Hello, and welcome to the Ashtead Group PLC's Q2 results call. All participants will be in listen-only mode, and afterwards there'll be a question and answer session j ust to remind you, this is being recorded. Today I'm pleased to present Brendan Horgan and Michael Pratt at Ashtead Group PLC. Please begin your meeting.
Good morning, thank you for joining the Ashtead Group first half results call. As has been the case this year, I'm speaking from our field support office in South Carolina, and of course, joining on the line from our London office are Michael Pratt and Will Shaw. Before getting into the half year highlights, I'd like to take this opportunity to extend my thanks and appreciation to our team members across the group. Since the beginning of COVID-19's impact on our professional and personal lives, our team members continue to respond and adapt in a manner that makes me incredibly proud.
Our team members ready, deliver, maintain, and service tangible assets. As I've said before, in most cases, these actions cannot be done remotely, and as such, our leading value of safety has taken on a definition perhaps few could have imagined a short time ago.
It's in this spirit that I share with you our progress on safeguarding Sunbelt's own essential service providers, as well as our customers and members of the communities we serve. While leading through this pandemic, our team has responded to countless calls for our services, and in virtually all cases, involve circumstances very different than just a year ago.
Throughout this response, we've done so with a relentless focus on our safety and wellness platform, Engage for Life. At the half-year mark, our business units in the U.S., Canada, and U.K. have posted their best ever safety statistics measured by Total Recordable and Incident Rate . Noting this milestone of success as we strive for continuous improvement in this most important category, I'd like to thank all our team members for their unwavering determination and focus. Moving now to the first half highlights on slide three.
Our performance in the Q2 very much picks up where we left off in September at the time of our Q1 results, with sequential momentum that continued to build through the period. Our theme of extreme focus on all our stakeholders remains, and I think you'll agree that the results today further support the statement that we have come through for our people, our customers, our investors, and our communities.
This performance once again demonstrates the diversity of our business, which has performed well in good times, but importantly, through more challenging times in a cycle as we're experiencing this year. The confidence we have in our model supported longer-term decision making early in the crisis that we believe contributed to a performance that has clearly yielded market share gains.
Specifically, this performance has shown the resiliency in our general tool segment and ongoing growth within our specialty business in markets that we believe have clear and present paths for ongoing structural change opportunities.
Our revenue performance and continued cash and operating cost discipline in the period delivered a half-year record free cash flow of GBP 822 million, contributing to reducing our debt and lowering leverage to 1.7 x net debt to EBITDA. Our well-worn path of organic expansion continued with 12 greenfields added in the period, a plan that we will continue to execute.
I'm pleased to announce our decision to maintain the interim dividend at GBP 0.0715. With these results and momentum in the business, and further assuming our markets do not experience increased shutdowns similar to those we experienced earlier in the year, we now expect full-year results ahead of our previous expectations.
Turning to slide four, I'll add some specifics to our full-year outlook. Beginning with rental revenue in their respective currency, we improved the U.S. guidance to be in the -4% to -7% range. Canada and the U.K. increased to 15%-20% growth for the full year. These movements amount to improving the group range to -3% to -7%.
The improved revenue guidance throughout the operating divisions reflects the performance of the business to date and our current outlook. Notably, the increase in our U.K. and Canadian guidance reflects higher than expected Q2 activity levels, specifically testing centers, activities in the U.K., and lighting, grip, and studio revenues in Canada. We'll cover these in more detail in the slides to come.
From a CapEx standpoint, we increased our guidance to GBP 650 million-GBP 700 million, reflecting the ongoing investment in the growth of our specialty business, response efforts, and replacement plans, all placing us in a good position to address opportunities in the back half as well as into next year. Notwithstanding this increase in CapEx, our guidance for free cash flow is now greater than GBP 1.2 billion, 20% higher than our previous guidance. On that note, I will now hand it over to Michael to cover the financials in more detail. Michael?
Thanks, Brendan and g ood morning. The group's results for the first half are shown on slide six, and it's been a strong performance in what continues to be an uncertain environment. Group rental revenue declined 4% on a constant currency basis.
This revenue decline had a negative impact on margins, reflecting in part our decision not to make any team members redundant as a result of COVID-19, not to reduce pay levels, nor take advantage of any government support programs such as the Coronavirus Job Retention Scheme. Throughout this time, we continued to invest in the business, including our technology platform and our rental fleet, to ensure it was serviced, well-maintained, and rent-ready in advance of the recovery and activity.
Furthermore, in addition to not reducing pay levels, we continued to pay bonuses and made additional discretionary payments to our skilled trade workforce as a mark of thanks for their hard work and dedication in working safely in a far from easy COVID-19 environment.
While this was a drag on margins, the EBITDA margin was a still healthy 47%. With operating profit margin of 25%, underlying pre-tax profit for the six months was GBP 538 million, and earnings per share were GBP 0.89.
Turning now to the businesses. Slide seven shows the performance in the U.S. Rental and related revenue for the six months was 6% lower than last year at $2.5 billion. In the Q2, rental revenue was only 3% lower than the prior year, aided by revenue from hurricane response efforts. This impact was much reduced as we entered the Q3.
As we discussed in September, we took a number of actions to manage the cost base, including a hiring freeze and reducing discretionary staff costs, use of third-party freight hauliers, and other operating expenses consistent with reduced activity levels. However, our most valuable asset is our people, and as I mentioned earlier, we have been proactive in retaining them and looking after them.
These factors enable us to maintain customer service levels and prepare for markets reopening. As a result, drop-through of rental revenue to EBITDA for the period was 73%. As I said at Q1, while this approach had a small negative impact on margins, I think you'll agree it has been more than vindicated by our significant market outperformance as we take share. Margins were also affected adversely by used equipment sales.
While secondhand values remain healthy overall, our proceeds were affected by both the type of assets we sold and the sales channels selected for disposal. We disposed of a number of old oil and gas assets, which typically have a hard life and hence a lower resale value, and sales were predominantly through the auction channel, which results in lower realizations.
