Earnings Call: Q1 2016

Sep 2, 2015

Hello, and welcome to today's Ashtead Group First Quarter Results Call. Throughout this call, all participants will be in listen only mode. Today, I am pleased to present Jeff Drebbel, Chief Executive and Suzanne Wood, Finance Director. Jeff, please begin. Thank you, Hugh. Good morning, and welcome to Ashtead's Q1 conference call. This morning, Suzanne is dialed in from the U. S. So thanks for the early start, Suzanne. And with me here in London is Michael Pratt in case we encounter any technical difficulties just as we get to a tough financial question. As you know, Q1 and Q3 are typically our shorter calls and this will again be the case as I'm sure you're eager to get to Q and A, particularly after the interesting summer that we've had. I have, however, added 2 or 3 additional slides to look at some of our key metrics in greater granularity. This is very much on the back of questions we received at the year end about the evolution of our greenfield and bolt on strategy and aims to give a better understanding of not just the initial impact of these locations, but also the strong contribution they will bring to future revenue and margin growth. These slides have also allowed us to break out energy markets in more detail, which is certainly helpful. So with that, let's look at the key highlights of the quarter on Page 2 before passing to Suzanne for the financial detail. Our Q1 has been a strong one as we anticipated. Sunbelt's rental revenue grew 23%. Profitability was strong and despite significant investment in growth, we delivered to 1.8 times EBITDA. Our model has allowed us to gain significant market share over a sustained period and our strategy of diversification is clearly working and we benefit from strong end markets despite the headwinds from our very small exposure to energy sectors. What was particularly encouraging was the seasonal progression in our construction markets. This was evidenced by record levels of physical utilization by the end of July, which I will cover in a moment. And these strong trends continued into August and therefore our outlook for the balance of the year was good. With strong fleet growth in 19 Greenfield locations in the U. S, we are very much on track in terms of our plans for both same store growth and further diversification. Longer term, our strategy of organic growth supplemented by greenfields and bolt ons remains unchanged as we continue to see both structural and cyclical opportunity ahead. And so with that, I hand over to Suzanne. Thanks, Dan. Good morning. The group's financial results are shown on slide 4. For the Q1, we reported an underlying pre tax profit of £161,000,000 compared to £120,000,000 for the same period last year. This represented an increase of 23% at constant exchange rates. Consistent with past quarters, the principal driver of our profitability was top line growth. At constant exchange rates, our rental revenue increased 20%, reflecting good performance at both Sunbelt and A Plant. Jeff will comment on this further and provide some color on the strength of our end markets in a few minutes. Further down the page, you'll note that interest expense rose from last year's level due to both an increase in average borrowings and a greater proportion of longer term fixed rate debt. For the quarter, the group's EBITDA margin was 46% and its operating profit margin was 29%, reflecting both the growth in rental revenue and our continued focus on operational efficiency. The headline numbers for Sunbelt are shown on Slide 5. Our total revenue increased by 29% as compared to Q1 last year. This reflected improved rental revenue, up 23% year over year and an increased level of used equipment sales to both catch up on previously deferred disposals and in response to softness in the oil and gas market. Despite opening 19 new greenfield stores in the quarter and the lower margins associated with fleet disposals, unbilled EBITDA margin remained a strong forty 8%. Excluding the effective used equipment sales, EBITDA margin improved slightly year over year. On Slide 6, we've summarized A Plant's comparative numbers for Q1. Our rental revenue increased by 7% in the U. K. And helped to generate an improved EBITDA margin of 38% and an operating profit margin of 19%. Turning over to slide 7. Our leverage discipline and the structure of our balance sheet remain important given our growth profile. We've continued to improve our position even as we took advantage of market opportunities. At July 31, the absolute level of our debt increased, but our leverage ratio declined to 1.8 times on the strength of our EBITDA. Looking forward, our stated objective remains the maintenance of leverage below 2 times in order to strike the right balance between financial stability and investment in growth. On slide 8, we've provided some additional color on our robust debt structure. In July, we took advantage of good debt markets to increase the size of our ABL Senior Bank facility to 2 point $6,000,000,000 The facility's maturity was extended to July 2020 and the pricing grid was reduced. This change further enhances our financial position and our ability to take advantage of end market conditions. That concludes my comments. And so I'll hand back over to Jeff. Great. Thanks, Suzanne. So let's look at Sunbelt in a bit more detail on Page 10. Breaking down our rental revenue growth between same store, bolt ons and greenfields, we continue to see very similar blend to recent quarters. The market is good with growth of around 7%, but we continue to grow at a faster pace in the overall market as we capitalize on the structural opportunities available to us. Greenfields and bolt ons added a further 10%, So we again have a good mix of both cyclical and structural growth. Turning to Page 11. Then you can see that the driver of revenue growth is volume with yield flat. As I said earlier, I will get more granular on this in a moment. But what I would highlight on this page is the strong seasonal pickup in demand through the quarter as reflected in physical utilization. So much so that by the end of July on a fleet that is 26% larger, we have a physical utilization 2% higher than last year and at record levels. But clearly this is very encouraging and we are exiting the quarter in a much better environment than we entered it which bodes well for the balance of the year. Turning to Page 12. Look, we believe our model is a differentiator and explains why our performance is apparently at odds with some of our peers. Just to recap, why is our model different? And we've got a broader mix of markets and products than some of our larger peers and