Earnings Call: Q1 2018

Sep 12, 2017

And welcome to the Ashtead Group Plc Results for the First Quarter. Please note that this call is being recorded. Today, I'm pleased to present Jeff Drabble, Chief Executive. Please begin your meeting. Thank you, Johanna, and good morning, and welcome to the usual shorter Ashtead Q1 results call. Suzanne and I will do a brief run through of the financial and operational performance, and then we'll go into Q and A. So let's get started putting out some key highlights of a very encouraging quarter. Operationally, we've seen strong delivery in markets that continue to remain supportive, evidenced by a wide range of key metrics all heading in a positive direction. A major highlight is now the cash generation, which Suzanne will cover in more detail in a moment. As well as a good operating performance, we've also seen continued progress with our 2021 strategic plan with a number of significant greenfield and bolt ons. Our strategic plans were also underpinned during the quarter by a successful refinancing. This has provided us with a very strong balance sheet as we continue to grow responsibly and enhance shareholder value. So a great financial start to the year. Looking to Harvey and Irma have obviously been devastating major events post these results and we will comment on them further later in the presentation. So with that, I'll now hand over to Suzanne. Thanks, Jeff, and good morning. The group's first quarter results are shown on Slide 5, and as Jeff said, we were pleased to report another strong performance. The group's rental revenue showed good momentum, increasing by 17% on a constant currency basis. Margins continued to improve despite having opened 24 greenfields and completed 5 acquisitions. EBITDA margin was 49% and operating profit margin was 30% in the quarter. And as a result, our underlying pre tax profit was £238,000,000 an increase of 21%. Slide 6 shows Sunbelt's 1st quarter results. Rental and rental related revenue grew by 16% as Sunbelt continued to benefit from generally strong end markets. The operational efficiencies of mature stores more than offset the drag effect of new stores and thus EBITDA margin improved to 51%. As a result, operating profit improved by 19% in the quarter and operating profit margin increased to 33%. And a bit later on, Jeff will discuss the U. S. Operating performance and metrics in more detail. Turning over now to Slide 7, A Plant continued to outperform the market with rental revenue growth of 22%. Operating costs grew at a slightly higher rate than revenue as a result of the ongoing integration of acquisitions. EBITDA margin remained at 38% for the quarter and operating profit margin improved to 19%. On Slide 8, the details of the Group's cash flow for the last 12 months to July are shown. The strong margins we discussed earlier produced cash flow from operations in the last 12 months of £1,500,000,000 giving us substantial flexibility as we continue to implement our project 2021 plan and follow our capital allocation policy. The standout number on this page, however, is the free cash flow. As you compare the 2 years, what a difference 12 months makes. The group generated £417,000,000 of free cash flow in the trailing 12 months after just turning positive in the previous period. The combination of our free cash flow with low leverage and a strong balance sheet, which I'll cover on the next two slides, clearly underpins our operational strategy. Slide 9 updates our debt and leverage position at July 31. Net debt increased in the Q1 as we continued to invest in fleet and bolt on acquisitions. Our leverage was 1.7 times EBITDA, well within our target range of 1.5 times to 2 times. And as shown on the bottom right of the slide, the gap between the value of our net debt and the secondhand value of our fleet is now £1,600,000,000 Both our leverage and our well invested fleet will continue to provide a high degree of flexibility and security. We said previously that a strong balance sheet gives us a competitive advantage and positions us well in the medium term. Therefore, as shown on Slide 10, we recently took advantage of good debt markets in order to further strengthen our balance sheet position, extending our debt maturities and reducing our cost. Specifically, we accomplished 2 things. First, we extended the maturity of our $3,100,000,000 ABL facility to July 2022 on the same terms and conditions. And second, we refinanced our existing $900,000,000 of 6.5 percent bonds due in 2022 at a lower cost. Simply put, we now have access to more capital for a longer period at a lower cost. Our debt facilities are now committed for an average of 7 years at a weighted average cost of just below 4%, an improvement of approximately 40 basis points. And with that, I'll hand it back over to Jeff. Thanks, Zazad. So let's start with Sunbat on Page 12. Looking firstly at how we are doing with rental revenue. Against our plan for 9% to 13% growth that we outlined at the year end, you can see that we've delivered a 15% improvement. It's encouraging to see that both same store and greenfield growth are at the upper end of our expectations. So organic remains a very healthy 2 thirds of our improvement at 10%. Growth reflecting not only our recent activity levels, but also a strong trading of our recent acquisitions, and we will cover this in more detail in a moment. Going forward, comps will get tougher as we lap acquisitions, but we now also need to get our thoughts together regarding the business impact of hurricane season. I'm delighted to report that post Harvey, all of our staff are safe, although many have seen significant damage to their homes and neighborhoods. We continue to track the impact of Irma for our colleagues and their families, but initial reports are that everyone is safe. I'd also like to take this opportunity to thank our emergency response team and colleagues on the ground who've worked tirelessly to support our customers and neighbors. Their exceptional efforts are much appreciated. There will now be a significant clear up program where our scale, breadth of fleet and experiences and similar events will be a major asset. We stand ready to continue to support all who require our assistance. Practically, a major rebuild program is now required over multiple years. The whole supply and demand dynamic in Texas and Louisiana in particular has now changed and will require careful planning once the initial response phase is