This accounted for a 1% drag on margins. Despite these factors, the EBITDA margin was still healthy at 50%. Operating profit was $782 million at a 28% margin, and ROI was 18%. Turning now to Canada on Slide eight. Rental and related revenue was 13% higher than a year ago on a reported basis at $188 million. This includes the impact of William F. White acquired a year ago. On a more comparable basis, excluding William F. White, rental revenue was 8% lower than a year ago.
The Whites business was the group's business affected most severely by the pandemic. It had performed strongly since acquisition i n March, it ground to a halt as all film and TV production stopped. As a result, it contributed virtually no revenue in Q1. As we've discussed before, we retained all the team members and the infrastructure of the business to ensure that we were on the front foot when production resumed.
Again, this approach has been vindicated as it has enabled the business to bounce back strongly since production resumed in August and September, with October revenue almost equaling its best month ever. These factors contribute to a loss for the Whites business of GBP 2 million for the six months, which impacted Canadian margins adversely.
The legacy Canadian businesses EBITDA margin, excluding Whites, was improved at 45% and it generated an operating profit of $35 million at a 20% margin. This is an impressive performance in this environment and demonstrates strong cost discipline in what is still an immature business, which does not yet have the benefit of well-developed clusters or the depth and breadth of our full range of specialty businesses.
Turning now to slide nine, U.K. rental and related revenue was similar to a year ago at GBP 260 million. This was a strong performance as the breadth of our product offering and commitment of our team members enabled us to support all our existing and new customers and provide essential support to the national response to COVID-19. Our support for the Department of Health accounts for almost 20% of our half-year revenue.
Turning now to the cost base. This reflects our continued investment in the operational infrastructure of the business as part of Project Unify and the cost to service the Department of Health test sites. Our investment in the operational infrastructure included a charge of approximately GBP 10 million to reshape the operating footprint of the business.
This was taken as an impairment charge and is included within depreciation for the period. These factors resulted in an EBITDA margin of 32% and an operating profit margin of 7%. As a result, U.K. operating profit was GBP 20 million for the half year. Slide 10 sets out the group's cash flows for the six months and the last 12 months.
This slide again tells a powerful story and demonstrates the strength of our business model. We have maintained a strong focus on working capital management, particularly the collection of receivables, which has resulted in cash flow from operations of GBP 1.2 billion in the six months. This, combined with the decisive action we took to reduce capital expenditure in the current environment, resulted in record free cash flow for the six months of GBP 822 million, more than we generated in the whole of last year, our best ever for cash generation.
As a result, we've generated GBP 1.4 billion of free cash flow in the last 12 months, and that is after CapEx of over GBP 900 million. It is this cash flow dynamic within the business that gives us confidence to expect free cash flow generation this year in excess of GBP 1.2 billion, compared with last year's GBP 792 million.
Brendan has touched on this earlier, but it is important to recognize that while we've reduced our capital expenditure this year, this has not been at the expense of the future. We have executed our fleet disposal plan as intended, but with lower demand overall, we have replaced only highly utilized assets where there is the demand and spent the balance on growth in other assets where demand is high, particularly within our specialty businesses. This is where we get the phrase growth disguised as replacement when talking about capital expenditure.
Slide 11 updates our debt and leverage position at the end of October. We used the cash generated in the period to reduce debt and leverage, which at 1.7 x, excluding the impact of IFRS 16, is in the lower half of our target range. To put this into context, as you can see from the chart on the top right, this is as low as leverage has been in October, typically the seasonal high point of the year in all my years at Ashtead. This point is worth dwelling on. Never has the flexibility of our model been more clearly demonstrated than in this year of adversity.
Our ability to flex capital expenditure down at short notice and generate significant free cash flow against an adverse market backdrop has enabled us to reduce leverage from 1.9 x in April to 1.7 x in October, despite lower EBITDA. That is the strength of this model. As we've said on many occasions, this strong balance sheet and flexibility gives us a competitive advantage and positions us well for the future.
It is important to recognize that this has been achieved while we have continued to invest in the business through retaining our people, investing in our technology capability, greenfield openings, and additional capital expenditure to both support the pandemic response and take advantage of growth opportunities. It is this position of strength that has enabled us to outperform the market and take market share.
Our debt facilities are committed for an average of five years at a weighted average cost of 4%. Both our leverage and well-invested fleet continue to provide a high degree of flexibility and security and enable the business to be on the front foot despite these more uncertain times. With that, I'll hand back to Brendan.
Thank you, Michael. We will now move on to some operational and end market detail, beginning with slide 13. As I indicated in the highlights and is illustrated in the top left, the sequential momentum in the U.S. gained traction throughout the Q2. Our Q2 rental revenue on a billings per day basis was 3% lower than last year, with general tool lagging by 7% and our specialty business delivering an incredibly strong growth performance of 18%.
In more recent trading, we continued to perform well in November with U.S. rental revenue down 4%, general tool - 6%, and specialty delivering a still strong 9% growth on last year. It is clear the performance in general tool and specialty have outperformed the market, highlighting both the diverse end markets our business now addresses and the uniquely powerful cross-selling capability our model delivers.
Doing so while exercising discipline and rate and consistent with the experience in Q4 of last year and Q1 , rates again remained sequentially flat, experiencing zero downward movement through this period. A result I think we can now call a trend throughout our industry. I will add some color to the driving factors behind this shortly.
Through the quarter, we have, of course, benefited from increased hurricane activity levels. During our September results, you may recall our updating the market on the late August activity derived from Hurricane Laura, which made landfall in Louisiana 28 August , w ell, Laura was not the last hurricane. In fact, there were 30 named storms in the season, 12 of which hit the U.S. coastline. Five came ashore in Louisiana alone.
