from operations is nearly £1 billion as Mike pointed out earlier, you’ve got a few options.

But our focus remains on organic growth as you can see by what we just said on fleet spend and we look to bolt-on M&A where we spent £362 million. We’ve increased the interim dividend in-line with our progressive dividend policy to 6.5p a share.

So, after all of this and subject to remaining within 1.5 to 2 times leverage target, we allocate the balance to share buybacks. So, we expect to spend £675 million under the December 2017 program and anticipate a minimum spend of 500 million in the financial year 2019-2020.

But given the recent weakness in global stock markets we of course review the relative returns of M&A versus buybacks. And we believe the deals we have done and hope to conclude in the near-term have a very sound strategic logic and represents value enhancing opportunities.

And we will continue to look at deals of that nature. However, we do remain flexible as the relative capital allocation between these two priorities going forward.

And as I said at the beginning, given the scale of our cash flow we have lots of options. So, to summarize, look it has been a very good quarter where we’ve seen good revenue gain share delivered strong margins and cash generation and it has been an improving trend through the quarter.

Our organic growth story continues to deliver responsible growth as we maintain leverage within our conservative range of 1.5 times to 2 times EBITDA. In addition, as Brendon just highlighted, we’ve opened a number of greenfields completed further bolt-on acquisitions as we continue to broaden our geographic and product reach.

During this quarter, there has been another very significant milestone and that’s been the finalization of our well flagged CEO succession. If I could add a personal note to all of this, I am delighted that it’s going to be Brendon leading the business forward to yet further success.

And of course, I wish him well, mainly as a shareholder. So, with that and to wrap it all up, just to remind you all that we continue to perform well in support of end markets, and we expect full-year results to be ahead of our prior expectations.

But most importantly, we continue to see good opportunities well into the medium terms and remain committed to our 2021 plans. So that seems like the appropriate point to move on to Q&A and you all know the drill.

Of course, Andy that was pretty quick to get a hand-up.

Good morning. Andy Murphy from Bank of America Merrill Lynch.

Just on the CapEx slide, quite interested to see that you’ve increased the replacement CapEx by quite a considerable amount, I was just wondering what the thought process was behind that, I would have thought you would have been pretty much on top of wanting to replacing probably years in advance.

I mean, a lot of it is a reflection for example of the amount of bolt-on activity. So, when we value businesses there is always a little bit of extra activity as we reconfigure the fleet to make sure that we have a consistent offering across our locations.

So that’s an element of it. There is a [bit in all truth that] after a period of heavy hurricane activity, some of the stuff comes back pretty beaten up and so that’s just – so there is some timing issues and there is some tidying up.

It doesn’t single any great change in our normal activity levels.

Thank you. Second question was up just around the direction of rental rates with regards to U.S.

interest rates, which have been heading up, does that help you in anyway?

Looking in theory, yes. Eventually, of course because it’s going to make a whole host of things are going to make the original cost of equipment likely more expensive be that tariffs, be that steel inflation be that interest cost.

I am not sure there is as direct a correlation as there may be on your spreadsheet, but the overall rate environment is very strong. I think the way we look, I think one of the problems with rates is that people expect things to happen very, very quickly and look at the short-term impact.

So, if you go back to Page 13 a second, people get awfully worried about what’s happening in a quarter or in a month and how quickly things translate. The way I would look at is, if you go back to October 2016 and go to October 2018, look over a two-year period, we would have increased fleet-on-rent by 42% and improved rates nearly 5%.

Now, if you had asked me in October 2016, if I draw a straight line between those two points, would I be happy with that, the answer would be yes. No, what you got of sort of ignore is the wiggly bin of string between those two points.

Do I expect good rates improvement going forward, yes, will it always be a completely straight line? No.

You get too much [noise look], we’ve got good momentum going into in November on rates, does that mean it’s going to be great in the next quarter? Whether it will depend how cold it is and how many heaters we get out on rent.

It literally can be that – that noise can make that level of difference, but the overall rate environment and look at our margins and look at our return-on-investment remains very positive.

Thank you.

[Steve Gordon] from Deutsche Bank. So, just on the point about rates before, I think you said there minus 2% but…

Yields were minus 2%, rates were positive. Well rates were flat quarter-on-quarter.

Yield is negative.

