Ashtead Group plc

Good morning everyone, and welcome to Ashtead Group Results Presentation for the Half Ending October 31. I am joined by Michael Pratt.

And together we will cover our first half financial and operational performance. Before we get into the slides, I'd like to take this opportunity to thank our teams throughout the U.S., the UK and Canada for their dedication and engagement, particularly around our leading value and priority, which is the safety of our team members, our customers, and the members of the communities that we serve.

It is in this context I'm pleased to recognize the outstanding efforts, which delivered a reduction in the number of work-related injuries. Through the half year, we experienced a 13% reduction in lost time injuries.

This is over a period when we had more hours worked, which in our business means more loading and unloading, more miles driven, more scaffold built all of this making this key safety metric all the more meaningful. Our commitment to advancing the safety and well-being of our employees, our customers and the communities that we serve never ends.

And it is for this that I am grateful to the teams’ outstanding efforts. So let's turn to the highlights on slide three.

We've enjoyed another strong first half of revenue and profit growth. The strength in our performance is a result of our ongoing operational excellence, strength in our North American end markets and the important structural change opportunities, which remained very much present within our business.

Our strong cash generation and ongoing balance sheet strength enabled us to execute on all of our capital allocation priorities. In the first half we have invested in existing location CapEx, Greenfield openings, key bolt-on acquisitions, and returns to our shareholders through £250 million in share buybacks, all achieved while remaining inside our long-term leverage range.

I'm also pleased to announce a 10% increase to our interim dividend. With this strong set of results and positive market outlook, we continue to look to the medium-term with confidence.

So, before I get into some of the operational detail and some added color on the markets that we cover, I'll hand it over to Michael to cover the financial results.

Thanks, Brendan and good morning. The Group's results for the half year as shown on slide five and as Brendan said, it has been another strong performance.

As I did in the first quarter I’ll present the figures on both the pre and post-IFRS 16 basis. I'm actually only going to comment on the pre-IFRS 16 basis, given that they are comparable to the prior year.

The Group's rental revenue increased 13% on a constant currency basis. The EBITDA margin was strong at 48%, all while opening 31 Greenfields and completing 11 acquisitions in the period.

With an operating profit margin of 30%, underlying pre-tax profit increased to £705 million, while earnings per share increased 11% benefiting from both the profit improvement and the share buyback program. So turning now to the businesses, slide six shows Sunbelt’s first half results in the U.S., rental and related revenue was up 15%.

This is a good performance when you said it against two prior years which were impacted significantly by hurricane activity. In contrast this year, the hurricane season was far quieter, even to the extent that it was a small drag to our results.

The EBITDA margin was strong at 50%, although it does reflect some pressure from the relatively lower rates of growth and the drag effect of the significant number of new Greenfields and bolt-ons that we've completed over last couple of years. This congregated to the drop-through rate of 48% for rental revenue through to EBITDA.

Operating profit grew 11% and was $940 million at a 33% margin and an ROI of 23%. Turning now to Sunbelt in Canada on slide seven, rental and related revenue growth of 19% included some benefit from acquisitions during -- over last year or so.

Organic growth remained healthy or was a healthy 10%. This generated EBITDA of $80 million and operating profit of $40 million at margins of 40% and 20%.

The Canadian business is performing as we expected and is benefiting from last year's fleet investments and as we put that fleet to work it’s increasingly improving the performance. Turning now to slide eight, A-Plant's rental n related revenue was down slightly at £218 million, a small increase in total revenue reflects the higher level of used equipment sales, as we de-fleet underutilized and lower returning assets consistent with the plan that we outlined in June.

The market in the UK remains relatively flat and competitive. So this environment combined with small losses on the de-fleet compared with gains on sale a year ago, and the cost of realigning the business has contributed to weaker margins with an EBITDA margin of 32%, and operating profit margin of 12%.

As a result, A-Plant's operating profit for the period was £30 million. Brendan will comment further on our progress against the operational plan for A-Plant.

Slide nine sets out the Group's cash flows for the first half year. The strong margins we discussed earlier produced cash flow from operations of £1.2 billion, giving a substantial flexibility to enhance shareholder value within our capital allocation framework.

This free cash flow was more than sufficient to fund both replacement and growth capital expenditure in what is the seasonally highest spend period. We invested £937 million as we grew the fleet in a strong U.S.

market and continue to take market share. In addition, we spent £246 million on bolt-on M&A as we broaden our specialty businesses and enhance the geographic footprint and £250 million on our share buyback programs.

Slide 10 updates our debt and leverage position at the end of October. As expected net debt increased in the period as we continue to invest in fleet and bolt-on acquisitions, and continue the buyback program.

In addition, the adoption of IFRS 16 added £883 million to debt on the 1st of May. Leverage was within our target range at 1.9 times on a constant currency basis, excluding IFRS 16 and 2.2 times if you include IFRS 16.

Both our leverage and well invested fleet continue to provide a high degree of flexibility and stability in support of our strategy. As we’ve said on many occasions, a strong balance sheet gives us competitive advantage and positions us well for medium term.

As shared on Slide 11, in November we took advantage of good debt markets to strengthen that position further. We issued $600 million of both 4% and 4.25% notes and use the proceeds to redeem the $500 million, of 5.625% due in 2024, and pay down an element of the ABL facility.

This provides us with more capital for a longer period of time at a lower average cost, and importantly, with a very smooth maturity profile. Our debt services are committed for an average of six years at a weighted average cost of 4%.