Rather than get into the particulars by storm, perhaps we use the format of the chart on the top left of the slide as best we can to indicate rental revenues absent this hurricane effect. In Q2 , absent hurricanes, U.S. rental revenue would have been down 6%, general tool down 8%, and specialty up a still healthy 9%. This is applying a conservative assumption that no revenues would have been generated outside of the storm response with the assets that were deployed.
Moving on, as promised in September, I’ll now add more detail by specialty business unit over the next few slides, beginning with number 14. The year-on-year rental revenue movement gives a more granular look into individual specialty divisions and portrays well the sequential improvement most experienced from Q1 to Q2 while further demonstrating the growth during these unprecedented times.
Our understanding of these specialty divisions and markets they serve, coupled with our long track record of growth and now scale gives us the ability to confidently state that we are in the early stages of structural change, leaving us a long runway for growth in the future. Why has our specialty business outperformed the way it has? Our general tool business, for that matter.
One reason, as I've stated before, is our uniquely powerful cross-selling capabilities that our model delivers. Another reason is the large, broad, and diverse end markets we serve and vigorously pursue. I think the latter reason requires a better understanding of these markets, and to do so, let's go to slide 15. The slide shows at a summary level three broad non-construction markets, m oving left to right.
Maintenance, repair, and operations, including facilities and geographic markets themselves, encompassing, in part, square footage under roof and municipal operations. Entertainment. Although not a lot going on these days, it is a space that is sure to return as populations are eager, h owever, with a heightened level of awareness to cleanliness and spacing organization-
And emergency response, an area where we have repeatedly demonstrated as being broad in and of itself. Ranging from large geographic events to local, more concentrated events happening daily throughout our geographic markets. These markets amass a nearly GBP 500 billion annual spend maintaining buildings that already stand, infrastructure already in place, existing sporting and entertainment venues with the sole purpose to hold events. All of which from time to time are affected by unpredictable influences that require emergency response.
I'll remind you, these are the markets that make up roughly 55% of our total North American revenues. These large and incredibly diverse market segments are entirely non-construction and have ample growth opportunities for our unique complement of products and services. As the scale and coverage of our specialty business continues to grow, we increasingly make rental a reliable alternative to ownership. And rental will, over time, increasingly augment ownership, growing our specialty business and positively influencing our general tool business.
We're looking forward to covering in more detail these markets, the size we believe they will become, and therefore our opportunities as part of our Capital Markets Day in April. In the meantime, let's add some color to the diversity in these markets and range of unique applications and solutions our products serve. I'll give some specific examples beginning with slide 16.
Setting up this slide and the slides to follow, you'll notice a rather granular selection of markets listed on the right, and four specific examples in the center and left, each of which are actual projects or transactions for specific but unnamed customers serviced in this current fiscal year. This slide gives a selection of our power and HVAC business in terms of its markets and applications. In the spirit of time, I'll highlight just two on this and the following slide.
The bottom right example shows an engineered solution for a national e-commerce retailer, providing seasonal air conditioning and requisite power at 225 of their distribution and fulfillment centers. The example on the top right demonstrates our work with a couple cellular network providers, where inside of six months, we delivered 1,770 portable generators to serve in various standby and prime power applications. Moving to slide 17.
We illustrate the wide range of markets and applications within our scaffold business and reference the industrial project pictured on the bottom right, which was our largest-ever scaffold project lasting four years. We completed this project in Q1 , which we've referenced when speaking to our year-over-year comps in the scaffold business. We've just begun work on a project very similar to this one, only larger, which we expect to grow and continue for a number of years to come.
The example on the top left summarizes our response following a tornado early this summer, where our skilled team quickly designed, engineered, and directed a temporary closure at a vital automotive parts factory that was damaged during the storm. This is not the kind of natural disaster that gets national or international coverage. However, nonetheless, an emergency in this small Southeast town.
In all these cases, and indeed market segments, our general tool business also benefits as the products offered also have wide-ranging applications. These opportunities often come on the heels of specialty customer wins. In the appendix, you'll find similar slides highlighting our Climate Control and Flooring business for review at your leisure.
Turning now to slide 18, we'll cover the latest forecast activity levels within the U.S. construction market, as well as rental industry forecast, both through 2023. Dodge starts and put in place data demonstrates the steep decline in starts from March, amounting to roughly a full-year impact of 15%, which leads to a put-in-place forecast decline of 6% in the current year. More important at this stage, of course, are the future years. The latest forecast for put in place construction in 2021 is now - 3%, which compares to the June forecast of zero.
This is followed by a consistent recovery in 2022 and 2023. Similarly, the rental market is forecasted to reduce by 13%, compared to the June forecast of minus 12% in 2020, followed by a flat year in 2021, and recovering nicely through 2023.
In summary, 2020 is forecasted to be better than initial construction and industry estimates, deferring some of the decline into next year, with little difference thereafter. I think it's important to note that our individual results have consistently outperformed construction and industry forecasts, and the forecast in the current calendar year improved from the early pandemic-related outlook.
Further, you will notice our look-back illustration of Dodge's construction forecast from 2016. We like the granular nature Dodge employs when building their models, which proved accurate in forecasting the previous cycles, as you will see from their 2016 forecast figures. As always, I point out these forecasts are not our own. They're a collection of the best available market data we have.
Our team stays in constant discussion with firms like Dodge to understand their views and gain granular insight, both geographically and in specific construction component trends, all of which we verify and balance with our broad, on-the-ground team, who is, in the end, closest to our customers.
With forecasts like this, coupled with the underlying uncertainty in these times and our results thus far, validate further our conviction that customers are increasingly choosing the flexibility in OpEx deployment available through rental versus the long-term commitment and ongoing cost related to ownership.
Moving on to slide 19. I thought it was worthwhile to share some color on the industry, specifically referencing rental fleet levels. As the top-left graph indicates, in a remarkably short period of time from the early days of the COVID-19 impact through the end of November, the industry has reduced its fleet from what was 9% larger than a year ago in March to what is today 5% less than last November.