Okay. Was there hurricane impact within…

Yes, because the composition of the fleet on rent changes between the relative levels of hurricane activity. So, there was the, how are you sort of delta from flat rates to negative yield is a combination of the fact that we now had 71% of all rental was monthly.

So, there is a contract duration perspective and there is also an element of the type of fleets you have on rent. So, yes, they are the two.

So, it’s a lot of reflection of what we’re getting for the same customer for the same piece of equipment.

I just wanted to ask you about wage inflation in the U.S. as well, particularly as it relates to your drivers and tracking costs in particular are going up significantly in the U.S.

Is it something that will affect you, how much of that you expect to be positive [ph]?

It is something – look, I would go [indiscernible] we were the first person to start highlighting wage inflation. We started highlighting and when people were arguing with us that it didn’t exist and that was a reflection that the U.S.

economy wasn't very good. If I go back far enough.

Look, we have been suffering as like everybody else in the industry, some level of cost inflation for a number of quarters and a number of years now. But as you can see, by the evolution, particularly of our EBITDA margin, and our ROI, we’re just dealing with it.

We're dealing with a combination of rate. We're dealing with a combination of efficiency and leveraging our scale.

So, yes, it is a reality of the current very strong markets, which exist in America. You have seen a drop through for the quarter, which was 53% from 50% in the first quarter.

So, we're just dealing with it. I mean it’s a reality of business, there is no point arguing about it or trying to worry about it.

You have to adjust your business and pull whatever levers you can pull to make it happen, but remember why it’s there. You’ve kind of in both ways, it’s there because there is a shortage of labor because the economy is so strong.

Thanks a lot.

That’s a reportable incident. There goes our health and safety statistics.

Good morning. Rajesh Kumar from HSBC.

Just on the US wage inflation, you very kindly provided us why it’s strong and how you’re able to counteract that. In terms of market opportunities, do you find any opportunities arising because they have a labor shortage in terms of growth in terms of providing any additional service?

Absolutely. Look it is a very tight labor market.

There is likely to be inflation not only in operating cost, but capital equipment. Because the capital equipment becomes more expensive to purchase and both the cost and complexity of taking on operational skills to support that fleet become more difficult people are more likely to outsource and look for shorter-term flexible solutions and rental of course is perfect for that.

As Brendon talked about and articulated very well over the years, this whole concept around square footage under roof is driven by both cost and complexity of ownership. So, anything that makes ownership more costly and more complex plays absolutely into our hands and our principal, which is, if we focus on availability, reliability and ease, why would you not rent.

So, yes, I think that absolutely drives people's rental.

And the second one is on the U.S. market.

We’ve seen United Rentals do a lot of acquisitions, market is consolidating at a really fast pace, how do you think about your strategy in terms of procurement, in terms of competition in the light of what’s going on?

I think, I hope we’ve repeated a number of times, and I’ll hand over to Brendan to answer this too. We think our strategy remains unchanged, and again I’ve seen people say, well they’re going to end up with all this purchasing power.

Well the reality is, because of acquiring lots of old fleet and then having to integrate businesses, they’re not spending a lot on fleet, they are spending a lot on M&A and actually with. So, they are unlikely to get a purchasing advantage.

Again, for a long time I have been a big proponent of consolidation in the market and you remember we’ve had various slides over the years saying the big will get bigger and that disconnect between the top two and the rest will be positive for the market. So, I think the strategy makes all the sense in the world, clearly when you're doing that scale of consolidation in the short period of time and your primary focus is cost synergies, that in the short-term undoubtedly provides us with opportunities and hence the acceleration in our greenfields and some of our bolt-ons to make sure we have both the geographies and the products to take advantage of that disruption.

So, if you look at the scale of our organic growth and our market share gains, it’s caused us a lot less to get to that revenue growth in some of this. I’ll let Brendon comment on how he sees the whole consolidation market.

I mean, you think you have got the majority of it there Geoff, but I think it comes back to that key point of the difference between our expansion plan and it’s been pretty consistent from out of the gates for us, both the plan of growth that we had pre-our 2021 plan, which we rolled out in 2016, and also our 2021 plan that we’ve had ever since, and all along it was a compliment of greenfields and bolt-ins being folded in, where it made sense to fold them in. There is just, I don't think you can underestimate the impact between unit as a revenue synergy add-on versus a cost synergy.