we are more transactional in nature with 70% of our demand being for immediate or following day delivery. Once this is very different to our larger peers, it is far less different to the broader market. Let's not forget that the market is growing at around 7%. And like ourselves, many others are clearly performing much better than that. Our outperformance is not a new phenomenon. We have doubled our market share in only 5 years. And certainly United buying RSC was one of the biggest changes in our market in recent years. And since that event, our compound annual growth has been 23%, more than double our 2 largest peers. So clearly, we've consistently been doing something different. If we turn to Page 13, it's worth highlighting how strong our largest single market that's construction is. Across a wide range of sectors, we are seeing steady growth, which is forecast to continue for multiple years. This certainly correlates with our own experiences on the ground where conditions are very robust. Of course, we are seeing some headwinds from oil and gas, but equally we are beginning to see pickup in institutional expenditure and other sectors, which is a positive trend for 2016 and beyond. The only market which went out of control was energy. And whilst this correction is causing some short term pain, I believe it's good news for steady longer term sustainable growth. Turning to Page 14. Look, I think there is an acceptance that construction is strong, but there seems to be a concern that there is some energy induced oversupply which is impacting the market. Well, frankly, that's just not right. Of course there is some short term effects, but this is limited to a handful of players, a small Quantum and Ranger fleet and its impact on the broader market has been much overplayed. Firstly, just to reemphasize that for Q1, twenty sixteen, energy represented only 3% of our revenue. Look, we did have strong growth in 2015, as you can see on the slide, but it was on a very small base and therefore represented a very small proportion of our total growth. Importantly, we've always had a very balanced approach to our growth and remained focused on our core markets. Therefore, our general business growth has remained strong at 25 percent the same in both years, which is a testament both to our markets and our team. Also the fleet off rents in the energy sector is very small. From our peak, our fleet on rent in oil and gas is now down about $50,000,000 which in the context of a $5,000,000,000 fleet size is really nothing. Also I think people have forgotten that the vast majority of rental companies had little or no exposure to oil and gas. So turning to Page 15 and let's look at the reality of how many products have been affected by the downturn in energy to again try and bring some context to all of this. 70% of our fleet on rents in oil and gas was in just 6 products. So all of our other products have been largely unaffected. Most general rental companies will have had a similar concentration. So only $50,000,000 of fleet off rent and only 6 products. As a consequence, the impact of our non energy on our non energy business has been minimal. So if I just take those 6 products today in our general business, we have 77% utilization, up 3% on last year on a fleet 23% larger. Rates have been flat year on year, so there is an underperformance relative to our broader rate growth, but very manageable and it's going to correct itself over time. Look, I've got granular here to prove the point. But I do believe some have just got bogged down in minute metrics that are more complex and contradictory than they realize. So let's just step back for a second and see if we can take a picture. We have a total fleet size that is 26% larger. We are at record levels of utilization and we've had good progression in rates in 97% of our business as the oversupply. Page 16 just highlights what good progress we've made across the business. Let's start with same excluding oil and gas. And this is where as I said, I'd like to get a little more granular. Look, same store is 89% of all revenue. And you can see that the fleet on rent is growing at about 2 times the pace of the market at 13%. Yields are positive 1%. Rate was better than that, but was impacted by mix as we disproportionately grow our key accounts. But physical utilization in this part of our business is at 74% as good as it gets and drop through remains very healthy 58% ensuring good progression in EBITDA margins. Frankly, this just shows how healthy a position we are in and how strong our broader well established locations are. Greenfields and bolt ons represent 8% of our total revenue in the quarter. Without getting into every line at this point, I think the key takeaway is that we see very good improvement in our metrics over the 1st year. However, in terms of yield utilization and force field, they all as anticipated initially in drag. Of course, as we increase the activity levels, the impact becomes even greater. And then finally to oil and gas, just 3% of our business. I think it may surprise everyone to note that in Q1 our volume was up 25 percent year on year. Less surprisingly, our yield was down 30%. But we were really growing through the second half of calendar twenty fourteen, so that positive volume will turn negative for Q2 and Q3 even though we are now in far more stable conditions. Of course, despite being a small proportion of our business, it is having some impact on our metrics and we'll do so for the next two quarters. However, it's limited impact and will have washed through before the year end. So hopefully now we can be put into context relative to the other 97% of our business which across all metrics is progressing as we would expect in such strong markets. We'll rest along to the year end about the evolution of greenfields and bolt ons which we've now tried to cover. Page 17 details the progression of each year's greenfields. So the 17 locations we opened in financial year 13 have a 3 year history and so on. So as you can see the financial year 13 greenfields have already grown their fleet to 72%, improved their margins from 42% to 54% and improved their ROI from 6% to 20%. In short, they have started to have metrics in line with our mature locations by year 3. There's a lot of information there that you'll want to digest and consider. However, what is important is how quickly we develop and grow these new greenfield locations. We believe that greenfields represent very responsible growth. Our investment is in fleet, not goodwill, and we're able to be very specific in our locations and not pay for duplication. Our program started slowly and was only