Earnings Call: Q4 2018

Jun 19, 2018

Okay. Good morning, and welcome to both those in the room and those watching on the webcast to the Ashtead Group full year's results presentation. With me today for the first time is Michael, who I'm sure most of you know extremely well. And so we'll be following the usual format. So following a short presentation from myself and Mike on both the financials and some of the key operational themes, we'll get on to the fun bit and Q and A. So let's start with some highlights. A solid Q4 confirmed the delivery of another impressive year. It was a further year of revenue growth, market share gains, strong margins and cash generation. And this allowed us to continue to invest in a good balance of organic growth, bolt on M and A and we're able to start a share buyback program as we look to use all of the tools available to us to drive shareholder value. And you can see the scale of these investments here on the slide. Impressively, all of this was achieved whilst maintaining our leverage within our long stated guidance of 1.5 to 2 times EBITDA as we continue to grow responsibly. And we're also pleased to propose a final dividend of 27.5p making 33p for the year, up 20% on last year in line with our progressive dividend policy. Look at the page of highlights. The highlight to me is just the consistency of our performance as we continue to roll out our 2021 strategy. Basically we've done exactly what we expected to do. And so with that I will hand over to Mike to cover some more of the financial details. Thanks, Geoff, and good morning. I didn't realize I got to do 2 things at once here. So when the slides don't keep pace then please do let me know. So turning to Slide 5, that sets our results for the year ended April 2018. As you can see it was another strong performance. At constant rates of exchange rental revenue increased by 21% with growth outpacing the markets in all our geographies. Margins were consistent year over year with an EBITDA margin of 47% and an operating profit margin of 28%. The margin performance was good particularly considering that we opened 62 greenfield locations. We completed 17 acquisitions which added a further 52 locations. Those acquisitions are generally lower margin and bring with them associated costs of integration and the cost of acquisition. As a result, our underlying pretax profit for the year increased by 21% on a constant currency basis to 927,000,000 pounds while earnings per share, which benefited from the reduction in the U. S. Tax rate in January, increased by 26% to 127.5p. Turning now to slide 6, we'll look at the divisional numbers beginning with Sunbelt in the U. S. Rental revenue grew by 20% as Sunbelt continued to benefit from strong end markets and of course to a lesser degree hurricanes. Both EBITDA and EBITA margins remained healthy at 50% 51%, respectively, as the continued operational efficiency in mature locations more than offset the drag effect of the new stores. As a result, Sunbelt's operating profit increased by 20% to $1,300,000,000 Turning now to Sunbelt in Canada. Slide 7 illustrates how the scale of our operations in Canada was transformed by the acquisition of CRS in August. As a result, year over year comparisons are not particularly meaningful. In absolute terms, Canada contributed revenue of CAD 223,000,000 and an EBITA of CAD28,000,000 The margins reflect investment expenditure and integration costs that we incurred during the year as we seek to build a broad based business of scale in Canada. Moving on to Slide 8, which summarizes A Plant's annual results. Rental revenue grew by 11% in the year. This was a slightly lower pace of growth than in the first half as we passed the anniversary a number of prior year acquisitions. And while margins were slightly lower, a 35% EBITDA margin and a 15% operating profit margin represent a solid performance in a market which has been pretty flat and competitive. Turning now to slide 9. Our strong margins resulted in cash flow from operations of £1,700,000,000 a 20% increase over last year. Ours is an inherently profitable cash generative business and it's that cash flow which gives us a substantial operational and financial flexibility. We use part of the £1,700,000,000 to cover non discretionary items such as replacement capital expenditure, interest and tax. The remaining £1,100,000,000 of cash flow was available for discretionary expenditure such as growth capital expenditure, M and A and returns to shareholders. As is our preference, we invested most heavily in growth capital expenditure to support the activity levels we've seen on the we see on the ground. Even after this investment in growth capital expenditure, we generated free cash flow of 3.86 £1,000,000 We then invested a further £359,000,000 in bolt on acquisitions, increased our dividend and repurchased shares. Going forward, we'll maintain leverage within our 1.5 to 2 times target range and what is not spent on growth CapEx will continue to be and M and A will continue to be available for shareholder returns. Moving on to Slide 10 on debt and leverage and this reflects our ongoing commitment to investing responsibly, maintaining leverage within our target range and ensuring that our debt structure remains flexible. The end of April, our leverage was 1.6 times towards the lower end of our target range. Our debt has a weighted average maturity of 6 years and a weighted average interest cost of around about 4%. We also continue to maintain a wide margin between our net debt and the secondhand value of our well invested fleet. The gap between these two is now £1,600,000,000 As we've highlighted before, these factors provide us with a high degree of financial flexibility and we anticipate a number of years of earnings growth and significant free cash flow generation. This supports our plans for 2021, which Geoff will talk about further. Finally, on the next slide, a brief update on the impact of U. S. Tax reform. Our 20 seventeentwenty 18 effective tax rate was 32%, reflecting the reduction in