5% of fleet for the rental companies compiled within this Rouse data amounts to nearly GBP 3 billion of fleet no longer in the market, roughly amounting to a fleet size of the third or fourth-largest player in the space. This is no small movement in fleet. Further, as indicated in the graph on the bottom of the slide, the industry entered March lagging utilization levels enjoyed the previous years by 4%. Although it's been a tumultuous ride, today the industry is in better form from a supply and demand perspective than it was pre-COVID, having reduced the year-over-year delta to 3%.
This clearly demonstrates the discipline present among the industry leaders today, managing supply levels through reduced new fleet landings and accelerated asset disposals, done in a manner that has maintained healthy secondhand equipment values and contributing to the ongoing rental rate resilience I referenced earlier. I think we can all agree the discipline and results thus far are in stark contrast to what we experienced individually and as an industry during the '2008, '2009 recession.
Moving on now to our business in Canada on slide 22. Similar to the trends we are experiencing in the U.S., our Canadian business is performing well, with volumes tracking closely to those of last year. From a construction and rental market forecast standpoint, the latest remain unchanged from our previous update, both forecasting a return to growth in 2021, continuing through 2023. To best illustrate the progression of what we call the power of Sunbelt into Canada through building clustered markets with our full offering, let's turn to slide 21.
From our humble beginnings in Western Canada, we have grown to 12 locations in the Vancouver market. Key, of course, to delivering on our mantra of availability, reliability, and ease is convenience, proximity, and diversity in our offering. Beginning with a complement of general tool businesses and adding specialty into the mix to introduce cross-selling. Our runway for growth in Vancouver and in the rest of Canada remains long.
Before we leave Canada, let's turn to slide 22 and briefly cover our lighting, grip, and studio business, William F. White. Activity levels improved sooner than we expected during Q2 . By September, we were back to pre-COVID-19 revenue levels. In October, achieved near record revenues for the business, and a trend which improved, having achieved a record high in November.
Although we are pleasantly surprised by the timing of this recovery, all signs had pointed to heightened content demand, and the William F. White team was incredibly engaged with our customers through the shutdown period, working to create a safe return to production. The demand came through, as did our relative market share gains as our workforce was on the ready. We anticipate this demand will continue and will increasingly recognize cross-selling opportunities in this space with the broader Sunbelt product offering.
Turning now to Sunbelt UK on slide 23. Let's first address the underlying business. Our revenues, excluding Department of Health activities, achieved prior year levels late in the quarter, despite live events business remaining near zero. These results were amplified by our DOH activities to support the COVID testing center rollout across the U.K. This clear outperformance to the market is directly correlated to our Project Unify deliverables, leading to gains in the ongoing construction and maintenance-related rental space.
Our decisions in the early days of COVID put our team in a position to capture, share, and engage with our customers on current and prospective work. A position we believe will give us the opportunity to further benefit from in the future as we continue to focus on delivering for our customers. Although we have increased our CapEx plans for the year, principally to support the ongoing DOH work, the business will remain in a strong free cash flow position for the year.
Let's take a look at the COVID-19 response efforts on slide 24. The Sunbelt Rentals team has materially participated in standing up nearly 300 testing centers comprised of over 230,000 individual assets throughout the U.K. Consistent with our last update, I'll remind you, this work was not a deliver and drop-off order, r ather, a complete solution to include design, project management, logistics, delivery, installation, and ongoing service.
We have invested in new fleet, people, and training as part of this effort. As I've said before, this work will not go unrecognized internally or externally. Delivering on a project of such significant scale and complexity will amount to a step change in stature of this business in the eyes of customers and the broader service sector.
I know our team members are very proud to have participated in coming to the aid of the communities they live and work during a time of real need. We remain in the early stages of forging our path to sustainable long-term results and returns. At this stage, we are encouraged with our results and forecast a strong year of revenue and profit growth. There remains work to be done, and our leadership team is engaged, encouraged, and as a result of these early efforts, positioned well to execute.
Turning now to slide 25, our capital allocation priorities remain unchanged. We've been investing rental fleet CapEx in specific areas of need, notably in relation to our COVID-19 response efforts and inside of our specialty business in general. This disciplined focus remains important as we manage the supply side of the market, both in terms of landings and disposals.
As covered in the highlights, our greenfield program is now back to a healthy pace, and we are on path to open 25 to 30 greenfields in the year, 75% of which will be specialty businesses. As a result of improved demand characteristics and recommencing our greenfield program, we've increased our full-year CapEx guidance to GBP 650 million-GBP 700 million. The usual detail by business unit can be found in the appendix.
Consistent with our last update, we've not closed on or entered into agreement to add any bolt-ons. However, our business development team continues to assess opportunities and will act when the opportunity fits our strategy and aligns from a capital allocation and leverage perspective. We maintained our interim dividend of GBP 0.0715, and the resumption of our buyback program remains in review with respect to timing. To bring things to a conclusion on slide 26.
Our business has performed well and demonstrated clearly the inherent resiliency in a diverse rental business, and indeed elements of growth in this unprecedented market environment. Our focus remains on delivering positively for all of our stakeholders. We are operating from a position of strength in all geographies we serve and will continue to take advantage of the apparent and ongoing structural change in our space as we further develop and broaden our end markets.
We are pleased with our performance, but we are not losing sight of the work ahead, nor the broader economic and near-term construction market uncertainty. The record levels of free cash flow our operations generated should not be overlooked. Our confidence never wavered in our model's ability to generate strong free cash flow.
This allowed for ongoing investment in current and future business opportunities while quickly bringing leverage to the lower half of our target range. The results in this period and strength in our market position allows us to look to the future with confidence. With that, operator, we'll now open the lines for Q&A.