over. Moving to Page 13, we look in more detail at the trends that are driving both the strong revenue and profit improvement. I know 1 or 2 slides have changed, but the same data is shown in the historical format in the appendices. So in the quarter, we saw some good rates momentum, as you can see from the chart top left, and I'm pleased to report that this continued into August. Clearly, it's early days and some of this is seasonal. But when I look at the makeup, especially for longer contracts, it's very encouraging. And we are in markedly different environments to a year ago. Mix continues to be a year on year headwind, which of course impacts yields, but again encouraging the mix remained constant between Q4 and Q1, and it's been a while since we've been able to say that. The longer contracts are reflected in the strong physical utilization where we continue to operate at high levels. It's also reflected in the lower yields, but also the improvement in both EBITDA and EBITDA margins as we benefit from lower transactional cost. LTM ROI was sequentially flat quarter on quarter, but negative year on year. However, encouragingly, we now have had 3 consecutive months of improvement. Again, it's early days and improvement is never linear, but this supports all view that we have now bottomed and will trend upwards as we discussed in detail at the year end. Turning to Page 14, we reflect these trends by store type and so strong volume growth of 10% in same stores mitigated by lower yields but a very good 60% drop through is the key driver of our margin improvement. So another very consistent performance. I mentioned in the opening slide how well our recent bolt ons are performing and the 60% drop through of these new locations is a bit of a standout from this chart for me and particularly encouraging given our recent activity levels. As you can see from Page 15, we've been very active over the last 6 months in terms of bolt ons in Greenfields. Indeed, consolidation has become something of a theme in the broader industry, which is a trend that we've seen as inevitable for some time and one that will likely continue. This is a fragmented industry where, as I have said many times, there are benefits from scale. However, getting big isn't difficult. The key is to do so whilst generating strong returns consistently above the cost of capital and creating shareholder value. Of course, this is what our 2021 plan was all about. But in light of recent heightened activity levels, it's worth reinforcing the key messages from this plan and confirming why they remain relevant. Page 16 highlights our growth strategy and the historical scale of our 3 key drivers, same store growth, greenfields and bolt ons. An impressive 60% of our growth over the last 6 years has come from existing stores. The greenfields and bolt ons have also been key contributors for many years. We'd be fortunate to have one of these opportunities, but to have all three puts us in a very strong position as we will highlight in more detail in a moment. The different times each driver will have a greater or lesser influence on our total growth. But clearly, this year greenfields and bolt ons are contributing more. Therefore, I thought it'd be worth just reminding everyone over the next couple of slides how strong our track record is in growing and improving returns on these newer locations and the businesses. So on Page 17, we look at both return on investment and EBITDA margins from 2012 to 2017. And the data is analyzed by mature stores in Greenfields and Acquisitions, and they're grouped by the year in which they were opened or acquired. So the yellow bars reflect the performance at the end of the year of opening or acquisition for Greenfields and Boltons or the performance as of the 30th April 2012 for mature stores. And the green bars reflect the performance as of the April 30, 2017. So, the first thing that the chart highlights is the scale and consistency of the improvement across all cohorts. It's also encouraging that mature stores have, as well as delivering 60% of our growth, seen very good improvement in their ROI and EBITDA margins. They continue to improve and we do not see any savings being reached at this stage, which supports our view that margins can continue to improve. Another point which sticks out to me is the strength of the 2016 cohort. Clearly, as we ramp up our activity levels, there remains a high level of quality greenfield geographies and bolt on opportunities. So whilst of course new locations are a drag on our metrics initially, this is a really short term phenomenon and the pathway to full maturity is an obvious one and our balanced strategy of organic growth and M and A continues to drive value. Our strategy becomes clearer when you look at it by market. And on Page 18, we look at different districts and the impact of greenfield in M and A activity. So for example, the A grouping of districts have seen no greenfield or M and A and the D group have seen both. From this, I hope you can see how the mix of same store investment, greenfields and bolt ons all hands together and the benefits of the clusters we've talked about before. Clearly, the pace of growth in districts where we've done a combination of greenfields and bolt ons is enhanced, I. E. Group D. As we expand our geographic presence and add a broader range of products, including specialty, we gain share, improve margins and establish ourselves in the market. Again, it's all about what we said before, availability, reliability and ease, all of which is enhanced by a cluster. It's telling how well existing stores have done where we have added greenfields and bolt ons in the same district. So it's not all about the growth at either the more mature or the newer stores, but the contribution of the whole cluster that makes a difference to our performance. So in short, from both the returns and the growth perspective, our strategy of greenfields and small bolt ons supporting strong same store growth is clearly working. Therefore, not surprisingly, we intend to continue to follow this well established path and you should expect more of the same. As the 2021 strategy is clearly working, the big question is, are the markets going to remain supportive? Well, again, we think it's an encouraging medium term picture, which you can see there on Page 19. Across a wide range of market data that follow, the outlook for work done remains very similar and in line with our own