Earnings Call: Q3 2016

Mar 1, 2016

Good morning, and welcome to the Ashtead Q3 Results Presentation. Throughout the call, all participants will be in a listen only mode and afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Jeff Drabble. Please begin your meeting. Good morning, and welcome to the Ashtead Q3 results call. The call will follow the usual format. So after a short update on the financials and current trading for myself and Suzanne will move swiftly on to Q and A. So starting on Page 2. It's been another very strong quarter as we capitalized on good end markets and our well established strategy of geographic and sector diversification. I think once again, we have demonstrated the relative strength of both our model and execution. This was always going to be our toughest quarter in terms of comps due in no small part to our Oil and Gas business, which was at its strongest this time last year. Obviously, we're in a very different place today. Therefore, against this backdrop, I'm delighted to report that the group Q3 rental revenue grew 14%. We're also growing profitably with the group delivering record EBITDA margins of 45% and pretax products for the quarter up 17% at £139,000,000 We continue to invest responsibly, recognizing the flexibility that a young fleet age and low leverage provides. Therefore, I'm encouraged that despite significant investment in our fleet and network, leverage has come down to 1.9 times EBITDA. I'll come to our first thoughts on growth for next year a little later, but for the balance of this year, we anticipate the full year results in line with expectations. So with that, I'll hand over to Suzanne. Thanks, Jeff, and good morning to everyone on the call. The Q3 results for the group are shown on Slide 4, and we were pleased to report this morning an underlying pretax profit of £139,000,000 as compared to 114,000,000 for the same period last year. This represented an increase of 17% at constant rates of exchange. Consistent with previous quarters, top line growth was the main driver of our profitability with rental revenue increasing by 14%. Jeff will review the quarterly revenue performance for both Sunbelt and A Plant in detail in a few minutes, but suffice it to say that both divisions performed well. The group's growth continued to be very profitable with EBITDA margin improving to 45%. On the next slide, we've shown our group results for the 9 months. On a year to date constant currency basis, rental revenue grew by 17% and our EBITDA margin increased to 46 percent, reflecting the higher revenues, operational efficiencies and continued focus on drop through across the group. As a result, our underlying pretax profit increased by 20% to £482,000,000 Turning now to Slide 6, we'll look at the year to date numbers on a divisional basis beginning with the U. S. Sunbelt's results were driven mainly by an 18% growth in rental revenue as we continue to benefit from strong construction activity levels, structural trends in our end market and the diversification of our business. It was also a period of major investment with 60 new locations added in the 9 months. With the continued operational efficiency of our mature locations, we delivered a 48 percent EBITDA margin. On Slide 7, we've shown A Plant's 9 months results and as you can see it performed well also. Rental revenue grew by 8% and with a focus on cost discipline drop through of 74% in that business helped to produce an EBITDA margin of 37% for the period. Slide 8 is one that you've seen many times, but it's key because our focus on leverage and balance sheet management remains an important financial discipline, which underpins our business strategy. As expected this year, our debt increased as we invested in the fleet and made small bolt on acquisitions. However, our leverage ratio declined to 1.9 times at January 31 reflecting our strong EBITDA margins. Going forward, we intend to operate within a leverage range of 1.5 to 2 times EBITDA. This is a conservative range given our strong EBITDA margins and the significant underpin that our well invested fleet provides. Moreover, we believe that this range provides us with a high degree of flexibility and security through the cycle. Based on our current plans, we are likely to trend towards the lower end of the range in the coming year. And I'll now hand over to Jeff. Thanks, Suzanne. So let's look at Sunbelt in a bit more detail. Starting on Page 10. Again, a very good performance driven largely by same store growth where we benefit from our well established presence and broader product offering. Boltons in greenfields continue to contribute to further growth and importantly, long term opportunity. As you've seen, the activity this year is more greenfield focused, so we don't have the same levels of growth from acquisitions. However, we continue to identify opportunities with 3 small deals completed in the quarter and others in the pipeline. Page 11 is the usual analysis of our revenue drivers. And as you can see, we had good volume growth of 16%, yield as anticipated fell 1% and physical utilization was flat. However, as we have highlighted in recent quarters with so many moving parts, the key is in the detail. So let's get on to Page 12. The detail on this slide is important, differentiating what's happening in the underlying business and broader markets and what's just short term headwinds around the energy sector. So let's start with the 89% same store, which takes out all of the noise. Well, as you can see, we had another great performance, 11% volume growth, 2% yield improvement and 64% drop through, which demonstrates our ongoing margin improvement in good markets. Greenfields and bolt ons continue to be a drag on our metrics, as you can see from the dollar utilization and drop through, but you can also see from the volume and yield improvement, they continue to develop in line with our expectations and are an important component of medium term growth. And then to Oil and Gas, and yes, it's awful. In Q3 last year, it was 6% of our business and now it's 1%. To emphasize just how different it is, dollar utilization Q3 last year was 104%, and this year, it's 51%. So these swings have been a terrible drag, particularly this quarter. Encouragingly, however, our diversified business has allowed us to still deliver a very strong performance. We're confident that this will continue to be the case. And whilst the energy sector will still be a drag for another quarter or 2, it will become irrelevant. Frankly, at 1% of our business and at best breakeven for the year, how much worse can it get? So let's start to look forward a little and what's happening in end markets. Well, we don't have much more to say than we did