Hello, 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 Geoff Drabble, Chief Executive, and Suzanne Wood, Finance Director. Geoff, please begin.
Thank you, Hugh. Good morning, welcome to Ashtead's Q1 conference call. This morning, Suzanne is dialed in from the U.S., thanks for the early start, Suzanne. 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, this will again be the case, I'm sure you're eager to get to Q&A, particularly after the interesting summer we've had. I have, however, added two or three 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 aims to give a better understanding of not just the initial impact of these locations, 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. With that, let's look at the key highlights of the quarter on page two before passing to Suzanne for the financial detail. Our first quarter has been a strong one, as we anticipated, Sunbelt's rental revenue grew 23%. Profitability was strong, despite significant investment in growth, we deleveraged to 1.8 x EBITDA. Our model has allowed us to gain significant market share over a sustained period, our strategy of diversification is clearly working.
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. These strong trends continued into August, therefore our outlook for the balance of the year is 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. With that, I'll hand over to Suzanne.
Thanks. Good morning. The group's financial results are shown on slide four. For the first quarter, we reported an underlying pre-tax profit of GBP 161 million compared to GBP 120 million 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. Geoff 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 five. Our total revenue increased by 29% as compared to first quarter 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, Sunbelt's EBITDA margin remained a strong 48%. Excluding the effect of used equipment sales, EBITDA margin improved slightly year-over-year. On slide six, we summarize 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 seven, 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 31st, the absolute level of our debt increased, but our leverage ratio declined to 1.8 x on the strength of our EBITDA. Looking forward, our stated objective remains the maintenance of leverage below 2x in order to strike the right balance between financial stability and investment in growth. On slide eight, 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 $2.6 billion.
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 it back over to Geoff.
Great. Thanks, Suzanne. 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. Look, the market's 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, 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.
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. 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? 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. Whilst 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 five years, and certainly, United Rentals buying RSC was one of the biggest changes in our market in recent years. Since that event, our compound annual growth has been 23%, more than double our two largest peers. Clearly we've consistently been doing something different. We turn to page 13. It's worth highlighting how strong our largest single market as 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, 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 got out of control was energy, 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, there seems to be a concern that there is some energy-induced oversupply which is impacting the market. Frankly, that's just not right. Of course, there is some short-term effect, but this is limited to a handful of players, a small quantum and range of fleet, and its impact on the broader market has been much overplayed.
Firstly, just to reemphasize that for Q1 2016, 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%, the same in both years, which is a testament both to our markets and our team. Also, the fleet off rent in the energy sector is very small. From our peak, our fleet on rent in oil and gas is now down about GBP 50 million, which in the context of a GBP 5 billion 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. Turning to page 15, 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 rent in oil and gas was in just six products. All of our other products have been largely unaffected. Most general rental companies will have had a similar concentration. Only GBP 50 million of fleet off rent in only six products. As a consequence, the impact on our non-energy business has been minimal. If I just take those six 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, 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 a point, but I do believe some have just got bogged down in minute metrics that are more complex and contradictory than they realize. Let's just step back for a second and see the bigger picture. We have a total fleet size that is 26% larger. We are at record levels of utilization, we've had good progression in rates in 97% of our business. Where's the oversupply? Page 16 just highlights what good progress we've made across the business. Let's start with same stores excluding oil and gas. This is where, as I've said, I'd like to get a little more granular.
Look, same-store is 89% of our revenue, you can see that the fleet on rent is growing at about two 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. Physical utilization in this part of our business is at 74%, as good as it gets, drop-through remains a 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. The 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 first year.
In terms of yield utilization and pull-through, they all, as anticipated, initially attract. As we increase the activity levels, the impact becomes even greater. 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% year-on-year. Less surprisingly, our yield was down 30%, but we were really growing through the second half of calendar 2014, so that positive volume will turn negative for Q2 and Q3, even though we are now in far more stable conditions. Despite being a small proportion of our business, it is having some impact on our metrics and will do so for the next two quarters. It's limited impact and will have washed through before the year ends.