assessment. That is multiple years of moderate growth, I. E. The 3% to 4% we assume for 2021. Look, yes, there will be secular and geographic ups and downs and nothing is linear. But there are long backlogs and starts are strong, so the medium term seems secure. This view is based on current conditions and is not reliant on significant policy changes in, for example, tax or infrastructure. It also does not take into account rebuilding post hurricane season, which we discussed earlier and no doubt will cover in more detail in Q and A. Page 20 is something of a watch this space page. Look, obviously, Canada remains small for us in overall terms, but our presence is transformed by the acquisition of CRS, and we've included some base data to size it all. Going forward, given currency and other dynamics, we just think it will be clearer to report Canada separately. So there will be a more meaningful set of numbers at the half year when we can include the CRS performance. Moving on to A Plant on Page 21, you can see you start to see the benefit of the actions we took in the second half of last year. Clearly, there is a very strong volume growth of plus 24%, mitigated by a negative yield of 4%, but net a very good rental revenue performance of plus 22% year on year. Look, we bought a lot of assets from Hudens for a low price, but with lower rates last year. So if you adjust for this, then volume growth would be plus 17% and the yield would be flat. The most important question is whether this is profitable growth, which you can see it is from the margin improvement. As I said before, we took on a lot in the second half of last year, which is already paying off, but there's clearly much more to come as we fully integrate these businesses and improve the rates. So to summarize, it's been a really encouraging Q1. Volume is good, rates are improving and most importantly so are margins and ROI. So current operational delivery is strong and supported by good markets. We have also made continued progress on our strategic objectives with a number of bolt ons in greenfields and we remain ahead of our 2021 objectives and reaffirm our commitment to this plan. In addition, our refinancing has provided us with a low cost long term platform for further responsible growth. These dynamics together with strong cash generation continue to provide a wide range of options to enhance shareholder value. In terms of outlook, we are clearly trading well in already supported markets and these dynamics will continue. Harvey and Irma are major events which will change a number of market dynamics. However, it is evident that there will be incremental demand for our services. I'm afraid that it's just too early to assess the current year impact with any accuracy. At the moment, we are focusing on the needs of our staff and customers. And I said earlier, we will therefore update the market in December. In any event, the real impact is this year. It's the potential over the next 2 to 5 years that is important. Natural disasters of this scale and the consequent rebuilding program does, as a minimum, support the market assumptions we have made in our 2021 plans. And therefore, the Board continues to look to the medium term with confidence. So with that, Johanna, we will just start the Q and A session. That would be fantastic. And our first question comes from the line of Rory McPhee from UBS. Please go ahead. Your line is now open. Hi, Rory. Good morning. Hi, good. Thanks. How are you guys doing? Just 2 for me, please. The first one is on that rate increase over the summer. Just any more detail on regional products or customers where that rates are in stood out? I think you mentioned that the monthly rental rates were particularly encouraging. Can you maybe update us or remind us on where those are versus prior peaks at the moment? Yes. You're right. The monthly rates were probably the most encouraging element of that rate improvement over the summer. If you look at it from the 1st of May to the end of August, August, we've got 3% rate improvement. But of course, some of that is seasonal, but by any season, that's a good performance. Big proportion of the rate improvement previously had been daily and weekly, and what we were looking for was a turn in monthly. And we've certainly seen that over the last 3 or 4 months. And the reason why that is important is this. We're starting to see it turn in monthly rates. So the deals we are negotiating now and probably on the preceding 6 months are better than the ones we did before. As those new projects ramp up next year, they have a bigger impact on our rate performance. So an obvious example was, Brendan and I were talking about some performance in Atlanta recently. You could see fleets coming off and physical utilization going down, but you could see rates really improving very, very well. And the answer was we've talked about it before, we had 2 big stadiums being built with rates that we had negotiated about the time we were getting a bit worried about oil and gas. And everything so we had a lot of fees come back, which was affecting physical utilization. Everything that's going back out is going out at significantly better rates. Now it will take a while for those new larger projects to ramp up to full scale, but as they ramp up over the course of the year and more importantly into next summer and spring season, that's why we've got that rate performance. So where are we versus historical peaks? Kind of doesn't help you an awful lot because it's so much driven by what proportions are in which projects and when those rates were negotiated. But yes, that's why we're particularly encouraged by the monthly swing because we know pretty much everything going out on sort of newer contracts is at much better rates and the contracts that were established perhaps in more difficult times 1 or 2 years ago, they're at a stage in their evolution where they're ramping down. Okay. So it's going to those rates just took longer to roll on to the kind of new paradigm, I guess. And then That's the problem. I think everybody thinks we set a rate and that's the rate for those products now. No, as those a lot of it is project based, the daily and weekly has always been fine because that's just your spot rates and we can change those immediately. But what has been the drag has been the monthly. So our issue last summer actually wasn't the rates we were setting last summer, it was the rates we had set 12 months earlier and those