at the half year. Recent updates from forecasters we follow really haven't changed very much. Of course, we remain watchful and aware of the potential risks to growth of macro events. But as I sit here today, we expect the 2016 build season from May to November to provide substantially more work than last year. All of our key indicators point to this as does the feedback from our customers. So we accept that we are cyclical and therefore manage our balance sheet conservatively, but we do not see anything on the immediate horizon. I believe we remain mid cycle and whilst the pace of growth may moderate, we should have multiple years of structural and cyclical opportunity ahead. Turning to Page 14 and A Plant, where revenue growth was again good with solid volume growth and flat yields giving 11% growth for the quarter. Having tweaked our spend at the half year, physical utilization is starting to normalize, which is encouraging and reflects how easily we can pull the levers to correct our fleet size. However, most rise. However, most importantly, as you can see on Page 15, we continue to grow very profitably. Margins continue to set record highs and we anticipate further progress. The year to date drop through of 74% is a testament to the benefits of being selective in the business we take and a stable and efficient business model. Recognizing that there is still a quarter to go this year, we still felt it was appropriate to share our first thoughts on the group's fleet spend for 20 sixteen-seventeen. On Page 16, we show how our capital spend has evolved over time. As you can see, not surprisingly, our spend is cyclical and therefore levels of replacement CapEx are influenced by this. We're about to lap a very different spend cycle. We have recently been replacing our peak spend years of 2,006, 2,007, 2008. As a consequence, replacement spend in disposals have been historically high. We are, however, now entering a period where we will be replacing 2,009, 2010, 2011 spends, which were obviously our lowest spend years. Therefore, even with no change in growth CapEx, total spend is due to fall over the next 2 or 3 years as we enter a very cash generative period. So let's turn to Page 17 to see what all of this means. Here's a divisional split between replacement and growth. And as you can see, replacement is much reduced with Sunbelt needing to spend between $175,000,000 $250,000,000 or around $300,000,000 less than this year. For growth CapEx, let me explain the broad range for Sunbelt, I. E, dollars 600,000,000 to $900,000,000 We've seen a strong seasonal pickup in fleet on rent during January February, and all of the indicators for the springsummer season are positive. So we will spend at the upper end of our range guidance for Q4, and we have strong landings planned for Q1, so very much the same as last year. However, our Q3 and Q4 landings are very much determined by what we see 2017 2018 looking like. Currently, all of our indicators still point to a continuation of steady growth. We are, however, watchful of broader economic trends. Our range, therefore, simply reflects our modeling of 2 very different outlooks for 2017 2018. Our fleet spend is comprised of relatively small short term commitments and this allows us to defer any decisions on second half spending until much later in the year. Simply put, we don't have to take a firm view on 20 seventeentwenty 18 yet, so we aren't. Whilst we will flex short term spend to current market conditions, we are still committed to our long term structural growth. So once again, we will be opening around 16 new locations by way of greenfields and bolt ons, and potential greenfields are included in the capital guidance. So once again, we anticipate market leading growth in both divisions, but with the added benefit of significant cash generation as replacement CapEx reduces over the coming years. So to summarize on Page 18, it's been another good quarter where the relative strength with a focus on same store growth, greenfields and bolt ons. We continue to see opportunities in our markets and are planning double digit growth in planning double digit growth in Sunbelt, around twice the pace anticipated for the market as a whole. However, we are also planning to be highly cash generative, providing the security of trending towards the lower end of our leverage range of 1.5 to 2x EBITDA. This is clearly a balanced approach recognizing the need to remain watchful in current markets. It also demonstrates the flexibility inherent in our model. We have over recent years been consistent in our commitment to both low leverage and a young fleet age, and we are now benefiting from the options that this strategy has provided. Once again, we are demonstrating our ability to deliver sustainable responsible growth. And so with that, I'll hand over to the operator for Q and A. Thank Our first question comes from the line of Chris Gallagher from JPMorgan. Please go ahead. Your line is open. Good morning. A couple of questions. The first around your expectations for yields as you look at the Q4 and maybe into the next year. And also then just I guess that the replacement CapEx will be lower, but will you also be aging the fleet a little bit within that? Thank you very much. Yes. Thanks, Chris. Let me cover both those questions. I mean, I think, again, the key is Page 12. If we go back to Page 12, for the Q4, it's not going to look an awful lot different to what it's looked in the Q3. So we would expect, again, to have some progress within same stores, but we will continue to have the big drag on oil and gas mainly because, as I said in the script, we were at 104 percent dollar utilization a year ago, and we will still have those big headwinds going into the 4th quarter. Our expectation for next year is that yields will be broadly flat. The oil and gas will, as we go through the year, become less of a headwind, and so we'll start to lap better comps. I think in large swathes of our business and our geographies, we would expect a positive rate environment. Our yields are tougher measure because it includes mix. I think the drag for us will be in mix because we're at the stage now where we are very much mid cycle from a non residential construction perspective. So a bigger proportion of our work going into summer of this year and into next year is going to be very large projects and a lot of work with big national accounts. So if I look at it from a product perspective of small and midsized products, I would still expect to see yield improvements. I would expect to see it being tougher with things like aerial on great big projects where you're going to get big long rental commitments. So on balance, our expectation for next year would be