the U. S. Rate to 21% from January this year and the geographical mix of our profits. In 20 eighteentwenty nineteen and thereafter, we expect an effective rate of 23% to 25%. The lower statutory rate combined with the full expensing of capital expenditure for tax purposes over the next 5 years will also favorably affect our cash tax rate. Our cash tax rate was 10% for the current year and we expect it to be mid to high single digits for next year and thereafter it to move up into the teens and then trend towards the effective rate of 23% to 25%. However, as you're aware, these figures are a little bit subjective and they're sensitive to the level of capital expenditure any one particular year. Additionally, the Group benefited from the U. S. Element of its deferred tax liabilities being remeasured at 21% rather than the historical rate of 35%. This resulted in a reduction of £400,000,000 in our deferred tax liabilities with a resulting one off non cash exceptional credit to the income statement. And with that, I'll hand it back to Geoff. Thanks, Mike. So let's start the operational review with a look at Sundance. Our growth in the Q4 continued to be ahead of our original plans with strong organic growth and bolt on M and A. So once again, we've built our outlook for 20 eighteennineteen around that 2021 template we've talked to you about many, many times. But obviously we adjusted for current market conditions. So with all sectors and geographies performing well, we're a bit more confident than a year ago. So we've tweaked up our organic growth to 8% to 11% and our bolt on growth to 3% to 4%. So we're looking at overall growth for the new financial year of 11% to 15%. Encouragingly, we got off to a good start. May's rental revenue was up 19% year on year. However, we are also aware that there's going to be some tough comps in Q2 and Q3 as we lap the hurricane activity. So to simplify, all of us, if we strip out the hurricane activity both last year in terms of its impact on growth as a comparator, We'll have grown 16% or 17% last year and we're expecting around about 16% to 17% growth again this year. So let's look at some of the detailed revenue metrics. Look, mix worked against us again in the quarter due largely to a very wet late spring. Rates continued to be positive, 2% to 3% ahead of the previous year. And as you can see from the charts, we've seen a better upward trajectory in both physical utilization and rates in recent weeks. So the recent weeks. So the spring pop was just a little later than usual. But looking at volume, obviously that remains incredibly strong. There was a lot of noise last year with M and A and hurricane activity but margins remain strong with EBITDA margins at 50% and EBIT margins at 31%. It was particularly pleasing to see as we'd anticipated ROI improving from 22% to 24%. Turning to drop through and as you can see for both the quarter and the year it was 53%. We anticipate that that drop through will continue at similar levels for the new financial year which will obviously play through to margins. So looking ahead we anticipate a continuation of strong growth, gently improving margins and significant free cash flow, which again will provide us with a range of options to enhance shareholder returns. But clearly drop through in margins have had a lot of attention recently. And so in order to explain our long term expectations, I've included here 2 charts that we covered when we were in New York recently. Look, for me, the key takeaway of these charts is the potential for further margin improvement. As the 333 stores that we've added since 2012 continue to mature. It's easy to forget that we've doubled our location count. So to have delivered the margin improvement that we have is a testament to the inherent operational leverage in our more mature and well established locations. This of course is further enhanced as we roll out our cluster model as shown by the chart on the right and the relative returns in our more mature clusters where we start to see the benefit of our broader fleet we've talked about many, many times and the diversification of our end markets. But of course the pace of improvement in margins is not linear. In this year there's been a significant investment in our central overheads as we prepare the business for further growth. But it was clear that we needed this investment and so the next couple of slides let's just see why we are so confident that this infrastructure, the central overhead base is going to be significantly larger business in the coming years. Firstly, look, the markets are just really supportive. We've got a very, very good market environment. All our lead indicators continue to support the view that we have a good period of growth ahead both in our traditional markets, but of increasing importance in those non construction markets that again we covered Brendan covered in detail when we're in New York. But a significant proportion of our growth will now come from these new markets as the concept of rental becomes better understood and as we develop our physical and technological platforms focusing on availability, reliability and ease. Therefore, look, we've included the normal traditional construction stats that we've always included here, but just important now are the broader indicators reflecting the general health of the U. S. Economy. And again, encouragingly across all of these metrics we see a good medium term outlook. The second and to me most important factor driving our growth expectations are the continued structural changes in our market. The OER 100, which is a report of the top companies in the industry, has just been published for 2017 and it continues to highlight some the chart on the the chart on the right there, since 2010 we have delivered 19% compound annual growth in revenue. The other top 10 players excluding us have seen a 10% growth whilst the overall market has seen a 6%. So generally all the large companies have outperformed, but the real winners have and will continue to be the true scale