Earnings Call: Q2 2018

Dec 12, 2017

Okay. Good morning, and welcome to the Ashtead Group First Half Results Presentation. As usual, Suzanne and I will do a canter through the financials and the operational performance, and then we'll swiftly get on to Q and A. So let's get started by looking at some of the key highlights of what's been another very encouraging quarter. Underlying performance continues to be strong with growth tracking ahead of our original forecasts. The momentum in both volume and rates we saw in the Q1 continued in the 2nd quarter and has been supplemented by additional hurricane activity. We've seen good progression in margins together with strong cash generation and this provides us with a range of options to enhance shareholder value through both growth investment and returns to shareholders, in line with our capital allocation policy. With this strong cash generation and an encouraging medium term outlook, we now have the flexibility to operate towards the upper end of our leverage range of 1.5 to 2 times net debt to EBITDA. Based on this and projected cash inflows, we are announcing today a share buyback program of at least £500,000,000 up to £1,000,000,000 to be executed over the next 18 months. In addition, in line with our progressive dividend policy, we've increased the interim dividend by 16% to 5.5p per share. So we're experiencing good end markets. We've got a strong balance sheet and we continue to execute effectively on our 2021 plan. Therefore, whilst we would expect activity levels to progressively normalize post hurricane clear up, demand remains strong and we expect full year results to be ahead of prior expectations. This strong performance together with a clear roadmap for further organic and bolt on growth allows the Board to continue to look to the medium term with confidence. So with that, I'll hand over to Suzanne to detail some very impressive numbers. Thanks, Jeff, and good morning to everyone. Our second quarter results for the group are shown on Slide 5. We are pleased to report another strong performance led by a 22% increase in group's rental revenue at constant rates of exchange. Certainly, the quarter benefited from hurricane cleanup efforts, but importantly, the underlying trends were very good across the business. Our 49% EBITDA margin and 32 percent EBITA margin were impressive, considering the costs incurred to serve the hurricane related business as well as ongoing greenfield and acquisition opportunities. As a result, the group's underlying pre tax profit increased by 24% to £298,000,000 On the next slide, we've shown the group's results for the half year and as in second quarter, you can clearly see our robust growth in both revenue and profitability. Our rental revenue increased by 20% and despite having opened 39 greenfields and having completed 9 acquisitions, margins remained strong due to our continued focus on drop through. EBITDA margin was 49% in the 6 month period and our operating profit margin was 31 percent. Our underlying pre tax profit increased by 23% to £537,000,000 And in the 6 month period, profitability was positively impacted by £14,000,000 due to weaker sterling. Turning over to Slide 7, we'll review the divisional numbers. Given the increased scale of our Canadian business following the CRS acquisition in August, we decided to report the results for Sunbelt U. S. And Canada separately as we thought that would bring more clarity to our discussion. And so with that as background, let's look at the results for Sunbelt in the U. S. Rental revenue grew by 18% in the half year as Sunbelt continued to benefit from generally strong end markets and of course, to a lesser degree, the hurricanes. Jeff will speak to the effect of the hurricanes and also to Canada in more detail later. Both EBITDA and EBITA margins progressed in the U. S, increasing to 52% and 34%, respectively. We've discussed operational efficiencies and drop through many times in this forum in the past, particularly in our more mature stores and that continues to push margins forward. On Slide 8, we've shown A Plant's half year results and we're encouraged by its continuing growth. Rental revenue increased by 18% as compared to last year, while margins remained unchanged. We will continue to focus on drop through in that business in order to drive margins forward. But having said that, a 23% increase in operating profit and a 19% operating profit margin is a good performance in a competitive market. On Slide 9, we've provided details of the group's cash flow for the trailing 12 months through October. The strong margins that we discussed earlier produced cash flow from operations in the last 12 months of GBP 1,600,000,000 giving us substantial flexibility as we remain focused on enhancing shareholder value within our capital allocation framework. And while that number is certainly a headline grabber, the real standout on the page continues to be free cash flow, which was £377,000,000 for the period. On Slide 10, we tried to demonstrate the strength of our balance sheet. Our leverage remains right in the middle of our target range and the second hand value of our fleet exceeds our net debt by £1,500,000,000 The weighted average maturity of our debt is just over 6 years straight is just under 4%. As I mentioned earlier, we have a high degree of financial flexibility and at this stage we anticipate a number of years of earnings growth and significant free cash flow. Given this outlook, we have the ability to trend toward 2 times leverage, the upper end of the group's stated leverage range. This will allow us to continue to invest in long term growth while enhancing returns to shareholders. And finally, on the next slide, a few comments on one of my very favorite topics, U. S. Tax reform. While the versions of the House and Senate bills that we read a lot about in the newspaper are different and must be reconciled and finalized, the shape of the 2 bills is really pretty similar. Thus, while the devil will