around about flat. Sorry, I forgot about the second question. I've rambled on it versus. Yes. Yes, the average fee days, no, given that we are actually lapping, replacement CapEx is coming down because we're lapping previous low spend years, it shouldn't age the fleet. If we just stop spending replacement CapEx and we're not lapping low spend years, we would be aging the fleet. But no, the reduction in replacement CapEx should not make any material impact on the aging of our fleet. Okay. And just a follow-up on the first question. I think before you've mentioned oil and gas, the headwind was likely to be to some extent in the 4th quarter. Has that got sequentially worse then? No. We were at with our all time peak in terms of volume and rate during Q3. I mean, I know some of you were with us in February last year. We were people were asking us about oil and gas and we had just peaked from a volume of fleet on rent and peaked from a rate perspective and we were thinking how foolish are we? We're thinking what's all the fuss about. So really, it started to come down from March. It was fairly gentle. If you go again, if you look at Page 12, well, if you go back to previous analyses in earlier quarters, it was a very small reduction yield in the Q1. It's by the time you get the 2nd, 3rd and 4th quarter that the yields started to come down quite significantly and that's when we lap better quarters. Thank you very much. Our next question comes from the line of Roy McKenzie from UBS. Please go ahead with your question. Your line is open. Yes, good morning. Couple of me please. On Page 13, the industry growth forecasts have come down slightly, but your guidance does imply you're more cautious on making the same rate of share gains next year. Is that more caution on same store gains? Or do you plan to hold back on new openings a bit more? So some color on where the share gains might reduce, please? Yes. Look, I mean, I think we're talking around the nuances there, Rory, about whether it's 5% or 6%. So share gains in same stores, I wouldn't expect to be materially different in all honesty. I mean, I do think we have as I said earlier, it gets tougher as you get mid cycle because the question is how much of that big aerial contract work do we want to take for those larger projects. And of course, we will be lapping ever tougher COPs. In terms of greenfields and bolt ons, we will open exactly the same number I say exactly the same. We will be opening a similar number of stores to what we have opened this year. We are very committed to that long term structural opportunity to get up towards 900 stores. A fact of life is that the percentage gain that, that is every year reduces if it's the same quantum of new fleet in greenfields and bolt ons. So it's largely down to the fact that the quantum of greenfields and bolt ons is the same and we're lapping top back ups. Okay. That's good. And then just on that point then, what were the trends you saw within the quarters of growth in small to midsized key accounts and cash. I know you gave the split, the H1 results, but any kind of points out there? Yes. I've got to be honest with you. Remember, the quarter finished at about half 10 U. K. Time last night. What we haven't done yet is break it down by I wouldn't have expected it to be significantly different. I do think we are quite clearly in very mid cycle from a non residential construction perspective. So there are significantly more larger multiple year projects have either just started or are about to start this spring, and that does have a mix effect. But I think you'll see it more as we run through next year rather than you'll have seen it in the last quarter because even though the weather has been mild over the winter, if people often don't schedule to start these larger projects until the spring because when they first schedule them, they can't guarantee that it's going to have been mild this winter. Okay, great. And then just lastly, kind of on the yields. So with that same store yield growth of 1%, I know the mix is changing a lot, but can you talk to any regional differences within areas of your map which are dark green? Are you finding it easier to get wage increases through in rates and that kind of stuff? And it's more important in the other areas or? I mean, it's not necessarily so much around where we are dark green or light green, but it depends on what is happening in that state's economy or has indeed happening. So where are we getting the best rate increases? California, Florida, areas up the Atlantic Coast. Where is it going to be tough? Texas, haven't got much in the decoders, but I'm pretty sure if we did have much in the decoders, again, it's less than 1% of our business, but I guess it's going to be tough in Canada, too. So I think you're all going to see product variations and regional variations. And I think when you compare our results with some of peers, that relative focus, both from a geographic and a sector perspective, does come through in our relative performance. Yes, definitely. Thanks so much, Geoff. Our next question comes from the line of Steve Wolf from Numis Securities. Please go ahead, sir. Your line is Morning, all. Just 2 from my side. Firstly, just your thoughts on acquisitions next year with a slightly lower sort of CapEx guidance and prudence. And then secondly, just to go back to Canada there, just your thoughts on where you are in number of stores and the potential sort of the greenfield openings via acquisitions next year? Yes. Sure. In terms of acquisitions, look, we remain committed to use the corny phrase, turning the map green and getting to our optimum number of locations around 900. And we see the benefit in greenfields and bolt ons. I think as I said at the half year, we have a bit of a dilemma at the moment around bolt ons whilst we've got a reasonable pipeline. And you can see we did a few tiny ones in the quarter. But if you're a small or midsize rental company right now, life's never been much better than this. And your outlook for the next 2 to 3 years looks fantastic. I know there was a bunch of hedge funds trying to find out alternative news at both ARA and the Ritchie Bros. Sales in February. But the message you all came around with is the small and midsize guys feel absolutely great about life. And that was very much the feedback for the show. As a consequence, their expectations have risen as our rating has fallen because they don't understand what all the fuss is about, quite frankly. So we are struggling in some respects at the moment in terms of relative expectations in terms of price versus what we trade at ourselves. Now that won't stop us doing some. And at the end of the day, I'm not convinced there's an awful