players, leveraging their broad product offering and those in our strong physical and technical platform. Therefore, further consolidation absolutely feels inevitable. But what really excites me is that despite this incredible 19% compound annual growth, we've still only got 8% market share. There's tons to go at. And as Brendan explained in New York, we even think that 8% market share is overstated and our end markets are far broader than are often recognized. So our momentum at the moment is the most tangible example I've seen of virtuous cycle of scale in action. So clearly we significant growth ahead and that's why it was very, very important that we invested in the central overhead so we had the infrastructure to facilitate that further growth. Over time obviously we are not going to be making these step changes in central overheads and we will start to leverage that and you will see that coming down as a percentage of our overall cost base. Moving on to Canada, look there's been lots going on here and therefore there's a lot of noise in the headline numbers. However, we're seeing really encouraging trends with underlying rental revenue growth of 20% in Western Canada and 25% in Eastern Canada. And yes, there's some one off costs in the quarter, but the underlying margins also remain very strong. The integrations have gone well and you will note in this morning's press release for example, the acquisition of a business called Voyazines in the Greater Toronto Area. This adds both to our footprint and importantly our aerial offering in that key market and you will continue to see similar bolt on M and A in Canada as we broaden our product offering and we broaden the geographies that we serve. I'm going to cover the organic growth potential for Canada in a moment when we get on to capital. Moving on to Air Plant, look it's been a tougher year. Underlying volume growth has been steady, but pricing is tough reflecting both a little of the heat coming out of the end markets, but in my opinion more importantly there's just a bit of an oversupply of equipment which needs a correction. We seem to be in this bit of a hiatus as we wait for some significant infrastructure projects to kick in, while as other projects have scaled back a bit. So there is this almost waiting for the next wave of construction. Having said that, there's some good early signs that the market is correcting itself, and we will continue to leverage our market leadership position and invest for the long term. We still see this as a very important market. So we expect a return to profitable growth again in the coming year and May delivered an encouraging 9% year on year revenue growth and a far better drop through. So what does all this mean for CapEx for the new year? Well, if you look at the bottom there in terms of the gross capital spend, you would be excused for thinking not a lot. However, I think this might miss some important trends. I think the first thing to highlight is we've got Canada separate now, so be careful if you compare it with any charts from Q3, which will have been a consolidated number. And in terms of anticipated spend in both the U. S. And Canada, we both narrowed the range, so we've moved the bottom up a bit and we've tweaked the top up a little bit too reflecting our positive outlook. But going into detail, let's start with Sunbelt in U. S. Dollars because again currency can distort the sterling numbers that we report. And here you can see similar levels of CapEx in replacement expenditure, but not as much in non fleet. So again, look, we made the big investment both in overheads and capital around IT systems. Last year, we won't have that level of expenditure going forward and that's why the CapEx in non fleet has come down. But in terms of growth expenditure, growth expenditure is going to be at least the same as last year and my expectation it will be our highest spend ever. Similarly in Canada, normal replacements, not a lot of non fleet at this point, but circa double the growth expenditure again. So yes, you're going to see some more bolt on M and A, but you're also going to see some significant fleet investment as we develop a model which looks more like the U. S. Model through organic growth. And then the A Plant spend profile very consistent with what we've just said. Look, we're going to keep the fleet competitive and therefore a reasonable level of replacement expenditure. We see real long term potential in the market and therefore some non fleet expenditure a little bit higher as we invest in some of the IT initiatives that have been so successful in North America. But given what I said about an oversupply in the market, obviously not an awful lot of growth expenditures. So the U. K. Growth expenditure has been tweaked back a bit. So overall, I just think this gives a clear picture of how we see each geography. But as always, I'll add the caveat that we place relatively short small orders on relatively short lead times and therefore we always have the capability to flex our spend depending on the needs of the business. Moving on to capital allocation policy, nothing's changed. Organic growth is a priority, followed by sensibly priced M and A with a balance going to buybacks. This year, we've probably spent a little more than first anticipated on fleet reflecting our strong organic growth and we spent a smidgen less on M and A than we probably expected to do, just reflecting some deals taking a little longer than we expected, no reflection on what we see as the anticipated pipeline. But we spent €200,000,000 on buybacks, so we're running at about €100,000,000 a quarter, so therefore we now anticipate spending between €600,000,000 £1,000,000,000 under the program that we announced earlier. We will keep updating that number as we go through the period as our spend requirements become a little bit clearer. The key however is that we see buybacks forming a long term integral part of our ability to enhance shareholder value in line with the capital allocation priorities that we just discussed on