Thank you. Ladies and gentlemen, if you have a question, please press star and then two on your phone keypad now to enter the queue and i f you wish to retract that question, just press star and then three. If you have a question, star and then two. There'll be a brief pause while the questions are being registered. Our first question is over the line of Andrew Wilson at J.P. Morgan p lease go ahead y our line is now open.
Hi. Good morning, everyone t hanks for taking my question, guys. I actually started with a question on the U.K. Looking at the guidance for the full year versus the kind of run rate we've seen in the first half, just trying to understand, obviously, what's a fairly significant pickup in terms of implied second half run rate and just, I guess, how much of that relates to healthcare and how much of that you have visibility on j ust trying to get a kind of understand on the pickup.
Yeah, sure. Andrew, good morning. If you go to slide 23, I think that top right chart illustrates it pretty well. As I would've just covered, when we got into the later part of Q2, so the September, October time period, from an underlying standpoint, we were back to where we were the prior year. When you really look at the crossover there and that gap between last year and this current year, most of that year-on-year growth is attributed to the DOH response.
Certainly, our indication in the business with our customers, both the sort of service contractors and the government alike, there is obviously a continuing of the testing sites and will certainly be a degree of vaccination sites as well. We expect that to continue throughout the year, which is certainly a big contributor to that year-on-year delta. Again, I'll point out that underlying the strength of some of the infrastructure work that we have going on, and also just the more we see that business diversify through these Project Unify efforts.
That's great i f I can switch across, I guess, probably to U.S.-centric question, but the fleet size diff that you provided in terms of seeing the level of reduction there, I guess I'm interested if you have any visibility on if that's the same set of companies, i.e., companies reducing their fleet? or does it include competitors who might have exited the industry for one reason or another? I guess sort of maybe? Go on s orry, go on.
No, go ahead, Andrew. I'm sorry.
Yeah. No, just sort of a broader question maybe to tag on the end is just any comment around sort of changes in competitive behavior, I guess, would be interesting.
Sure w ell, from a fleet standpoint, look, I think that slide 19 is really an important one to understand. We talk about discipline and as we've talked about for a number of years now, the one big question has been how will the industry perform from a rate standpoint as it relates to discipline? well, certainly the key ingredient when it comes to rate discipline is managing the overall supply side of the equation, i.e., supply and demand.
This particular makeup of companies is like for like, so w hat you see there is plus or minus 220 rental companies in North America. That makes up about half of the overall fleet that's in the industry so t hat is indeed a like for like. What you see there is about a, as I said, a GBP 3 billion variance in November compared to last year. Which is no small number on a fleet size that was, this is from memory, but GBP 57 billion a year ago, and it's GBP 54 billion today.
That discipline that we've seen in terms of managing that supply. Keep in mind too, think back to our updates to the market and go back to this very time last fiscal year so we p re- any thought whatsoever of COVID, and you'll recall, we would've taken down our CapEx at the time. That was more really getting that in line with what we saw from a forecast standpoint on the smaller but yet meaningful construction side of our business.
Certainly, we've seen that and that's why I said, probably a bit premature to say, okay, we have demonstrated through the entire period of the cycle, meaning the sort of suppressed period that the industry has remained disciplined but, w e can confidently say in nine months' time it has.
I think the biggest thing if I were to take away from slide 19, which is of course not in the actual words, but think about nine months' time so t his March to November period where we have seen remarkable discipline in rate for all the reasons that I just mentioned.
If we go back to 2008, 2009, if we go to the first nine months, so when we began to see the businesses and the industry slow down, in that very same nine months' time, we experienced a 20% decline in rental rates. Here we've been through this period and we have not gone down a 0.1. I think that speaks to what we're seeing in terms of behavior in the industry.
No, that's very clear m aybe if I can just squeeze one final one in. It's just around the equipment sales and obviously the impact that that had on the margin, which Michael helpfully pointed out. I guess just a quick question on would we expect that to be a trend for the next couple of quarters? or is that when we sort of think about these mix impacts and impact on the margin, just to try and think about that for this kind of balance of the year, maybe.
Michael may follow in after that i think we saw a bit of a decline in secondhand values, particularly through the auction channel early on. Let's face it, we were coming off of what we probably thought were abnormal peaks w e were in the low 40s as a percentage of OEC when we disposed. Now we're kind of in the mid-30s. I think encouragingly, we saw the auction trends tick up a bit over the last couple of months. I would say we're in that more of the same as we go throughout the year, having similar effects from a margin standpoint.
Yeah, I guess purely from the CapEx perspective, it's always going to be a drag at the moment because we are selling it according to what we plan to sell, which is more from an OEC perspective than a year ago, and j ust generically, margins are lower on used equipment sales, so it will continue to have an impact.
Makes perfect sense. Thanks for the time, guys a ppreciate it.
Thanks, Andrew.
Okay, we now go to the line of Rory McKenzie at UBS. Please go ahead. Your line is now open.
Morning all i t's Rory here. Just two from me please, on specialty firstly so o n the short-term trends, thanks for breaking out the hurricane impact. Simply just wondered how much is maybe short-term COVID-related contracts and what the visibility is there on that continuing? Secondly, how has this year, if at all, changed your view on specialty rental penetration? Which of those markets on slide 16 to 17 now have turned to rental for the first time this year and why? or what have you found you can replace at these customers? Is it different to what you were thinking even just a year ago? Thank you.
Thanks, Rory. From a term standpoint, I think the way to look at it, while it shows it quite clearly on slide 13, we had that significant impact as it relates to the incredibly active hurricane season, more so than ever before. What we saw was similar to what we experienced in November. It's been basically 9%, 10% really throughout the calendar year. What do we see from a visibility standpoint? A lot more of the same, frankly w e really got pretty granular, didn't we, in terms of the examples that we showed you on the slides you referenced, slide 16 and slide 17.
We're just seeing that overall very large MRO space f rom a facility standpoint, municipal standpoint, et cetera, those examples I had given, we're seeing more and more traction as it relates to that i f you think about it, and this is very significantly driven by our specialty, when we look at our overall customer makeup, you've heard us say so many times about how diverse our end markets are and our customers therefore are in what is a very large and broad market.
