Earnings Call: Q4 2015

Jun 16, 2015

Everybody, Right. Well, in that case, good morning, and welcome to the Ashtead full year results presentation. As usual, we have a short presentation where we will look at the financial and operational drivers for 20 fourteen-fifteen and also look forward to the opportunities for the current year as we carry forward that momentum that we've established during the current year. We'll take questions at the end, which will give us a chance to add more color to current trading and our longer term strategy. In overview, it's clearly been another very strong year for the Ashtead Group. What is pleasing is to see the results of a well executed strategy, which has remained consistent for a number of years. Strong organic growth together with bolt on acquisitions are allowing us to differentiate our service offering, gain market share and improve profitability. The financial highlights are obvious with the group revenue of 24% and profits up 35% to a record £490,000,000 all with return on investment of 19%. The group's ability to continue to both grow and deliver on the bottom line has allowed us to invest £1,000,000,000 in the fleet and a further £236,000,000 on bolt on acquisitions. Importantly, this investment has been achieved whilst maintaining our financial discipline with leverage maintained below 2 times EBITDA, a credit to both the team and the inherent returns on our investment. So a great year, but most importantly, another year where we have diversified the business and enhanced our operational and financial capacity. In a quarter where there's been a lot of noise around oil prices and weather, our long term strategy of expanding the geographies and sectors that we serve has clearly paid off. Our markets continue to provide both structural and cyclical opportunities and our well established business model has a track record of success. The board therefore looks to the future with confidence and is pleased to propose a final dividend of 12.25p giving a total of 15.25p up 33% on the prior year. So with that, I'll hand over to Suzanne to cover the financial performance for 20 fourteen-fifteen in more detail. I'm terribly sorry. I forgot to flick through the slides. There we go. Thanks, Jeff, and good morning. I'll begin by reviewing our results for the Q4, which are shown on slide 4. Our underlying pretax profit for the quarter was £110,000,000 up 42% year over year at constant rates of exchange. As in past quarters, the main driver of our profitability was top line growth. Rental revenue increased by 24%, reflecting strong performance at both Sunbelt and A Plant. Jeff will review the drivers of the operational performance in a moment. The quarterly results also benefited from our continued focus on operational efficiencies and as a result our EBITDA margin improved to 42% and our operating profit margin improved to 24%. Our financial results for the full year are shown on the next slide. And as mentioned earlier, the group's underlying pre tax profit increased by 35% to £490,000,000 Not surprisingly, rental revenue growth of 24% was again the main driver. Further down the income statement, you'll see that depreciation expense exceeded the prior year amount reflecting our additional investment in the rental fleet. The rise in interest expense from last year reflected both an increase in average borrowings and the greater proportion of longer term fixed rate debt. And for the full year, our EBITDA margin expanded from 42% to 45% and our operating profit margin was 27%. Turning over to slide number 6, we'll take a look at the headline numbers on a divisional basis. Beginning with the U. S, Sunbelt's ability to capitalize on market opportunities and take share was evident in this year's 25% growth in rental revenue. In addition to strong same store sales growth, we also added 82 new locations in the year through our greenfield store opening program and small bolt on acquisitions. Maintaining a good drop through rate of incremental rental revenue to EBITDA during this high growth period was therefore key to our performance. Despite the drag effect of these new stores, Sunbelt maintained an overall drop through rate of 58% and excluding new stores, it was a robust 67%. As a result, Sunbelt achieved a record annual EBITDA margin of 47% and an operating profit margin of 30%. Moving on to A Plant on slide 7, we continue to be encouraged by the U. K. Progress. During 2015, our rental revenue increased by 19%, reflecting both a recovering market and market share gains. The combination of this rental revenue growth with a 56% drop through rate resulted in an EBITDA margin of 34% in the U. K. And an operating profit margin of 14%. Now on the next slide, we summarized our cash flow profile highlighting the net cash outflow for CapEx of £834,000,000 in 2015. While this investment resulted in a free cash outflow of £88,000,000 for the fiscal year, we believe it to be appropriate at this stage in the cycle as we continue to take market share both responsibly and profitably. Additionally, as you move down the cash flow statement, you'll note that we invested cash of £242,000,000 on a number of small bolt on acquisitions. After considering those acquisitions and our