the last slide. Look, the key to our capital allocation is the scale of the cash generation driven by our really strong EBITDA margin. So this together with our strong balance sheet, low leverage on fleet age just gives us options. So details here on the left of Page 23 are the assumptions for our plans through to 2021. And as Mike highlighted in New York, we have the potential to allocate circa £3,500,000,000 to M and A or buyback to supplement our base case 7% to 10% organic growth. Therefore, following on from 8 years where we've delivered a not too shabby 64% compound annual growth in EPS, again demonstrating the operational leverage inherent in the business. We expect to deliver somewhere between 15% 20% per annum through to 2021 and we remain very confident in our ability to deliver those plans. So to summarize, look, we're carrying good momentum into the new year. The U. S. And Canada are obviously strong and after a couple of tough months, Air Plant is also showing the first signs of turning a corner. Markets are supportive, but the key is our ability to gain share and leverage our platform to exploit new opportunities in an ever growing rental market. Hopefully, both today and recently in New York, we've demonstrated clear operational and financial plans to deliver 15% to 20% per annum EBS growth through to 2021. Look, every quarter won't be the same as we lap significant events like last year's hurricanes, but the overall direction of travel will be consistent. But also as part of our overall plan to create shareholder value, we remain committed to a progressive dividend policy and have therefore proposed a final dividend of 27.5p making 33p for the year of 20% on the prior year. And as always, we will continue to grow responsibly, maintaining our leverage within our long term guidance of 1.5 to 2 times EBITDA. Unsurprisingly, therefore, the Board continues to look to the medium term with confidence. As I said right at the beginning, we now get the fun bit which is Q and A and you all know what to do. Morning, James. Celebrating Harry's goal. 2 goals, so both Harry's goal, sorry. Anyway, right, should we move on to Q and A now? Good morning. Thanks. It's Will Cattness from Jefferies. Just a couple of questions. The volume environment is clearly very strong. Your gross CapEx disposals to be lower. So that looks indicative of certainly the rental revenues coming in at the top end of the range? And then secondly, just on Canada, can you just talk a bit more about the type of costs that went in there, the one off costs and pending further any M and A, whether that's just now complete? Yes. Look, we'd expect the margins in Canada to sort of even out around where they were prior Q3. So they're not quite the U. S. Margins yet, but they're better than the U. K. So we'd expect EBITDA margins going forward of around about 40% and we'd expect EBITDA margins of around 20%. Look, if you go to the back of the press release from this morning, you will see that we have tripled the number of locations in Canada this year and tripled the number of staff. Now once you put in that level of investment you've got to start putting an infrastructure around it too. And so what you've seen is some integration costs moving feet around, moving people around, fiddling with locations. You've seen some one off costs around IT. And I get beat up all the time by both the guys in Sunbelt and A Plant because I hate exceptionals. I refuse to have exceptionals. Of course because we're going to open Greenfields, we're going to do both on M and A, we're going to do these things all of the time. That is our model. So how is it exceptional? When you've got a tiny little business the size of Canada and you do all of these things, it just stands out. We have the same level of drag in the U. S. From opening, across the 2 geographies, about 100 locations. All of those things are dragging down a margin. But when the business is as big as Sunbelt is, it's just less apparent. So cost of putting an infrastructure supporting a business 3 times the size of what it was 1 year ago. And just on the volume side. For the U. S, the volumes look, the volume is good. I mean, look, we haven't we've threw most of the hurricane activity. We've lapped some really big M and A over the last 2 or 3 months. So we lapped Pride, we lapped Noble, we've lapped RGR, we delivered 19% revenue growth again in what was not the greatest quarter in the whole wide world because of weather. It wasn't terrible, but anyone who's been to America, it's just been as wet as can be. So you can see if you look at the chart on let me go back the other way, which page is it, this one here, I know you got to look carefully but look we've just started to have our spring pop in rates and physical utilization. So the market is good. We're kind of nervous about what Q2 and Q3 will look like when you've got 4 hurricanes versus none, 1, 2, 3 there's going to be some noise in there. But yes look there's no hiding the fact that we've got off to a very good start and markets are good. It's Roy Mackenzie from UBS. At the CMDs you mentioned, you talked about redefining how you think about clusters and breadth of rental markets. Interest knowing your budgets now for CapEx, how much you'd kind of say is going to these new areas, like you talked about for the FM market? Is it all just very, very tiny at the moment? And if it's not that small and it's growing, are you reducing how much you're spending on more traditional construction equipment at the moment? Look, we haven't broken down by product categories. But as you would expect then we are seeing big we're seeing bigger percentage growth in those non traditional markets. Now given their relative scale in absolute dollars then clearly a significant proportion of our spend. So yes, I think there's no replacement spend in some of those. So it's all about the growth expenditure and an increasing proportion of our capital expenditure is going into those new models as it has done for a while now. I mean if you were to look at if you