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 were asked a lot at 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. The 17 locations we opened in financial year 2013 have a three-year history and so on. As you can see, the financial year 2013 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 three. There's a lot of information there that you'll want to digest and consider.
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. The 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 investment, 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.
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 A-Plant's on page 19, there are a number of somewhat contradictory data points on this page, which rather sums up how we see the U.K. 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 zero 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 one or two special projects. 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 our ROI when we normalize utilization. Again, we look forward to A-Plant's being a good contributor to group profit growth for the full year. 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% and diversifying our business through greenfields and bolt-ons.
The ramp-up of our greenfield and bolt-on activity has impacted some metrics short term, but I hope we have demonstrated with the new detail provided that they improve quickly and will be a significant contributor to margin growth as our program matures. Once again, we think that we've hit an appropriate balance of delivering strong returns coupled with longer term strategic investment. Of course, as always, we will continue to grow responsibly, maintaining leverage within our stated objectives. With both divisions performing well, strong end markets, and our strategy clearly working, we expect full year results to be in line with expectations. The board looks forward to the medium term with confidence. With that, I'll hand over to Hugh for Q&A.
Thank you. Ladies and gentlemen, if you wish to ask a question and you haven't already, could you please press zero and then one on your phone keypad now in order to enter the queue. Then after I announce you, simply ask that question. If you find that question has been answered before it's your turn to speak, just press zero and then two to cancel. There'll be a brief pause while questions are being registered. The first question is from Chris Gallagher at JPMorgan. Please go ahead. Your line is open.
Good morning. A couple of questions from me, if that's okay. The first on the liquidation value of your equipment. The Rouse report came out yesterday, and there are some sequential declines. Can you maybe talk about what you're seeing in the auctions? The second question around the same-store net yield at [inaudible] +1% . I think maybe when we spoke last time, it was a little bit higher than that. How has that trended? Thank you.
Yeah, sure. Yes, secondhand equipment prices. Again, you 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, Rouse 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 can understand is in auctions, typically around 50% of the business goes overseas, usually to developing markets. Depending on what basket of exchange rates you look at, the adverse impact's been between 10% and 40% in terms of exchange rates. They're a little bit weaker, but we're still making very good margins.
If you look at the overall OLV statistics, we're still pretty much at, just off record level. You'll have seen we made good margins similar to previous years on our asset disposals. 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 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%. Again, we haven't seen an awful lot of movement one quarter or the other, to be honest with you.
It's small movements around the roundings. Clearly there was a little bit of weakness early part of the quarter, back end of quarter four when we had the wet spring, 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, 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. Can you talk about the current competitive behavior as you see it? 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?
Yeah, 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, well, 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. You know my view on this, which is given 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.
As a consequence, there's many other smaller businesses growing much faster than the average. Look, it's down to sector exposure. I think there's a real danger that people look at one or two of our larger peers, unfortunately, the only one or two any of you tend to know, and think they represent the market. I don't think that's true at all. I think, as I said, if you look at our business as an example, as we try to show you there, we had six products really on rent to oil and gas. We had 20 locations out of the 520 that were focused on oil and gas. If you really stretch it, looked at anybody who invoiced oil and gas, we probably had 40. That's less than 10% of our locations had anything to do with oil and gas.
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. As the 7% growth in the overall market shows, that's just not right. I think we've seen a very normal summer, as you would expect from a very strong construction market. In terms of our greenfields, yeah, you're right that we picked up the pace a little bit. We said we were going to the fourth quarter. The 19 locations, it's a combination of the two. 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. Increasingly, they become more infilled.