dividend payments, our net debt at April 30 increased by £412,000,000 The next slide is one that you've seen before and it outlines our debt and our leverage profile. Including currency translation impacts, our year end debt was £1,687,000,000 Our net debt to EBITDA ratio remained constant at 1.8 times on the strength of our improving EBITDA margins. As we look forward to next April, we expect leverage to remain comfortably below 2 times to ensure that we strike the right balance between our financial stability and investment in growth. You'll also note in the middle of the page a slightly higher ratio of fixed to floating rate debt. The mix and structure of our debt as it exists at April 30 carries a weighted average maturity of 6 years and it helps to maintain our balance sheet strength and our flexibility. And as a final point, I'll briefly mention our return on investment shown on slide 10. Despite the significant investment that I've just discussed and the growth in our business in 20 15, it was pleasing to see our ROI at 19%. This along with our balance sheet capability puts us in a solid position from which to consider 2016. And with that, I'll hand it back over to Jeff. Thanks, Suzanne. So let's have a look at some of the operational detail behind the numbers, starting with the breakdown of Sundal's 27% rental revenue growth. It's clearly been a good year and it's been a very consistent one. Our strategy, same store organic fleet investment is paying off with 17% growth well ahead of underlying markets. This is a simple strategy, but we believe that superior service levels lead to share gains. And therefore, before we look to broaden our business, we focus on same store fleet investment to ensure that we are the provider of choice in each individual market. The sustained period of significant share gains that we have enjoyed suggests that this is a strategy that's paying off. In terms of greenfields and bolt ons, it was a particularly busy year with a net 82 new locations. We identified some excellent opportunities and we had both the financial and operational capacity to make it happen. Also, we feel that delivering this level of growth this early in the cycle will prove to be well timed investment. Breaking this down to each quarter, you can see that as I said earlier, it's been a very consistent performance particularly in terms of volume. Over the last 6 months, all the noise in the sector has been around oil prices and tough winter. Hopefully, these results bring a sense of perspective to it all. Was it a tough winter? Yes. Did our oil and gas revenues fall? Yes. And was indeed wet in Texas this spring? Well, yes, it was that too. But look, we are a normal business and we will always face some challenges. But remember that with these headwinds, we still delivered 27% rental revenue growth in the quarter. So what does that tell you? Well, as I said at the opening, our strategy of broadening our geographic base and the sectors we serve to greenfields and bolt ons have clearly worked and we are now a more resilient, more diversified business. I also think that these results support the view that our core construction markets are very strong and I will cover both of these points in more detail in a moment. Sticking to the chart on page 13, the physical utilization, it did get a bit weak in February March. We continue to bring in fleet as the bad weather hit. However, it was a short term timing issue as you can see by our recovering utilization despite this significant fleet growth. With markets so strong, we remain committed to our investment plans. I'll repeat what I said before that is, it's better to be able to say yes right now than to push physical utilization. And that of course is particularly true in our newer locations. Yield has obviously fallen to 1% from the 2% we have been delivering. It's sheer more than volume that you see the effects of lower oil Whilst it's a small percentage of our business, there have been significant price concessions in the oil and gas division. There was a sudden fall in volume and price in late February March as the reality of the lower oil prices set in. But from both a volume and a price perspective, I'm pleased to report that it's been remarkably stable over the last 2 months. However, the biggest drag on yield is again mix and the impact of so many greenfields and bolt ons in 1 year. However, what I'd like to cover now is the much broader benefits of this growth and diversification strategy. So look, we've had a prolonged period of market leading growth. But what I think is particularly encouraging is the profitability of this growth. I want to spend some time here differentiating between same store profitability and the impact of bolt ons and greenfields as I think it gives a much better insight into the exciting medium term potential for all returns. As Suzanne highlighted, EBITDA margins for Sunbelt have risen once again to a record 47%. I think the real highlight here is the same store drop through, which remains very, very strong at 67%. You can see the benefit of our strategy when you also look at return on investment. Same score return on investment is now 27%, up from 18% only 3 years ago as we see that benefit of focusing on