And with that, I'll hand it back to Brandon.

Thank you, Michael. We’ll now move on to an operational update.

So beginning on slide 13, you'll see Sunbelt U.S. delivered 12% rental revenue growth in the second quarter contributing to 15% growth in the half.

This was led by strong organic growth of 10% and 5% from bolt-ons. This is an impressive place -- pace rather in isolation, and even more so on top of the 19% growth we experienced last year in Q1 and in Q2.

This growth demonstrates we are clearly gaining share as we outpace the market by 3 times through realizing the benefit from the ongoing clustering activities our greenfield and bolt-on program deliver and the positive underlying demand environments that we operate in. Although this level of growth is strong in its own right, underlying is even stronger as we were absent hurricane activity in the current period, which of course was a contributor last year.

So let's move on to slide 14 and take a look at some of that detail. The table highlights the pure rental hurricane benefits in last year's Q2 against a non-existent revenue contribution hurricane season in the current year.

The underlying growth of 14% for trade would of course contribute exclusively to our organic growth revenues. As we've documented well in the past, what may seem like relatively small revenue figures in any single period, they can have a disproportionate impact on key short-term metrics such as rate, margin and fall through against just the comparable periods.

It's worth reminding you this hurricane impact on comparable metrics will continue into Q3 at similar levels as we have experienced here in Q2. Taken this into account, and as such you will see the demand environment remains strong, expressed here by our healthy rate levels which continue to yield year-over-year improvement absent the direct hurricane period itself.

To further illustrate strength in demand, let's turn to Slide 15. Here you'll see the utilization remains strong on a fleet 18% larger than a year ago.

Our general tool utilization was at or near peak levels achieved over the last three years with just the short lived exception of direct hurricane period comps in each of the year shown. Our specialty business, which has enjoyed exceptional growth over the last several years has recorded utilization levels better than two of the last three years, which again, is only below periods with direct hurricane comparisons.

We're incredibly happy to deliver 22% increase in specialty business fleet on rent, again demonstrating strong growth characteristics. In both instances, these are strong utilization levels in absolute, although particularly strong when you consider our organic growth strategy of greenfield and bolt-on additions, which we’ll cover in more detail as we move to slide 16.

We continue to make good progress on our 2021 plan adding 44 locations in the half, spread between specialty and general tool and once again being led by our greenfield program and where appropriate augmented by our key bolt-ons. Over the last 10 quarters we've added 229 locations in the U.S., with more than 60% of these being specialty.

This is a powerful demonstration of our experience and our success in executing a consistent and targeted expansion. These businesses individually and collectively are highly profitable, driving momentum through all of Sunbelt.

While, the logic and success of these additions should be clear enough on their own, we do have to point out that they are of course not as mature as the balance of our business. And as such have a drag effect on some of the commonly followed metrics that we have outlined on the slide.

This expansion approach is unique to our growth strategy. And as you would expect, we have a very clear pipeline of greenfields in place for the remainder of our 2021 campaign.

Moving onto slide 17. We share more detail of the growth in the first half between general tool and specialty.

Our general tool revenue growth is weighted toward organic investment, delivering a growth rate double that of the market pace. In fact, we continue to generate healthy general tool revenue growth in all of our operating geographies.

Our specialty business growth was achieved through a mix of organic and bolt-on investment, delivering an impressive 23% revenue growth, a rate 4 times that of the market. These specialty segments service predominantly non-construction end markets, which will be far less cyclical in any end market conditions.

Remember, the majority of our specialty businesses born from everyday maintenance, repair, operations and events of the markets that we serve and is also central to our strategy. Pay special attention to the individual specialty segment growth rate shown along the bottom of the slide.

With growth rates like this, two things should be abundantly clear. One, there are obvious structural change elements present when growth is so significantly higher than any related end market indicator.

And two, we're in the very early stages of growth in some of these exciting specialty segments. These two points have become a reality, as our specialty platform has created a reliable alternative to ownership for these products, which previously just did not exist.

It's important to understand, it's not just about specialty or just about general tool individually. Rather, it's the link between these two divisions within our business.

Over time, the cross-selling dynamics specialty introduces from an end market standpoint, expands the application opportunities for our broad general tool product range. This is difficult to replicate and delivers some form of an annuity effect.

This element of mix is also a key part of our strategy. The results in both divisions demonstrate strength in our end markets and the capabilities our platform has to continue to produce growth.

We r planning on going into much more detail in the specialty part of our business in the coming Capital Markets Day that we've announced in April in Washington DC. Slide 18 sets out the usual relevant U.S.

construction forecast and figures. These remain broadly unchanged from what we reported in September.

The construction starts forecasted by Dodge on the top left of the slide is the driving factor in their latest put in place construction forecast on the top right. Consistent with our previous updates, you'll see a modest forecasted downturn in construction, centered around calendar year 2021.

This latest forecast is now calling for total put in place construction of plus one in 2020 and minus 4 in 2021. This compares to what we would have previously shared which was minus 1% and minus 2%, respectively in the previous versions.

So our base case for construction element of our business is that the end market is flattish in calendar year 2020, with a modest reduction in activity levels in 2021. And as you would expect, this will be in our thinking as we start to build our CapEx plans for next fiscal year.