If I were to give you a for instance, and look at our top customers through the fiscal year, if I were to read off the top five, one would be MRO, 100% facility related t he second would be municipalities through a buying group t he third would be emergency response, t he fourth would be utility, having nothing to do with capital projects, all MRO. The fifth would be an industrial MRO. And then if you round out the top 20, you'll have three data center customers in there.
You have this incredibly diverse customer base and e ven the top five make up less than 3% of our overall revenue. To give you an example to answer your second question, and instead of referencing one of the two slides I just did, I'm actually going to turn to the appendix, slide 37, to speak to obviously one of our favorites here, which is this Flooring Business, because you asked the question, are we seeing anything different?
That all along we knew that there would be opportunities during certain periods to amplify, if you will, the shift from ownership to rental, and that's exactly what we're seeing so d uring these times when you get a sort of unplanned increase in demand, and I'm speaking about the customer here, and you've got that optionality since we now have some scale in these specialty businesses like flooring between the long-term commitment and cost therein in ownership versus the immediate flexibility we give them in rental.
If you look at that top left example, this is a national retailer, and just in six months, 185 of their locations they've chosen to rent rather than buy sweepers and scrubbers. That is, to me, the epitome of the example of what we were anticipating. We couldn't do that three years ago because we didn't have the scale in the business. Today, Adam, who leads our flooring business, has in his arsenal lots of fleet and a number of locations which we're adding to every month.
Great t hat's really interesting j ust one last one on rates. It's great the aggregate picture is staying stable. I imagine some segments are seeing rates kind of well up, climate control, maybe there's this flooring f or example. What are the weakest areas for rates at the moment? What are you seeing in, say, the traditional construction, skid steer loaders, that kind of stuff?
No, Rory, I have to say that's not what's happening. We are very conscious of how we price our specialty. We're driving rental penetration so, w e don't see across the board increases of any magnitude in specialty w e see moderate increases as we go through.
When we look at our general tool business, we see incredibly flat rates w hen we are going through agreement renewals, et cetera, we are disciplining going into that. The only pocket really where we're seeing any rate degradation is in upstream, which you would expect i t's not enormous.
That's really it, e ven in the general tool business, through this time, this may surprise some listening, our activity levels are actually increasing i n the quarter, we wrote 3% more contracts year-on-year than we did the last year. What that tells you is you've got more ins and outs with some of our customer base. What would have been more traditional, say, non-res construction, where you may have had a longer duration, we're doing a lot of work in some of the home improvement and home building space that has led to a lot of activity and therefore underpinning the stability in rate.
Great t hat's all very reassuring. Thank you very much.
Thanks, Rory.
We now go to the line of Will Kirkness at Jefferies. Please go ahead. Your line is now open.
Thanks very much, m orning t wo from me, please, as well. Just to pick up on my comment about writing more contracts, has anything changed in the normal pattern of starts and cancellations? Just to get a sense of whether the work that's coming through is essentially pre-COVID work, especially on the construction side, or whether you are seeing new contracts coming through post-COVID. I guess your CapEx raise does signal some confidence in the medium term.
The second question was just on market share gains i t's been referenced a few times. Clearly, your performance has been better than peers, do you think you're taking share from both large and as well as smaller operators? Thanks.
Sure t hanks, Will, and good morning. When it comes to activity, obviously we saw the forecasted change from our last update into this update from a put in place standpoint. Starts were down just a bit, compared to what they were, t here are lots of puts and takes in those. i.e., we see continued momentum around warehouse, healthcare, data centers, et cetera. And certainly, there's some headwind as it relates to hotels, leisure, et cetera.
I think the way to look at it is there's still a bit of time to pass to get a firm grasp on what we might see in terms of overall starts in 2021 but o ne thing I like to look at, this isn't something that we share, it's pretty granular, but we look, as you know, Will, in all the geographies we serve, even down to an individual sales territory or zip code, in the U.S.
We look at actually projects entering bid. If you have a project on the books for planning, it's one thing to have a project on the books for planning, w hen you go from planning to actually under bid, it's very unlikely that you collect bids and you don't begin. What we have seen, as you can imagine, or if you can think about it in terms of sequence of time, obviously in the March, April, May timeframe, we saw a big disconnect in 2020 projects entering bid versus 2018 and 2019.
Really ever since the July, really August timeframe, we've seen real consistency in the 2020 projects entering bid just in count t his isn't in dollars, but in counts is a good indication where it's been week to week hovering very closely to 2018 so a bit lower than 2019, but very much like 2018.
That is, I think it's a reasonably reassuring way of looking at things. When it comes to share, it's very difficult to tell precisely who the share is coming from o bviously, our U.S. listed peers give us some indication therein i think the biggest thing in all of it is we are seeing a significant flight to quality. That probably speaks to us taking a disproportionate amount of share from some of the littles and middles or independents as we would refer to them as.
Customers are looking for our mantra, availability, reliability, and ease. Availability, reliability, and ease coupled with confidence that we're doing the right things w e're doing the right things in terms of safeguarding our customers when we make deliveries the way that we do. You know touchless transactions, electronic signatures, the ability to order online, those sort of things so i would say that a big helping of our market share gains is coming from the independents.
That's great. Thanks so much.
Thanks, Will.
We now go to the line of Arnaud Lemoine at Bank of America. Please go ahead, sir, your line is now open.
Thank you very much. Good morning, gentlemen. Coming back on general tools, could you take us through the value sub-segments? You referred to housing. That seems strong. It's interesting that you are able to capture that and maybe what's happening in your other segments, non-residential or infrastructure spending.
That's my first question and m y second question, just coming back on your greenfield opening i think you mentioned you had 12 greenfield in the period. I mean, it's not a huge number, but you're back to growth so, w hat are the key drivers? Is it more specialty? or are you just coming back to your kind of usual plans of having both general tools and specialty in the greenfields?