look again Brendan and the guys did a very good job of showing you through some of those smaller specialty businesses where we went through our floor cleaning down there, went through climate control and we've often talked about the growth in our power business. That's been supported by significantly larger fleets. Over I think over the last 3 years we think we've tripled our market share in power for example. There's not a chance we could have pulled off what we pulled off in the hurricanes were it not for the fact that we had the fleet on the ground to do it. So yes, I don't think we're into the stage yet of releasing by product category what our CapEx plans are. But yes, clearly the plans have to support our long term growth intentions. That's the real excitement. Construction is always going to be a great market for us. We're always going to be cyclical with construction. But even with construction markets being as strong as they are, it's becoming a smaller percentage of our business which I think shows the commitment our commitment to investing in those other specialty areas. And then you're talking about 3% to 4% bolt on growth with leverage already towards the bottom of your range. I think it was kind of 6 months ago. Well, either we have to spend a lot more on M and A or we're going to have to spend at the upend of that ago. Well, either we have to spend a lot more on M and A or we're going to have to spend at the up end of that buyback for overall. But I was going to say because about a while ago last year, you said that you felt you should probably be at the top end of that leverage. And I still think we should be and in all honesty there's been a couple of deals which I'm hoping we'll be able to announce in the not too distant future which will take up the 3% to 4% and will take us to the top end of that leverage. However, we're not going to commit to them because if we can't get them over the line we can't get them over the line and at that moment in time we will tell you we will apply more to buybacks. So it's look you're right the math doesn't all add up in terms of what we said around leverage and what we said about buybacks and what we said, but all we're doing is allowing ourselves a little bit of flexibility. If we over commit ourselves in the bolt on M and A line, there's a real danger that businesses get sucked into, well, I've just got to do the deal at any price. I see no sense in that. I think we need to maintain the discipline that we've had. And if at the end of the day that goes to buybacks not M and A, so be it. I think it's really important that we stick with this discipline of what drives the best shareholder value not what drives the biggest business. Great. Thank you. Morning. Jane Sparrow from Barclays. And apologies if I'm asking something you've already answered, Geoff. So the drop through in FY 2018 was 50% reported, 53% if you ex out the scaffolding work. How do you think about that drop through in the next couple of years given wage inflation, rate increases, maturing greenfields, etcetera? Yes. We're fairly relaxed. I mentioned inflation and the fact there was a shortage of labor I think before everybody else a year or 2 ago and I got slaughtered for everyone's go. Ashtead's facing inflation like nobody else in America was. And again, if you go to this slide here and look at what it's meant in terms of our individual store margins with the inherent leverage in those individual stores, it's kind of not made a lot of difference. So I think inflation here, would our margins be a little bit better if fuel wasn't going up and if so, yes, probably. But we're still seeing progression because of the inherent operational leverage in those individual stores. What's pulling back what has pulled back our margins is this investment here which as I said earlier I think is imperative in order for us to have an infrastructure that is able to support the business which we quite reasonably believe we can think we can double our market share in a similar period to what we have recently just doubled it. But there's no point trying to do it. As a service business the moment we lose service it goes backwards rather than goes forward. So at some point in time if all we wanted to do was improve metrics and improve margins, why the hell would I open 126 locations and 32% even? If I just opened half the number of locations my margin would just go up. So we have to be careful that we don't run a business to hit a metric. It is important that we don't throw away discipline about strong profitable growth, but equally we need to get our minds around the fact that our objective is to double the size of this business. We have a very good track record which will suggest we can do that and we think we can do that in gently improving margins. If at the end of the day I had a business that was twice the size that it is today and only had 30% EBITDA margins and not 31% EBITDA margins, I don't think I'll lose much sleep. Okay. So I think you've got to get your mind around the concept of growth and also get your mind around the concept that inherently these mature locations is all of these locations here which is over half the locations mature towards that 40%. And as we have now got over the step changes reflected in the capital of the investment in central overheads and we start to leverage that line, this will get better. Now there's going to be some noise this year because of hurricanes and things and would it immediately be 32 or 33? No. Will it get better over time? All the math would suggest it would do, but actually what will ultimately determine that is how many new lines come in here, how much bolt on M and A there is and what are the margins of those bolt on acquisition activities. But we think this is the most important shot which is the gap between the top 2 and the rest is just becoming significant. It's become significant. If you compare our financial returns and the next biggest player, with a jerk, I don't think we've made a profit yet in these great markets. If you look at