particular projects were ramping up in volume. It's why we as we when we were at the year end, we're sort of confident of where some of these metrics were going because we could see those underlying trend lines. It just takes a while for them to flow through the financials. Okay. That makes sense. And so just one more on that rate dynamic that I look at and another one. And what's the competitive outlook for those kind of monthly rates in those larger projects, particularly the accelerated consolidation the market is seeing at the moment? Look, we're into like 10ths of a percentage point. And I think some of our peers get bogged down into talking about the benefit of we have even seen the chart all the way through August and September up to the hurricane season 2, we are seeing a continued very consistent improvement in rates now. September October numbers are going to be all over the place now because of the incremental sort of specialty demand around. But we're feeling very good about the rate environment at the moment. Okay. That's clear. And then just next one, if I can. On the free cash flow, it was well up year on year as growth CapEx decreased, but obviously the net cash outflow was the same year on year as you increased M and A. Now Slide 17 18, I think, kind of showed you how both those greenfields and bolt ons mature. But with a growing mix towards bolt ons rather than greenfields, is there anything you'd flag to be aware of in the returns or the near term drag or how that maturity evolves? Or are they just analogous to you? No. The cleaning has been the charts you've got there are a summary of ton of work we have been doing over recent months. We have had a strategy which we believe has delivered very strong performance and shareholder value. There's no getting away from the fact that the market has changed and there are those who are doing larger deals. It is only right that we sit down and analyze our performance to make sure we remain comfortable with our strategy and it is delivering the value. So we've gone back and looked at every acquisition, every greenfield that we've done and how they've performed and how they've evolved. With the absence of the oil and gas where we where frankly, we had a couple of mares in terms of some of the bolt on activity. Fortunately, they were relatively small. Their performance has been very, very consistent, and we remain very relaxed about whether we do greenfields or we do bolt ons and it won't change any of the metrics meaningfully. Okay, great. Very helpful disclosures always, Jeff. Thank you very much. Thanks, Rory. Thank you. Our next question comes from the line of Andrew Farnell, Morgan Stanley. Please go ahead. Your line is now open. Good morning, everyone. I think when we had the last set of results, you talked about an expectation yield trends would basically moderate throughout the year because you didn't think the mix shift would continue to move higher. Is that still the case? Yes. I mean, it's hard to know. And again, my problem is, When we were going to the Q1 numbers, I thought that this is the cleanest quarter I may have ever ever seen in terms of everything heading in the right direction. August was exactly the same, and now all bets are off in terms of how metrics are going to be formed given what the level of activity with Harvey and Irma and the type of activity. We felt we were reaching a point where the monthly proportion was reaching a peak or the pace of increase was going to be significantly lower than it was. And so sequentially between Q1 and Q4, the mix was the same. It was a headwind year on year, but it wasn't a headwind sequentially. And that would be broadly our expectation. So they might tweak a little bit, but we felt as if it was about right. So you're right in saying subject to that, if we can get rate improvements, keep mix relatively flat, that will ultimately lead to an improving yield position. Now remember, however, this negative yield comes with its significantly lower transactional cost. And so for what we were paying at the year end, we actually I remember deliberately putting in a couple of slides to say, look, here are the reasons why we think we've had tailwinds sorry, headwinds, sorry. And this is why we think our underlying performance, you will see positive improvement in rates, ROI and EBITDA margins. And that's exactly what we've seen in the Q1. Because as the question I was answering in terms of Rory, we're looking at the lag effect of some of these things, and some of these are LGM measures. So we think the trend lines are positive. But would you expect yields to remain negative for this year? I mean, for the actual year? You can tell me what my mix is going to be in quarter 2 and quarter 3, I'll tell you. I can tell you that I think rates will be improved year on year. And I think if the yield is negative, we will continue to deliver lower transactional cost. So I would expect so I think most importantly, I think yield is a it's a metric people get bogged down in. You will see EBITDA improvement, ROI improvement and significant improvement in our top line growth. They, to me, are more important metrics. Okay, fine. Okay. Just thinking about the acquisitions there, when you look at some of these deals, what do you how do you think about the appropriate multiple? And is there anything right now that would cause you to pay higher multiples versus the historical average? No, I don't think so. We look at the business. As I've said before, I think we look at a range of metrics. I think people get way too bogged down with EBITDA multiples in a business where D is so important. So we look at revenue multiples, we do look at EBITDA multiples and we look at EBITDA multiples. But more importantly, we look at what they can contribute to our cluster and the pace of growth which we can achieve. If you look at the Pride acquisition, which we spent a lot of time talking about at the back end of last year, if I look at Q everyone, we have peers who focus on cost reduction. We look at value enhancement and sales growth. On a pro form a basis, the Pride business is 20% up year on year. That's why the drug through in our acquisition lines look so good. And so we look in terms of, yes, multiples, but also that we paid a slightly higher multiple for Pride because it was so obvious what it would bring to the cluster. And so, put in the main, the businesses we're looking at now are in line with the multiples we've previously