always be in the details of what is ultimately agreed and enacted, we do have some reasonable basis between the 2 bills of assessing the likely impact on the Group. Based on a corporate statutory rate of 20% and various proposals on interest deductibility, the effective group tax rate, in other words, the accounting P and L rate is likely to reduce from our current guidance of 34% to 35% to somewhere in the region of 23% to 25%. This lower rate combined with the full expensing of capital expenditure for the next 5 years should result in a cash tax rate in the mid to high teens. As you'd expect, these figures are estimated and are somewhat subjective based on the level of capital expenditure. In addition to these benefits, the deferred tax liability on our balance sheet will reduce as the U. S. Element will be paid at a statutory rate of 20% rather than the 35% at which they were provided. This will result in a one off non cash tax credit to the income statement of around GBP 400,000,000. We'll see where we get to during the reconciliation process, but it's likely that the reforms will be phased in over the next couple of years. This means that the full benefit to the group may not be realized until our financial year 2020, when the current Senate bill proposes that the corporate rate reduction take effect. That concludes my comments. And so I'll hand over to Jeff. Thanks, Suzanne. It's not unusual to be outstaged by Suzanne, but never did I imagine that a tax light would get everybody's sole attention and blow away the very, very strong operational performance. You have no idea how many hours we spent in the office at Valex. Suzanne has been trying to explain this to me. So let's start our operational review with a look at the Sunbelt on Page 13 and an overview of our revenue performance. We're going to start original plan of 9% to 13% year on year growth. You can see we're outperforming. We did 15% in the 1st quarter, 19% in the second quarter. I think it's good to see a balance of growth between organic growth and our bolt on acquisitions. To me, it's a confirmation that we have very balanced plans to reach our 2021 objectives. Of course in Q2 we've seen some hurricane benefits. So let's turn to Page 14 and see if we can try and quantify it. It's not as easy as you might think to quantify the impact of hurricanes. So we've done various analyses to try and quantify it, all of which lead us to broadly the same conclusions. Looking at it simply, our year on year revenue growth for each of the 1st 4 months of the year was an incredibly consistent 15%. Therefore, I think it's a reasonable assumption that we would have continued this trend in September October. Therefore, we're attributing anything above this run rate as a benefit from hurricanes. And we did analysis specific geographies and product groups and that also came up with the principle that this was a very sensible number. So therefore, in September, that benefit was $40,000,000 to $45,000,000 of total revenue benefit from hurricanes. Let's just be clear that that's total revenue benefit, not pure rental revenue. You'll mess up a lot of your reconciliations if you class it as pure rental revenue with a lot of it being generators and cooling and setup, there's a lot of ancillary revenues included within that £40,000,000 to £45,000,000 Now clearly they're encouraging activity levels. What's also encouraging is that those levels continued into November where year on year we had rental revenue growth of 23%. So we've clearly been significant contributors to the cleanup efforts. We've been honored to be able to support our communities. I believe there are a number of reasons why we've been able to react so effectively. Firstly, our people. Once again, I'd like to recognize the efforts of all of those involved, from those on the ground making things happen in what were extremely difficult circumstances to those providing support in our storm center. Your efforts are much appreciated. And some of the stories and anecdotes of what's been achieved are truly inspiring. As well as people, what set us apart is just scale. We've talked about scale many, many times in these presentations. And some of the stats and photographs on Page 15 highlight both the range and quantity of product and the associated expertise necessary to react to events like this. For example, you can see a screenshot there of all generators on rent in Puerto Rico and the Virgin Islands, where we've got over 500 generators on rent with a further 350 ordered and on their way. Remember, we had 0 capacity on these islands prior to Maria. Over the hurricane period, we have had well over 1,000 megawatts of incremental power on rent across all affected regions. Also shown here is an example of our new cleaning division at work and the scale of our drying capabilities. And there's also just a normal telehandler, but it's being used by the Marines to distribute aid. And that's actually a photograph that was taken from the Marines' own Twitter feed. We would not have had this equipment or expertise to pull off multiple jobs of this size across such a wider geography until very recently. Look, with over 1600 truckloads of equipment shipped into the affected areas, supported by an incremental 185 highly trained staff on those on top of those already in situ, very few have this capability. And these photos are good examples of the many ways we've helped our customers for this one off event, but they also represent how we have developed our ongoing business. We're now recognized as a major solutions provider across a broad range of products and services. We've established a significant platform and we will continue to leverage this capability to meet the ever expanding needs of our customers. And finally, I need to highlight the importance of technology in this process. With 3 events in such a short window, we would have not been able to coordinate the fleet needs or the logistical requirements without our market leading technology. And