the scale of our investment potential and our growth relative to everybody else then this is our opportunity to take this momentum and really redefine our position in this market. And that's what we're doing, but we're doing it with sort of this is not going to be a big land grab. We're not going to suddenly say to you EBITDA margins are 45% and EBIT margins are 25% because look at the growth. That would be irresponsible. So it's all about just trying to pick a path which is growth, growth, growth, structural change supported by very, very strong margins. So that's a very long answer to we think they're going to gently increase and because that's what we're seeing happening in our most mature locations. And then just one on the UK as well. Given the comments around competitive markets, rate pressure, just curious as to why you'd be spending any growth CapEx at all? Is that all going into specialty businesses? Well, again, if you go to the CapEx, if you look at it, look, we have we've gone from 3rd or 4th to market leader. In my opinion, the U. K. Industry has never had a market leader, not even close. They've had people who are big, but I can't think of a single pillar, that's not true. If you go back long enough, Hudens many, many years ago acted like a market leader. So we want to maintain our market leadership position. I still think there is share to be gained and better margins to be had predominantly. So we're keeping our fleet competitive and that's why there's a reasonable amount on replacement expenditure. We think we need to differentiate ourselves to be able to get the sort of pricing that the U. S. Gets which means our service and our IT has to be better. So we're making a big commitment in particularly IT this year in order to differentiate ourselves from our peers. But that's the growth CapEx is tiny and yes the vast majority of it is in specialty areas. So our trackway business there's a fair bit of spend, Our surveying business, there's a fair bit of spend. But in general, construction equipment, I don't the fleet is not going to get any bigger at all. Hi, it's Sandy Wilson from JPMorgan. A couple of questions on competition please, Jeff. The strategy to move or I guess evolving strategy to move into the non construction markets, if you can call them that, are you seeing your big competitors do a very similar thing? I think it depends on the area and I think ultimately we will. But if by big competitors you mean United, yes. Herc a little bit but again they've got no money to spend. So it's kind of around the edges and the small guys know and that's the big difference here is that as we go into these big markets we can create a market and we can create ourselves as instant market leaders and experts in that business. I mean I keep banging on about this but that REO 100 list is a really good read. Well, probably not, but it is for me. Again, look at us. I mean, our fleet size, might U. S. Fleet size now 7.5, 7,000,000,000? Sorry, yes. Clearly almost 8,000,000,000. So there's 5,000 rental companies in North America. We're number 2 with 8,000,000,000 of fleet. You can see the list though based on a very generous assumption of dollar utilization, the 100 largest rental company must have $27,000,000 $28,000,000 of fleet. How does it compete? Brendan will spend more than that on floor cleaning this year. He will spend it more on floor cleaning products. We will spend more on all of our key specialty areas than probably the 20th largest down we'll spend in total. And so yes, we are committed to spending those specialty areas and we're going to leverage our scale and we're going to and that's why organic growth we believe is very, very important. That's why whilst both on M and A will remain important, there's been some speculation about crazy big M and A and we think organic growth is the way forward. And then just a second one, just on the UK side, just following up on the comment to previous question, given it's a bit more challenging, are you seeing competitors do a similar thing in terms of investing in, I think you mentioned technology and service and Okay. Look, you look at their results. With what? And I know this sounds like I'm beating up competitors and I don't mean to do. I think some have done a remarkable job in a very difficult market with very few assets to turn the corner and there's 1 or 2 of them have turned the corner. But we need to differentiate the difference between turning a corner and having any firepower to do anything in particular. So I am not having a go at people who I think have done a very, very, very good job. But at the end of the day this is a business based on service and your capital capacity to provide that service is a big, big, big differentiator. We've got ourselves into a position where we have this fantastic balance sheet. We have to deploy it sensibly in order to leverage that position. Thank you. Hi. Good morning. It's Steve Wall from Numis. Just in terms of Canada now going forward with the acquisition this morning, where do you think are the sort of medium term opportunities? Is it with the organic openings or is it with the M and A? I think it's both. Look, it's like starting out like we've been doing this in the U. S. Now for 5 or 6 years, the longest 7 or 8 years. And there's been 1 or 2 acquisitions in our time where I know both Brendan and I have gone, well, that's just changed everything, be it in the geography or how we look at the markets. We bought a company called TOPS, tiny little business and it changed completely how we looked at climate control. We bought a business in Chicago which was a big aerial business. We'd stayed away from big aerial businesses and we certainly went well if you run them this way and you use them as a way to focus on the product, it was an moment for us and we then started rolling out more big aerial locations. Buying CRS has been the closest we've had for a long time to an moment in terms of the footprint it has given us, the performance it has delivered on such a narrow product range, you just go