ramped up once there was clear evidence of success. Again, we believe that we have got the balance right between short term delivery of results and longer term strategic investment in growth. Page 18 is the same analysis for bolt ons and shows a very similar profile in terms of year on year improvement. We are delivering good returns on investments, have diversified our business and have benefited from not taking one big bet on a single sector. Again, we think this demonstrates very responsible growth. So these improvement trends in greenfields and bolt ons together with the 58% EBITDA fall through of our same store growth is why we believe margins and ROI will continue to progress and why we remain as optimistic as ever about our medium term. Moving on to Air Plants on Page 19. And there are a number of somewhat contradictory data points on this page, which rather sums up how we see the UK market at the moment. Fleet on rent is up 10% which is good and reflects generally strong markets, particularly in non residential and residential construction. Having said that, our lower than expected physical utilization reflects that all markets are perhaps not quite as good as we expected. As you will have seen from the recent results from some of our larger customers, there was a lot of disruption from the election around regulated and subsidized industries. Our experiences and sense is that this is coming back and that is why we have not taken further corrective action on the utilization. Obviously, as we go through Q2, if this proves not to be the case, there are an awful lot of levers that we can pull. A comment on yields. The main reason for the 0 yield is the tough comparator last year. If you look back, you will see it was +8%, which we said at the time was a one off and was down to 1 or 2 special projects. So we will trend positive again through the year once this impact has flowed through. Turning to Page 20, I think the key takeaway here is that not only are we growing, but we are growing very profitably. A Plant's drop through of revenue growth to EBITDA was a very healthy 59% and consequently margins have improved as will ROI when we normalize utilization. So again, we look forward to A Plant being a good contributor to group profit growth for the full year. So to summarize, it's been another very good quarter where we benefited from our strong diversified markets and taken significant market share. We believe that the outlook remains robust and the headwinds from energy markets have been overstated. Our strategy remains unchanged and we are well on track to achieve our plan of growing our fleet by mid to high teens percent and diversifying our business through green fields and bolt ons. The ramp up of our green field and bolt on activity has impacted some metrics short term, but I hope we have demonstrated with the new detail provided that it improved quickly and will be a significant contributor to margin growth as our program matures. And once again, we think that we've hit an appropriate balance of delivering strong returns coupled with longer term strategic investments. And of course, as always, we will continue to grow responsibly, maintaining leverage within our stated objectives. So with both divisions performing well, strong end markets and our strategy clearly working, we expect full year results to be in line with expectations and the Board looks forward to the medium term with confidence. And with that, I'll hand over to Hugh for Q and A. Thank The first question is from Chris Gellert at JPMorgan. Please go ahead. Your line is open. Good morning. A couple of questions for me, if that's okay. The first on the liquidation value of your equipment, the Rauschwan report point yesterday and there are some sequential declines. Can you maybe talk about what you're seeing in the auctions? And second question around the same store net yield. At certain sites plus 1%. I think when we spoke last time it was a little bit higher than that. So how has that trended? Thank you. Yes, sure. Yes, secondhand equipment prices, again, you've got to be careful here because a lot of people have been doing all sorts of correlations on secondhand equipment values without really understanding the data points. You're right, Rouss came out with a report a couple of days ago and said that auction values are a little bit lower and that's true. Sort of sales to non auction sales in the U. S. Have held up very well. Auction sales are a little bit weaker mainly because of exchange rates. What you're going to understand is auctions typically around 50% of the business goes overseas, usually to developing markets. And depending on what basket of exchange rates you look at, the adverse impact is between 10% 40% in terms of exchange rates. So they're a little bit weaker, but we're still making very good margins. And if you look at the overall OLV statistics, we're still pretty much at we're just off record level. So you'll see we made good margins similar to previous years on our asset disposals. So the whole secondhand equipment market remains very strong. I would expect it to do so, but people do have to factor in things like exchange rates. Our yield is there's not an awful lot in it to be perfectly honest. If I go to rates which I we typically don't quote because it's a very difficult thing to measure. Year rates have been around about the positive 3% mark give or take. We've got headwinds from mix in terms of products and customers, which have brought it to around about 1%. So again, we haven't seen an awful lot of movement 1 quarter on the other. To be honest with you, it's small movements around the roundings. And clearly, there was a little bit of weakness early part of the quarter back end of quarter 4 when we had the wet spring, but rate environment will improve as physical utilization improves. It always does. Okay. Thank you. Next question is over the line of Rory McKenzie at UBS. Please go ahead. Your line is open. Yeah. Good morning. It's Rory here. Firstly, a question on the structural share gains. You mentioned the interesting summer that you've seen in the industry. So can you talk about the current competitive behavior as you see it? And then secondly drilling down into the greenfields, can you say whether the openings you're targeting this year are infill or stretching to new areas? And how that kind of mix of greenfields has changed over the past couple of years please? Yes. Well, I think what I meant by interesting markets was interesting financial markets. There's been a lot more interesting things going on in financial markets. From our perspective in terms of our business, where our physical