organic fleet investment. However, we've added 144 new locations in just 3 years. And as we develop these towards full maturity through fleet investments, the potential for further share gains and mortgage and progression is both clear and exciting. So let's see how these locations evolve over time. Look, greenfields obviously start with very low Fundamental to our approach is that in the early weeks months, it's Fundamental to our approach is that in the early weeks months, it's all about service. You establish your reputation in the market and the other metrics will come with time. We're now entering the 4th year of our openings program and therefore we can see the real returns potential as we broaden the fleet mix and customer base. This is demonstrated by the fact that our earlier openings are already included in that same store 27% return on investment. This program is delivering good initial returns. We must also look at this investment in terms of its longer strategic benefit. Greenfields are a key element of our strategy to broaden both the geographies and sectors we serve as we highlighted earlier and clearly it's worked. In addition, however, greenfields and the extra coverage they provide have been a key element of our market share gains both at a local and a key account level. This combination of same store growth and bolt ons and greenfields is allowing us to develop our margins and returns on investments and provides us with the potential for further growth. I feel that we have balanced I think we have balanced short term returns and long term strategic planning well. This chart on page 16 is one we've shown before. I think it does demonstrate how both our well established and new allocations develop over time, both individually and collectively. Again, I just think it points to the medium term opportunity. As the 144 stores that we've opened over the last 3 years reach their full potential. It is this consistent organic investment in our business that's created a virtuous cycle of scale as we both improve returns and gain market share. In addition, we are diversifying our business and a consequence we're improving our long term resilience. As I said earlier, it's the strategy of investment that's contributed to our market share gains as you can see here on page 17. Initially, as you would expect, our wins will put our historical small to midsized customer base who are more transactional in nature. They are the customers who will vote with their feet very quickly if they are dissatisfied with service and the ones we were best positioned to pick up. However, as we have grown, filled out our geographies and broadened our product offering, it is our key accounts that have begun to grow the fastest. Let's be clear, this does not signal a change in strategy from us as the small to midsize contractor space is 1 where we still feel our model is well suited. However, a combination of where we are in the cycle, some specific competitive dynamics and our own capabilities have made us far more credible and a viable alternative to those who have historically dominated this space. Looking forward, I'll expect this trend to continue in the short term, but to probably balance out over time. So another chart you've seen before and really not a lot new to say here other than the plan has been well executed. There's more dots on the map of both core general tool businesses and specialty locations. Again, it's about breadth of geography, breadth of sector. There is clearly more to go and we will continue to execute in a responsible manner taking account of both our financial and our operational capabilities. A key objective of our investment was to broaden not only the geography as we showed Deb on the map, but also the market sectors that we serve. And we've broadened this exposure in 2 ways. Firstly, we have through our general tool business gained a greater share in non construction markets such as industrial, events and facilities management. There are a number of sectors where we believe which we believe are underpenetrated where rental provides a feasible alternative. Going to continue to focus and grow these markets. And one day, they may well be standalone specialty divisions in their own right. The other way we've broadened our business is through investments in our specialty verticals such as pump and power, climate control and oil and gas. This now represents 25% of our total business, which is great progress. And as we've seen with oil and gas, these sectors are not necessarily immune to cycles. However, by growing largely organically or through small bolt ons and by not becoming over reliant on only one sector, we have significantly mitigated the overall business risk. To have reduced our overall exposure to construction markets from 55% to 45% even as construction markets recover is clearly good progress. But importantly, there's much more to come. Look, this diversification is very positive in terms of the long term development of the group. However, we can't lose sight of the fact that currently construction is a key market. Here, we continue to believe that we remain relatively early in the cycle and key markets like non residential construction are still well below previous