imagine if they had a full product range. And by full product range, I mean area. They do have virtually no area, never mind adding pump and power, climate control, a lot more heating, never mind thinking actually to do next to nothing in the largest market in Ontario which is downtown Toronto. And then you think and then you start seeing how that relationship of having a big Ontario business and a big Western Canada business works in terms of some of the bigger larger accounts in Canada. It is a market where it looks different to the U. S. The number 1 in Canada has a disproportionately high market share. We are finding the market being exceptionally receptive to a strong new entrant and therefore I think you will continue to see us doing a combination of greenfields and bulldogs. But now for example CRS, look they just need fleet. If you're trolling through your numbers you will see we made significantly lower gains on sale than we did. That's because we're not selling anything, we're just running it. We're sitting on huge gains. But we actually moved quite a bit of fleet in Canada in relative terms. Why? Because we've got to reconfigure it. That's part of what the integration costs are. We just got to get that fleet mix. So we're genuinely excited about Canada. I think we've got a super, super team there. I thought we started with some great acquisitions early in Western Canada. But CRS has just been this wow. Imagine what this could be kind of moment. And it's been a while since we had one of those. We've been kind of rolling out the same old routine for a while, but it definitely falls into that category. Good morning. Tom Sykes from Deutsche Bank. Just I wondered whether you've seen any changes in the market CapEx post the Trump tax changes and any changes in depreciation rates? No, we haven't. I mean, look, there's been some form of accelerated capital allowances for kind of forever. So we don't believe anybody buys things just because of that. We've also not seen any incremental spending because people are all excited about new investments leading on from those tax changes either. And I think there is a muted optimism of what those tax cuts will do for our cycle. As I said before, our biggest challenge right now is getting trained drivers, mechanics, it's true for all of our customers. So if there is any more demand, it's not going anywhere this year or next year. It's just elongating the cycle. So no, I believe the tax cuts will elongate the cycle. I don't think anybody based on the sort of returns you get makes capital investment decisions in our industry because of tax breaks. Okay. Thank you. And then just on your comments on the labor market, what kind of sort of headcount ballpark budgets are you looking for headcount increase, sorry, this year to hit the levels of revenue growth that you'd see in the year. Well, obviously we'll want to delta. So I'm picking a number here now. This is not a guidance. If we get 15% volume growth, I am guessing we're going to need something around 11%, 12% headcount improvement because some of that's going to come from rates, some of it's going to come from efficiency. So there will be a delta down from our revenue number and that's the problem. Find keeping labor would be hard if we weren't growing so fast, but we've got pretty good once we keep somebody for beyond 3 years we've got pretty good retention statistics. The issue we've got now when you're growing as fast as we are and we're trying to fund that growth, it is the churn on the new guys that really, really hurts you. Once they sort of get embedded into our business, understand our culture, understand the opportunities, the career opportunities in our business, we think we hold on to them pretty well. But that's the problem with growth. You've got to staff that growth. Thank you. And then just finally on the differences on the outlook for yield on the specialty business versus the general tool business? You've given the appendices, the sort of 5% just Yes, but be careful. That's with 2 great big hurricanes in it. There's going to be some weird and wonderful year on year comparators in specialty when we get to Q2 and Q3. So that's I think the yield environment is generally better in Specialty than it is in General Tool and I think that will continue to be the case. But whether you can bang in another 5% year without the added impetus of hurricanes, I think that's probably unlikely. Okay. So if you looked at that sort of as a run rate now versus pre hurricane, then we obviously you've got a hurricane effect in your Q2. It's actually coming through, but if you look at it as a result of the I can't remember at the top of my head, but we show you it every quarter. Go back and look at Q1 last year. No problem. Thank you very much. Hi. Rajesh Kumar from HSBC. Just on the rental yield guidance, you got fairly good utilization levels, you got a decent level of volume growth coming through. Your basically rates are rising. You've got inflation, which is a good excuse to have a discussion about pricing. Yet we're not seeing any like for like yield increase. So you're the brave person who's talked to me about yields, honestly. So here I get into my rant about how nobody understands yields, okay? And I apologize to Will now every time we come into these presentations he says don't rant about yield. So I will try my very best not to rant about yield. But we need to understand what yield is. Yield is like this balancing number which sort of means nothing. Look, if I could turn back time we would have never put it in our presentations. We inherited it from Ian who insisted it was the best metric in the world. The first time I ever met Brendan I remember him saying this is just the dumbest metric in the whole wide world. Nobody understands it. And he was 100% right now. He's going yeah, but we've told everybody about it forever. We're sort of stuck with it. Well, he can perhaps get rid of it because look what's happening. Okay. Yield is changing not because of rate. So what physical utilization drives