utilization picked up and demand picked up and it progressed seasonally exactly as we would have anticipated it to do. Look, yes, we are gaining market share. We're growing at about twice the pace in our same stores than the market generally, which is a trend that we have continued now for some years. And my view on this, which is given the advantages, the scale advantages, the larger players will have, the larger players will trend to get bigger. More recently, some of our larger peers who have a greater exposure to oil and gas have performed below the pace of the overall market. And as a consequence, there's many other smaller businesses growing much faster than the average. Look, it's down to sector exposure. I think it's a real danger that people look at 1 or 2 of our larger peers. Unfortunately, the only 1 or 2 any of you tend to know and think they represent the market. And I don't think that's true at all. I think as I said, if you look at our businesses as an example, as we try to show you that, we have 6 products really on rent to oil and gas. We have 20 locations out of 520 that were focused on oil and gas. And if you really stretch it and look at anybody who invoiced oil and gas, we probably had 40. So less than 10% of our locations had anything to do with oil and gas. And I think that's probably how it is for the broader industry too. There's a couple of players with very large exposures to oil and gas and unfortunately people are reading that as being the industry. And as the 7% growth in the overall market shows, that's just not right. So I think we've seen a very normal summer as you would expect from a very strong construction market. In terms of our greenfields, yes, you're right that we picked up the pace a little bit. We said we were going to the Q4. The 19 locations, it's a combination of the 2. Some are infills into areas where we already exist and some are stretching into very new geographies. Now of course, as we go through time, the number of new geographies where we've had little or no presence starts to reduce. So increasingly, they become more infill. But then so Rory as always it's a combination of the 2. But as you can see from the charts, the progression in margin and ROI in the greenfields and the pace at which they grow is very, very encouraging. And hence why we've ramped up that activity level. So we opened 19 in the Q1. From recollection, we've already signed another 29 leases for the balance of the year. And I'm guessing we'll open about 19 of those 19 to 20 of those in the Q2 too. So we would anticipate maintaining that growth. We've got 520 locations. I'd like to get to around 800 sometime in the foreseeable future. And it will continue to be a mixture of general tool and specialty and it will be across a broad geography. Great. Thanks. I'm glad that Mark is providing some interest for you. Cheers. There's been a couple of days when I spluttered on my rules here looking at financial markets over the course of the summer, but it has interesting, it's probably a good word for me. Okay. The next question is from Justin Jordan at Jefferies. Please go ahead with your question. Your line is now open. Thanks. Good morning, everyone. I've just got actually 2 separate questions. Firstly, this may seem very anal, but I just want to reconfirm what exactly you mean by reaffirming guidance. Because going back to what you said in June 16, you were talking specifically for some of the about CapEx of €1,200,000,000 to €1,300,000,000 growth and nonmetals, so CapEx of €100,000,000 and 50 greenfields and selective both on M and A focus on specialty. Is every single line of that being reaffirmed today? Yes. Look in terms of the fleet growth, you can see that we have had good fleet growth in the Q1 where record levels of physical utilization. August was almost exactly the same as Q1. We haven't dotted I's and crossed T's on the final number for August, but it will be the same as Q1. Our experience on the ground is there is still very strong activity levels and there's a degree of catch up. People still have not caught up from the week May. Therefore, certainly guidance in terms of CapEx remains unchanged. We will upgrade that again at the half year, but basically update that in the half year as we typically do, but the conditions are strong. As I said, we've opened 19 greenfields and we've signed another 29 leases already. So that gets you to 48. So the 50 is looking pretty good. We haven't done as much bolt on activity. We said we wouldn't. We did 1 in Q1. We've just done a tiny one just since the end of Q1, which I think you'll find in the press release. We'll probably see a bit more bolt on activity. So greenfields and bolt ons are going to be in line. Was it a little bit of CapEx greenfields and bolt ons? So yes, every element part of that I know given the noise in the marketplace, people were expecting something else. We're back on track. Everything has played out exactly as we would have anticipated it to do. Just one quick follow on. Obviously, you've been probably more clinical than people might have expected in terms of fleet disposals in Q1 reflecting catch up and also energy softness. Have you or do you provide any guidance on fleet disposals for fiscal 2016 overall? No. I mean, look I think you're right. I mean, if you look at the increase in it, we adjusted off as a consequence of the downgrade predominantly in oil and gas. And if you look at how much extra disposals they are, you'll find it's very similar to the amount of oil and gas fleet that has come off. And I think this is important. If you look at the numbers, what this clearly demonstrates is our ability to pull levers very, very quickly and very precisely around locations and products if the need arises. Now remember, we've still grown our fleet 26%. So what we've been able to do is allocate growth correctly and appropriate to areas that needed it and we've been able to readjust very swiftly to precise locations and precise product types where perhaps we were overfleated. And it's something we do every single day. And I hope that after all of the wilder speculation of what might have happened because of oil and gas, seeing what actually has happened has reaffirmed the flexibility in our model to adjust as conditions change. Okay. Just one quick thing on page 17 in the presentation just the increased disclosure on specifically the greenfields going forward. So I guess ordinarily, I would think of greenfields as being probably a drag on yield and a drag on utilization just because these things don't open at some volatility utilization or yield levels. You're showing obviously a nice progression in ROI for fiscal 