Welcome to the Ashtead Group plc results for the first quarter. Throughout the call, all participants will be in listen-only mode, and afterwards there will be a question-and-answer session. Please note that this call is being recorded. Today, I'm pleased to present Geoff 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, then we'll go on to Q&A. Let's get started pulling 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. A great financial start to the year. Hurricane Harvey and Hurricane Irma have obviously been devastating major events post these results, and we will comment on them further later in the presentation. With that, I'll now hand over to Suzanne.
Thanks, Geoff, and good morning. The group's first quarter results are shown on slide five, and as Geoff said, we were pleased to report another strong performance. The group's rental revenues show good momentum, increasing by 17% on a constant currency basis. Margins continued to improve despite having opened 24 greenfields and completed five acquisitions. EBITDA margin was 49% and operating profit margin was 30% in the quarter. As a result, our underlying pre-tax profit was GBP 238 million, an increase of 21%. Slide six shows Sunbelt's first 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%.
A bit later on, Geoff will discuss the US operating performance and metrics in more detail. Turning over now to slide seven, 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 eight, 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 £1.5 billion, 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 two years, what a difference 12 months makes.
The group generated £417 million 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 nine updates our debt and leverage position at July 31st. Net debt increased in the first quarter as we continued to invest in fleet and bolt-on acquisitions. Our leverage was 1.7 times EBITDA, well within our target range of 1.5-2 times. 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 £1.6 billion. 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 two things. First, we extended the maturity of our $3.1 billion ABL facility to July 2022 on the same terms and conditions. Second, we refinanced our existing $900 million of 6.5% 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 seven years at a weighted average cost of just below 4%, an improvement of approximately 40 basis points. With that, I'll hand it back over to Geoff.
Thanks, Suzanne. Let's start with Sunbelt on page 12, looking firstly at how we are doing with rental revenue. Against our plan for 9%-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. Organic remains a very healthy two-thirds of our improvement at 10%. Bolt-ons have generated 5% growth, reflecting not only our recent activity levels, but also the strong trading of our recent acquisitions. 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 in 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. One or two slides are changed, but the same data is shown in the historical format in the appendices. 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're in a markedly different environment to a year ago. Mix continues to be a year-on-year headwind, which of course impacts yields.
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 lower yields, but also the improvement in both EBITDA and EBITA 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 three consecutive months of improvement. Again, it's early days and improvement is never linear, but this supports our view that we've 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, 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. 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 six months in terms of bolt-ons and 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 Project 2021 plan was all about. 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 three key drivers, same-store growth, greenfields, and bolt-ons. An impressive 60% of our growth over the last six 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. At different times, each driver will have a greater or lesser influence on our total growth. Clearly this year, greenfields and bolt-ons are contributing more. 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 the returns on these newer locations and their businesses. On page 17, we look at both return on investment and EBITA margins from 2012 to 2017. The data is analyzed by mature stores in greenfields and acquisitions, and they are grouped by the year in which they were opened or acquired.
The yellow bars reflect the performance at the end of the year of opening or acquisition for greenfields and bolt-ons, or the performance as at the 13th of April 2012 for mature stores. The green bars reflect the performance as at the 13th of April 2017. 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 ceilings 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. 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&A continues to drive value. Our strategy becomes clearer when you look at it by market. On page 18, we look at different districts and the impact of greenfields and M&A activity. For example, the A grouping of districts have seen no greenfield or M&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 hangs together, and the benefit 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've 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. It's not all about the growth of either the more mature or the newer stores, but the contribution of the whole cluster that makes a difference to our performance. 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.
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 we 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., 3%-4% we assume for 2021. Yes, there will be sector and geographic ups and downs and nothing is linear. There are long backlogs and starts are strong, 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 the rebuilding post-hurricane season, which we discussed earlier, and no doubt we'll cover in more detail in Q&A. Page 20 is something of a watch this space page. 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 would be clearer to report Canada separately. 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 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 at +24%, mitigated by a negative yield of 4%.
The net, a very good rental revenue performance of +22% year-on-year. We bought a lot of assets from Hewden for a low price but with low rates last year. If you adjust for this, volume growth would be +17% and 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. To summarize, it's been a really encouraging first quarter. Volume's good, rates are improving, and most importantly, so are margins and ROI. 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 and greenfields. 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. 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. I said earlier, we will therefore update the market in December. In any event, the real impact isn't this year, it's the potential over the next 2-5 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. Therefore, the board continues to look to the medium-term with confidence. With that, Johanna, if we could just start the Q&A session, that'd be fantastic.