Good morning, Arnaud. Let me start with your second one because it's an easy one to answer quickly. Yeah, we're back to a reasonable cadence, not as fast as we could do. You'll see that increase, particularly as we go into next fiscal year. It is biased specialty a s we said, 75% of those businesses are specialty.
The reason we're doing that is because you strike while the iron's hot. There is a pull from our customers to expand our coverage and capabilities in those specialty businesses, whether that be power and HVAC, climate control, flooring, scaffold. All those areas we are moving to take advantage of the opportune position we find ourselves in.
When it comes to the general tool and the various moving pieces in construction, if you will and b efore I get into construction, let me remind you that as we continue to grow the business in specialty, as you've seen, and really when we speak to that slide that you'll notice we talked to before construction, because it is a bigger end market to us, the MRO space, entertainment, and emergency response.
As we further penetrate those markets, and we have that long list of markets that we service, our general tool business gets opportunities there because the products we carry inside of the general tool business have vast applications if you sort of have the entree into those markets like we do with our specialty business. When you look at construction overall, there are a number of ways to look at it, but if you look at it from a building start standpoint, and you say, okay, where are we forecasted to be-
-in 2021? 2021 looks like, from a start standpoint, something like 2017 levels. I think something that's incredibly interesting to look at is just the overall building starts actual in 2020 and also forecasted 2021 through 2025. When you just look at square footage started. In 2021, for instance, we will start 4.2 billion sq ft of construction if the forecasts are correct. The makeup of that construction, of course, is different. Do you see as much, as I referenced earlier, in hotels and in sort of entertainment? No, you don't.
Front Street retail. What you see is Front Street retail being replaced by warehouse distribution and fulfillment. And of course, we're seeing a very healthy injection that probably not many saw coming in the early days of COVID-19 from a single-family housing standpoint so y ou see housing, the forecasted starts are going to be, or dwellings that is, about 1.4 million units, which is going to be about 900,000 single family and 500,000 multifamily.
I speak to that single family in particular because of some of the activity I mentioned earlier following Rory's question. Also when you think about that sort of scale of single family, what you get is you get bigger actual developments. It's not a one-off house here or there. It's actually a neighborhood. A neighborhood requires the utilities underground, and it requires the sort of infrastructure work, if you will, that goes along with it.
Whether or not there will be a grocery store nearby or Front Street retail, as I said, there will be something to service that. If it comes in the form of town centers, fine i f it comes in the form of more distribution centers to bring something to someone's doorstep, that's fine as well so, l ook, there are a lot of moving parts, but I think what we're really trying to get across is we're just agile, o ur products in general or by definition are, and we are as well in terms of how we point to those markets.
That's very clear t hank you very much.
Okay, we now go to the line of Rob Wertheimer at Melius Research. Please go ahead, sir. Your line is now open.
Thank you. Hey, everyone y ou've had a remarkable year, really i think the industry and you especially have proved out some of the worries people worried about on the downside a year or two and many years ago. It's really been remarkable, and congratulations to all your employees. Brendan, you kind of outlined a shift back to growth y ou talked about the MRO opportunity in some of these big end markets. I'm a little bit curious, when you look at that opportunity, it seems like you're saying you have years and years of growth ahead.
Do you anticipate having a materially different business mix, different product sets to sort of attack those opportunities? or do those TAMs afford you ample growth within the products you have? Just, do you envision the business looking kind of different in a few years?
Yeah g ood morning, Rob. I appreciate the kind words. Look, you're going to see a continuation of our specialty business, which addresses those markets you just went over, and we highlighted in the results. The underlying driver of that is plain and simple, really, and that is just the structural change, most specifically that being the shift from ownership to rental.
I think that we are highlighting how much, if you will, individuals in that space look for some degree of optionality, and I think some don't quite realize there was just no choice other than ownership before. Now you have a reliable choice in terms of rental versus ownership so, d o I think the mix changes in the years to come? The question is absolutely yes.
Look, when we see a resurgence in non-res construction in the couple of years down the road to come, will we happily and knowingly invest in that? absolutely w ill our general tool businesses benefit as a result of that? Yes. The big thing is the understanding of how big actually these specialty businesses can come as we exploit this incredibly broad end market that we've just spoken to.
I think that's the part that will answer your question emphatically, o ur specialty business, as you'll see in plain color, if you will, at our April Capital Markets Day. Look, that business can be the size of our business today in total. That's probably the shortest or quickest way to put it, we will continue to exploit that opportunity and that shift from ownership to rental as we bring our specialty products closer to our customers in all the markets that we serve.
That does encapsulate it very well t hank you very much, and I look forward to that Investor Day. Should be exciting. Thanks.
Yep. Likewise t hanks, Rob.
We now go to the line of Ed Stanley at Morgan Stanley. Please go ahead, sir. Your line is now open.
Morning. Thank you for taking my questions. A decent chunk of your specialty CapEx has gone into air filtration for hospitals, amongst other things, if my memory serves me. Is there any risk that you'll suddenly find a load of that underutilized specialty assets in a year's time post-COVID? or do you make so much money on such a short window of intense usage that actually it doesn't matter in a year's time what the utilization is on those pieces of kit?
The second question on leverage and the buyback, I guess. You mentioned that leverage is as low in October as you could reasonably hope for, excluding COVID so w hy so hesitant about the timing on a buyback? Is that acquisitions in the pipeline greenfields that absolutely come first? or can we expect a healthy balance of everything in the coming months?
Yeah, sure. From the air filtration products, I'm not so sure about calendar 2021 in terms of time utilization i would expect it to remain rather robust. I think actually for a number of years thereafter, it will remain healthy. It doesn't take much in terms of time utilization to produce good dollar utilization when it comes to those products.