lot of buyers out there and that realization will come through. So it's we've just hit a bit of a problem at the moment in terms of relative ratings, but we remain committed to doing it. And one of the areas, to your second question, where we would like to continue growing is Canada. Again, we recognize the challenges of that Canada is likely to have as an economy given its dependence on oil and gas and commodities generally, but we have a tiny, tiny market share there. We're probably one of the if you look at the quarter, we have double the amount of fleet on rent we had 1 year ago. Now it's 2 times nothing. It's nothing. I accept that point. But we still have opportunities. We opened Greenfields and we did a couple of bolt on acquisitions over the last 6 months in Canada, and we'll continue to do so because we have such a small market share. Frankly, it's one of the areas where things are attractive from a price perspective given the relative exchange rate between the U. S. And Canada. So you will see us gently growing in Canada. Had there not been a degree of concern around exactly where does the Canadian economy plateau, you would have probably seen us do a little bit more. But like we are doing with all of our planning at the moment, we're being cautious in trying to ensure we grow responsibly. But our commitment to it being a significant proportion of our business over time is undimmed. Perfect. That's great. Thank you. Thank you. Our next question comes from the line of Just Poddle from Berenberg. My first question, are you seeing anything on the ground over the last few months that makes you more conservative on the medium term outlook, say, than when we were at the beginning of December? No, absolutely nothing. And this is the dilemma we have had in putting together the range for next year. If I look at our seasonal uptick, and as you can see, our relative yield performance in same store, then it's been a really good quarter. If we look on the ground in terms of project starting, life looks good. So when we're taking a slightly more cautious view, our profit center managers and sales force think we're nuts. However, you can't if we could Brendan keeps telling me if I just switched off the TV and switched off the radio, I would be more optimistic. However, you can't ignore general economic sentiment. So if you look at our growth year. If the market continues to be as strong as we currently see it, down to a more cautious view that says, frankly, some of this economic concern also ultimately potentially just becomes self fulfilling. Goodness, look, I'm sitting thinking about my CapEx right now, not because of anything I'm seeing on the ground, just because of broader economic concerns. I'm guessing I'm not the only CEO in the world that's doing that. And as a consequence, sometimes you end up getting what you talked about. So as a consequence, that's the lower end of our growth CapEx. If I look at our February, as I said, I haven't seen the final numbers. Year on year growth is going to be around about 19%, 20% now. Suzanne was born on the leap day in February. So we know we've had an extra day this February. So if you strip that out, it's probably 17% growth. But that's hardly terrible growth given the strong growth we've had in preceding years. If I look sequentially, I mean, our yields always fall a little bit during the winter, but they have not fallen as much as they have done in the last 2 years. So on the ground, our February performance says, hey, that's how you went up with the growth CapEx number, which is greater than the number we had last year. But we don't have to make a decision on our let's put it in perspective. If we still grow 10%, we can generate a significant amount of cash and grow at the lower end of our leverage. Now for those who want to say it's the end of the world as we know it, I'm sure that range says, well, there we go. It is the end of the world as we know it. But that's not what we are seeing on the ground. Okay. That's great. And then one follow-up, if I can. Are you able to give a bit more clarity on how your fleet growth into next year will change depending on whether you spend the low end versus the top end of that range? Yes. I mean, again, if we're at the lower end, you're going to see significantly less big aerial and telehandlers. We will go to our small and mid sized through the cycle products and our end of cycle products. So the area where you would see the biggest cutback is really big area. I mean, I think it's I mean, that's the area where there is still a kind of demand, let's be absolutely clear, but it's the area where it's likely to be the most competitive on these big projects. Okay. Thanks a lot. Our next question comes from the line of Andy Murphy from Bank of America Merrill Lynch. Lynch. Two questions for me. Could you just talk a little bit about new equipment pricing? I completely buy into your arguments for perhaps sort of standing back and sort of taking a view on sort of second half CapEx because you don't necessarily have to make that decision now. I was wondering what you're seeing in terms of new equipment pricing now and whether you think that might ease further as the year unfolds? And then secondly, just on yield growth on one of your slides, you've got greenfield and bolt on growth that's slowed down to 1% 8% in the Q3. I wonder whether that's whether there's an interread into that or whether that's just some seasonal factors? Yes. No, 2 very good questions. Look, we will be paying less for our equipment in the coming year than we did last year. That is for sure. I would rather not go into details because I suspect we may have, given the scale of our spending, a competitive advantage. And I would hate to lose that and embarrass the supply base. But we are seeing good reductions in the cost, the original cost of the equipment. If you remember, when we go we were to go back all the way through to the beginning of the last upturn, we said the last downturn, sorry, we said we deliberately didn't overdo the pricing thing in 1 year because we knew that pricing through the cycle and service level was more important. Similarly, we have put together programs with most of our major suppliers, which should give us sensible cost plans for the next 2, 3 years, not to just one. So I expect us to be going into a period of fleet cost deflation. And we would rather give up some of the sexier deals in year 1 to get a steady improvement in cost over a 2 to 3 year period. Now again, some of that comes down to us. Again, during the good times, you get a bit carried away and you over spec some of the products. So some of it is to re spec the product to a more sensible rate. So our if you look if you think