said, and I've given those before. But we kind of like around about 2, 2 in the big times revenue. We sort of like somewhere around 5, 5.5 times EBITDA and we sort of like somewhere around 10 times EBITDA. But they're very, very, very broad metrics depending on the age of the fleet, the location and what it brings to the customer. And then just one final one on the competitive dynamics in the market following, obviously, your eye, what they did with NAF. Yes. I don't want to get up I'm not sure that it changes an awful lot. I mean, I think it's good that they're growing without putting incremental fleet into the marketplace. Does it change the dynamic? I don't really think There isn't much more competitive intensity. We've done what we did with RSA, which is we've mapped where the United locations are versus NIF, and they're all really, really close. So have we got any significantly different competition to where we have, I think, 39 of them are within a 5 mile radius of one another. Does that change our competitive landscape? I don't think so because I'm guessing not many of those 39 will be around for long. So no, I don't think it changes anything very much really. Okay. That's great. Thanks. Thank you. Our next question comes from the line of John Dort from Berenberg. Please go ahead. Your line is now open. Yes. Hi. Good morning, everyone. First question, you've seen a slight slowdown in your same store growth number. Just wondered if you can outline which end markets are driving that slowdown? And then the second question, I just wondered from the M and A that you've already completed, what would you expect that to add to revenue growth on a full year basis? I would debate that we've seen a slowdown in our same store growth. From what I can see here, we grew 9% in the Q1 in same store growth. We grew 7% in Q4 last year, 7% in Q3 last year, 8% in Q2 last year and 6% in Q3. That looks like we've improved same store growth to me. So I'm interested in why you think same store growth is growing. If the market is generally perceived to be growing at about 4 percent. Our same store growth continues to be double the pace of the market. Okay. I thought your growth towards Q4 'seventeen was in the region of about 8%, So 8% in 'nineteen. I'm not going to argue with you. There was 7% or 8%, quite frankly, but both are lower than 9%. So And the same store growth in Q1 of was 6%? From that collection, yes. I'll say from that collection, from a piece of paper that Susanne just handed me, then that would be the case. And it's a bit like with Newcastle and Russell we trust, and our state in Susanne we trust. And so in I mean, in any of your major end markets, looking at the trends, have you seen a slowdown in the same store growth number? No. Look, again, same store growth has been very, very consistent across the business. The markets are pretty good. We you're always going to get some geographic short term effects. I talked earlier about this Atlanta market. You got a couple of big jobs come off, it slows down for a month or 2, that fleet comes back and it ramps back up again. So it's you get effects like that when we now do larger jobs and therefore when the comes back from those larger jobs, it may take a little time for it to ramp back up again. But no, we're not seeing anything significant in terms of different performance. There remains in terms of getting there remains if there was you know my view, which was the level of oversupply because of oil and gas was massively overplayed, both in terms of the range of fleets and the geographies. But to the extent where there remains some, clearly, that was Texas. Well, post Hurricane Harvey, the last thing there's going to be is an overhang of excess fleet in Texas. We, for ourselves, we haven't visited all of our sites. We'll have lost about $30,000,000 of fleet. We've got about 10% market share in Houston. There's a reasonable presumption about $300,000,000 of fleet has come out of the Texas market as a consequence, and that's just the rental companies. If you assume 60% rental penetration, contractors will have probably lost another $200,000,000 worth of fee. Everybody focuses on the demand change in an event like Harvey, and they underestimate the impact from the supply perspective. So no, look, we're very comfortable in terms of where we are across the board. We see no significant variation by geography other than that which is explained by short term variations on the old contract or 2. Okay. And on the M and A? And on M and A, look, our M and A activity, Q4, we had a particular busy pipeline, which was stimulated post our Capital Markets Day. There has been a lot of activity in the space. I think something like that together with you imagine if you're a local player in, say, Texas or Florida right now, we're shipping hundreds of truckloads of equipment into that market right now. The benefits of our scale and indeed in fairness, United scale will become very apparent. That's together with the amount of consolidation activity. I think there is a growing awareness, not only by our customers, but also our competitors that the bigger are going to get bigger. I think that enhances the pipeline of opportunities that we have. Okay. Thank you. Thank you. Our next question comes from the line of David Phillips, Sandler. Please go ahead. Your line is now open. Hi. Good morning, everyone. Could I just come back to the acquisitions point? I think Jeff, you talked about an acceleration in trade applied to 20%. I just wondered if you had a feeling for how much of the cross selling potential you've realized already and how much is still to come? And would the same apply to CRS as well? Yes, absolutely. No question. I mean, the prior location was, I remember Brent and I going and visiting it for the first time. Like very rarely do you sort of walk in a place, you get a feel for it all and you just think, wow, this is going to transform us. But not only that, we can transform them because of the potential of accessing each of those customers, The ability to provide other equipment and to be that full range supplier, it's a pretty combination. I guess, if you take a big aerial business like Pride and you put it in a big market like New York where we have relative to them a low access, we've ordered the products. If we come back to this, your availability, your reliability and your ease are enhanced enormously. CRS will be the same. Look at the stats on CRS. We've acquired 