As we wrap up 2019, construction activity levels in 2020 calendar year are incredibly clear. And our confidence is bolstered, having recently been awarded a number of new, large multi-year projects.

This is consistent with the feedback from our customers who continue to indicate broad strength in current activity and in their very own backlogs. Let me be clear, you should not mistake a construction slowing at these forecasted levels as an indication of a weak construction market.

These forecasted levels still indicate strong construction markets at an absolute level. If these construction forecasts are broadly correct, which to us feel sensible, we believe these conditions will actually be beneficial to Sunbelt.

Although growth rates, particularly, in our general tool division may slow, we will continue to stay busy, and we will gain share. While doing so, we will benefit from the increased cash generation we will certainly deliver in these circumstances.

Let's stand on end markets, but let's shift away from construction and look at the other big, big part of the market that we increasingly service. Remember that 50% -- greater than 50% of our business revolves around everyday operations, maintenance, repair and events in the geographic markets that we service.

These markets continue to be strong and are showing no signs of dampening. This is a very large space that is growing as we over time, again, create a reliable alternative to ownership through our larger than ever platform, our clustered market model and our specialty business development.

On this slide, we've attempted to put forth examples to illustrate the vast size and range of the addressable market, which employs a significant portion of our specialty business, product and increasingly our general tool products. It is in these markets where we participate in as you'll see the examples on the slide remediation and restoration, climate control, event products and services, temporary and emergency power, cleaning and janitorial equipment rentals and this list goes on, all with ample cross selling of our mainstream general equipment products in applications outside of construction.

These markets are in the early stages of rental penetration, as Sunbelt are providing these customers with a flexible option to their previous CapEx obligations or giving them options for OpEx, which today increasingly so is an option many, many of our customers want. Moving on to slide 20 and out of the U.S., we’ll begin with Sunbelt Canada on the slide.

This has been another six months of good progress in our Canadian business, where our team are very focused on delivering great service to our ever growing customer base. We delivered rental revenue growth of 19% in the half.

The organic component alone of which was 10% is an awesome 5 times that of the pace of the market. Clearly demonstrating the efforts of our unique clustering strategy in what is still a relatively new market for Sunbelt rentals.

The end-market forecast remains strong and our priority of developing our clusters through the inclusion of our specialty business further diversifying our end markets remains our primary emphasis. With this in mind, we were pleased to complete the acquisition of William F.

White on December 2nd, which is worthy of a closer look on slide 21. White is Canada's premier rental provider of production set and onsite equipment.

Services and studio facilities to the motion picture digital media and television industries. The growing demand for media content worldwide, driven largely by the growth of streaming services like Netflix, Amazon Prime and Apple TV Plus makes this an exciting growth end market.

Sunbelt has been renting several of our core products including aerial work platform, light towers and generators to the film and television studios both in the U.S. and Canada for many years.

The acquisition of White gives us access to broader and more specialized rental equipment, including lighting, grip and cameras, as well as seven state-of-the-art production studios in Vancouver and Toronto. In total White operates out of 13 locations across Canada and has 475 employees.

This acquisition will provide significant opportunities both to cross-sell our existing product range in Canada and develop our offerings to this exciting end market in the U.S. I’d like to take this opportunity to thank the White's leadership team for their professional and passionate engagement through this process, although, I can't recognize each individually at least not in this forum.

It is this group of senior leaders who helped realize Paul Bronfman vision and drive as the owner, through creating a culture of focusing on the success of their people and the success of their customers. This will certainly be a combination of two very aligned cultures and I'm happy to report that the entire leadership team is staying on to be part of the exciting growth that is sure to come.

Turning now to the UK on slide 22, as we clearly laid out as part of our full-year and our quarter one results, the current year is one of a refocusing for the A-Plant business. The team has been busy building and implementing an internal program we’ve called Project Unify.

This effort is focused on leveraging our platform to deliver long-term and sustainable results. Part of this effort of course has been to right size our fleet to meet the current and near-term market forecast.

Although there are short-term negative impacts to operating margin, as Michael will have covered in his opening, we're producing significant increases in free cash flow as we said we would and are confidence to come in comfortably above £100 million for the full year. We're focused and we are committed to the UK business and our UK colleagues.

And ultimately we're fully determined to deliver market leading margins and returns. And I can tell you I see no reason why this can't be achieved.

The UK market itself remains challenging and forecasted to be largely flat. There are however some positive signs of ongoing and new infrastructure projects that will serve as an underpin to the end market, all of which our products at A-Plant our services and coverage are well suited to take full advantage of.

Clear progress is being made with Projects Unify. And as I mentioned last time we were together the A-Plant leadership team will be part of our Capital Markets Day in April 2020.

And you'll hear from the leadership team as their longer term strategy and the overall shape of that business. So as we turn to slide 23, we can see what all of this means from a CapEx perspective.

The overall group guidance remains at £1.4 billion to £1.6 billion of gross CapEx for the year. And we've left the CapEx ranges within this unchanged.

However given our current expectations for a flattish U.S. construction market in 2020, we're now planning for U.S.

CapEx to come in towards the lower end of its range. In Canada given the first half spend and demand we're likely to be towards the top of the range for the full year.

And in the UK, as you would expect and given the market conditions we will be toward the bottom end of the range. Turning now to capital allocation on slide 24, our priorities remain exactly as they were.

We've invested £1 billion in existing location fleet and greenfield openings and a further £231 million on bolt-ons in the half. We've increased the interim dividend by 10%.