Rory, as always, it's a combination of the two. 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 encouraging and hence why we've ramped up that activity level. We opened 19 in the first quarter. From recollection, we've already signed another 29 leases for the balance of the year, and I'm guessing we'll open about 19 to 20 of those in the second quarter, too. We would anticipate maintaining that growth. We've got 520 locations. I'd like to get to around 800 sometime in the foreseeable future. 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 market's providing some interest for you. Cheers.
Well, there's been a couple of days when I've spluttered on my roses looking at financial markets over the course of the summer, it has. Interesting is probably a good word for me.
Yes, it is.
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 two separate questions. Firstly, this may seem very anal, I just want to reconfirm what exactly you mean by reaffirming guidance. Going back to what you said in June 16th, you were talking specifically for Sunbelt about CapEx of GBP 1.2 billion-GBP 1.3 billion gross and non-rental fleet CapEx of GBP 100 million and 50 greenfields and selective bolt-on M&A focused on specialty. Is every single line of that being reaffirmed today?
Yep. Look, in terms of the fleet growth, you can see that we have had good fleet growth in the first quarter. We're at 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 weak May. Certainly guidance in terms of CapEx remains unchanged. We will upgrade that again at the half year. Update that in a half year as we typically do. The conditions are strong. As I said, look, 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 one in Q1, and we've just done a tiny one just since the end of Q1, which I think you'll find in the press release. You'll probably see a bit more bolt-on activity. Greenfields and bolt-ons are going to be in line. Was there another bit other than CapEx greenfields and bolt-ons? Every element, part of that. I know given the noise in the marketplace, people were expecting something else. We're bang on track. Everything has played out exactly as we would have anticipated it to do.
Just one quick follow-on. 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 think you're right. If you look at the increase in it, we adjusted off it as a consequence of the downgrade predominantly in oil and gas. If you look at how much extra disposals there are, you'll find it's very similar to the amount of oil and gas fleet that has come off. I think this is important. If you look at the numbers, what this clearly demonstrates is our ability to pull levers very quickly and very precisely around locations and products if the need arises. Remember, we've still grown our fleet 26%. 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 over fleeted. It's something we do every single day.
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 of your presentation, just either the increased disclosure on specifically the greenfields going forward. I guess ordinarily, I would think a greenfield as being probably a drag on yields and a drag on utilization, just because obviously these things don't open at-
That's correct
Sunbelt's traditional utilization or yield levels. You're showing obviously the nice progression in ROI for fiscal 2013 segment and similarly so for fiscal 2014. How long does it take, in your experience, a greenfield to get to, let's say, the 25% ROI that Sunbelt overall enjoys?
Yeah.
Are we talking three years, five years? How long does it take?
The details are in the chart. You can see that we get there in sort of around about three years. Again, it depends on the precise mix of the greenfields. Without being harsh, well, actually being harsh, obviously there would be a supplement to the ROIs and margins of many of our peers after year one or year two. Given that we have such strong returns and such strong margins, they are a drag for year one and year two. Typically, around year three to year four, they are at similar levels to our more mature locations. Remember, within our more mature locations, we have a range too. It's not like every single location is the same ROI.
Yeah. Okay. Just one final thing. A standout thing on page 17 is just the ROI in fiscal 2015 looking to be -1%. Is there something we should read into that? Is that timing? Is there something-
You should read out that when you're dealing with lots of very small numbers and timing, 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 population. It's a timing issue and an awful lot of stuff being done late in Q4.
Okay. You're confident in today's opening, shall we say, in Q2 2016, getting to, let's say, 25% ROI in three, four, five years, whenever, is undiminished as it's ever been?
Like I said, go to page 16, predominantly what's in the greenfield growth in Q1 is those stores. The fleet on rent in those stores is up 1,084%, which is a ridiculous statistic, and that's because you're just dealing with such small numbers late on in the fourth quarter. Yield is up 32%. Physical utilization is up 33%. You can see the massive progression already in those that were opened last year.
Okay. Thank you very much.
Our next question's from the line of Josh Butler at Berenberg. 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 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. 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? Finally, can you talk about what you're seeing on inflation of equipment? Thank you.