it in the context of our dollar utilization, we would expect the original cost proportion of that to improve over the next 2 or 3 years with a good like such a small population. It depends how you lap them. The key is to look at the relative dollar utilization, which has remained flat. I mean, the one thing I would say going forward, which I think is a good observation, Andy, is that, of course, the greenfields have a mix of fleet initially, which looks like all of our competitors. So if it becomes tougher in that product space, then that will have a small impact. But no, we normally see we've still been seeing very good progression in our greenfields and our bolt ons. Thanks. Can I just go back just follow-up on the new equipment pricing? Is any of the declines in pricing at all to do with lower commodities? Or is it more to do with your position with your suppliers that you can sort of negotiate better rates? Well, I suspect it's a combination of a lot of things. I think it is undoubtedly their input prices have been reduced. I think some of them are based outside the U. S. And therefore, there is an exchange rate component to the opportunity. Thirdly, there's a practical consideration, which is the rest of the world sucks. Therefore, they are very keen to get a bigger share of our wallet. And fourthly, if you look at the announcements even at the lower end of our range, we're probably going to spend more on fleet this year than anybody else in the world. So there is a whole host of factors together, made us right from the start fairly optimistic that you would anticipate a good price environment. Great. Thanks, Jeff. Thank you. Our next question comes from the line of Justin Jordan from Jefferies. Please go ahead. Your line is open. Thank you and good morning, Owen. Just staying on the theme of CapEx and I guess Slide 17. To be blunt, you've got a kind of blooming cash problem in the sense that you're potentially being sort of very cash generative. Are you on the numbers? 2009 people said we had a cash program. I'm struggling there's a cash opportunity perhaps, Justin. Okay. But maybe I mean, but on my numbers, you're generating potentially to €400,000,000 free cash flow in fiscal 2017. You've talked in the statement about 1.5 to 2 times net debt EBITDA. On my numbers, you'd probably be through the low end of that and some, frankly, by April 17. What is the Board's thinking on, I don't know, enhanced ordinary dividends, special dividends, buybacks or you just carry on delevering or what's the thinking at the moment on that? No, no, look, it's a good question. There was Susanna, when she did Page 8, said this is a slide you've seen many times before. What you didn't say was subtly, there a tweak to what you've always said, which is you put a 1.5 times floor in there, whereas before, we've always said below 2 times. Look, our view on capital allocation remains unchanged, which is, look, we still think we've got good growth opportunities ahead. So our priorities for cash will be same store growth, then greenfields and bolt ons. And we've always said we would pay a progressive dividend, which would be sustainable all the way through the cycle. So again, we will continue to do that and we'll make an announcement Now I see no point in deleveraging significantly below 1.5 times. If you look at the strength of our EBITDA margins and that very strong asset underpin we have, which again is there on Page 8, we will not continue to delever indefinitely, which, yes, will beg a question at a point in time, which is what do we do with all the money. It's a discussion which we have had many times as a management team and indeed as a board. But our current stance is a bit like the capital, which is, hey, let's get there first. Given the uncertainty, our view is, look, let's fund our CapEx. It may be a bit more than we've currently got planned. It may be a blessing, who knows? It will be somewhere in that range. So let's see exactly where we get to from a leverage perspective. When we get to the lower end, and we may not wait till we're all the way to the bottom. But as we get towards the lower end, let's take an assessment of what the world looks like then. But what you're right in identifying is we are going to be very, very cash generative over coming years, and that's going to provide us with a lot of options for capital allocation. Thank you. The next question comes from the line of David Phillips from Redburn Partners. Please go ahead. Your line is open. Hi, good morning, everyone. Can you just ask, when you enter the next financial year, so first of May, what do you envisage in terms of fleet on rent year on year growth that you'll be standing at that point in position? Good, it's great. But you want to take one number for 2 or 4 Percentage, percentage. Is it going to be my numbers is high teens anyway? Look, it will certainly be mid to high teens precisely I don't know. Look, Q3 was a really tough comp. Remember, the prior year we grew 29%. I kind of tried to guide you with the February number. So Q4 growth will be better than Q3. So you have the dynamics of we are always lapping ever tougher comps, but B, we think the market is strong. So look, certainly, and as I said in my script, our Q4 landings and our Q1 landings will look almost exactly the same as they did last year. So this is let me just be clear, our conservatism in giving the range in our CapEx reflects the optionality we have for what we think 2017 2018 might look like. It is no reflection of how we see calendar 2016 panning out. So look, you're going to be there or thereabouts, Dave, give or take a percent or 2%. It's like same like this year, I probably expected our numbers to be a percent or so better in Q3. Why were they not? Because it was warm and I got no heating revenue whatsoever. And last year, it was cold. So there are nuances which make a difference of 1% or 2%, but do not change the overall direction of travel, which will be around the way you said. Yes. So just taking that stage further, the sort of soft guidance for 10%, 11% volume growth next year, given the Q1 landings you just referred to, actually feels like quite a conservative place. Well, again, we've given a range because we've basically modeled the doomsday scenario that we have to slam on the brakes in Q3, Q4 versus we do what we normally do. The honest answer is, it's probably somewhere between the 2, but we just don't know right now. As I said, if Brendan says, I switched off the TV and switched off the radio and just looked at our stats, you may well be right. But let's get because we are ordering equipment on short lead times in small increments, let's take that decision somewhere in Q2 when we need to take You have the