so this technology provided our customers with the confidence that we could do what we said we were going to do when they needed us the most. So the short term tangible benefit of these hurricanes is the $40,000,000 to $45,000,000 of incremental revenue. And the medium term opportunity will be our participation in the rebuild. However, based on our experiences post Katrina and Sandy, the significant long term benefit will be the step up in market share in these regions as our broad ranging capabilities are fully recognized by those who came to rely on our service. So moving on to 16, we can look in more detail at the trends that are driving both strong revenue and profit improvement. We continue to see rate improvement and it's clearly been a good start to the year. Of course, there's some noise in there because of hurricanes, but the underlying improvement is clear. Once again, volumes are strong and physical utilization continues to track well ahead of last year as we set new record levels of performance. In the quarter, year on year mix remained negative, so it was pleasing to see yield move back into positive territory, a testament to the improvement in rate. This good momentum is flowing into margins and ROI where the strong performance is apparent from the chart, which highlights both the sequential and year on year improvement. But as I said earlier, there will be some normalization of some of these trends, but this shouldn't detract from the very strong underlying performance. Page 17, we look at the balance of our organic growth and the performance of bolt on acquisitions. But you'll see we've changed this chart and we've grouped Greenfields and same stores. And we've done this because distinguishing between the two is increasingly difficult. As we fill out clusters rather than open new markets, we're balancing fleets and customers across all of our locations based on what makes the most logistical sense. So when I looked at the fleet and revenue growth from our greenfields year, around half was actually from transfers from existing stores rather than being driven by new fleet. Similarly, some of the distinctions on cost were becoming blurred as we optimize the resources of the maturing clusters rather than the individual locations. Therefore, the key takeaways from this slide for me are that despite the high mobilization costs of the hurricane activity, drop through remains strong and encouragingly organic growth at a very healthy 13% reflects our ability to continue to take market share. On Page 18, we took a look at our markets. In all honesty, I'm not sure there's an awful lot more to add to what we said at Q1. The overall trend of all the lead indicators we follow remains encouraging and points to medium term moderate growth. So we continue to base our planning as we have for a while now on 3% to 4% end market growth through to 2021. But as we've said, the rebuild activity required in Texas, Florida and Puerto Rico will as a minimum underpin this and we therefore remain confident in terms of our medium term outlook. Switching gears, let's look now at Canada. Look, obviously we've seen significant reported year on year growth due to the acquisition of CRS in Ontario. But having said that, in our legacy business in Western Canada, we've seen 22% year on year growth and already at CRS, we've seen 21% year on year growth. It's also nice to already see such healthy margins as we are nowhere near fully leveraging the footprint that we've established. So the integration is clearly going well. Market forecasts are solid and we've got a real opportunity to grow this business significantly over the years, both through organic fleet investment, as I said, leveraging that footprint we now have, but also through further bolt on M and A. Moving to A Plant. And as you can see, it's been a very consistent performance between Q1 and Q2. Clearly, volume is strong and margins are steady. We are starting to better utilize the assets we acquired last year as is demonstrated by the physical utilization chart. So as I said in Q1, I think there's more to come from these acquisitions that we did, but we have got off to a good start. Our focus will again be on very considered investment in our core general tool business, but we will continue to look to supplement the Air Plant business with further bolt on M and A in Specialty Markets. So on Page 21, let's turn our attention to what all of this means for capital expenditure. And as you'd expect, given our activity levels, we're running ahead of last year's spend and our initial plans for this year. As a consequence, we are increasing the forecast for fleet expenditure to a range of £1,200,000,000 to £1,300,000,000 to reflect both our current activity levels, but also our very positive outlook. The key here as always is to look at gross spend per division in local currency as exchange rates can impact the sterling total. I would also just clarify that simply looking at fleet growth and trying to correlate it with revenue growth no longer works in a way at one state. Growth from M and A is now more significant and there'll always be some trade off between bolt on M and A in Greenfields. We're also now seeing positive movement in utilization and rate And I know it's rather stating the obvious, but to the extent that revenue growth is driven by improving utilization and rate, we don't need any more fleet, but this will be obviously very positive for ROI. So even with these enhanced levels of investment in fleet, our strong margins allow us to continue to have significant funds available for bolt on M and A and or returns to shareholders. So firstly, let's just briefly reiterate our capital allocation priorities. Our primary focus remains organic growth either by way of same store investment or greenfields. And to that end, we spent £708,000,000 on organic growth so far this year. Next is bolt on M and A where we spent a further £298,000,000 year to date. Once these two priorities are fully funded, we look