Yeah. Okay. EBITDA margins. Let's have a look at, where am I at now? Page 16, because it breaks it all out there. That 58% ignores the drag from drop-throughs, Josh. That is just same-stores. That's stores we've had since May 2014. Why is that drop from 67%? Well, because we've made a lot of investment centrally, predominantly in IT logistics, because we think we have multiple years of structural growth. 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 do.
In terms of pricing, yeah, it's like I said earlier. For those six products, which are 15% of our fleet. It's only six products, but they 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. The pricing environment for those six products 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, re-highlight to everybody the growth in our 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. 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 a sequential improvement in their physical utilization too. There wasn't a reaction to the wet spring, it's got generally a bit better as time has moved on. Inflation in equipment, well, here you've got to be very careful because it's one of the biggest factors which is affecting this Rouse value, and people don't really understand that. In terms of year-on-year inflation, it is very small.
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. As like a weighted average, it's about 3%, 3%-4%. The actual current inflation on like-for-like products is a little bit less than that.
Thanks very much. Sorry, 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.
Yes, they are.
They are creating a drag.
They are. Bear in mind, at 2013, it was 17 locations. 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 infrastructure.
That's great. Thank you.
The next question is from Andy Murphy at Bank of America Merrill Lynch. Please go ahead. Your line is open.
Morning, Geoff.
Andy.
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, the 3% down to the 1%?
No, that's a completely different thing. The 3% down to the 1% is because of mix of our products and our key accounts. The impact of moving a fleet around is whether or not it would change that 3%. I think we said for the six products, that's made that 3% flat. It had an impact early in the spring, and it's having now a significantly less impact because, again, let's put this into perspective. It's $50 million for us across six products. It's actually 600 items of equipment. That's all it is across the whole of America. Even United have said, well, they've moved about $120 million, and it's going to be about $200 million. That's in the context of a $9 billion fleet size. Did it have a small impact when there was weak demand around April and May? Yeah, but it's tiny.
It's absolutely tiny.
Okay. Second question was on your maintained CapEx. I just wonder, 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, six months ago, or whether you're thinking about changing your plans and pushing CapEx into different regions.
Let's split the two. Let's split the regions and sectors. From 6 months ago, no change. From 12 months ago, yeah, we would probably been planning on growing oil and gas, but we're not planning on growing oil and gas anytime soon. From 6 months ago, in sectors, no change, and in terms of regions, not much change either. What we did do is because we're able to do this 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. 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, those regions caught up with their fleet growth.
If I look at our regions, 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. Therefore, from a regional perspective, there's been no change. From six months ago, 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&A, I hadn't realized that you already talked about this in a previous call. I must have missed it. You slowed down your M&A activity. I was wondering what was the key driver behind slowing that down? Is it because you can see more growth in your greenfields and therefore perhaps more control?
No
Something else, or perhaps your opportunities aren't there at the moment for some reason?
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." More importantly, remember when you do bolt-ons, you don't get the perfect mix of locations. Let's say you want six locations in a district, you might get three in a great location and three in a not so great location. We used greenfields to be more precise to fill in the dots, and 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&A activity once we'd settled down the large number that we did last year and once we had completed those fill-ins. Again, a bit like 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 on them as and when appropriate.
Great.
It signals no change in strategy whatsoever.
Okay. Thanks, Geoff.
We're now over to the line of Steve Woolf at Numis Securities. Please go ahead. Your line is open.
Morning, all. Just two from 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. Just any thoughts there? 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, now the confidence in coming back. Thanks.