30 locations, but we've only acquired about the same amount of fleet as we acquired by Pride in one location. You imagine how we are salivating at the prospect of broadening their fleet offering and enhancing that quantum of fleet to provide a much greater option to their customers across what is a very, very comprehensive footprint around Ontario. Now the one area where they're relatively underpenetrated is the major Toronto metro market because it's typically more of a small tour market. Well, that's our absolute wheelhouse. So if you look at what they're bringing and what we bring, again, well, I'll have a bet with you, David. I will tell you what the 2nd quarter year on year revenue performance is on a pro form a basis and are better than double digit. Okay, great. Thanks, very clear. Just on the CapEx budget process, have you started that already and presumably it gives you a lot more work to evaluating the damage from the storm and it might lead to you wanting to get in touch with the OEMs a bit quicker to make sure you're higher up the priority list. Is that fair? David, we're pretty comfortable. Remember, we have and say the small and midsize guys is that we have orders on the OEMs at all times, whereas the small guys will probably place an order once a year or twice a year for a few bits of equipment. So we have a pipeline of equipment coming. So it's easier for us to pull forward that pipeline and say, hey, you know the stuff that we wanted in October, any chance of having in September? The November and December stuff, can you pull it forward to October? That's always easier than starting from a standing start. In terms of the detail of the plan, I genuinely know. I had my last call with Russ about 10:30 last night when I was coming back for a dinner, and the only thing we talked about was there are 2 guys in Key West who by Facebook, we're assuming they're okay, but we haven't physically spoken to them yet. So we have sent someone down to search every bar in Key West, and we're hoping to find them today. Great. Thank you. Very clear. I hope you find them soon. Thank you. Our next question comes from the line of Justin Jordan from Jefferies. Please go ahead. Your line is now open. Thank you and good morning, Erwin. I just want to return to Slide 13, if I could, which is basically the rates and yields slide. And I guess I just wanted to clarify firstly the top left element of that page. You talk about improving rate trend. Was that right in the same, so you said was it 3% rate increase from May to the end of August? Is that That's yes. Okay. And that's obviously I appreciate there will be some sequential uptick because of just seasonal. But I suppose are we now in a positive year over year rate territory? Yes, we are. Fantastic. Okay. And so I'm just trying to think in terms of how we think about that going forward and the impact that has on let's say dollar utilization or ROI. You talked about 3 sequential months now of improving ROI. I think you've got the bottom right of that page. Presumably okay, I'll put half the environment to 1.5, but we should be getting near a point where maybe dollar utilization should start inflecting positively year over year. Is that a little bit of a And that's why I hear, as you recall, we deliberately spend a bit of time talking about those metrics at the year end. If you go back and look at the year end presentation, which was a more detailed presentation, we explained what we thought the headwinds were on those metrics. We believed they were changing, and we just thought it was going to take some time for them all to flow through. But this is the Q1 where you're seeing the initial signs of that, and you will see that continuing the ticking through the year. So does it absolutely turn positive in Q2 or is it Q3? But we're into the stage now where we report ROI on a trailing 12,000,000,000 in a trailer club to a single number. Now if I was to go to a decimal place, so I was 22 points something in 20. I'm sure year on year improvement, but that's not what we do. So yes, we clearly, if these trends continue, which we fully expect them to do, then the impact will be seen on ROI and dollar utilization as we highlighted at the year end. So none of this is unexpected. It's the reason why we spent some time to try and explain it was coming at the year end. And this is the Q1 where more tangibly you can see that progress. Okay. And just one follow-up, sorry, again, sticking on the kind of returns metrics or incremental returns. Obviously, in the quarter, 56% of Sunbelt rental revenue, Marshall Sunbelt rental revenue both for the EBITDA line. Absent of what may happen in Q2 from Harvey and Ehrve, should we be thinking about sort of that sort of circa 60 percent full for the remaining 3 quarters of fiscal 'eighteen and potentially beyond? I think what you I will be very careful on the precision of certain metrics this year because I think Erwin and Harvey throw everything into confusion, particularly Q2. When I look at how clean Q1 was and how clean our oldest performance was, in some respects, it's frustrating. But there is a lot of incremental cost. There's going to be a lot of incremental revenue, and there's going to be a massive shift in the mix of equipment. So right now, I'm looking at a set of numbers where for the first time in a long, long time, the physical utilization of the general tool equipment is done year on year because a lot of stuff stopped. It's just terrible weather situation in the country. Normal activity, no one's on normal construction sites right now in Miami. The normal work we were doing has stopped and will probably not start again until the beginning of next week. What we do now we will still, by the end of the year, have as much work as we were going to have because they will catch up. But we will lose 2 or 3 weeks of work in some important markets in the short term. We will incrementally gain a ton of extra I think it's about $70,000,000 of extra power on rent than there was before. Now that's good ROI product. It will improve certain metrics. I was talking to some guys in Texas last week and we had to do a 15 mile delivery, but the way the roads were closed, they had to drive 70 miles to actually get a piece of equipment 15 miles away. That adds cost. My point is this. Over the course of the year, this will be incrementally better for us, although I would ask you to look at it in the context of scale. Once upon a time, an event like