So after all of this and subject to remaining within our 1.5 to 2 times leverage, we allocate the balance to share buybacks. In this respect we’ve completed £250 million on buybacks in the first half and are on track to complete a minimum of £500 million for the full year.

So in conclusion, our first half performance was strong, end markets are strong in absolute and we will continue to be primarily benefactors of the structural change components present in our business. Our runway for growth is long, leveraging the market dynamics presented today, we will continue to execute on our clear strategy.

All while entering a period of growth that will yield increased cash flow, with which we will deploy within the framework of our equally clear capital allocation strategy. As a result of these points, we continue to look to the medium-term with confidence.

And with that, we'll open up for questions.

Morning. It's Rory McKenzie from UBS.

With slower U.S. general tool growth you see in your base case next two years, you'll maybe moderate CapEx into your cash flow.

You also mentioned you plan to take more market share in that environment. So, can you comment on in a market that’s been investing for quite a long cycle, what would you expect for competition in pricing in that kind of world where growth is slowing across that market?

Maybe that one first and I have got two on specialty.

So, I mean look, I think it's a good way of looking at things. So, yes, we've indicated a moderation to the CapEx, given the guidance that I've just given.

I will remind you however, if we do see strength in demand it's why we kept the range where it was and we could spend more. Here is how I see it.

If I -- if we look at the construction forecast, so if we go back to this slide, and as I’ve said, if this construction end market is about that. So, what it really means is 2020, 2021 and 2022 it's about a -- it's kind of benign, it's levels that it is, which again it is an incredibly strong level, so there will be very strong demand.

We have taken our decision when it comes to CapEx from a guidance standpoint. And I think what you'll see is the industry, the primary peers that remain in North America are taking a pretty similar stance.

You have a far different discipline, I would say, at this stage in the cycle when compared to at this stage at previous points. So what's all that mean to rate, I think we could experience a reasonably positive rate environment over that period.

Look, if we could produce a rate that was anything positive in 2020, 2021, and 2022, we may even turn some of that have a slightly negative yield. So, I mean, I think overall it's very important.

But all in that I need to point out from a construction standpoint. So you understand what the underpins of this are and how the construction end markets themselves have changed over the year.

So the dynamics driving construction today are a bit different than what they were before. Like, for instance, last time around, we would have seen incredibly strong retail say construction town centers, movie theaters and the like.

From a housing standpoint, as you see on the bottom left there, we would have seen what were clearest day certainly bubble. So when you look at it today, and you look at absolute starts on the top left there, look how far off we still are from previous peaks, which again makes that forecast feel pretty sensible.

I mentioned the retail. It's been replaced in the overall market by things like office, by things like warehouse and distribution that have filled completely that gap.

This is a really interesting one, if you look at the top right of this appendix slide and again, for those listening on the web, that’s slide 33, look at what that outlook is for overall office construction. That is strong.

So in any of those scenarios, even though they go up, they go down a bit, those are strong. Look at data centres.

We've been talking about data centres now for years and years. Look at data centres starts in the bottom right.

This is just what has started in calendar year 2019. I was working on interesting stat this morning with Barbara, I think this is a very relevant one.

In 2018 and 2019, we have had in absolute more data center starts than we had for the entire period of 2008 through 2014. Did I get that right, Barbara?

So we've had more stars in the last two years than we had from 2008 through 2014. Now look, we are not just Sunbelt Rentals, data rental business, but it is an anecdote that I think you can understand is how those end markets have changed.

These projects that you see listed here, whether it be those that started in 2018 or that those that started in 2019, or that those started in 2017 will still be going on through 2021. And finally, on that point, look at residential.

So look at the bottom left there and pay particular attention to the multifamily. Because multifamily clearly is the part that we are more directly tied to.

Look, we like housing storage, because in general it create some other construction. But if I were to talk to any of our team, whether it be John Washburn, Russ Brown, Tim Robinette, our VPs that are out there and say, hey, level of multifamily construction, here's how they describe it.

Anywhere from that point of about 2014 all the way through what is forecasted in 2022 they call that the fun zone. So anywhere in there, we will be busy.

So again, I think that's the overall dynamics in the market. And of course that will drive pricing and time utilization.

Long winded answer to your question.

No, very important topic. And then just two on the specialty business, which you highlighting is going to be more important.

I'm just wondering where there's eight verticals you called out on slide17. How broad is the coverage of those verticals across your footprint?

How early are you in some of those areas, clearly very early for some? And then also are those figures excluding hurricane was that with the drag from the hurricane comment...

It’s so good we decided not even back out hurricane. I mean, what's the point?

So power HVAC might have been 20%, but this is just illustrating. So as you can imagine, it wouldn't take much to draw this conclusion on your own.

It's kind of most mature from the left to the least mature on the right. But these are not necessarily small businesses.

We talked about our flooring business, and we've talked about climate control for a long time. We've just begun talking about ground protection.

We've just begun talking about trench shoring. These are businesses that we now know this is no longer a test, we now know their individual segments you'll hear from Adam Camhi, when we're together in Washington DC.

The flooring business alone, we are now incredibly confident that that business for us when we drive it to a 20% rental penetration. And if we just have one quarter of the share, which we surely will have more, that would be in excess of a £500 million business for us, just that little vertical.

And clearly, we'll talk a lot more about that in the Capital Markets Day.

Thank you much.