Absolutely. Ladies and gentlemen, if you do wish to ask a question, please press 01 on your telephone keypad. If you would like to cancel your question, you may do so by pressing 02 to cancel. There will be a brief pause while questions are being registered. Our first question comes from the line of Rory McKenzie from UBS. Please go ahead. Your line is now open.
Hi, Rory. How are you?
Hi, good thanks. How you guys doing? Just two for me, please. The first one is on that rate increase over the summer.
Yep.
Just any more detail on regional product or customers where that rate trend 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?
Look, 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 first of May to the end of August, we've got 3% rate improvement. Of course, some of that is seasonal. By any season, that's a good performance. As we discussed at the year-end, a big proportion of the rate improvement previously had been daily and weekly, and what we were looking for was a turn in monthly. We've certainly seen that over the last three to four months. The reason why that is important is this. We're starting to see a turn in monthly rates, so the deals we are negotiating now and probably over the preceding six 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. An obvious example was, Brendan and I were talking about some performance in Atlanta recently. You could see fleet coming off and physical utilization going down, but you could see rates really improving very, very well. The answer was, we talked about them before. We had two big stadiums being built with rates that we had negotiated about the time we were getting a bit worried about oil and gas. We had a lot of fleet 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.
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. 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. 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 than the contracts that were established perhaps in more difficult times one or two years ago. They're at a stage in their evolution where they're ramping down.
Okay, those rates just took longer to roll onto the kind of new paradigm, I guess.
I think that's the problem. I think everybody thinks we set a rate, and that's a rate for those products now. No. 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. What has been the drag has been the monthly. 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, when we were at the year-end, were 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. Just one more on that rate dynamic, if I can. Another one. What's the competitive outlook for those kind of monthly rates on those larger projects, particularly with the accelerated consolidation the market's seeing at the moment?
Look, we're into like tens of percentage points. I think some of our peers get bogged down into talking about the benefit of switch. If you can see the chart, all the way through August and September up to the hurricane season too, we are seeing a continued, very consistent improvement in rates. September and October numbers are going to be all over the place now because of the incremental sort of specialty demand around. We're feeling very good about the rate environment at the moment.
Okay. That's clear. Then just next one if I can. On the free cash flow was well up year-on-year as growth CapEx decreased. Obviously, the net cash outflow was the same year-on-year as you increased M&A. Slides 17 and 18, I think, kind of showed you how both those greenfields and bolt-ons mature. 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? Are they just analogous to you?
Look, the chart you've got there are a summary of a ton of work we have been doing over recent months. Look, 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. 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 frankly we had a couple of misses in terms of some of the bolt-on activity. Fortunately, they were relatively small.
The performance has been very, very consistent. 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 disclosure as always, Geoff. 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.
Morning, everyone. I think when we had the latest results, you talked about an expectation that negative 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?
Yeah. It's hard to know. Again, my problem is when we were looking at the Q1 numbers, I thought that this is the cleanest quarter I may have ever seen in terms of everything heading in the right direction. August was exactly the same, now all bets are off in terms of how metrics are going to perform given the level of activity with Hurricane Harvey and Hurricane 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. Sequentially, between Q1 and Q4, the mix was the same. It was a headwind year-on-year, but it wasn't a headwind sequentially. That would be broadly our expectation.
It might tweak a little bit, we felt as if it was about right. You're right in saying subject to that, then if we can get rate improvement, keep mix relatively flat, that will ultimately lead to an improving yield position. Remember, however, this negative yield comes with it significantly lower transactional cost. For what we were at pains at the year-end, we actually, I remember deliberately putting in a couple of extra slides to say, "Look, here are the reasons why we think we've had headwinds, and this is why we think our underlying performance, you will see positive improvement in rates, ROI, and EBITDA margins." That's exactly what we've seen in the first quarter.
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 LTM measures. We think the trend lines are positive.
Okay. Would you expect yields to remain negative for this year? I mean, throughout the whole year.
You can tell me what my mix is going to be in quarter two and quarter three, I'll tell you. I can tell you that I think rates will be improved year-over-year, and I think if the yield is negative, we will continue to deliver lower transactional cost. I think most importantly, I think yield is 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.
Just thinking about the acquisitions then. When you looked at some of these deals, 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. We look at revenue multiples, we do look at EBITDA multiples, and we look at EBITA multiples. 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. We have peers who focus on cost reduction. We look at value enhancement and sales growth. On a pro forma basis, the Pride business is 20% up year-over-year. That's why the drop-through in our acquisition lines looks so good.