Look, in our business when you look at M&A and you look at the cost savings, cost synergy opportunities you are sure. We’ll have little cost savings here and there when we integrate the business because there will be a CFO in a business and be known don't need to.

So, simple things like [indiscernible] we will be, but when you get to the point of closing the [addresses] and you get to the point of reducing overall heads because I mean in the end in our business cost savings are people. They are fleet and they are facilities.

In a market where we have 8%, 9% market share we have all the opportunity to be looking for all of these cross-selling synergies like in the instance that we give with Interstate and look we’re not worried at all in the current climate about us losing any of our advantages from a strength of purchasing standpoint. You know, we buy bigger than our own shoes so to speak.

So, our spend would have been even more so than what our share was within the industry. So, rest assured, manufacturers and suppliers into the rental space, they pay very, very close attention to us.

I mean, being the kind guy that I am, obviously will gave Brendon all the best slides for his first time up here. But I mean this slide here is just huge.

I mean, think about it. Think of all the disruption and the potential loss of revenue as you go for cost synergies.

If you move your physical utilization from 60% to 73% all of that revenue growth kind of comes for free. You’ve already got the locations, you’ve already got the fleet.

If you can then sort of start making progress in that Delta in the rates too. And that’s before you get into all the cross-selling opportunities that those [7,500 customers] that they had who have never rented heaters from them before, never rented sort of air-conditioning units before.

So, if you start looking at those revenue synergies is why we like buying these smaller businesses, which are strong in the product or strong in a product category, and developing the revenue synergies. It doesn't mean to say, the cost synergy doesn't work, the evidence would be that it does.

That’s our model and we’re very happy with it.

Good morning. Steve Woolf from Numis.

Just sticking with our M&A point, how have you found that on the bolt-on M&As with the way that the market has gone more recently, how have you found the multiples then if those, have they not changed at all?

We got to be very, very careful because what I said about our capital allocation is true, if it happens for a long period of time. Some guy who’s flogging us his family rental business that he's run for 20 or 30 years doesn't change the price because our stock price has fallen by, whatever is fallen over the last two or three months.

So, we’ve not seen any significant changes in multiples, but back on Planet Earth it doesn’t affect what an average guy thinks his business is worth and again the primary multiple relationship remains how much fleet are we buying from them. And second-hand prices haven't really changed.

Thanks. It is Will Kirkness from Jefferies.

Just a couple please. Can I just clarify your comment on growth in November, was it 22% rental revenue growth?

Yes.

And then…

I haven't seen absolute fine cuts, but around that number. It was a really good November.

Okay, great. And then secondly, any color on the type of kit for the extra CapEx, was there anything in particular stands out or?

I mean, I think Geoff mentioned earlier, keep the mind part of our CapEx as it will change over time depends upon the bolt-ons we would have done late last year and earlier this year. A significant portion of it would be going into the specialty business, you don't get growth the way that we have that Geoff would have demonstrated if you don't do that.

But we keep in mind, our ability – part of our success over the years has been our ability to react to the market. So, react the market to be able to bring in the gear when the gear is in demand.

So, we work very closely with the manufacturers that I mentioned earlier and we’ll be working with them on backlogs. We don't hesitate for one minute.

If an asset was planned to go to replacement in Chicago and we have opportunity in Philadelphia. We will divert that asset from where it would have gone in Chicago as a replacement unit, make it growth in Philadelphia and then we will put another asset in the build for that later replacement Chicago.

But broadly though, our fleet mix hasn't changed.

I mean, we've continued to see really good growth in market share in our general tool operations. You can see that from our greenfields in there, but we continue to remain committed to developing our specialty business, because I was revising last night and reading through the press release again.

It struck me when you – if you get a chance to look at the press release, look at what we've done since the quarter-end in M&A, and it's really quite interesting, because in the UK, there's two really [cute little] specialty businesses, there’s a survey business and a hoist business, which are all sort of like lists you see on the outside of tall skyscrapers going around here. And then in America, we've bought another [indiscernible] business, I don't know maybe as we develop our trend [indiscernible] and quite frankly following on from United's acquisition of bigger client, we bought a really cool pump business.

So, even since the quarter-end, there's four very, very specific specialty business, which was in their own right or not massive and aren’t going to move the dial in the short-term in terms of our financial numbers. But it’s a platform for further development.