2013 segment and similarly so for fiscal 2014. How long does it take in your experience at Greenfield to get to let's say the 25% ROI that Cymbalt overall enjoys? Yes. Are we looking 3 years, 5 years? I mean the details there in the chart you can see that we get there in sort of like around about 3 years. I mean, again, it depends on the precise mix of the greenfields. Without being harsh, well, actually being harsh, I mean, obviously, there would be a supplement to the ROIs and margins as many of our peers after year 1 or year 2. But given that we have such strong returns and such strong margins, they are a drag for year 1 year 2. Typically around year 3 to year 4, they are at similar levels to our more mature locations. Remember within our more mature locations, we have a range too. It's felt like every single location is the same ROI. Yes. Okay. Just one final thing. I would stand out saying on page 17 is just the ROI in fiscal 2017 sorry, fiscal 2015 openings being minus 1%. Is this something we should read into that? Is that timing or is there something As you read out is that when you're dealing with lots of very small numbers and timing, it can make it can give some very odd numbers. Because actually if you go back to 2016, what you see is the growth in the fleet on rents and the growth in the yield for what is largely that same timing issue and an awful lot of stuff being done late in Q4. Okay. So your confidence in today's opening, shall we say in Q2 2016 getting to let's say 25% ROI in 3, 4 years, 5 years whenever is undiminished as it's ever been? Like I said, go to Page 16. There's predominantly what's in the greenfields growth in Q1 is those stores. The fleet on rent in those stores is up 1084%, which is a ridiculous statistic and that's because so you're just dealing with such small numbers late on in the Q4. Yield is up 32%. So physical utilization is up 33%. So you can see the massive progression already in those that were opened last year. Okay. Thank you very much. Our next question is from the line of Josh Puddle at Pareto. Please go ahead. Your line is open. Hi, good morning. Three questions from me please. Firstly, on the EBITDA margin drop through on same stores at Sunbelt from falling from 67% to 58%. Can you talk through what are the drivers of this? Presumably a lot of it to do with the ramp up in greenfields and bolt ons. But is there anything else we should be aware of? And how do you expect that to trend as we go through the year? Secondly, can you talk about the pricing environment outside oil and gas markets, particularly if there were any change in trends as you went through the quarter and into August? And then finally, can you talk about what you're seeing on inflation of equipment? Thank you. Yes. Okay. EBITDA margins, again, let's go let's have a look at where am I at now, page 16, because it breaks it all out there. So that's 58% ignores the drag from drop through Josh. So that is just same store sales we've had since May 2014. Now why is that dropping 57%? Well, because we've made a lot of investment centrally, predominantly in IT logistics because we think we have multiple years of structural growth. So if you get into the detail of the pack, you'll see a big increase in some of our operating cost lines and that's a very deliberate investment in the next stage of our growth. We've been growing consistently very strongly now and there has been a bit of a catch up in our support office. We think we'll keep trending around the 60 some percent, which is what we've always said we would what we always said we would do. In terms of pricing, yes, it's like I said earlier. I mean, for those 6 products which are 15% of our fleet, it's only 6 products, but they are typically are more expensive items that have come off for oil and gas. The early summer pricing environment was difficult with the combination of that product coming off rent and there being a weak spring in terms of weather. So the pricing environment for those six products has been around has been flat. Everything else has been pretty good. We've got around about 3% rate improvement. The yield is a little bit worse than that. And I would just again rehighlight to everybody the growth in our sort of the key accounts business, which is on Page 24 in the appendices. You can just see that a lot of our growth is clearly coming in those key accounts. It has a negative impact on yields. We think as we bed them down, it does not have as negative an impact on margins because of the lower transactional cost. So the pricing environment has been good. It's got better obviously because everybody's physical utilization has started to improve. I believe as our peers report going into autumn, you will see sequential improvement in their physical utilization too. There was in the reaction to the wet spring, but it's got generally a bit better as time has moved on. And inflation in equipment, well, here you've got to be very careful because it's one of the biggest factors which is affecting this RASK value and people don't really understand that. In terms of year on year inflation, it is very small. But in terms of what is being replaced, then the inflation is quite high because you're replacing Tier 3 engines that you're selling with Tier 4 engines that you are replacing. And so it's like a weighted average, it's about 3% 3% to 4%. But the actual actual current inflation on like for like products is a little bit less than that. Thanks very much. So just to follow-up on the first one. When I was talking about greenfields and bolt ons, I meant presumably the ones that you added in 2013, 2014, they would be included in the same store and Yes, they are. And they are creating a They are, but bear in mind it's 13, it was 17 locations. So those 17 locations are in there. It is a bit of a drag, but it's a small drag. The bigger thing is if you go and have a look at our operating cost line is the impact of us investing in some of our central and regional air structure. Okay. That's great. Thank you. Okay. The next question is from Andy Murphy at Bank of America Merrill Lynch. Please go ahead. Your line is open. Good morning, Jeff. Good morning. Hi. I've got a few questions, of course. Can you just talk a little bit about the relocation of equipment in the industry either yourselves or the market overall and whether you feel that that's having any impact on that pricing environment you were talking about sort of the 3% down to the 1%? That's completely different thing. The 3% down to the 1% is because of mix of our products and our key accounts. I mean, the impact of moving a fleet around is whether or not it would change that 