We look in terms of, yes, multiples, but also now we paid a slightly higher multiple for Pride because it was so obvious what it would bring to the cluster. In the main, the businesses we're looking at now are all in line with the multiples we've previously said, and I've given those before. Look, we like around about two and a bit times revenue. We like somewhere around five and a half times EBITDA, and we like somewhere around 10 times EBITA. They're very, very, very broad metrics depending on the age of the fleet, the location, and what it brings to the cluster.
Okay, fine. Very clear. Just one final one on the competitive dynamics of the market following obviously URI, what they did with Neff.
Yeah, I'm not sure that it changes an awful lot. 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 so. There isn't much more competitive intensity. We've done what we did with RSC, which is we've mapped where the United locations are versus Neff, and they're all really, really close. Have we got any significantly different competition to where we have, I think 39 of them are within a five-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. 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 Dodd from Berenberg. Please go ahead. Your line is now open.
Yeah. 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. Then the second question, I just wonder from the M&A that you've already completed, what would you expect that to add to revenue growth on a full-year basis? Thank you.
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 first quarter in same-store growth. We grew 7% in Q4 last year, 7% in Q3 last year, 8% in Q2 last year, and 6%. That looks like we've improved same-store growth to me. I'm interested in why you think same-store growth is growing. The market is generally perceived to be growing at about 4%. Our same-store growth continues to be double the pace of the market.
Okay. I thought your same-store growth towards Q4 2017 was in the region of about 8%, so 8%-9%.
8%. Well, I'm not going to argue with you whether it was seven or eight, quite frankly, but both are lower than nine.
The same-store growth in Q1 was 6%.
Yeah, from recollection, yes. I say from recollection, from a piece of paper that Suzanne just handed me. That would be the case. It's a bit like with Newcastle, in Rafa we trust, in Ashtead and Suzanne we trust.
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 piece. Markets are pretty good. You know, you're always going to get some geographic short-term effects. I talked earlier about this Atlanta market. You get a couple of big jobs come off, it slows down for a month or two. That fleet comes back, and it ramps back up again. You get effects like that when we now do larger jobs and therefore when the fleet comes back from those larger jobs, it may take a little time for it to ramp back up again. No, we've not seen anything significant in terms of different performance. Look, there remains in terms of getting 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 fleet and the geographies.
To the extent where there remains some, clearly that was Texas. Post-Hurricane Harvey, the last thing there's going to be is an overhang of excess fleets in Texas. We, for ourselves, haven't visited all of our sites, we'll have lost about $30 million of fleet. We've got about 10% market share in Houston. There's a reasonable presumption about $300 million 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 million worth of fleet. Everybody focuses on the demand change in an event like Hurricane Harvey, and they underestimate the impact from the supply perspective. 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 odd contract or two.
Okay. On the M&A?
On M&A, look, our M&A activity, we carry on doing what we are doing. Again, I said at the end of the fourth quarter, 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. 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 Rentals' scale, will become very apparent. That 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 big 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. Please go ahead. Your line is now open.
Hi. Good morning, everyone. Could I just come back to the acquisitions point? I think, Geoff, you talked about an acceleration in trade at Pride to 20%. I just wondered if you had a feeling for how much of the cross-selling potential you've realized already-
Oh, an instinct
how much is still to come.
I'll have to look.
Would the same apply to CRS as well?
Oh, yeah. Look, absolutely. No question asked. The Pride location was, I remember Brent and I going and visiting it for the first time. 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." Not only that, we can transform them because of the potential of accessing each other's customers. The ability to provide other equipment and to be that full-range supplier. It's a pretty complement. Like I said, 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. You've got all the other 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 fleets 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. The one area where they're relatively under-penetrated is the major Toronto metro market because it's typically more of a small tool market. Well, that's our absolute wheelhouse. If you look at what they bring and what we bring, again, well, I'll have a bet with you, David. I will tell you what their second quarter year-on-year revenue performance is on a pro forma basis, and I bet it's better than double digits.
Okay, great. Thanks. Very clear. Just on the CapEx budget process, have you started that already? Presumably, it gives you a lot more work to do 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, the difference with us and, say, the small and midsize guys is we have orders on the OEMs at all time, whereas the small guys will probably place an order once a year or twice a year for a few bits of equipment. 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 it in September? The November and December stuff, can you pull it forward to October?" That's always easier than starting from a standing stop. 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, the only thing we talked about was there are two guys in Key West who, by Facebook, we are assuming they're okay, but we haven't physically spoken to them yet. We 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 . Please go ahead. Your line is now open.