peaks. Through the winter, there have been some contradictory data points on the U. S. Economy. However, the construction data remains universally positive. Certainly, that correlates with what we are seeing on the ground, where there is a lot of activity as many of you saw when you visited us in Florida earlier in the year. Of course, short term or lower oil price has had a negative impact on some areas of activity. However, we remain of the view that longer term lower energy costs are a net positive to the economy. Both residential and commercial construction looks solid and there are early signs of recovery in state finances through increased taxation revenues, resulting in gently improving institutional expenditure. Overall, therefore, we continue to see a very positive climate. So how does all of this translate into our planning for the new financial year? Well, the short answer is again nothing changes. Why change a successful formula? We remain committed to our organic growth plans that we first laid out in March. Relative to these plans, we actually pulled forward €40,000,000 of fleet spend to the very end of the financial year as we prepared the business for the coming season. Nothing has changed in terms of our view of the potential for further fleet growth and share gains. And we are continuing to look at around mid to high teens organic volume growth. We will further broaden our geography with around 50 greenfields opened in the year and we will also continue to diversify our business through bolt on M and A, again, mainly in specialty markets. We've added a net 82 locations last year. So our Q1 focus will be growth CapEx for these locations to maximize this new market opportunity. Having said that, we will act if the appropriate bolt on opportunities on our target list become available. And looking to the medium term, we see a very good pipeline. And that's about it for another great year for Sunbelt. So let's turn to A Plant. Well, this has been a very good year for A Plant, who as Suzanne highlighted earlier have been a good contributor to the group's overall profit growth. Fleet on rent and yield were positive and fairly consistent throughout the year. As you can see, we have increased the fleet size considerably and we anticipate further good growth in the coming year. In fairness, if you look at the physical utilization chart, we may have got a bit carried away with fleet growth in April May. Some general economic uncertainty this spring and delays in a number of transmissions and utility contracts meant we were left waiting for these projects to start. I'm confident, however, that it's a blip and something we can remedy during Q1 through a combination of these larger projects starting and the usual seasonal upturn. We are already seeing more positive trends in June and the transmission projects seem to be sorting themselves out finally. It's one thing growing and gaining share, but given the track record of the UK rental industry, are you doing it profitably? The simplest measure of this remains drop through of revenue growth to EBITDA. Rental is an operationally leveraged business and drop through is a key profitability metric. Therefore, we are pleased that as well as gaining share our drop through is improving and we anticipate further improvements in the coming year. This focus on drop through is what drove our returns in the U. S. And it will do so in the U. K. As well. For return on investment to be beyond historical peaks so early in the cycle is of course in itself pleasing. But most importantly, it points to the real potential ahead. We have said before that we need to rebase our through the cycle ROI at AirPlants and this has been a really good start. Again, the market outlook is becoming more encouraging in the UK. As I've already covered, some sectors have seen some delays, but there is a lot of work about and confidence has picked up in recent weeks and we expect a good year where once again we will beat the market. So again, what's new for AirPlants? Well, continued investment in the fleet. We're a rental company and we believe in the benefits of a broad young fleet to service our customers. That's our model. And based on our revenue growth and our drop through and our U. S. Experiences, it works. We did pull forward some of the planned 2016 fiscal year fleet into Q4 of 2015. But again, broadly our plans remain unchanged from those outlined in March. That is lowtomidteeneorganicgrowth. And in terms of M and A, we will continue our strategy of keeping options open, but looking predominantly at specialty sectors to broaden the markets we serve just as we've done over the last few months. So to summarize, the strong execution of a consistent and successful strategy has resulted in another strong set of financials in both divisions. We've invested significantly in the business whilst maintaining a commitment to responsible growth as evidenced by our leverage. We continue to strike the right balance between excellent short term financial returns and investing in our strategic objectives of long term growth and diversification. During the year, we have once again increased our operational capacity both in terms of our location footprint and our fleet size and