this was a major moving event for us. It's sort of not that. But Q2, I have no idea how it's all going to pan out. Everything's shown up in the air. But we all going to have more business. A lot of that business is going to be high ROI specialty products. So it will work itself out through the course of the year. But I'm afraid the metrics are going to be all over the place for a quarter or 2, Justin, I'm sorry. Okay. Thank you. Thank you. Our next question comes from the line of Andy Murphy, Bank of America Merrill Lynch. Please go ahead. Your line is open. Good morning, Jeff. Good morning, Susan. Hi. Just a couple of questions. When Sandy ripped through the U. S. 4 or 5 years ago, it looks like your yield bounced quite dramatically. Would you say on that basis that the yields rose around about 5% in the quarter? And as a follow-up today is to what extent do you think that sort of rate increase kind of stuck, became sticky over a longer period of time? And secondly, I suppose on the sort of hurricaneCapEx side of things. Other than talking to the OEMs, is there anything else that you can do or need to do to sort of accumulate more equipment more quickly to deal with that? And I suppose a follow-up today is that you talked some time ago about having sort of basically rescue fleets, trucks loaded up with pumps and sort of rescue equipment. Whether you still got those, whether they've been deployed and to what extent that's actually relevant in terms of the tangible impact that would have on numbers in a full year? Yes. Okay. Let me cover the second point first. As I said, the benefit we have is that we are a national business with significant breadth of fleet and volume of fleet elsewhere in the country. So like literally, we have a Stone Center team that sets up in Charlotte and they look at every asset we have. And obviously, they don't take every asset because we've got local customers we also have to take care of. But to the extent that we have anything like spare fleet anywhere in the country, then we ship it. Again, I was trying to find it in one stage in all this. Other than where there was specific equipment booked for an event, if there was a as you put it to me, it there's a generator sitting on a yard anywhere in America, it must be broken because otherwise it's on a truck to Texas, and that was true. So that is our biggest access to equipment really is that ability to use that $7,000,000,000 of fleet we have nationwide. Remember, all of our small local competitors will have been hit pretty hard with all of this and they don't have that access to fleet. We have the benefit of typically, we have arrangements with our supply base where we have what we call green underground, which is stuff which we are due which we can call on in an emergency. So of course, we call on what we call the green on the ground. And because we typically release our orders in relatively small increments on a weekly basis, there's always another wave of equipment to come up. Now that equipment may have originally been planned to go to New York or Seattle, and it just gets redirected to Texas or Florida. So we have a capacity to flex both the size and the location of our fleet, which I would suggest only the largest half. And so and in our opinion, events like this help to underpin a step change in our market share because where the guy is taking care of you, at a moment like this, they kind of tend to stick with you. And if your local guy can't take care of you, then we can take care of you. And the benefit of our technology to say, yes, we do have it, we can get it to you by then, actually physically give you a broad range of equipment, that's very positive. In terms of some of the specific assets, you're absolutely right. I was looking at a bunch of photographs yesterday from Houston and you could see our disaster recovery trailers sitting outside the wall and they're all underground. And you're right, they're filled with very specific equipment, which again, general rental companies don't have. You have some specialist restoration remediation contract. So it's corporate fans, it's dehumidifiers. And they're out on the rain. I've got some fantastic photographs of us drying a school basketball pitch or drying an old people's home or drying and cleaning up a wall or specialist floor cleaning equipment. Again, absolutely vital in a cleanup exercise like that. So yes, all of that increment. But again, you've got to look at it in the size of the context of the $7,000,000,000 fleet, okay? So yes, we've got $70,000,000 more power on rent than we did just before Harvey hit. But that's $70,000,000 out of £7,000,000,000 okay? So once upon a time, it was a much bigger deal. In terms of your rates question, it's a tough one. Sandy hit when it was a great rate environment in any case. And we were had tiny market share in that area. So for us, it was just a win win win because it established ourselves in a market that we weren't in. A better reference point for us is Katrina. We've kind of got the chops. We looked at Katrina and we looked at Sandy and we saw, okay, what happened to volume, what happened to rate in the following 2 years? And the volume and rate was positive in those 2 years, But the markets were great. So how much of it was because they stuck after the hurricane and how much of it was because, well, the markets were great in any case is a tough one to tell. Rates are driven by supply in demand. There is going to be more demand and there's going to be less supply. So there is going to be rate improvements. How much it is and how long it is, we will let you know by December. As I said, in Florida, I'm not even back in my location yet. Thank you. Our next question comes from the line of George Graham from Exane BNP Paribas. Please go ahead. Your line is open. Good morning, Geoff. Good morning, Josh. Good morning, Josh. Good. Thank you. Good. Just a quick question, just a follow-up really. I think you mentioned the store overlaps between NEF and URI. Was it did I catch that right? Was it 39 of the 70 odd locations? Within 5 miles, yes. We track every location. We have a model. It takes the guys about 5 seconds to press a button. I'd say how close, what's the overlap going to be? But when you're right about our RSA, I think we announced it on a Friday, volume Monday, we had a list of 220 locations we thought they would close. So we're like we're doing now. We put incremental sales force. Okay. So it was about 200 for RSC