It really shows you the scope that we have to develop our specialty business. Mike, I was reading last night.

Thank you. I’m holding the mike.

Andrew Nussey from Peel Hunt. Again, another couple of questions.

In terms of the greenfield, you’ve obviously accelerated your plans. Does that make it harder to bring the next wave of greenfields through, whether it's an issue of zoning, cannibalization?

[Indiscernible] [Multiple Speakers]

Look, anyway – it won't come as much of a surprise buying 2021, one of the fundamental changes from what our previous expansion plan would have been is building out our platform for clusters, right? So, obviously, you will have seen a lot of these ads in areas that we would have otherwise served, but we're just under clustered.

It's not coincidence that happens to be relatively East Coast biased. I did mention some of the recent industry consolidation.

I think, you'll find, that's where quite a bit of has been. Look, in terms of us finding land, is it harder to find a land than it was to find a land in 2012?

Well, of course, it is. Is it harder to find businesses that you can just up fit that are just sitting readymade?

Well, of course, it is. But we have a very strong ground game, so to speak, of a team that's constantly out there looking for facilities and properties.

Obviously, sometimes, we will complement that with bolt-ons as well, but just look West of the Rockies. So, look, in terms of where that opportunity continues.

We can talk about population, put in place construction, et cetera. An example, I'll give you, if you look at the state of Florida, we have about just over $1.1 billion in fleet invested in the State of Florida.

There’s about 20 million people population-wise in the state of Florida. California, we have about 600 million invested.

There’s 37 million people. So, just think about, that comes out to about like-for-like would be $2.1 billion in fleet, we would need to have a same level of penetration in California, as we have in the State of Florida.

So, plenty of tail left on this for sure from an expansion standpoint.

[Indiscernible]

On the – going back to the Interstate slide and the utilization improvement, is that sort of like-for-like, or is there some sort of seasonal influence on the utilization?

Like, I mean, utilization in aerial is very, very – there may be a tiny bit. By the time you’re in May through to November, you’re a full steam ahead.

The 13th of August to October 31, right? I mean, the business that you said, let's get to plus 70 by Halloween and there you have it.

Good morning. It’s George Gregory from Exane.

Just one please, Geoff, Michael or Brendan, for that matter, when you think about when you do your scenario analysis for the various potential outcomes over the next few years. How do you actually settle on a level of potential yield compression in any of your business?

What metrics do you look at, if any?

The hard bit with yield. We talk about rates rather than yields.

The yield gets hard, because it's hard to be precise on the mix in terms of the precise mix of rental contract length, where we're now in great markets and as Brendan said, there's a number of major projects either just started or about to start, where we're going to have super length contacts. We would least talk about all the mix between daily, weekly, and monthly contracts.

And in those days, monthly contracts were monthly contracts i.e. that typically were out for about a month.

The problem with monthly contracts now, a monthly contract really means, it's out for a year or two. So, the whole dynamics of the business has changed.

So, the mix gets difficult. So, we look at it more from a rate and a volume perspective and we look at all of the lead metrics that Brendan has.

We consider inflation, because ultimately, inflation will over time play into it at all. So, we model a rate environment and we guess what impact that will be in terms of yields and we model volume growth.

So, we sit down and look at all of the lead indicators Brendan saw there. We try and put in a – an analysis of how much market share we think we can gain.

And we do that by district, like what is our upside potential market share by district and we add-on a bit of a line for bolt-on acquisition. So, like we look at all the lead indicators.

We focus more on rates, sorry, and the yields is a bit of a [indiscernible] to be perfectly honest.

I suppose that in your returns obviously far higher than they were at this point of the prior cycle, but industry returns presumably are higher than they were at this point to the prior cycle?

Look, we – remember, we are not Michael [indiscernible]. I will say, look, we are at low-50s EBITDA margin in the state.

We're typically buying businesses at around mid-30s, and yes, they are a bit higher, but they're not as much higher than they were in the previous – the new as you might think, because what we – remember, our – we got it in the appendices like all the way through the cycle. When we – the problem is when people look at where we are now and where we were in previous cycles, you're not comparing apples with apples.

We saw – remember, we in the past, we saw in those charts where we see existing stores how much bigger they've got, how we've leveraged to scale. So, we were in a relatively unique position that we had a relatively immature portfolio of locations, and therefore, got a lot of free growth within those stores.