fleet mix. This coupled with our financial capacity has positioned us well to further capitalize on the structural opportunities that continue to exist in our industry as well as ongoing cyclical recovery. As a result, the board is able to look forward with confidence as reflected by the 33% increase in the full year dividend to 15.25p. So that concludes the presentation. We'll move on to Q and A, where we look forward to being able to add a lot more color to current trading and the exciting opportunities ahead. And we can follow the usual protocols. You all know what to do in terms of waiting for the microphone and stating your name and organization for the benefit of those listening in. Jordan, it's Jefferies. I'm going to start with the obvious current trading question, I'm afraid. So can you give us some more color since the end of April? Obviously, one of your peers has talked about some softness in May. So I'm just curious to see what you've experienced. And secondly, can you talk through M and A within the industry? Obviously, one of a major institutional channel of both United and Herc last week talked about the potential merger of those businesses and you're being supportive of that. Just wondering what the implications for Sunbelt might be and just obviously prior M and A has been broadly speaking net positive for you. I'm just wondering what your thoughts would be on that. Sure. Yes, look, May was strong. I know there was the famous fireside chat, which got everybody a little bit agitated a few weeks ago. Our May trading was Sunbelt's rental revenues were up 24% year on year. And look, we had some headwinds during Q1, which trickled into May a little bit too. As I said, those headwinds delivered 27% rental revenue growth in quarter 1 and 24% rental revenue growth in May. The key at this time of year is what does the cycle look? What does the season look like? Okay, we are a seasonal business. And look, there's been lots of commentary around May trading. And I apologize, you better get your pens ready because I'm going to absolutely douse you with facts because as you know, we pay lots of cards in Sunbelt and our experience is facts usually win. So, look, we have 24% rental revenue growth in Sunbelt in May. In any normal season between May and whatever our high point is, somewhere in the middle of October, early part of November, our fleet on rent grows 20%. So aware of 1% or 2% like this time of year on physical utilization. Why do we see more relaxed than every analyst out there? Because well, requirement is going to grow 20%. So you can adjust your physical utilization by just reducing your intake a little bit very, very easily. So we measure what's happening in terms of that climb. And that climb normally is about 3% per month. May was a good month, the 24%. It wasn't the greatest May we've ever had. But what's really important, if I look at yesterday, which was the middle of June versus the middle of May, our fleet on rent is over 6% up in the middle of June versus what it was in the middle of May. That means it stopped raining and the cyclical uptick is very good, okay? I then look at markets where you think, well, actually, where did that hurt the most at those wet conditions? So I look at Texas, okay. If I look at Texas, yesterday, I have 25% more fleet on rent in Texas than I had 1 year ago. I have 10% more fleet on rent in the middle of June than I had in the middle of May. So it is not surprising that people have confused weather with some great overcapacity in the market as a consequence of oil and gas. None of that bears out any support from any of the statistics we have. So to look it on the head, hopefully, there's another chart in a moment on oil and gas and as I'm sure it won't go away. Keep your pens ready because here's some more statistics. Okay. The biggest product category which is impacted by oil and gas is telehandlers, job site focused, people call them different things, okay? That is where the mass of all of this product is. 1 year ago, I had 8,000 telehandlers in my general tool fleet. Today, I've got 10,000 telehandlers And I've got I had 74% physical utilization 1 year ago, and I've got 75% physical utilization on the fleet that's 2,000 larger today. So there is not this great overhang. Now of course, because you're here, but what about all the oil and gas stuff? Well, a year ago, I had 300 telehandlers in my oil and gas fleet. Today, I've got 500 telehandlers in my oil and gas fleet. And yes, physical utilization has dropped from 74% to 71% to 54%. So I've probably got 100 too many telehandlers in my oil and gas fleet right now. In the context of a general tool fleet, that's 10,000 and likely to grow 20% between now October. And so yes, there would our numbers have been better if there hadn't been a reduction in oil prices? Undoubtedly. Would our numbers have been better if the sun had shone in January, February, March, April and May? Undoubtedly. But we just need to put it all into perspective. And again, let me just show you a chart here on page 28, where we just look what's the hit? How big of a headwind is it going to be? And we've done this not if, well, if we reallocate this fleet and if we move this year and if Mars becomes in line with