3%. And I think we said for the 6 products then that's made that 3% flat. So it had had an impact early in the spring and it's having now a significantly less impact. Because I mean let's again let's put this into perspective. It's $50,000,000 for us across 6 products. It's actually 600 items of equipment. That's all it is across the whole of America. Even United have said what they've moved about $120,000,000 and it's going to be about $200,000,000 That's in the context of a $9,000,000,000 fleet size. So it's like it's did it have a small impact when there was weak demand around April May? Yes. But it's tiny. Okay. Second question was on your maintained CapEx. I just wondered whether you're or how you're thinking about it, whether you're still considering putting equipment into the same areas perhaps the same industries that you were thinking about let's say 6 months ago or whether you're thinking about changing your plans and pushing CapEx into different regions? No. If you well, let's split the 2. Let's split the regions and sectors. Look from 6 months ago, no change. From 12 months ago, yes, we were probably been planning on growing oil and gas, but we're not planning on growing oil and gas anytime soon. But from 6 months ago in sectors no change. And in terms of regions not much change either. Now what we did do is we did because we're able to do this very, very quickly is for those regions most affected by the weather, they probably got their fleet later in the quarter than they otherwise would have done. So we obviously gave the fleet early on to those who had the greatest need for it. As that weather event as it always does sort of subsided then those regions then caught up with their fleet growth. If I look at our regions and if you look at that 25% growth in our non oil and gas business, which we've detailed on Page 14 that is very evenly spread across North America. And therefore, from a regional perspective, there's been no change. And from 6 months ago, look, we obviously anticipated more growth in residential and non residential construction over oil and gas and that's of course what we've seen. Great. Can I just ask one last one? Your M and A, I hadn't realized that you already talked about this in the previous quarter. I must have missed it, but you slowed down your M and A activity. I was just wondering what were the key driver behind slowing that down? Is it because you can see more growth in your greenfields and therefore perhaps more control or something else sort of or perhaps opportunities aren't there at the moment for some reason? No, no, no. The opportunities of course are still there. Why would they not be in such a fragmented market? I think if you check back on the transcript of the call at the full year, what we said was, look, we've done a lot. We've got some stuff which we need to digest. But more importantly, remember with when you do bolt ons, you don't get the perfect mix of locations. You get let's say, you want 6 locations in a district, you might get 3 in a great location and 3 in a not so great location. So we used greenfields to be more precise to fill in the dots. That's exactly what we said we would do in Q4 and that's exactly what we have done in Q1 and are going to do in Q2. We said we would ramp up again the M and A activity once we set around the large number that we did last year and once we had completed those fillings. And so we're again a bit right Justin asked earlier, we're bang on track in terms of the plan, which we had adopted. We still have a very good pipeline of opportunities for bolt ons. And we will execute them on them as and when appropriate. Great. It signals no change in strategy whatsoever. Okay. Thanks, Jeff. We're now over to the line of Steve Wolf at Numis Securities. Please go ahead. Your line is open. Good morning, all. Just two for me. Just thinking about the decision to sell some of those bits of equipment, just any thoughts on the margin differential between sort of selling it at this point and transferring it to other regions? I think certainly on the oil and gas side, you've mentioned before that around about 80% of that kit was transferable. So just any thoughts there? And then just a bit more background on the U. K, if you've got it in some of those customers sort of being softer on demand post election, but now the confidence in coming back? Thanks. Yes. Sure. Yes. I mean the decision was taken on an asset by asset basis. Like I said, let's bear in mind the quantity of units that have come off rent in oil and gas is 600. It's kind of like nothing. So the question was do we sell it or do we transfer equipment and it was a younger one which had a very hard life, equipment and it was a younger one which had a very hard life, oil and gas is a fairly tough environment then it made an awful lot more sense to sell it than it did to transfer it. And so literally for each individual asset the decision was taken on an asset by asset basis. And that's how we chose Steve. We just said, okay, would we be happy to transfer it? Is it a good piece of equipment? Has it got some life left in it? Or has it not? As I said, a lot of volume and gas pieces of equipment have a very tough life. And it was as granular as that. In terms of the U. K, yes, look, non resin res are as strong as you're going to get them. Try and find a bricklayer or someone to do withdrawing or do a quantity reserve there in London or most of the Southeast right now and you won't be able to find 1. So and hence the 10% growth in our fleet on rent. It is true as we discussed I think in the Q4, anything which required allocation of government funds kind of ground to a halt, partly through lack of funds and partly people being cautious about what was going to happen. So we saw that most in things like transmissions markets, utilities, wind farms, solar projects, which kind of ground to a halt. We've seen signs of a half decent pickup in August and I know that's at with some recent comments from some of our peers, but that's what we have seen. As a consequence, we have not pulled the levers we could otherwise have pulled on a much larger fleet size in air plants because we think that increased demand will sort it out through the Q2. If that proves not to be the case, then we will pull the appropriate levers as we did in the U. S. But right now, this seems like a hiatus rather than a fundamental change in our end markets. Perfect. That's great. Thank you. Okay. The next question is from the line of David Phillips at Redburn Partners. Please go ahead. Your line is open. Good morning, guys. Hi, David. Hi. Can I just ask a quick one to start with? What proportion of your used