and what a strong market drives is rate improvement. So rate is getting better as you would expect it to be. It's a tighter market. There's inflation. We need to pass on some of that inflation in rate and we are absolutely doing that. The only thing that's driving yield backwards is mix, I. E, we're doing more longer term projects. And look unsurprisingly if you want to rent a product for 2 years at 100% physical utilization, you pay a lower rate per day than if you want to rent it for the day. So the only thing that's driving yield down is actually a really quite good thing, which is we've got more and more fleet on rent to more and more customers for longer and longer periods. It comes out as a negative. I mean look here I think this is interesting. Look you would have said minus 3 percent yield is terrible okay but we delivered 51% EBITDA margin. So yields were 3% lower than 1 year ago. You know what our EBITDA margins were in Q1, 2017, 51%. So minus 3% which looks terrible as a headline number you would think look it's no indicator that it's the end of the market, the market's got stronger, it's made zero difference to EBITDA margin. So look here, plus 3% that looks fantastic. That must be better for margins. Well actually no we delivered 48% in Q3. Do you know what the margins were in Q3, 2017? 48%. That plus 3% made no difference to margins and that minus 3% made no difference to margins because there is a corresponding adjustment to these longer or shorter rental periods with transactional cost. So yield is this is far better, I. E. On a like for like time and product mix horizon. So there's some generalities in that. So even that's not a perfect metric. Is this strong market and is this strong physical you'd like? This yield headline which gets all the attention which is awful because we've been sticking it in presentations for the last 20 years has no correlation to what's happening with margin. So if you look at it here, if you go back, you would think, well, minus 3 to nil, that's going to be brilliant. Well, it's just made no difference. So yes, you lose it in rates, but you gain it in physical utilization and you gain it in transactional cost. If I was to get really complicated about this, there is a third dynamic which is product mix too. So there's so many things affect yield like how much is specialty, how much is general tools that it is not the best metric in the world. We stick it in there because every time we either miss a line or a chart, Jane says where's the chart from last time? So we sort of leave it in there, but we very deliberately started putting rates in instead because we just think it's better. The key is to look at these margins. And look, we've added 300 odd locations in the last few years. We have had all of the integration cost of all of that. We have Brendan sits in an office that is now 100,000 square feet, which 18 months ago was 60,000 square feet. There was no point growing at 10% in line with revenue or volume because we're planning on being twice the size in a few years' time. So we've had all of those sort of infrastructure investments and yet we're still banging out 50% EBITDA margin, 31% EBIT A margins. So look I know there's always a bit of noise around all of this, but if we can keep growing at mid teens percent and bang out these margins and we apply our balance sheet and our cash generation responsibly, we think that's okay. Is there anything particular driving that longer duration contract? Yes, absolutely. Which it's a combination of there's some really big projects around now where we are getting up there in terms of the cycle And those large projects historically would have had a significant proportion of owned equipment, and they haven't. So we've never had projects where we have we have projects where we have $25,000,000 of fleet on a project. That was unheard of some years ago because people are just renting. So the negative yields which everyone says, oh, we think, are you mad? Look, we're running it all out for longer. It's an absolute clear demonstration of rental penetration growing in practice. And yes, it's a weird metric. But the key is follow the volume growth, follow the margins. That's a balancing weird number in the middle. Thank you. And that was hardly a run. It was close to 1, but it wasn't Will has just gone. Morning. It's Raheem Cream from Liberum. Just a quick question on the drop through for 2019, in fact it's flat year on year. Should we take anything from that in terms of the potential integration costs and additional infrastructure costs? Look, I think it's a reflection of where we are right now. So look, we used to have drop through in the '60s. We were doing less greenfields, less bolt on acquisitions and we had more spare capacity in our existing locations too. So it's come down to 53%. We think it's we've given guidance for 53% in the coming year too. So clearly if our EBITDA margins are 50% it will be gently enhancing. Now precisely what the drop through will be, I'll come back to, will depend on exactly how much bolt on M and A we do. That is why I keep going back to I think this is a good chart because this is certainly how if I'm the right one, this is how we look at it. We have to differentiate if the only reason margin is if margin is going down because these things are going down we should be worried. If the headline margin is going down because we've just that number instead of 126 is 250 that's less of a concern because if you look at our track record of evolving the margins once we've done the bolt on M and A and once we've done the Greenfields it's very, very good. So the headline number will be distorted by the general level of activity. But the key is that on mature locations look they're generating 40% EBITDA margins and there's a range within those. That has to be encouraging. Looks like we're done with questions. Nobody dared ask another question after yields. Look, once again thank you for your attention. We do appreciate and we're looking forward to updating you again for the Q1. Thank you.