to return to shareholders. So what does that mean looking forward? Well, given our strong cash generation and encouraging outlook, we now have the flexibility to operate towards the upper end of our leverage range of 1.5 to 2 times EBITDA. So this will allow us to commence a share buyback program of at least £500,000,000 and potentially up to £1,000,000,000 over the next 18 months. We don't want to commit to more than £500,000,000 at this juncture given the wide range of value creating options that are available to us given our strong cash flow. Let me try and articulate and add a bit more color to it. If we continue to fund organic growth and M and A at current planned levels, we will after spending the GBP 500,000,000 on buybacks keep our leverage broadly where it is right now at that sort of 1.7 to 1.8 times EBITDA. Therefore, with the confidence and flexibility to be able to trend towards 2 times EBITDA, we essentially have a further £500,000,000 to allocate to generate additional EPS growth. Look, as we stated, the planned expenditure on organic growth or bolt on M and A. And while a strong dynamic market, we just think it makes sense to keep some flexibility and we will evaluate each opportunity as it presents itself on its individual merits. So let me try and summarize all this with a few key points. It's been another very encouraging quarter building on the momentum established in Q1. Yes, hurricane activity is something we're very proud of and has enhanced our performance, but let's not lose sight of the real story and encouraging trends to our underlying performance. Volume is good, rates are encouraging and most importantly margins and ROI are heading in the right direction. Medium term, a major rebuild is required and given the market share we have in these areas, together with our enhanced reputation due to our responsiveness in the immediate aftermath of the hurricanes, I would expect us to participate fully. So as we said before, as a minimum, we see these recent events as underpinning our plans to 2021. Given our strong current performance and medium term outlook, will continue to invest in the growth of the business, but we've also announced today the share buyback of a minimum of £500,000,000 up to £1,000,000,000 In addition, we've increased the interim dividend by 16% to 5.5p. We're tracking ahead of our original 2021 plan and continue to enjoy supportive markets. We've got a clear roadmap for both further organic growth and further bolt on M and A. But we will, as always, continue to grow responsibly and remain within our leverage guidelines. So we now expect full year results to be ahead of our previous expectations, and we continue to look to the medium term with confidence. So that's it. So we'll hand over to Q and A where I'm pretty sure you all know the drill by now. It's coming, don't worry. Hi, Christmas. Good morning. Andrew Nossi from Peel Hunt. I wonder, Jeff, if you could just maybe just share some thoughts on the rate environment looking out both where the industry might be in terms of utilization, obviously given the improving demand outlook and sort of manufacturer pricing? Yes. I mean, I think if you if we go back to is it 16? Slide 16. Yes, Slide 16. I think that sort of tells the story. Look, we've had a pretty good rate environment since the turn of the year. You can see we were on a very, very steady trajectory leading into through to the end of August. If you look really carefully at your slide, you'll see a slight tick up in September as the hurricane activity hit and a slight downturn in October where it sort of kicked back a bit. If you drew a straight line, I'm pretty sure by the end of November, we are sort of where we would have been in any case whether we'd had hurricanes or not had hurricanes. If I look at our and we're not going to get into 3rd decimal place year on year versus sequential, but the year on year rate improvement is as good as it's been all year as at the end of November. Demand is strong. We've had a very good November. You have seen what our peers are reporting in terms of physical utilization. I look at indices such as Ritchie Brothers, announced a poor quarter. Why? Because nobody is selling any fleet, because they're hanging on to it because physical utilization is high. So the rate environment is good. Are we at the beginning of the cycle where we can knock it out the park with 5%, 6%, 7%, 8% price increases? No. Are we going to get steady year on year rate improvement? I think we will. And if you look at that mix chart there, look, where from Q2 'sixteen to Q2 'seventeen monthly is still a headwind, gone from 68% to 70%. We're into our 2nd or third quarter now where stayed at 70. So we're going to lap a point where mix is not going to become a headwind to yield. And therefore, we ought to be in a period where we are announcing, I think the 3rd quarter is still going to be noisy because of hurricanes, but we're not far off where we no longer have that degree of headwind from mix either. So the noise around yields, which really kicked in when we started going backwards with oil and gas and then kicked in as our mix changed to bigger contracts, I think that noise is going out. So the rate environment is solid, as you'd expect, mid cycle. It's not early cycle fantastic, but it's very solid. Hi, it's Justin Jordan from Jefferies. Can I just come back to I guess just staying on that side firstly, it looks like ROI has just sequentially improved? So ROI is just sequentially improved. Is there any just given the underlying environment you're experiencing, is there any reason why ROI at a group level couldn't get back to prior peaks where it was, let's just say, pre energy downturn? I'm going to be perfectly honest. I've not said that. I think RI will continue to prove. Look, if you remember, we spent an awful long time at year end explaining why based on our internal cuts, we thought we were at the bottom of the curve and about to head back. Those things have kicked through. We