Thank you very much. Good morning.

Arnaud Lehmann, Bank of America. Just one question if I may on your CapEx plan.

Because on the one hand, you give a fairly bullish message about your business outlook in the U.S. at the same time, you're still trimming your CapEx plan for the year.

So just to understand the $100 million, maybe $150 million that you are not going to spend this year that you were maybe thinking of spending initially or that was an option, is it fewer locations or is it less equipment on existing locations? And r you trying to protect utilization rate, are you pushing utilization rate higher than you initially thought?

Because it doesn't feel like your market outlook, okay U.S. construction flattish it feels like that's been the base case for quite some time.

And initially I mean six months ago you thought you could continue to outperform that in a meaningful way. So I'm just trying to understand is just going through which location and adjusting at the margin or is it you taking slightly more cautious outlook on the business.

You covered there about all of the points, you covered about all of the inputs that there would be. But look let me put to you this way, keep in mind when we say, okay, £100 million, £150 million less than we would have indicated that's all got to do with 2020 and 2021.

So it's not the pace in which we’ve spent thus far in the year, it's really that Q4 look you take to say how much do we sort of pull forward into the current year to fulfill the back part of that. And yes this forecast has been out there.

But remember out until at the full year results when we set this out there and we said, hey, remember let's pay attention to the construction market again around half of our business, but let's not get too carried away on when we see a construction downturn let's focus more on to what extent do we see it. So look we've said all along we have responsible growth, but let me address a couple of things you said that are adamant -- that we're adamant.

No, we will not stop greenfields so in other words, yes, we will continue to add greenfields, of course we will. When you look at the collection of businesses that we’ve put together, why would we stop anything that would be like this the 229 locations we have added over the last 10 quarters.

I mean, this is a big and profitable business standalone. As a matter of fact it would be the fifth largest rental company in North America and we just got started on it two and half years ago.

I'd argue to say it's more than the fifth in terms of profitability. So that will continue, it’s just moderating, it's moderating levels of growth it is not ending growth it’s moderating levels of growth and why would we see any different right here at the half year we will take a closer look when it comes to CapEx guidance and of course come out with that in Q3.

Thank you. Maybe just one last one on the UK, I mean, as you say it's a business that is running flat, but generate nice amounts of cash, I think you guided to $100 million -- 100 million sterling free cash flow potentially, I mean, how do you keep UK management happy when you basically takes that cash and reinvest everything in the U.S.?

I mean, as they incentivize at group level or just on the UK side.

Well it should come as no surprise they probably haven't been hitting their bonus targets for a few years. If we go back to 2016 we have invested something like £500 million between 2016 and 2019 and operating profits went from 70 to 65.

Generally when you add that much investment and you make that level of return you probably don't bonus all that much. They've been doing fine from a PSP standpoint.

But look this is an engaged and energized leadership team. It's a bit of a new leadership team.

You’ll meet Andy Wright our COO and Phil Parker our FD and CFO of A-Plant business in April they are enthused, they are enthused with this Project Unify. And remember, although, we're saying we’re not saying CapEx, we're not saying no CapEx we’ll invest on the low end of that range £75 million.

Am I correct in saying that will be the most investment any UK plant higher business would invest? So we're investing more than anyone else’s we’re just saying let’s take a modest approach at this and while the business is under repair and as I've said, I am confident we will ultimately bring this business long-term and sustainable returns, which we'll all be happy with.

But in the meantime, let's produce over £100 million in cash. So we're just doing what we said we would do.

That would probably, when we say we're getting rid of underutilized assets and the lower returning assets, we sell those we don't replace those. So the replacement expenditure we're spending in other areas whereas it's actually growth.

So if as part of -- where the parts of the business is doing well we're investing and growing is just you're shrinking the bids, while you’ve got underutilize or low returning assets.

Have Andy or Phil called you and you said no about CapEx? So the team as you will see is engaged and looking forward to the future.

Thank you very much.

Good morning. I’m Andrew Nussey from Peel Hunt.

Couple of questions following on. First of all in terms of White, I'm just curious about the rental of studios as opposed to the rental of fleet and just how significant is that?

And does that represent maybe slightly change in your strategic direction, maybe we should see other similar type moves? And secondly, in terms of A-Plant, just going back in terms of history, how much do you think it has been management as opposed to actually being in the wrong markets with the wrong fleet?

Let's start with White. First of all, so fresh off of IFRS 16, we have plus or minus 1,100 leases is about right.

We now have seven more. So, no, it's no big strategic change.

There are some properties. They're great properties, they are profit centers.

In these studios, what happens, it is not only do you rent the studio space, which I should add. Thus far, our new business in William F.

White has yet to ever have a tenant leave once they've come. So every single studio has been rented from the beginning by a blue-chip production company, you would all know the names of every single one of them, and they've never yet left.

And not only are we making good revenues on the rental of that property, we then of course, get all the lighting the grip and now going forward, what we will get is all of the aerial work platform, climate control, power generation. Look, this is a really, really good business I'm excited about and we will absolutely grow this business in the UK.

And perhaps even in the UK, because we do have some really nice ties to that. Onto the UK look, I will just say it this way.

The management team that we have in place today that you will meet in April, are hard and fast and focused on as I said, the only non-negotiable was. We will be doing nothing for the short-term to put out a good quarter or a good half, because it doesn't matter.