Thank you. Good morning, everyone. I just want to return to slide 13 if I could, which is basically the rates and yields slide. I guess I just wanted to clarify firstly the top left element of that page. You talk about improving rate trend. Was I right in saying, so you said, was it 3% rate increase from May to the end of August?
That's yeah.
That's obviously, I appreciate there will be some sequential uptick because of just seasonal. I suppose, are we now in a positive year-over-year rate territory?
Yes, we are.
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 three sequential months now of improving ROI.
Thinking about the bottom right of that page. Presumably, put Harvey and Irma to one side, we should be getting near a point where maybe dollar utilization should start inflecting positively year-over-year. Is that sort of?
Yeah.
Okay.
That's why, again, as you recall, we deliberately spent 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 the 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. This is the first quarter where you're seeing the initial signs of that, and you will see that continuing through the year. Now, does it absolutely turn positive in Q2 or into Q3? We're into the stage now where we report ROI on a-
Trailing 12
trailing 12 to a single number. If I was to go to a decimal place, so I was doing 22 point something in 20-- I would show year-on-year improvement. That's not what we do. Yes, 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. None of this is unexpected, but it's the reason why we spend some time to try and explain it was coming at the year-end, and this is the first quarter where more tangibly you can see that progress.
Okay. Thank you. Just one follow-up. Sorry. Again, sticking on the kind of returns metrics or incremental returns. Obviously, in the quarter, 56% of some rental revenue, marginal rental revenue, both for EBITDA line. Absent of what may happen in Q2 from Harvey and Irma, should we be thinking about that sort of circa 60% drop-through for the remaining three quarters of fiscal 2018 and potentially beyond?
I would be very careful on the precision of certain metrics this year because I think Irma and Harvey throw everything into confusion, particularly Q4. When I look at how clean Q1 was and how clean our August performance was, in some respects it's frustrating. 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. 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 down year-on-year because a lot of stuff stopped. There's this terrible weather sweep through 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 till the beginning of next week. We will still, by the end of the year, have as much work as we were going to have because they will catch up. We will lose two or three weeks of work, in some important markets, in the short term. We will incrementally gain a ton of $70 million of extra power on rent than there was before. That's good ROI product. It will improve certain metrics. I was talking to some guys in Texas last week, and they 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 the scale. Once upon a time, an event like this was a needle moving event for us. It's sort of not that. Q2, I have no idea how it's all going to pan out. Everything's thrown up in the air. We are going to have more business. A lot of that business is going to be high ROI specialty product, it will work itself out through the course of the year. I'm afraid the metrics are going to be all over the place for a quarter or two. 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.
Morning, Geoff. Morning, Suzzane.
Yeah, good morning.
Hi, just a couple of questions. When Hurricane Sandy ripped through the U.S. four or five 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? The follow-up to that is, to what extent do you think that sort of rate increase kind of stuck, became sticky over a longer period of time? Secondly, I suppose on the sort of hurricane stroke CapEx 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? I suppose a follow-up to that is that you talked some time ago about having sort of basically rescue fleets, trucks loaded up with pumps and rescue equipment.
Whether you've 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.
Yeah. 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. Literally, we have a storm center team that sets up in Charlotte, and they look at every asset we have. Obviously they don't take every asset because we've got local customers we also have to take care of. To the extent that we have anything like spare fleet anywhere in the country, then we ship it. Again, I was talking to Brendan at one stage in all this. Other than where there was specific equipment booked for an event, as you put it to me, if there's a generator sitting on a yard anywhere in America, it must be broken, because otherwise it's on a truck to Texas.
That was true. That is our biggest access to equipment really, is that ability to use that $7 billion of fleet we have nationwide. Remember, a lot 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 on the ground, which is stuff which we are due, which we can call on in an emergency. Of course, we call on what we call the green on the ground. 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. We have a capacity to flex both the size and the location of our fleet, which I would suggest only the largest have. In our opinion, events like this help to underpin a step change in our market share. Where the guy's taking care of you at a moment like this, they kind of tend to stick with you. If your local guy can't take care of you and we can take care of you, and the benefit of our technology to say, "Yeah, we do have it, and 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 asking. Absolutely right.
I was looking at a bunch of photographs yesterday from Houston, you could see our disaster recovery trailers sitting outside of Walmart, and they're all on the ground. 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. It's carpet fans, it's dehumidifiers. They're out on rent. 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 room. Specialist floor cleaning equipment. Again, absolutely vital in a cleanup exercise like that. Yes, all of that increment. Again, you've got to look at it in the size of the context of a $7 billion fleet.