Is this better than it will be ordinarily? I would hesitate to say anything but that. But one thing to understand that's key, if you look at, for instance, not perhaps the air filtration that we see today in terms of air purification, for years and years, pre-COVID, we increased the size of our air scrubbers, and we increased the size of our air scrubber fleet to service a vast array of end markets w hether it be remediation, whether it be all sorts of agriculture in some of the markets that we're in, like California and Colorado, if you know what I mean.
When we look at the remediation side around our humidifiers and our carpet fans, we grow that fleet every single year by 15%-20%, all because there is underlying demand there i f we don't, then some customers are forced to buy rather than rent, and we want to remain incredibly reliable as it relates to that. It's a specialty business that we focus on significantly in our climate control and air quality business, and we will continue to do so. I think you'll see rental penetration get even higher there.
When it comes to leverage and buybacks, sure, we could debate, do we begin our buybacks on the results of today? I think it's our way of saying, "Look, we're being prudent as we go through all this." Remember, yes, Michael just addressed that our leverage is at 1.7, which it has to round up to, so it's a bit lower than that, but it was 1.9 something just six months ago so w e've taken it down swiftly.
Why wouldn't you wait and see just a little bit longer what's going on out there? b efore you get that going again, p erhaps we're a bit closer to the lower end of that range than the middle end of that range. This is a year that, in many ways, certainly no one would have wished this horribly sad pandemic on anyone.
Remember, we had to demonstrate in our business, we had to demonstrate the cash, we had to demonstrate the resiliency, and we had to also demonstrate our own discipline and therefore the industry's, and that's what we are focused on right now. I think you'll find in the not-too-distant future, we'll take a decision on buybacks.
Thank you.
Okay, we now go to the line of Andy Murphy at Panmure Gordon. Please go ahead, your line is now open.
Good morning, gentlemen t hank you for taking the questions. I've got three, if I may. First of all, on the whole COVID situation, I was wondering whether you could talk a little bit about how sticky some of the revenues that have come through on that basis are? whether they might, if they do fall away, actually lead to other sort of adjacent business streams along the way.
Allied to the sort of COVID question about working practices and whether you've unearthed new working practices, perhaps that are better, cheaper, and provide savings that you'll stick with longer term. Secondly, just wondering about the M&A landscape y ou've obviously not done any deals in the period, but I was wondering whether you could share a little bit of color on whether other businesses have been struggling and opportunities are in the pipeline.
Perhaps a little word, if you can, around expected pricing. Finally, I wouldn't mind just a little comment on the State Aid investigation that you mentioned in the statement. Just a little bit of color around that and how Brexit may impact on the outcome of the appeal. Thank you.
Sure, Andy. To begin with your first, which is around COVID and the sticky revenues i like that term. I'll default to begin with to just continuation of rental penetration, particularly in our specialty business. As we've seen now for over a decade in our overall business, that once businesses begin the migration from ownership to rental, it's very difficult to turn that ship around.
Relying on that, they will re-gear their own businesses to be set up more for rental rather than ownership. The most basic example there is when you own equipment, it means you're responsible for maintenance and repair, w hen you rent equipment, you're not responsible for maintenance and repair so, over time, you don't keep spare parts on shelves.
You use that space for something else. You don't have the technicians, yo u don't have that sort of thing. That will continue. Definitely, I think, across all the geographies that we serve, our stature continues to change so w hen it comes to that flight equality I mentioned earlier, look at our U.K. business. Look at the enormity of the task. Over 250,000 tangible assets that they have deployed in response to Department of Health.
When you pull off that order of magnitude and you all of a sudden are thought of in that way, do you then do better on projects like infrastructure? I'd say we will. Do you do better with businesses that are in the facility maintenance space that need things of very broad range in product and very broad range in terms of geographically where they're serviced? I think that they will so, t hat's how I would answer that.
When it comes to M&A, I think Michael alluded to it in his comments. Our discussions are increasing, so we're closer to doing some bolt-ons than further away. There's some really nice little businesses out there that, if we can come to terms with the owners, I think you'll find we'll move forward. We're not doing anything earth-shattering i t is very much on the plan that we have had for quite some time now.
There are some nice ones that fill out some geographic areas for us or advance our filling out of a cluster and some nice little specialty businesses that can augment our growth in that regard. It's not going to be anything significant in terms of overall scale, but I do think it will demonstrate how we prioritize our capital allocation. All along, we've been investing in our existing businesses, both in replacement and in growth, as Michael will have covered.
The next logical thing there after the greenfields, which of course was our second, is to augment that with bolt-ons. I would say yes, as we've gone through this period, there are some opportunities that are out there. When it comes to Brexit, and Michael may have something to chime in here on your point from a technical standpoint.
Let's face it, whenever there is a degree of uncertainty in markets. P eople turn more to rental than at prior points w hen they do that it creates opportunity. If you look at what may happen as it relates specifically to Brexit and where there may be work, I think it's reasonable to think that you would see some injection from an infrastructure standpoint.
If that's the case, no one in the U.K. is better positioned than we are, not least of which understanding that we've kept our entire workforce intact through this period, which means we are very much so on the ready. As you'll see, we've continued to invest in that business.
Yeah, just picking up specifically on the State Aid point, that is to do with history, it's a legacy thing. It will still get dealt with i t's a ruling from the EU whereby we don't agree with, as do a lot of other companies don't agree with and have appealed it. HMRC has appealed it's going through its process. If it totally went against us, you'll see we disclose what the maximum potential liability is. As I say, we believe we've complied with the U.K. requirements as they were at the time, as do a lot of other companies. It'll have to just work its way through. The GBP 36 is the maximum exposure.
Okay, great. Thank you very much, gentlemen.
As that was the final question on today's call, Brendan, could I just toss it back to you for any closing comments at this stage?
No. Thank you very much for joining the call this morning, and we'll look forward to speaking to you in early March with our Q3 results. Hugh, thank you for your time today.
Thank you very much. Ladies and gentlemen, you can now disconnect your lines.