flexibility to do that and take the decision later, so why wouldn't? That's the more conservative to take. Yes, understood. And just a final one for me. On Texas, as you have this big estate and this sort of bellwether of what's going on oil wise. No, you say the state any longer, I think Florida is again. So what trends have you seen in Texas over the last 3 or 4 months, please? [SPEAKER CARLOS GOMES DA SILVA:] Yes. Jane, I don't think that much would change our greenfield strategy. I think our view would be that all the way through the cycle, given that we believe in the structural opportunities of turning the map green, then why would we not keep opening greenfields? Now what we might do during the downturn, which I think will provide us with a big opportunity, is rather than buy new fleet for those greenfields, we might transfer newer fleet from other locations and stock the greenfields with that fleet. So I would say we might drop to 50 or something, but I would have said you should anticipate the store openings to continue through the cycle. In terms of our same store growth, we would look at our physical utilization. We would look at our yield evolution. And externally, you know our view on Stoltz, which served us very well in our through the cycle planning last time around. So look, we would look at physical utilization more than anything else. And from a macro perspective, we would continue to look at starts and general GDP growth. Remember, half of our business now is not construction. And so if I look at things like the entertainment sector, accommodation, festivals, sporting events, I mean, there are more people have jobs in America than even 1 month ago. And with oil prices, they've got more money in their pocket. So that part of our business is very, very strong. But if you look at, say, physical utilization on earthmoving equipment today versus where that was a year ago? Because presumably, if we're digging holes today, we're going to be sort of finishing off buildings a couple of years from now. How do you sort of track it in that much detail to make it more CapEx planning? No, no, no. Look, we look when we do our fleet planning, we do it by individual assets, not even individual categories. So there will be times where we will see a particular asset category with very high physical utilization or we'll see it with very low physical utilization. You also see trends in the product people like. So we are constantly rebalancing our fleet. And we do that almost on a week to week basis. So yes, look, it's so for example, our physical utilization in the quarter was flat. If you look at the detail we've given you on sort of Page 12, then bearing in mind how low oil and gas was, bearing in mind that our heating utilization, our general tool physical utilization was up. And then we look at individual categories within that, it was very strong too, and hence, our strong Q4 landings. Now are we going to be buying any heaters? Anytime soon, we'll open some more locations in Canada, and it's colder in Canada, there's an America, and we'll ship them up to Canada for next year. So yes, our fleet planning takes place almost every week and it is down to individual asset numbers. So we will the mix will change depending on the demand we see. Thank you. Thank you. Our next question comes from the line of Andrew Fornell from Morgan Stanley. Please go ahead. Your line is open. Hi, good morning guys. Can you just talk about the fact that you've said it's mid cycle and nonresidential and the fact that you're going to be doing more national accounts? Does this mean that you'll be of sales that you would take national accounts to, does it imply that you'd increase that? Yes. Look, there's no getting away from the fact that the wheelhouse of both United and Hertz is big aerial, big projects. There's no getting away. But that was true in the last cycle. It was it will be true in this cycle, and it will be true the cycle thereafter. We don't have the chart in this presentation, but you've seen it in others, where our national account business has been growing. Look, I think it will tweak up a little bit. I think that's just a function of where we are in the cycle. If you look through the cycle, as we've I think we talked about this quite a lot at the half year, our commitment remains to those small and midsize contracts. But it's just the fact that the benefit of our small and midsize contractors and our non construction work is it is slower, steadier growth. There is an inevitability that the proportions of the work will vary at different stages in the cycle. So yes, it is likely to tweak up a little bit mid cycle and then it will tweak back down again. So it's not a permanent shift in terms of our strategy as a business. It's just the natural consequence of where we are in the cycle. Mean, if you look in this quarter, it was at least about 1.7 times. If you look on Slide mean if you look in this quarter, it was about 1.7 times if you look on Slide 10. And if you look at the same quarter in 2015, it was about 2.5 times. Is this a reflection of increased competition in the industry? I think it's like we're forever lapping tougher comps. I don't think we've ever said we were going to continue to grow 2 or 3 times the pace of the market, particularly, as I said, at the stage in the cycle where the type of work is better suited to some of our peers. So look, we think the rental industry will grow 5% or 6%, give or take. Next year, we think we will grow at around about just less than double than that, which we think is a sensible growth ambition, particularly when you marry it with deleveraging and cash generation. Okay. That's great. Thanks. Our next question comes from the line of George Gregory from Exane BNP Paribas. Please go ahead. Your line is open. Good morning, Jeff, Susan. Hi, George. Just one for me. Jeff, you mentioned that conditions for small and midsize rental companies are still pretty good. I guess the concern is that the small and mid sized rental companies are still able and willing to add capacity to the market, thereby having a sort of detrimental impact on returns, notwithstanding good volume conditions. What are your thoughts on that dynamic? Because clearly, that is the sort of that is the counter to the argument of conditions still being good for your smaller peers. Yes. No, I think that's probably a fair point. I think, as I said, undoubtedly, there was good purchasing activity at ARA. It was largely from the small and midsized guys and ourselves, as you know, 1 or 2 of our larger players have significantly cut their CapEx. So I mean, I think you've got to get it in the perspective in terms of how much do we really think the industry fleet is going to