Yeah, we've got $70 million more power on rent than we did just before Harvey hit, but that's $70 million out of $7 billion, okay? Once upon a time, it was a much bigger deal. In terms of your rate question, it's a tough one to say, look. Sandy hit when it was a great rate environment in any case. We had tiny market share in that area. 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 charts. We looked at Katrina, we looked at Sandy, we saw, okay, what happened to volume, what happened to rate in the following two years? The volume and rate was positive in those two years. The markets were great.
How much of it was because they stuck after the hurricane and how much of it was because while the markets were great in any case is a tough one to tell. Rates are driven by supply and demand. There is going to be more demand, there's going to be less supply. There is going to be rate improvement. How much it is and how long it is, we will let you know by December. As I said, look, in Florida, I'm not even back in my locations yet.
Right. All right. Thank you.
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, George. How are you?
Good, thank you. Good. Just a quick question, just to follow up, really. I think you mentioned the store overlaps between Neff and URI. Did I catch that right? Was it 39 of the 70-odd locations?
Within five miles. Yeah. Look, we track every location. We have a model. It takes the guys about five seconds to press a button, and I say, "How close? What's the overlap gonna be?" When United bought our RSC, I think they announced it on a Friday. By a Monday, we had a list of 220 locations we thought they would close. We're like we're doing now. We put incremental sales force.
Okay. It was about 200 for RSC-
Yes
versus the 40 odd. Okay. Thank you very much. Thanks.
Thank you. Our next question comes from the line of Carl Green, Credit Suisse. Please go ahead. Your line is open.
Thank you very much. Yeah, just a couple of questions from me, please. 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 fourth quarter you'd indicated Sunbelt has seen three and a bit fewer trading days in the quarter. Can you just talk about perhaps the impact in the first quarter that we've just had, if there was any meaningful impact on the margin in Sunbelt? The second question, just going back to the detailed full year presentation that you gave.
Could you just remind me, you might not have quantified this, but all other things being equal, what 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, I'm sure Suzanne, Michael or Will would be happy to ring you back and work through the calculation with you. It's kind of not something I've looked at before. Look, there was one more billing day in this quarter, 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 reported.
Okay. Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad. Our next question comes. Please go ahead. Your line is open.
Hi. Good morning, guys.
Morning.
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.
Yeah. Clearly, what we have got with CRS, you can see is a very big footprint with on average, significantly less fleet than we would typically have in that number of locations. I think that falls into both a They have less fleet, and they typically have a somewhat narrower range of fleet to what we have had. 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 first quarter a 10%, because we've just given them more fleet, and it's gone out on rent really, really quickly.
Because they've got customers who, if they're taking a narrow range of fleet, 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? I think what you will see for a period of time is us predominantly targeting on filling out the density of fleet. There's specialty locations that we will add in. We need to grow a specialty location, and you might well see us open one or two downtown metro stores in Central Toronto. That's a market which they've typically shied away from a little bit. When we were driving around having a look at the 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.
For example, they have a 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, why would you not target more? 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. Thank you so much. Just if I can second, just on A-Plant on the physical utilization kind of tick down in the first quarter. Is there anything in particular there?
No. If you look at it on a year-over-year basis, it's because we didn't have the Hewden's assets in the year. Until we lock Hewden's, there's going to be one or two strange metrics. Also, some of the Hewden's business is lumpy. It's either event driven or it's industrial shutdown driven, therefore, it is going to change some of the normal patterns of physical utilization. The demands remain strong. There's probably some asset categories where we're carrying a few too many assets which we acquired from Hewden's. Look, we bought them for less than what we could sell them for. If we have to defleet a little bit, that wouldn't be the end of the world. What we wanted to do is go through a first full season, particularly in industrial market, and made sure we fully understood it before we right-sized the fleet.
Great. Thank you so much.
Thank you. Our next question comes from the line of Mark Harrison, HSBC. Please go ahead. Your line is open.
Good morning, folks.
Good morning.
Can I just ask the question, obviously we've seen while [deplacing] 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? Secondly, fleet acquisition costs. Are you seeing anything of the pipe from the manufacturers, whether they're raising list prices? That's the second question. Most important, though, is staff costs.
Staff costs, we're probably looking at 3%, 4% easily. It may be closer to 4% or 5% in staff costs. We know we've said this before. We think we are operating in a near sort of full employment economy for key blue-collar staff. That's what we built into the budget. 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. 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 short-sighted 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, Geoff, for any closing comments.
No. I'd just like to thank everybody for the questions and for the continued interest in Ashtead, we will look forward to being able to give you a much fuller update at the half year. 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.