And I'm not sure a lot of the smaller players have that scale – same scalable opportunity that we have. It is in there anyway, let me just note.

[Multiple Speakers] [indiscernible] I got straight to his slide. So, I mean, the issue is, and I understand people going about, oh, my goodness, it was like 30 group EBITDA margins and that 47 is 30, what happens again.

But you're just not comparing apples with apples. If you look at the fleet, which was in the same stores and the margin, we can dig it out again.

I'm sure Michael can share it with you. We showed you many times, what's happened to those most mature locations in terms of stores, then we've just – we’re just a completely different business in terms of scale and how we leverage a fixed cost base.

Hi, it’s Andrew Wilson from JPMorgan. Just a couple of quick ones, I hope.

Just in terms of thinking about the CapEx planning and I guess [indiscernible] more generally. Has anything changed in terms of kind of where you see the optimal fleet age?

No, not at all. I mean, look, again, it will be affected by the fleet mix, because different assets have different fleet age.

It is mathematically affected by the proportion of growth you have relative to – so our fleet age came down very, very quickly, not because we were doing anything different just, we've had so much growth. When I would discrete [ph], it's a slide for Brendan to share the capital markets there sometime in the future.

There's two things that make me very, very confident about the future. One is the chart Michael shows, which says, look how long our debt maturity is and look how steady it is.

So, there's not like this critical event that you have to get over, that's very different to where we've been in previous cycles. But if you were to look at the fleet age too, what we typically used to have was like dollops of fleet age and then nothing happening, which meant there was always this event that you had to get over, which was that $1 per fleet.

So, our fleet age wasn't very representative, because whereas now we've been spending not dissimilar sums for a number of years and therefore, the distribution of our fleet age is spot on. But in terms of how we are managing it other than the mathematics and a little bit of tweak, because the fleet mix no, we’re dealing with exactly the same.

And have you seen any change in terms of how the industry is looking at fleet age?

No, if you do look at our – all of our customers – our competitors and our customers like they woke up in the end of July and thought life was great. And they are working at the end of November thinking life is great.

Someone else in some of the markets has decided something else is going on, but no one else in the real world has seen any of that in terms of either their current activity levels or their prospects for the medium-term. So, if you're spending so much money on M&A and you're acquiring what typically is a very old fleet and you're acquiring what is probably a disconnect fleet in terms of lots of different brands, you've got some management to do.

You've got some seriously fleet management due to get that good distribution of fleet age and get a consistent brand identity into your fleet. But anyone who is just ticking along is normal, everyone is pretty complaisant.

I think [indiscernible] if you just look at – if you look at Slide 34 that you have there, just the lineation in terms of fleet age on that pie chart, look, I mean, the likes of us and a few others generally are going to have a more modern fleet, a bit newer. Geoff is right about various expansions strategies that won't quite give you as precise a balance fleet as what we find ourselves with today.

But make no mistake when you drop into those smaller independents, you will have an order fleet age.

And maybe just on Canada and I mean, I can’t remember where exactly it be, so if feels like a year or so since you've been given some of the numbers. And obviously, that stretches [ph] like it’s really been ramping.

Can you just give us a sense of kind of where you are versus where you thought you were in kind of where you are in terms of how you assess the opportunity before you kind of, I guess, jumped in on that opportunity?

Yes. I mean, well, I’ll tell you, I use the example before of California just so happens to be California as the same population as Canada.

So, it's kind of about the same size market. Look, it's a big market.

We have considerably less market share than what we have in the U.S. But underneath at all, we find the very similar characteristics.

So, those customers, in particular, as I said before, are looking forward to someone that has a broader platform bringing in those specialties is a bigger that they thought it would be. Well, it took a CRS to come our way in order to really materialize that.

But what we now is, we have a nice platform for further growth on the West side in British Columbia and Alberta, and then we have this nice platform in that overall Ontario market. So, we are very positive about Canada and see a lot of the similarities between the two and expect to ultimately see our results continuing to grow.

It's just – we have miles and miles of runway.

Thank you.

That seems to be it. So, on that note, thank you very much, indeed.

We shall – well, Brendan will look forward to seeing you at the year-end. Thank you very much, indeed.