grow. And I'm not sure it's as much as the market is growing still because remember, our small and midsize peers have not kept us up to date in their replacement expenditure as we have. And therefore, they have a significant degree of replacement expenditure. I think that's the first thing. Having said that, it would be naive to say that there isn't going to be a bit more fleet around and there isn't going to be a bit more competition. However, there is a remember, again, the chart we showed at the half year, the share of the pie that those small guys now have has reduced significantly relative to previous cycles. And I think given their scale and their offering and the level of sophistication of people like ourselves, United and Hertz. There is an awful lot of the business, which I really don't think they can go after any longer. So around the very, very small contractors, then I would expect there to be a bit more competition, but not as much as the overall improvement in the market. We certainly expect our returns to improve again. Next year, we have had specific headwinds of the quantity of greenfields and oil and gas, which has kept our EBITDA margins down to around 47%. We fully expect them start heading back to 50% again. So look, of course, it will be a factor, but I don't think it's such a big factor that it really is going to cause significant problems. But yes, look, this stage in the cycle, there's no question about it. Everybody starts spending more, probably with the exception of our customers. Because I think the counter to all of that would be, this is probably the stage in the cycle where typically our customers would start to spend more again, normally on replacement initially as they caught up with their very old free days. Look, in the same way as I'm contemplating capital spend right now, what's the likelihood of any of our customers now deciding to spend a lot on fleet given the general uncertainty in the market. Certainly, that's what we're seeing now is there is no appetite from our customer base to spend on fleet. And that's being translated through into the demand to our supply base. So yes, I think it'll be a bit of a factor. George, I accept that point fully, but I'm not sure it's a huge one. Thanks very much. Our next question comes from the line of Carl Green from Credit Suisse. Please go ahead. Your line is open. Thank you very much. Just one question from me. Just going back to the enactment of the clarification around bonus depreciation. Can you give a clearer picture of how you expect that to drive your cash tax rate over the next couple of years, please? Sure. Prior to the enactment of bonus depreciation, we were guiding toward a cash tax rate for 2016 of sort of low to mid teens. We now expect that to be around 4%. So that will enhance our free cash flow for this year. For 20 17 for fiscal 2017, again, we would expect the cash tax rate to be sort of low teens again, maybe 11%, 12%. We still get the benefit of bonus because that's been enacted for a number of years now, but we also because of our level of profitability in the States, are steadily using up some of our net operating loss carry forward. So still overall positive to the cash picture relative to the last time we spoke to you. That's really helpful. Can I just clarify on that? So what's the outstanding balance of NOLs at the moment? Can you indicate that? Yes. As I recollect, it's about $400,000,000 $450,000,000 in the U. S. As a shield, but I will check that and come back to you, Carl. That's great. Thank you very much. Yes. And we have a question from Rajesh Kumar from HSBC. Earlier, you referred to the point that you think you are in the mid cycle part of the cycle. So what are you seeing in your business I I think why do we think we're mid cycle is really partly our ability to put significantly more feet on rent at reasonable yields. And we look at the activity levels on the ground and we look all of the key indicators around residential starts, non residential starts, all of which are forecasting 2 to 3 years of continued good moderating growth. So I think there is a very broad range of both internal and external factors, which would support the view that we have 2 or 3 years of growth in terms of the activity ahead of us. So I personally think all of our internal indicators and all the external indicators point to that. Our next question comes from the line of Hector Forsyth from Stifel. Please go ahead. Your line is open. Hi. Good morning, everyone. Just on National Accounts, flicking through what you've been saying is that you've clearly have an opportunity to grow market share. You give the impression that you will pick and choose how you go forward. The imprints that you offer is a slight contrast to your competitors who give the impression of a bit more of a cautious market. Can you just annotate how you think you've got a competitive advantage, how you can pick your way through that? Is it price? Or how is it that you're gaining or having the opportunity to win some of these accounts? Yeah, I mean, 1st and foremost, I mean, look, I think we all know that we have one competitor whose performance we get, I said earlier, we see no immediate concerns on the horizon around the market. That would be with the exception of one of our competitors' results announcements, which is usually one of our darker days. But the reality is some of our competitors have larger competitors have very different exposures to ours. We do not have significant exposure to Canada. We do not have significant exposure to oil and gas. So I have no doubt that in the markets in which we jointly operate, and I think they've said that, they are seeing good growth. If I look at the market overall, then the market still last year will have grown around about 7%. That's not that is a very good market. I think as we said many times in the past, we think we have a broader product and customer range than many of our larger peers, and we have scale advantage over those who have similar product and customer range. So I think we found ourselves through recent years in a very unique space in terms of scale and product offering, and we would expect that to continue. Look, the 2 structural trends that we've talked about many, many times, I think are only enhanced by the uncertainty we see right now. Rental penetration will undoubtedly continue to increase. And the scale advantages we have through both spend capacity, but also sophistication around IT, etcetera, are only getting greater. And because the consequence of increased rental penetration is that our customers are becoming more demanding of us. And therefore, look, one day, I've said many times, I wish we'd had a bigger oil and gas exposure. It's