versus the 40 odd. Okay. Thank you very much. Thanks. Thank you. Our next question comes from the line of Karl Green, Credit Suisse. Please go ahead. Your line is open. Thank you very much. Yes, just a couple of questions from me, please. And apologies if this has already been asked. I got cut off from the call a little bit earlier on. Just firstly, on the billing days impact, I think in the Q4, you'd indicated Sunbelt has seen 3 in bit fewer trading days in the quarter. Can you just talk about perhaps the impact in the Q1 that we've just had if there was any meaningful impact on the margin in Sunbelt? And the second question, just going back to the detailed full year presentation that you gave, could you just remind me, and you might not quantify this, but all of the things being equal, what's a 1% increase in monthly rentals as a percentage of the overall total? What that broadly equates to in terms of the benefits to the EBITDA margin, if there's a sort of rule of thumb there? You may not have quantified that, but I just wanted to double check. The second one, I don't know. We could sit down and work it out and would be and I'm sure Susanne or Michael or Will will be happy to ring you back and work through the calculation with you. It's kind of not something I've looked at before. But there was one more billing day in this quarter, but the way the whole thing worked out, actually on a billing day basis, the revenue growth was 15%, which is the same as the 15% that we Our next question comes from the line of Peter. Your line is open. Hi, good morning, guys. Hi, Reid. A quick question on Canada. You kind of split it out this quarter, which is encouraging. Obviously, the acquisition kind of suggests that you're accelerating the growth there. Just help us think about how that growth might kind of come about, whether you can do another kind of CRS deal or whether you kind of feel comfortable now to perhaps do more of this kind of organic? Yes. I think clearly what we have got with CRS, you can see is a very big footprint with on average significantly less fleets than we would typically have in that number of locations. And I think that falls into both they have less fleet and they typically have a somewhat narrower range of fleet to what we have had. So we've already moved in significant quantities of fleet into that market, which is I don't do bets unless I think I'm fairly confident I'm going to win them, which is why my bet with Dave that we'll see in the Q1 of 10%. Because we've just given them more fleet and it's got out on rent really, really quickly. Because they've got customers who, if they're taking a narrow range of fleets, they take everything else from somebody else. And if they can just get it from one stop, why wouldn't they get it from one stop? And so I think what you will see for a period of time is predominantly targeting on filling out the density of the specialty locations that we will have in there. We need to grow specialty locations, and you might well see us open 1 or 2 downtown metro stores in Central Toronto. That's a market which they typically shied away from a little bit. So when we were driving around having a limited location, what's evident is, well, A, Ontario is a hell of a big place and they have very different market shares in different parts of Ontario. So for example, they have really high market share in Ottawa, but very low market share in Toronto. If you look at the Ontario market, well, Toronto is the primary driving force. So why would we not target more? So you will see a few more locations open predominantly specialty, but most importantly over the next 12 months, what you're going to see is a significant capital investment. Okay, great. And then just if I can second, just on A Plant, physical utilization kind of ticked down in the second in the Q1. Is there anything in particular there? No. If you look at it on a year on year basis, it's because we didn't have the Hudens assets in the year. Until we lack of Hudens, there's going to be 1 or 2 strange metrics. Also, some of the Hudens business is lumpy. It's either event driven or it's industrial shutdown driven. And therefore, it is going to change some of the normal patterns of physical utilization. The demands remain strong. We've there's probably some asset categories where we're carrying a few too many assets, which we acquired from we bought them for less than what we could sell them for. So if we have to de fleet a little bit, that wouldn't be the end of the world. But what we wanted to do is go through a 1st full season, particularly in industrial market and make sure we fully understood it before we rightsized the fleet. Great. Thank you so much. Thank you. Our next question comes from the line of Mark Howson of HSBC. Please go ahead. Your line is open. Good morning, folks. Can I just ask the question? Obviously, we're seeing quite a bit pleasing some increase in inflation in U. S. Rental rates. Where are we on staff costs? What pressures have you got coming through the rest of the year on sort of like for like wage inflation on staff costs? And secondly, fleet acquisition costs, are you seeing anything from the manufacturers, whether it's wage and list prices? That's the second question. Most important though is staff costs. Yes. Staff costs, yes, we're probably looking at 3%, 4% easily and maybe closer to 4%, 5 in staff costs. We've said this before, we think we are operating in a near sort of full employment economy for key blue collar staff, and that's what we built into the bullion. It's pretty much what we experienced last year, too. Again, we think if you look at our revenue per head statistics, our efficiency opportunities will mitigate the vast majority of that. So we don't see it as a big drag on our margin, but it's a reality that the economy is strong and labor is tight in the U. S. We've seen little or no inflation from the manufacturers. Will that change post hurricane season? It will be shortsighted if it did, so I suspect not. Thank you very much. Thank you. As there are no further questions, I'll return the conference to you, Jeff, for any closing comments. No. I'd just like to thank everybody for the question and for the continued interest in Ashtead, and we will look forward to being able to give you a much fuller update at the half year. So again, thank you very much indeed for your time. Thank you all for attending. This now concludes today's call. You may now disconnect your lines.