have seen small incremental improvement sequentially every month and I would expect that to continue. Now, so if the market stays as strong as it is, we will start to head back. Where we get to and where we peak at, we'll see. Okay. And just exploring the sort of €500,000,000 to €1,000,000,000 buyback just a little bit more and sort of the influencing factors, you've talked on potential further increases to CapEx, further potential M and A being reasons why it might be €500,000,000 as opposed to €1,000,000,000 Is that the sort of No, that's exactly how we look at it. Look, we're remarkably cash generative. Our medium term outlook is good. You all have your own models. If we didn't do anything, we're either tracking to ridiculously low levels of leverage, which we think is unnecessary at this stage in the million which we will do in a very mechanical way over the next 18 months, then that would keep us at around that GBP 1.7 billion, GBP 1.8 billion. We're feeling comfortable to trend to the GBP 1,800,000,000 which gives us GBP 500,000,000 to spend. And we think this is a program which will carry on beyond these 18 months. Precisely what we're going to spend it on, look, if the market remains as strong as it was in November, there's every chance we might want to spend a bit more CapEx. A great deal might come along. So what we don't want to do is tie your hands to not take advantage of those opportunities over an 18 month period. We will assess those opportunities as they come along. So there is going to be €500,000,000 in addition to be spent on something which is EPS enhancing. We're just saying that there may be a balance between fleet growth, a bit more M and A and a bit more buybacks and let's wait and see what makes the most sense at the time. Just one final thing, just the increased disclosure you've got on Canada today, I appreciate it's only about 3% or so revenues at a group level. Is that signaling I guess your longer term ambitions in Canada? Yes, I think it signals a couple of things. I think it signals our long term ambitions in Canada and you can see we've got good growth and very, very healthy margins. And it also reflects our observation that others who have Canadian mark businesses have gotten a terrible mess when currency has gone all over the place and no one's been able to have a bloody clue what was going on with their numbers and we didn't want to get into that mess. Morning. It's Rory McKenzie from UBS. Jeff, can you talk about the hurricane runoff and how that might be at odds with that November pickup? You still haven't shied 14, is that any M and A in there? No, there isn't any there is no M and A in A. Here is our conundrum, Rory, as I see it. Look, I think given where we were tracking before seeing the underlying growth for September October being 15% was a perfectly reasonable number. If I look at the November performance, actually I was looking at the stats of fleet on rent only yesterday, our fastest growing areas on Florida and Texas, I think. So I think as we get to the next quarter, there is a real thought process that the underlying growth isn't 15% any longer, that a combination of the rebuild activity, which is semi permanent from hurricanes, plus strength elsewhere, I think we're going to have to go back to look at products in geographies. So as I said, I think Florida as of yesterday's fleet on rent year on year growth, Florida was our 3rd best region and the other 2 were in Texas. So I think given what's happening in the economy, given what's happened in terms of the medium term rebuilds, we may well have to reassess what's underlying. Fair enough. And then you've obviously executed really well in a very tough time. Can you talk about what the industry did in response to the hurricanes and the wider rental channel? I mean, have you seen matched investment come into the region maybe later than you put in? How are they responding to rates in that region? And also what that's done for rates across the rest of the U. S. As maybe fleets being pulled into there? And really how abnormal has it all been? I mean, I think the problem I think we've seen relatively little investment outside some specialty products because it sort of comes and it's gone. No, like no you're either there and you're able to say yes on day 1. Being able to say yes on day 60 doesn't really get you there, and most people recognize that. And if you look at that slide in terms of what we actually did, we moved in 1600 truckloads of equipment. Most of that happened within the 1st 6 or 7 days. To have 185 people who are experts at setting up climate control jobs, power jobs, it's either been or it's Is this the telehandler is an interesting debate in terms of what's hurricane benefit, what's not. The day before hurricanes hit for a telehandler, we were at 85 percent physical utilization. We can't really operate much better than that. So is that incremental demand or is it really substitutional demand? That's so does it help overall industry utilization of telehandlers? Yes, it does. I'm not sure you could see that little spike on the chart of rate. I think that's it. I think where we are in November is where we would have been in any case. So yes, it's had a little bit of effect in Q2. I'm not sure that's the key driver of the legacy improvement in rates. And importantly, the industry couldn't really adapt to it like you could say. No, you've listened to some of our peers and their relatively modest scale of their response. And it's that is not a negative reflection, just some people are more responsive for this to this more and this stuff. Look, the takeaway for me, I've got the coolest app, which nobody seems to be interested instead of me, where we can see where all of our generators are on rents. I can click on every single one. That's a screenshot from an iPhone. For us to have 850 generators in Puerto Rico where we didn't have 1 shows a scale of, A, our power generation business and B, our logistical responsiveness. And I think that's