Yeah, sure. 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. The question was, do we sell it or do we transfer it? It boiled down to the quality of the piece of equipment. Look, if it was an older piece of oil and gas equipment or it was a younger one which had 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. Literally, for each individual asset, the decision was taken on an asset-by-asset basis. 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 oil and gas pieces of equipment have a very tough life. That was it. It was as granular as that. In terms of the U.K., yeah, look, the non-res and res are as strong as you're going to get them. Try and find a bricklayer or someone to do a drawing or quantities are there in London or most of the Southeast right now, you won't be able to find one. Hence the 10% growth in our fleet on rent. It is true, as we discussed, I think in the fourth quarter, 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.
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 odds 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 A-Plant's, because we think that increased demand will sort it out through the second quarter. If that proves not to be the case, then we will pull the appropriate levers, as we did in the U.S. Right now, this seems like a hiatus rather than a fundamental change in our end market.
Perfect. That's great. Thank you.
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.
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. 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-
Through auction
from the last election went through auction. Yeah.
That's what I was getting at. If we think about the number of greenfields and bolt-ons you've done in the last three years, I mean, 68 greenfields in the last three, you're going to do 40, 50 this year. 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 exactly the case. What we have to do is get to steady state.
Yeah. Would you include the benefit from the bolt-ons, which you're also getting quite good price 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, it is holding back what would be otherwise good margin progression, even with the greenfields and bolt-ons. 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, obviously when we do a big jump in used equipment sales, it has an impact on margins. Importantly, if you strip that out, margins continue to progress. Look, I agree with you. There's always a danger in giving you guys that level of granularity. We thought it was important for people to understand the long-term potential as these greenfields and bolt-on matures.
Remember, we kind of got 49%, 50% EBITDA margins in our general business, and we're still getting 58% drop-through in our same-store growth. They progress margins too. It's maths. They sort of have to improve.
Yeah. No, understood. Very clear. Oil and gas pricing, I know it's only 3%, do you think we've troughed at that point?
Well, we have seen very consistent volumes in pricing really since March or April. I think the industry reset itself at $50 a barrel, and we're now at $40 a barrel, there's another reset to do. I don't know the answer to that. I think it will depend on how long we're at $40 a barrel and what happens. 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 million fleet on rent left in oil and gas. I made a good profit last month in the oil and gas business. But I've got $60 million left out of a $5 billion fleet size.
Yeah.
How bad can it be?
Yeah. No, last one from me. In June, you gave us some quite interesting granularity on Texas as your biggest state.
Yeah.
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?
Yeah. What I said earlier, it got off to a slow start in May. It was the area most affected by the weather, 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. When it dried up, everything started to pick up. 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. Up 10% month-on-month in May.
Well, look, the whole business excluding oil and gas is up 25%.
Yeah. All right.
I think Texas is about the same.
Yeah.
I can get the number for you precisely. I don't have it off the top of my. I know that obviously we look at it. I mean, look, you can see how quickly we reacted to physical utilization. There is 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, and react very quickly. The reason I don't know is because it's just the same.
Yeah.
There's been, since April, May, when we were looking at it more granularly, because there was some softer utilization, we've just stopped looking at it because it's the same. That's why I don't know the number.
I see. No. Very clear. Thank you.
We're now over to the line of George Gregory at BNP Paribas. Please go ahead. Your line is open.
Morning, Geoff. Morning, Suzanne. Just three questions, if I may. Firstly, Geoff, 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 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. Being able to manage a GBP 5 billion 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. 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. It's investment in those teams. 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 those couple of quarters, how should we think about that against the 0% overall that we saw in Q1?
Yeah, that's a tough one to be precise on. Let's go back to 60. That's why what's going to happen is, Q2 and Q3 is when we get the biggest headwinds from oil and gas. Your -30 there will probably get worse in Q2 and Q3. Greenfields and bolt-ons will continue to progress well. They always do in the second year. I would've said the yield in same-store will also get better. The question is where that mathematically washes out is whether it's none or one. I really not 100% sure. 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. Beyond that, we will be back to a positive yield environment.
Just to clarify, you wouldn't expect it to drop below zero Q2, Q3?
No.