sales went through auction versus direct to North American buyers? You mentioned I don't know. Very, very little went because there is a third leg too which people don't include either and that is we trade them in for new assets. Can we get back to you on that? I don't know the number relatively little from the intellectual went through auction. Yes. That's what I was getting at. And if we think about the number of greenfields and bolt ons you've done in the last 3 years, I mean, 68 greenfields in the last three, you're going to do 40, 50 this year. So net net, should we think about the margin effect of the new openings washing out with the maturing effects of the old one? That's not the case. All we have to do is get to steady state. Yes. But then you've got the benefit from would you include the benefit from the bolt ons, which you're also getting quite good and utilization pickup as they get used to your systems? Would that then mean that margin next year should actually be a decent positive from that source? Exactly. That's the point. It's a short term drag and it is holding back what would be otherwise good margin progression even with the greenfields and bolt ons. And I think there's been some confusion based on some early questions this morning. If you strip out used equipment sales even with all the greenfields and bolt ons that we're doing, margins went forward in Sunbelt in the quarter just gone. We only get a 24% margin on our used equipment sales. So obviously that when we do a big jump in used equipment sales, it has an impact on margins. But importantly, if you strip that out, margins continue to progress. And look, I agree with you. That's why there's always a danger in giving you guys that level of granularity. But we thought it was important for people to understand the long term potential as these greenfields and bolt on matures. And remember, we're kind of about 49%, 50% EBITDA margins in our general business and we're still getting 58% drop through in our same store growth. So they progress margins too. So it's maths. It's sort of they sort of have to improve. Yes. No, understood. Very clear. Oil and gas pricing, I know it's only 3%, but do you think we've troughed at that point? Well, we've troughed it. We have seen very consistent volumes and pricing really since March or April. Now I think the industry reset itself at $50 a barrel and we're now at $40 a barrel. So there's another reset to do. And I don't know the answer to that. And I think it will depend on how long with $40 a barrel and what happens. So I can't guarantee that there won't be a reset. We have seen a very stable environment since March. And I think that's been confirmed by others. But at the end of the day, if it gets worse, I currently got about $60,000,000 free ton left in oil and gas. I made a good profit last month in the oil and gas business. But I've got $60,000,000 left out of a $5,000,000,000 fleet size. How bad could it be? Yes. And last one for me. In June, you gave us some quite interesting granularity on Texas as your biggest state. Could you give us a bit more sort of feeling on how that trended over the summer and what you're seeing for the next 12 months there? Yes. And what I said earlier, it got off to a slow start in May. It was the area most affected by the weather. And that's where all of this nonsense started. People took the combination of a weather event and a bit of oil and gas and blamed it all on some tsunami of fleet coming into Texas from oil and gas. Well, it was a tsunami, but it was of rain. So when it dried up, everything started to pick up. And as a consequence, the growth in Texas is very similar to the growth in all of our other regions. Okay. I think you said it was up 25% year on year in June and 10% month on month in May. I think you said that in June. Well, look the whole business excluding oil and gas is up 25%. And I think Texas is about the same. So I can get the number for you precise. I don't have it off the top. I know that we obviously we look at it. I mean look you can see how quickly we reacted to physical utilization. There was a danger that we're sort of dismissing all of these things. And of course, we look at utilization by location, by assets every single day react very, very quickly. The reason I don't know is because it's just the same. So there's been no since April, May when we were looking at it more granularly because there was some softer utilization, we just stopped looking at it because it's the same. That's why I don't remember. I see. Very clear. Thank you. We're now over to the line of George Gregory, BNP Paribas. Please go ahead. Your line is open. Good morning, Jeff. Good morning, Susan. Just three questions, if I may. Firstly, Jeff, you talked around the same store drop through of 58% being held back by the IT costs. Should we assume that that is a sort of a shorter term effect, which should wash out over the course of 12 to 24 months? No. It's an upfront investment. It's broader than IT. It's fleet planning. We made it being able to manage a $5,000,000,000 fleet, be able to react as quickly as we have it takes resources. We've put in some more I know when we're out there in Miami, George, you saw the work we're doing around our efficiency improvements, therefore building up that team. And even the team that just does greenfields and bolt ons is a significantly larger team than it was 12 months ago. They're going to open certainly 50 greenfield locations and probably do a good number of bolt on acquisitions over the course of the next 12 months. So it's investment in those teams. But there was a step change required and you're absolutely right over a 12 to 24 month period it will wash through. Okay. In terms of yield progression over the next couple of quarters, how should we think about that against the 0 percent overall that we saw in Q1? Yes. That's a tough one to be precise on. If we go let's go back to 16, that's right. What's going to happen is Q2 and Q3 is when we get the biggest headwinds from oil and gas. So your minus 30 there could it will probably get worse in Q2 and Q3. Greenfields and bolt ons will continue to progress well. They always do in the 2nd year. And I would have said the yield in same stores will also get better. Now the question is where that mathematically washes out as whether it's non-one. I'm really not 100% sure. But you will see good progression, I believe, in the 97% of our business. It's mathematically how it all washes through in the second or third quarter. But beyond that, we will be back to a positive yield environment. But just to clarify, you don't expect it to drop below you wouldn't expect it to drop