pretty impressive. Yes, definitely. And then just one more, sorry. I'm pulling some help to model the acquisitions. You might think I need some help in general, Jeff, but that's a different point. Within that 5% revenue growth from bolt ons in H1, could you say how much volume on rent that represents and what the mix impact is on the yield? Can you start to break out the revenue impact versus the fleet on rent? I think that's a one to do. I'm fine. We're not sticking out with your book of wishes, Anthony, to be perfectly honest, that's a pretty crooked. If you need any help with your geospatial analysis, arm your mouth. I know you are, Geoff. Thank you. Just call later. Hi. I think I've got the mic, so hopefully it's me. So Mark Housum from HSBC. Thank you for the graph on sequential rates. Can you give us a feel for if we do the same graph on sort of sequential pressure on wage rates, what would that be looking like at the moment? Obviously, we get to a settlement at some point. It would show that wage inflation continues to be a pressure. I mean, we're no different to many other businesses. You saw the labor numbers on Friday. You saw the strength of GDP generally. Was it last week or the week before? So yes, there is pressure on rates. We are absorbing that pressure on rates and we are delivering incremental margins. So but we are so it's been a while since we sort of got into the detail of our revenue per head. So but there's no pressure. It's putting some pressure on drop through and some pressure on margins. You kind of can't have it always. You can't have this fantastic growing economy and no pressure on rates. It would be lovely if you could have it all, but you can't. But yes, it's a reflection of the strength of the economy, absolutely. And the extent to which we're having rate inflation, it is embedded in our margin improvement. Oh, yes, I would have said so. Yes. And again, as we've discussed before, I think what you're seeing is a super range. You're seeing probably higher than that around certain core blue collar skills such as drivers, mechanics, etcetera. And you're seeing lower than that on white collar administrative jobs. So there is a very different wage environment depending on the job, and I would expect that to continue. Don't send your kids to college, Mark. Make them become drivers and mechanics. Hi. It's George Gregory from Exane BNP Paribas. 2, please. Firstly on the hurricanes. So Geoff you mentioned the sustained benefit of the cleanup efforts. Are you any closer to being able to perhaps quantify that or put a range around it? I don't think it would be to do that, George, in any real sense into probably the spring. We're looking to see what aid is affected. I mean it is stock. I mean I've been in the NASH Network long enough to see a few hurricanes and see how the responses differ. It would there is a faster degree of response in Florida than there is Texas. Why? It's said to be higher income brackets and it's more commercial property than it is residential property. Houston got hit hard, but a lot of it was low to mid income residential, many of whom were not insured. So the different pace there is an apparent different pace of response in those two geographies. We need to sit down. We're going through periods now where people are looking at allocating aid and see where the response is and what is getting prioritized. We're still at stage where I mean one of the reasons why November has picked up is some of our biggest jobs on the Gulf Coast, we didn't do anything. People misunderstand how negative to some of our business hurricanes are. The biggest single LNG plants that we are working on in the Gulf Coast at the moment, we did no work for 2 weeks. And it's only just slowly ramped it's just slowly ramped up now. So we're still at that, let's get back to where we are and aid hasn't been sort of what's going to be allocated to the rebuild isn't that clear yet. Thanks. And on tax, do you I think you're probably looking at that direction actually. On tax, I appreciate, Suzanne. It's hard enough trying to estimate your own impact. But do you have a view at all as to what might happen to the industry tax rate? And following up on that, over time, do you think any of that might flow back into rate? Yes, I think in terms of the industry, I mean, we certainly all share the very common characteristic that we're capital intensive. So the industry will benefit from, if enacted, the full expensing of the capital expenditure just as we would. They'll certainly benefit from the lower statutory rate. And one way or the other, except for maybe one who has high shield from lots of NOL carry forwards, that benefit is not just going to be on the P and L in terms of the effective rate. It will sort of carry through to lower cash taxes. So yes, I would expect there to be some benefit. The only thing that might catch some of the rest of the industry out where we are less affected by it relates to the limitations on interest expense deductibility. That's yet another reason I like our low leverage position because while you do have a little bit of impact on the amount of interest you'll be able to deduct going forward, it's not as significant perhaps if you were much more highly levered. So I think, yes, people will benefit. I mean, do I see that flowing into rates in terms of rates that are charged to customers? Perhaps, I mean, the principal driver of rates charged to customers is the element of what's your utilization and what's your service to the customer. And a customer is willing to pay a high rate to pay a higher rate, if there is a good demand for the product and if you provide them with a service they can't get elsewhere. So our view on how we progress our rates to customers is going to remain what it's always been, which is about provide the best service to the customer and they'll be willing to pay for that. Ed Stanley from Redburn. On technology, because you mentioned technology, what proportion is now booked through