What we will do is we will build a long and sustainable business model that really shares the same attributes that we've had in Sunbelt rentals for North America for years and years, you will see more collaboration there, we see that already between our businesses and given the long and sustainable aspect of that. Again, in the meantime, it was, let's generate more cash in the next 12 months than we have generated.

It's a bit like data centers since 2012.

Thank you.

Ed Stanley from Morgan Stanley. Couple of questions, if we go back to the Dodge outlook, the last time we were here, you said minus 2, but that's okay.

Because the absolute level of the market is still good is now minus 4. But you're still okay with that because the absolute level of the market is good.

But at what point do you get concerned when that forecast starts to turn more meaningfully negative?

Well, again, remember when plus 1 first before minus 1. So 2020 last time was minus 1 now it's gone plus 1.

So in absolute, I'm comfortable anywhere in this range the matter of fact this is border lining, Mike, getting his wish to come true. Because Mike would say, we need an even stiffer test.

We're not worried about any of these and I don't know how you answer it, hey, at 10%, I will be really worried. No, I lived through 2008, okay?

So anything we can put through from a resiliency standpoint, we put through any of those scenarios that you model. Now it changes, but it changes in terms of cash, we can't forget to talk about and think about cash implications in this model, which I think we probably ought to go to this appendix slide, which is so, so important as it relates to that, and to underpin even our greater level of flexibility.

So let's just say the minus 4 is correct. On the bar chart to the left, that's just our fleet in the U.S.

based on its age band. So real simple, I'll give you a rundown on it.

2012, you see that, that's about £500 million, £600 million on that green bar. And if you go to the top right, this is our CapEx plan from a replacement perspective, it's £500 million to £600 million.

So you can see the tie, the correlation between the fleet age in that. If 2021 is this year, where we have a minus something, whether it be 3% or it would be 5%, we would be in that 2014 bar, and probably a bit of the 2015 bar.

So we'd have £1 billion, £1.2 billion that would be prescribed, if you will, from an aging perspective to replacement. It is that -- is at that time, when you would think you probably won't spend much in absolute growth CapEx as we would have indicated here, that replacement CapEx becomes all of your sort of flexibility.

So for instance, with that £1 billion that we have some of it, we would just go ahead and replace where it lies. Some of it we would sell and not replace, and quite a bit of it in reality, what would happen is we would sell it in one part of the country where there was a bit more of a dampened end construction end market and we would replace it in another part of the economy that today even is growing at 25%, 30% growth.

Our California business is growing at 30%. Our Northeast business between Maine and Boston is growing at 27%.

So we would deploy that in those areas. But in the end, if it was a real drastic [ph], there's $1 billion you don't have to spend.

So obviously, you have the proceeds from that. So you have to look at it from that perspective, it's very hard to answer what would make us scared.

And on slide 16, when you show your rollout of general tool and specialty, last year you add about 70% of your new locations in specialty and now it's sort of running back in a more normalized 50% kind of level on the previous slide. Is the 50% level sort of broadly split specialty, where you expect to be for the next year or two or do you expect specialty...

The math on that is 61%. So 61% of those are specialty.

It's just purely timing. You add 13 White’s businesses to that which are specialty.

And the majority of our greenfields and bolt-ons, we will be led by specialty.

Good morning. Steve Woolf from Numis.

Just one from me, you mentioned a number of the large, multiyear projects that you just been putting -- put on. Could you give us any more detail of wherever that is, locations infrastructure spend that type of some background there, please.

Yes, good -- I mean, we've had just this incredibly encouraging calendar year 2019 in terms of long term wins, we've won with great customers, we won them at really good pricing. And they range from the data centres, of course.

So every one of those data centres listed we would either be primary on site or secondary. So we have a lot of equipment there.

But we have the Javits Center which we're on site on, which is a construction -- I'm sorry, a convention center in New York City. We have on site at LAX which is a -- stated to be a four year project.

If you ever have seen an airport project finished on time. Let me know which one it is I'll try to fly through there.

But the airport is not only there, we've got some great projects that are going on in Seattle that have just recently broken ground that have nothing to do with data centres, but may have to do with an e-commerce business that you would know well. Short answer is they're everywhere.

And then we've had some really, really nice special events wins that are long term in nature, like we've won the Super Bowl for the next three years. Doesn't seem like much, but it's a couple thousand pieces that we put on rent when the Super Bowl comes rolling around.

Another really interesting one, I think. A certain warehouse expanding for a different business that’s out there.

We have a long term contract for 1,500 light towers with demand for an additional 1,500 light towers as they are looking to augment some of the dual fuel light towers that we have with fully solar light tower. So it's in addition to not replacement.

So just a little bit of color, but there is an extraordinary amount.

Thanks. It's Will Kirkness from Jefferies.

Three please. It seems like you've got pretty good visibility through calendar 2020.

So I just wonder how much of a range on CapEx we should expect for your first look on FY 2021 next quarter.

The reason it's in the next quarter is because it's in next quarter. Look, I think we'll take a view on that then.

But remember that will just be a first pass and within our -- we have all the flexibility in the world. And that's what we will leverage as we go through the year.

Okay. And then in terms of your capital allocation parts, obviously, very clear and consistent.

But if you spend a lot less on CapEx and the cash comes in, you're already doing a buyback. The bolt-ons are there maybe wouldn't accelerate in more difficult markets.

Do you just deleverage for a while or is that something else?