below 0 Q2? No. Q3. Okay. Final question, just on CapEx guidance, Jeff. I know everyone is was sort of expecting you more to cut CapEx than increase it. But I mean given that physical utilization is running at record levels, Just out of interest, why are you not increasing your CapEx guidance? Well, because you would probably think it was a good idea and there was a bunch of other people would start putting out notes about irresponsible growth. You're kind of damned if you do and you're damned if you don't. The fact of the matter is, if we continue to operate at these levels of physical utilization and if markets continue to perform as we believe they will through December, then there is more risk of an upswing than there is a bouncing. But let's take that view at the half year, given everything that's going on in markets at the moment. But you're right to say that, look, I look, whilst everyone is going to be delighted about the high physical utilization just to be consistent, We've got product categories where we don't have enough. Even £10,000 telehandlers, which are on that list of probably the biggest single item rented to oil and gas. I have 81% physical end of July. So, just wait and see a little bit. But yes, we'll take that view at the half year. Thank you very much. Okay. We now go to the line of Hector Forsyth at Seifel. Please go ahead. Your line is open. Good morning. Hi, it's Hector Forsyth. Stifel, Hi, Stifel. Hi. Here we go. In terms can you just tell us a little bit about how you're seeing the market overall develop for national accounts? You've clearly got some very good growth going on there. First question is the number of national accounts within the market, how is that changing? That's a good question. I'm not sure I've got a good answer for it. I think you're first person ever to stump me on the question. I mean, honest answer with Hector, I don't know. I would guess I still think American benefits from being a relatively fragmented construction market. So is there significantly more accounts, we don't include more accounts. It's a set population when we look at these. So I guess you think a number of our customers are probably getting bigger. Therefore, I guess the number of key accounts is increasing. But honest answer is I don't know Hector, sorry. Okay. The thrust of this is on market share within in key accounts. Are you taking in your view more market share there than you are in the wider market? Yes. I think that's a fair question and I believe we are. I think the reason is we're coming off a low base. You remember until you've got to reach a certain scale and footprint to be a credible alternative because the guys who were focused on key accounts forever, United and Hertz are very good at it. It's what they do. We have clearly been seen it is this virtuous cycle of scale. The more locations we've got, the bigger off fleet and the broader off fleet, the more credible we are as an alternative. And therefore, as people look to alternatives and my belief is all key accounts are looking for a range of providers, don't really want to get bogged down with just one as a general rule of thumb. We have become a very popular alternative. And so I think if you look at the statistics on page 24, quite clearly we are gaining share in key accounts. And I think we're gaining share everywhere. But I think they're probably growing it faster there. Yes. Clearly, Collie, that makes the read across between larger competitors a bit more interesting. Well, yes. I mean, they have to comment on their results. I mean, clearly, there's quite a lot of dynamics going on. I think if you have a look at Page 23 too, there's 2 pages in the appendix, which I think are very important to understand the structural changes in the marketplace. And if we look at Page 23 there, from between 10 15, these small players have gone from having 61% of the market to 48% of the market. With our transactional model and our broad range of fruit, who is best focused on taking the greatest proportion of that share. We believe that's us. There's only really a handful of players who are major contributors to the key account market. We were 4th of 4 when you had United Hertz and RSC. I would argue now we are certainly a very credible second in terms of our scale and our product offering. So our position in that market has changed materially over the last 3 or 4 years. Okay, Jeff. Thank you very much for that. And one for Suzanne. Probably a bit technical on the quarter call. But Suzanne, can you run through how the deferred tax liability is sitting on the balance sheet reverse? Yes. Most of that deferred tax most of our deferred taxes rise because of the taxes in depreciation. As you're aware, we have an accelerated depreciation for tax purposes that we are allowed take versus what is taken for book purposes and that gives rise to deferred taxes. And essentially the way it reverses over time is essentially driven by the amount of FX that is into the business. And do you have And I'm happy to speak with you afterward Hector and walk you through that in some more detail. That's probably the sensible thing to do. Okay. Thank you, guys. Thanks very much. Thank We go back to the line of Andy Murphy at Bank of America Merrill Lynch. Please go ahead. Your line is open again. Good morning. Just a quick can you just give us a bit of color on how trading particularly in the U. S. Has been in August September so far? Is that possible? It's pretty early for September. Probably wrong to predict September just right now, Andy. But in August, like I said earlier, it's been very similar trading to it was in the Q1. I haven't actually got the final dotted i's and trustees numbers, but going to be 23%, 24%. And bear in mind, we were doing a whole heap of bolt ons early part of last year. And so the comparators are getting tougher and tougher. And so that reflects very strong markets. Physical utilization has stayed very high. Demand is very high. As I said, based on where we are, you with a lot of activity, a lot of catch up still to be done, it's clearly going to be a very strong Q2. Great. Thanks very much. As there are no further questions, may I please pass the call back to you to close Jeff? Okay. Well, guys, there's a lot of questions. Again, it's terribly surprising as we discussed earlier after our interesting summit. Just to recap, we think it's been a very good quarter, very much on track for delivering everything we intended to do. And we look forward to giving you a fuller update at the half year. So thank you very much indeed. This now concludes the call. Thank you very much for attending. You may now disconnect your lines.