the app? Because from memory, it was about 30%. Is that increasing? I think the last time I checked it was somewhere in the 40s heading towards 50%. I mean in order for all of this to have for people to be able to say, hey, I need all of this 1600 truckloads of equipment. Can you get it to me? And do you have it? And will it be here tomorrow? You can't do that unless you can access that information of availability by depot. Look at this telehandler here. At 85% physical utilization, we didn't have 100 lying around in a single location thinking, I wonder where I'm going to rent builders. This came from 2 50 locations, people giving up onesie twosies. There is no way you can coordinate that activity. There's no way you can say how long it will take you to get 850 low generators in Puerto Rico unless you have the technology which your customers can see to, so it gives them the confidence to rely on you and you have confidence in the data to know that you've got it and it will get there. So it will have spiked a bit during the hurricane activity, but it has been a trend which it's a trend which has continued and will continue. Thank you. And secondly, on M and A, when you think about buying potentially partial or full clusters, given the fundamental benefits that they give you, and I'm thinking about CRS, which looks like it either is or is on its way to being a cluster or 2, Are you willing to pay up for potential partial clusters or full clusters? No, not really. I mean, CRS, look, we can't buy a cluster. Our definition of a cluster is so much more intense than anybody else. CRS have got nothing in downtown Toronto, to all intents and purposes, the biggest metropolitan area in the whole of Ontario. So we need to put more fleet in the existing 30 locations that we got with Sirius. Remember, we got 30 locations versus 1 location in Pride and there's about the same amount of fleet in Pride, one location as there is 30 locations. That's why I think those margins are super impressive. So we need to put more fleet, but we also need to open more locations and particularly specialty locations and location. So there is the likelihood of us ever buying at clusters is slim to none. Look, we look at each acquisition on its merits. We look at reputation in the marketplace. Increasingly. I've said this right now. Everybody gets obsessed with EBITDA multiples. A, I think EBITDA multiples are better than EBITDA multiples when a capital intensive business, but you've got to look at how much fleet you're buying. People don't look enough at what is the asset base you're otherwise acquiring. How much would it cost you to put that amount of OEC into a market, bearing in mind it will be incremental supply? And so more than anything else, what we look at is how much fleet are we getting and what's the mix of that fleet. That is probably the most important I think there's some very rich EBITDA multiples floating around at the moment. And the only justification you have for them is the fleet that you're getting in terms of its quality, its mix and its quantum. Sylvia Barker from Deutsche Bank. And just 3, please. On oil and gas, can you just update us on the trends that you're seeing? Obviously, it's not Yes, it's really strong. I mean, again, it gets forgotten because of hurricanes. Again, on the basis, I might get the odd question. I was checking fleet on rent yesterday. Yesterday's fleet on rent in oil and gas was 50% up year on year. And rates were great. Now the reason I say great and not a number is because I can't remember the number. But you have to tell, but I'm prepared to look on my phone after this and tell you. So yes, so the market is strong. It is still very, very concentrated around Texas and the Permian. It is not as widespread as when the market was very strong in places like Bakken and Marcellus. So it is still concentrated, but the positive trends we started seeing around the turn of the year have definitely continued. Thank you. And then just on CapEx. So first of all, on the Extra Sun Belt CapEx, if I can just check how much of that is generators and auxiliary and then how much is just general equipment? I don't know. I would have said the vast majority is general tools. Remember, if you go to this chart here, look, it's not like we didn't have the generators. The issue with generators is physical utilization. So look, here is the physical that's why we put this chart in. Look, we were able to fund all this. By the time you get generators in, they could be coming back. So the majority will remain general to us. Our specialty business is becoming a very, very meaningful business. You can see we were tracking well ahead of last year way before this hurricane spike. So again, yes, that's good, but what's better is this ongoing improvement in our ongoing specialty business. And then finally, again, going back to the point of competitors benefiting from CapEx expensing as well, Where would you be most worried about people investing in and potentially creating some extra supply of equipment? Well, I think you have to separate it into 2 things. To the extent people were investing and increasing their fleet size, then yes, they will benefit from the tax code just like everyone else. But I go back to what we said many, many times, which is the driver of a person making the investment in the fleet, buying a piece of kit to begin with is not the tax treatment they're going to get, it's do they have a need in the market, can they put it out on rent at a reasonable rate and generate a return. So as I've said before, I don't see the tax policy in the U. S. Being a particular driver of everyone rushing out to buy new kit. They have to earn a return on it and they have to have a need for it. We and I think also remember, we have had for the past 10 years or so some form of expensing immediately for a tax deduction, some level of capital expenditure. It's either been 50% or 100% at varying points over the 10 years. And I just don't see that as changing the dynamic