dumb luck that we don't have the exposure that some of our peers have got. We want to get big in Canada one day and there will come a point in time when Canada is a great market at the moment. So the specific issues 1 or 2 of our peers have happened to be just an unfortunate consequence of their current focus. But we believe in our model Hector. We believe in small to midsize contractors and a very broad product offering. We have the added advantage that we are not fully developed in terms of our footprint. So some of our growth is coming because we're expanding our footprint. If I had a fully mature depot footprint, then I wouldn't have that opportunity available to us. But I still got many I've got multiple years ahead of being able to roll out that strategy. So look, I think I don't think that necessarily all view of different parts of the market is very, very, very different, just we do have slightly different exposures currently. Just as a final on that, are you finding that you're winning a proportionate share when you're going toe to toe with United Rentals or Hertz? I have no idea. How could I know? My general view would be not. I think it's I mean, clearly, if you look at our growth in our national account business, who did national account business, so I think that's probably true. But generally speaking, say, when we open up a greenfield, I think we take it from a broad range of customers. Look, the problem is, if you're sitting there right now and you do not have Sunbelt in your locality as a competitor, then that's the best probably take share from a little bit of share from just about everybody. And we will probably take share from a little bit of share from just about everybody. So that is a headwind some of our competitors face that we do not face. But I no, I don't we aren't specifically targeted. The United and Hertz are very good sophisticated businesses with great IT, great product offering and very good people. If you aren't going to rent from me, rent from United Hertz because the level of quality and service you will get is from all of the big players is so materially different than you get from the small local guys. Like I think people have to recognize and have failed to recognize just how different their geographical and sector exposure is. And that's more than anything else. I'm sure in the same markets with the same products we're performing not that dissimilarly. And our next one comes comes from the line of Martin Miller from OBP. I have a question on Page 12, the presentation, the yield overview. And I don't think you understand how in 99% of your in the Q3, 99% of your business, you had positive net yield development. But in the total that you're giving had a slight negative of minus, minus 1%. So maybe next question to that a bit of a yield outlook would be useful. Thanks. Yes. Look, I'm glad you asked that question because I asked the very, very same question and I just thought I was being stupid. I got Suzanne opposite with me and back in the office I have Michael Pratt who has shown me various mathematical calculations how this works. And the point is when you're looking at year on year movement, you have to remember that it was oil and gas was not 1% of our business 1 year ago, it was 6%. And so what you've got is 6% of our business has halved its dollar utilization as a year on year effect. The mathematicians in our business have convinced me that that maths makes sense, but I asked exactly the same question when I first saw the slide. But I'm sure if you contact Suzanne and Mike, we will take you through the same mathematical calculation that they showed me, which proves that it works. Yes. If you'd like to go through that later on or tomorrow, you can feel free to call us. You made me feel a whole lot better because they looked at me as if I was stupid when I asked the question. That's right. And in terms of yield outlook, you said earlier, you would expect fairly flat for the overall business. Yes, that's correct. And our next question comes from the line of Joe O'Dea from Pareto Research Partners. Hi, good morning. Related to that last question and on the flattish outlook for yield, I think Jeff in the past you've commented that there's the Tier IV inflation cost as you find small and midsized competitors buying a little bit more. They should feel that more as they go through the replacement cycle. And so just with the flattish outlook on yield, any degree to which you can talk to the components of that a little bit more? Obviously, there's some mix effect, but just why we may not see a little bit stronger rate as you anniversary the tough oil comps and as you get some more of the Tier 4 inflation lift? Yeah, no, I think it's a fair question. And if you were to look at like basic, if you look at some of the dynamics that are going on in pricing, what we'll see is I think we will have regions where we get very good rate improvements and we will have product groups where we get very good rate improvement. But I think as you rightly say, from a product mix and a geographical mix, there's going to be a lot of moving parts, where it's going to be hard to differentiate how much is the economic impact in that geography and how much is down to Tier 4. There is no doubt that we have the highest proportion of Tier 4 assets in our fleet. And as people add Tier 4, they will have to push a bridge. It's also why, as I said, rental penetration will continue to improve. I mean, here we are people are debating whether at the mid cycle or whether we're indicating the end of the cycle and we're at 58 percent utilization where last time we're at 65%. So if you look at the gap between the cost of rental and the cost of ownership now, it's really wide. It's far wider than it ought to be at this stage in the cycle. So I expect that gap to close, And I think that will be a component, but there's no getting away from the fact that there are going to be certain job types, certain sectors, as we talked about, like big area and certain geographies like Texas, which will be a little bit tougher. But I don't know that we're absolutely precise in coming together with flat yield. It may be a little bit better than that, but it seems a reasonable proposition as we sit here right now. Okay. Thank you. I think we've got time for one more question, if that's okay operator. I'm sorry to have the quick show, but there's been quite a few. Okay. There are no further questions in the queue. In that case, operator, if there's no more questions, I'd like to thank everybody for their attention. And we will look forward to catching up with you individually or at our Q4 results presentation. Thanks a lot. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.