Okay. Final question. Just on CapEx guidance, Geoff. I know everyone was sort of expecting you more to cut CapEx than increase it. 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 who 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 downswing. Let's take that view at the half-year, given everything that's going on in markets at the moment. You're right to say that, look, while everyone is going to be delighted about that high physical utilization, just to be consistent, we've got product categories where we don't have enough.
Even 10,000 pound telehandlers, which are on that list of probably the biggest single item rented to oil and gas. I have 81% physical utilization at the end of July on that product, on a fleet that's much bigger. Everybody wants more telehandlers. I'm saying let's just wait and see a little bit. Yes, we'll take that view at the half-year.
Thank you very much.
Okay, we now go to the line of Hector Forsythe at Stifel. Please go ahead. Your line is open.
Morning. Hi, it's Hector Forsythe at Stifel.
Hi, Hector at 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?
Oh, that's a good question. I'm not sure I've got a good answer for it. I think you're the first person ever to stump me on a question. The honest answer is, Hector, I don't know. I would guess, I still think American benefits from being a relatively fragmented construction market. Is there significantly more accounts? We don't include more accounts. It's a set population when we look at these. I guess you'd think a number of our customers are probably getting bigger, therefore, I guess the number of key accounts is increasing. Honest answer is, I don't know, Hector, sorry.
Okay. The thrust of this is on market share within key accounts. Are you taking, in your view, more market share there than you are in the wider market?
Yeah, I think that's a fair question. 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 have focused on key accounts forever, United Rentals 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 our fleet and the broader our fleet, the more credible we are as an alternative. Therefore, as people look to alternatives, 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.
I think if you look at the statistics on page 24, quite clearly we are gaining share in key accounts. I think we're gaining share everywhere. I think we're probably growing it faster there.
Because clearly that makes the read across between larger competitors a bit more interesting.
They have to comment on their results. Clearly, there's quite a lot of dynamics going on. Have a look at page 23 too. There's two pages there in the appendix, which I think are very important to understand the structural changes in the marketplace. If we look at page 23 there, from between 10 and 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 fleet. 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 fourth of four 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.
Our position in that market has changed materially over the last three or four years.
Okay, Geoff, thank you very much for that. One for Suzanne. Probably a bit technical on the quarter call. Suzanne, can you run through how the deferred tax liability sitting on the balance sheet reverses?
Yes. Most of our deferred taxes rise because of the differences in depreciation.
Yeah.
As you're aware, we have an accelerated depreciation for tax purposes that we are allowed to take versus what is taken for book purposes, and that gives rise to deferred taxes. Essentially, the way it reverses over time is essentially driven by the amount of assets that is set into the business.
Do you have-
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 you.
Just a reminder to participants that if you do have a question, could you please press zero and then one on your phone keypad now. There'll be a further pause while any further questions are being registered. We go back to the line of Andy Murphy at Bank of America Merrill Lynch. Please go ahead. Your line is open again.
Morning. Just a quick follow-up. Can you just give us a bit of color on how trading, particularly in the U.S., has been in August and September so far? Is that possible?
Well, it's pretty early for September. Probably wrong to predict September just right now, Andy. In August, I think I said earlier, it's been very similar trading to it was in the first quarter. I haven't actually got the final dotted I's and crossed T's numbers. It's going to be 23%, 24%. Bear in mind, we were doing a whole heap of bolt-ons early part of last year. The comparatives are getting tougher and tougher. That reflects very strong markets. Physical utilization has stayed very high. Demand is very high. As I said, based on where we are, with a lot of activity, a lot of catch-up still to be done. It's clearly going to be a very strong second quarter.
Great. Thanks very much.
As there are no further questions, may I please pass the call back to you to close, Geoff.
Okay. Well, guys, there's a lot of questions. Not terribly surprising, as we discussed earlier after our interesting summer. 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. Thank you very much indeed.
This now concludes the call. Thank you all very much for attending. You may now disconnect your lines.