Well, look, I think that's the absolute thing people should be paying attention to. Look, it is the cash that we will generate.

So let's look at it this way. So at our current rate, we anticipate we will finish this year in April in the 1.8.

So at 1.8 leverage at what we're thinking from a early growth CapEx, which I still want to answer your question on that and the replacement, which is pretty obvious, because we've shown it to you on that appendix slide, including the dividends that we would anticipate next year and the £500 million buyback. So all of that will end the year at about 1.6 times levered.

So every 0.1 so 0.1% for is a £0.25 billion in flexibility. Now how will we utilize that certainly one way could be to accelerate our buyback, but no matter what will be between that 1.5 to 2 times.

So I think the key is they're really or in that is the flexibility. But let's make sure we pay attention to the cash, but the cash we're generating while still being a growing business.

Okay, thanks. And just lastly on the UK operating costs increased year-on-year, just wondered if you could maybe help with how much of that is exceptional one-off.

And then therefore how much it's going to drop away on what the payback in second...

Part of it is, Michael know the precise details, but a lot of it is the cost of disposal of the assets. So it's not like it is -- it's not as parts or supplies or that sort of thing it is when you have that increase in the level of disposition of your equipment you have an increase in the cost and due to some leadership realignment we do have some redundancy cost.

As I said we're looking for long I think you will see us begin to make the turn in that business certainly through next fiscal year.

Thank you.

Jane Sparrow from Barclays. Just one on drop-through where you went to 48% in the first half, which obviously by implication is lower than that in the second quarter.

And you've talked about some softness in mature store drop-through, now some of that I assume is relating to hurricanes. But if next year we're going to have a lower top-line growth number as well, how do you think about drop-through in a sort of lower growth environment where you've still got cost inflation coming through?

Well look, two things really in fall through, one part of it’s hurricanes as I said albeit it looks like small numbers £7 million in EBIT is five points in fall-through. That's all, don’t think wrong, we're very, very precious about £7 million in EBIT.

So I'm not trying to cast the wrong the wrong impression on that. But £19 million in pure rental in hurricanes is 20 coupled £20 million few in total revenue.

And you all realized that tail that we had in these hurricanes is incredibly strong fall through you pick a fall-through rate, I'd pick a fall-through rate of 60% to 70% on the £19 million in I'd have £11 million or £13 million in profit attributed to that, so that’s part of it. The other part of it is although we've been demonstrating for some time the degree in these openings and bolt-ons that 229 today is proportionately larger than it's ever been.

So if we take the previous 10 quarters as we have illustrated at any point in time this previously -- this tranche of 10 quarters is significantly more from a weighting standpoint than it's ever been before. Now to your question which is the more we will demonstrate how we do that when growth rates do moderate in those more mature locations, you’ll see the business highly focused on fall through.

You'll see a business that -- it’s a changing of tides if you will, when you are experienced and you have gone through at a branch level or a district level 18% growth, 22% growth that sort of thing. And then you find yourself over time it doesn't -- you don't go from 20 to 7 overnight.

But when you find yourself in that mid to upper single-digit range it is a bit different, but the differences they tend not to bring on the people they tend not to bring on the extra truck. So you do get that fall through aspect.

So look long-term I would just say just use 50% EBITDA in the long run is what -- fall-through is what we should be able to deliver and 2021 fiscal should be no different.

It's Johnnie Cumber [ph] Liberum. I have got two actually, hopefully quite quick.

Firstly on the U.S. infrastructure, what would be the view on that 2020 and 2021 and does that matter?

And then secondly another question on Sunbelt, just on penetration rates just could you give us a rough idea of where we are in general tool and specialty as the two broad categories in terms of penetration rates in rental.

Sure first thing infrastructure, until we get -- look it’s status quo. There is a lot of infrastructure work that's going on.

And that's gone through as you've seen, but it is by no means the extraordinary overall infrastructure package, which I think it's hard to argue that is a matter of when it's not a matter of, if do I expect to see anything extraordinary before we get through the 2020 November elections. No way, no chance.

But all of that is built into what these overall forecasts are, no one is going out on a limb saying that there will be some extraordinary package. I would say the earliest you would see that would be sometime in 2021.

But nonetheless, there's a lot of lot of activity. As far as rental penetrations it’s a great question, because it is one of the key drivers of what our overall strategy is and our opportunity from a growth perspective.

If I were to broadly categorize I would say our general equipment business is at a 55% rental penetration. And I would say all of our specialty businesses combined are less than 15%.

Hi, Rajesh Kumar from HSBC. Just in terms of labor inflation, how is the market looking?

Are you able to keep the staff churn level slow enough, are you required to pay them higher to -- basically you've invested in a lot of branches, you do need the people there? Second is what is the nature of discussion you're having with your suppliers in terms of CapEx?

How does the competitive landscape look like? And third, the slide 32, which you very helpfully pointed out that you got a seven year asset holding period or seven or eight.

But when we think of smaller players, they tend to stretch that to 10 or even and if there is a cyclically week patch in 2022, as Dodge seems to think there might be, they might even stretch further. So do you see a risk that the bolt-ons evaporate at that point because nobody sells their family silver at a point when the prices are quite low?

Okay, well let's start with labor. If you follow Dodge at all, you mentioned Dodge.

We recently met with Richard Branch. And his first slide had a makeup of words that were their overall poll you may have seen it and two stood out capacity and labor, I would call it skilled trade positions.