very much. It hasn't in the past, so we shall see. Can I add another color? Thank you. We haven't we've had we had first had discussions like this about 5 years ago where there was this general perception that, hey, you go out and you buy a couple of pieces of equipment and you've got a rental business. You don't. You have a couple of bits of equipment in a field, okay? Without this infrastructure that allows you to do 1600 extra shipments, without 185 people who know how to maintain it, how to fuel it, how to monitor it. It's a piece your generator is an engine in a box stuck in a field, okay? You have to be able to provide that service that requires a footprint, it requires technology and it requires expertise. There was this myth when I first joined 10, 11 years ago that everybody just went out and bought dumpers and diggers and you saw them in the field and these guys were competitors to us. There will always be that element of the market. And of course, we talk about our pricing premium. God, we understand is there is a range of pricing in this market. We're down and dirty with some jobs with everybody else, but we're way ahead of everybody else. So it's not it's what happens to the average that's really important. So yes, the down and dirty price may well come under a bit of pressure. The premium price within this hurricane activity, I mean, it's not I really don't want to focus too much on hurricanes. What did we do? Look, we powered the dolphins in SeaWorld. We powered we kept the animals in Magic Kingdom, okay? We did hospitals, old people's homes. Just because someone's bought a cheap generator doesn't give them the capability to do those jobs. So there isn't this quite direct correlation between fleet and price perhaps you think that's true. Hi, it's Andy Wilson from JPMorgan. A couple of questions please. Just on I think this is quite a broad question, but for the second half thinking about the drop through it feels as if the worst of the kind of associated hurricane costs are probably behind you in Q2. If rates are looking at the positive and mix is no longer going to be a headwind or is easing as a headwind, should we expect it to improve in the second half? I think it's a bit easy a bit early to say. Look, the theory of the logic, I understand. Look, remember, like I said, we still got 3 50 generators on a boat somewhere going to Puerto Rico at the moment. There's still a lot a lot of that 1600 truckloads of equipment that went into Florida, Texas at some point will be going probably going back somewhere too. So I think for a quarter, there's still going to be a lot of noise, but a lot of those generators are going to be there forever. So I remember we once sent some generators to Haiti, and there was a big disaster in Haiti. And in the end, we just told them to keep them. So they're there so long, there was no point sending them back. I wouldn't be terribly surprised if some of that didn't happen to some of those. So perhaps the Q3 is a bit early to see that because I still think there's a fair bit of moving parts. But in principle, yes. And then secondly, just on the capital allocation. Is there anything to be kind of read across from the decision the buyback in terms of multiples that have been asked by the vendors or potential sellers in the markets? Yes. That is a really good question. Not that all the others were fantastic questions too. We have to strike a balance. Look, there as I said, I would say there's been 1 or 2 deals recently, 1 in Europe in fairness, but one recently in the States where people have started to get into a bit of M and A and kind of have to do something. And so if you kind of have to do something, you pay too much. And it's I think it's a responsibility of people like myself and Suzanne to say, okay, let's look at the relative returns on through the cycle profits. The dumbest thing you can do is get carried away with peak multiples somewhere towards the higher ground in a cycle and end up overpaying for a business. I think there is a very good pipeline of very sensible deals we can still do. But what it does reflect so I'm very comfortable that there's some very good acquisitions we can still do with sensible returns. But our job is to enhance shareholder return, not get ourselves a bigger business to run. And therefore, if there is better returns from share buybacks than overheated multiples, it's big profits. As I said, it makes me laugh when everyone says, hey, you should buy this business because of all the net operating losses you're buying. Well, that's because it usually makes a loss. So you kind of have to so you have to strike your balance. So it's a good point and we're very conscious of it. We look at what we're so we're going to be balancing out what we're trading at versus what those multiples are. And we that's why very specifically said, we will take each investment decision on its merits. But at the moment, I still think we've got a reasonable pipeline. Yes. And I would just add to that. It continues along the lines of the theme that Jeff and I have talked about for a long time, which is trying to create this optionality and flexibility so that we can be opportunistic when things arise in the market, be it an M and A deal or something else. You should be planning ahead for your future, taking a through the cycle approach, but you can't be so prescriptive in the planning that you know and can guess precisely what you're going to do or what deal may come to the market or that there may be another demand for fleet precisely 12 months down the road. So you keep your balance sheet in an appropriate place. You keep your debt structure in a conservative structured in a conservative and appropriate manner and you just keep that optionality and flexibility and you take advantage of the opportunities that come along. Thank you. Well, if there's nothing else, look, once again, thank you for your interest in our business, and we will look forward to seeing you next time around. Thank you.