So is there inflation in that market? Well, of course there is, is it 7% or 10% or 9% like we might have seen at some point, no.

We have invested significantly in it and we will continue to do so. Because you're very right in pointed out we wouldn't have it any other way.

But yes, it does take those people think about all the hours I mentioned in the very beginning as it relates to safety. So that will continue to go.

Remember though, capacity when it comes to labor in the both construction and non-construction markets is a tailwind when it comes to rental. So it is an important component of the entire piece.

Look, as it relates to suppliers. What better way than the be the one sitting down with your key partner manufacturers and say look at the level of insight we have and clarity we have into our CapEx needs for the years to come.

So we are at an incredible advantage when it comes to that. And I'd like to think we negotiate incredibly good win-win outcomes as it relates to that.

Your final point on the independence. Look, we went through 2008-2009 they didn't just go away then.

These businesses are cash generative businesses. The key to remember is when you do go through something that is more difficult, they'll go away, but they just really can't grow.

Because too long into the recovery they're still mining -- they're still needing to be replacing their fleet so they don't have the capital to grow. It kind of goes back to Rory's original question like the market share piece.

We will gain market share, simply because we can.

Your point on what to do from an M&A perspective. Then, yes, we don't tend to choose to buy poor businesses, we're looking to buy good businesses.

So if you are at the bottom of a downturn, and your margins and profitability are lower, are you likely to sell if you could have sold it two years ago for significant more or wait another two to three years you can cite [ph]. So, we will be at a similar sort of view, you could see it you one natural falls here to say, well what would a down till be lots of businesses to buy.

Yes, but they're probably not the ones we want. So you could actually see a slower pace of M&A in the bottom of a downturn, but we’ll see.

Look, I mean, let's just be clear, there is a long, long list of independence that we can buy for a very, very long career.

I'm not debating that. The question is that when we I think expecting the bolt-on profile, do you expect to do a bit more in 2020?

Because you think that 2021 might be a year when people are not willing to sell? Or you do wait after 2021 to do -- there will be a peak, will it be before 20…

I mean, look, bottom-line is this, we are we are always actively in conversations with lots of business owners out there, because you build relationships over time, it's very hard to say what one year will be bigger than next. In our base case scenario, we think this current year was on the busier end of the spectrum, I would expect next year to be a bit less.

We won't buy them just because keep in mind, some of those that are out there that you may want to buy there'll be around. So there's no big rush in some cases.

Half of our deals, we do aren't running processes. They're just building relationships.

Hi. It's Andy Wilson from JP Morgan.

Just two quick ones, please. Just you mentioned on the large pieces of work that you’re doing recently and obviously had a good run with those.

And I think you mentioned on good pricing terms. If you're not competing on price, what actually you kind of winning on, and that sounds like a really naive question, or is it the pricing is competitive, but this is still good pricing, because it’s not that many people can do.

I'm just interested as to how you describe why you're winning?

On these big projects I mentioned or even the one-off at lots of sites like the light towers. How many can spend £20 million in CapEx for a project or all the tens of millions it takes to have 3,000 light towers around.

I'll give you the answer too. So those two are both responsible and looking to overtime on our own independently, just nudge rates up.

We don't need 4% in a year. I mean, I’d take it, I wouldn't give it back to you.

But you just don't need that. But the real key is this, not just that because we can.

It's because of the breadth of products and services we have. All of these customers we talk about and the one for instance, around the light towers.

They in their full operations, nothing to do with construction, inside of the last six weeks, had a -- not a hurricane event, but had a fire event, which we had to deploy all of our specialty businesses into. So our remediation, our climate control, our power generation, they're looking for partners who can actually solve multiple solutions.

So as the markets been consolidating, which clearly it has, and less of from yourselves, but maybe from somebody else, continue that dynamic is just going to get better, because you don't need to kill each other. And those large contracts presumably will just have less competitors?

You can -- that's something you could draw an assumption to, sure.

And second one, just around specialty. And again maybe this is just -- it's just as simple as not worrying about it, but I kind of feel like I've asked this before, but in terms of -- are you seeing more people trying to kind of replicate that model in terms of specialty?

Seeing that's -- and the reason I ask is -- the reason I ask is just it feels like I asked that question, because I'm worried about it being more competitive and therefore less attractive, but is it just that there's not that many people who can actually do it in scale you can and therefore how much are you just worrying about a big competitive when I should be worrying about you just taking market share.

It won't be just a bunch of independents because it is too complex. It requires some confidence in terms of your out of the gate capital investment.

Look we try some of these, you never hear about. And the once that we try that you ever hear about, we feel fast and you never know the difference, we spend £10 million.

If I am a little independent business owner and I spent £10 million and I feel fast, I go bankrupt fast, right. So, there's a difference in that.

In a way we actually need some larger organized competition in this space, if to only increase rental penetration remember what I said about flooring if we do from three we took it from two to three in about three years, that's all we've done and we have about a $100 million business that by the way has 32% ROI, so it's a damn good business. But if we get it to 20% rental penetration just 20% in essence it's a $2 billion rental space annually.

So my $500 million I gave you was 25% share. We're happy to have a couple of others.

So in a way, no one wants just one choice, they ultimately want a couple of choices. So, look we are a little precious about sharing some of this stuff because some can copy, it's okay, I mean in the end we will have our unfair share.

Thanks.

So then we'll -- great, well thank you all for your time this morning.