Jupiter, then this is look, if we just take how much revenue will we lose and how much profit will we lose because oil prices have come down. So ignore reallocation of fleet. So it's 5% of our business, okay? We will lose about $35,000,000 to $45,000,000 of revenue and we lose £15,000,000 to £20,000,000 of profit. All of that impact has been incorporated in Suzanne's guidance in terms of our numbers and my guidance in terms of our you need to put it into perspective. These things have been headwinds. Real businesses face challenges. They are not great big linear plans. Usually, plans are on a perfect straight line are usually too good to be true. So our current trading, we believe, is strong. Our activity levels on the ground are very strong. We're very encouraged about. In terms of M and A, look, I don't know. Look, it's not a secret that Hirst is for sale. If they could ever work out how to do set of annual reports, it would have been sold by now, I guess. There is speculation that United will buy them. I saw the same speculation as you. You've got to ask them, not me. Would I see it as a good thing or a bad thing? Well, the period since the RSA deal didn't work out so bad. Good morning. David Phillips from Redburn. In fact the increase in greenfield was €250,000,000 for 2016. Yes. Much more exciting than that, we're going to have 20,000,000 in Q1. And how many of those have you identified already? Like I said, all of them. Now the one thing which might change perhaps in the 3rd 4th quarters, if we haven't quite signed the lease and a good bolt on turns up, some of the bolt ons can be just in lieu of greenfield. But we've got a schedule of 20 to be done in Q1. We've done 6 in May. Now again, this is where I think people have got to get their minds around the short term impact of some of this bolt on and greenfields on short term metrics relative to the long term strategic potential? What is yesterday, when you're sitting and looking at the statistics yesterday, you think I might get asked a question, so I probably better look at this a bit more carefully than I normally do. Those 6 locations as of yesterday had 40% physical utilization. They're a drag. If I look at all of my greenfields and bolt ons over the last 2 years and take them as a collective group, they've currently got 60% physical utilization. They're a drag. But think of them from the terms of potential. They're going to get 70% physical utilization like everybody else. They're going to get to the margins, dollar utilizations that all of my other locations have got. That medium term potential of those 144 locations reaching maturity both from a financial perspective, but more importantly, strategic perspective. It broadens the diversity and resilience of our business. That's what's so excited so exciting about the quantity of work we've done in the last 3 years so early in the cycle. If you add on to that our potential to just do it again, because it's so low risk, we can accelerate or decelerate it depending on how we see the markets. That's where I think people have to get over the short term stuff about weather and oil and gas and look at that medium term potential. And just as a follow-up to that I mean of the CapEx you've allocated in Sunbelt, how much of that is to these greenfields? Well, that's a good you could probably work on the basis that when we do it, you say €5,000,000 per greenfield. You're not going to be 1,000,000 miles out. Thank you. Good morning. I'm Andrew Nussey from Peel Hunt. Just a couple of little questions just picking up some points you made in the presentation. You highlighted there was some specific competitive dynamics which drove the key accounts business. Is that just a delay from the merger of Knighton and RSC? Is that what you're referring to If you can go to one of the appendices charts here perhaps, Page 31. I think it's an important chart in terms of the structural opportunities within this industry. I remember some years ago saying, look, around the time United bought RSC, the great thing about this industry is the big will get bigger. We might do it through slightly different strategies, 1 through big M and A, 1 through organic growth, but the big will get bigger. So if you look at that market share chart between 20102015, there's 2 points which I think are really important. At the end of the day, there are 3 players who really have the scale to be a national provider to key accounts. That's us, United and Hertz. Other people can pick up bits and bobs around the edges in certain geographies, but the only people who can really look at a customer and say, I can drive you all of your equipment everywhere you want it is those 3, okay? There used to be 4. When 4 went to 3 and we were the bottom of the pile in key accounts way back then, we had to do well. And as you saw by that chart in this our key growth, if one of those, as you know, has got some difficulties at the moment, hurts, I don't think I'm saying anything out of turn. People can read their through, according to what, 3% last quarter when we grew 27%. They can't do separate financials. So they have some problems. They've just got yet another new CEO. So we have to benefit from that. Did we benefit from the top 2 becoming 1? Yes. Therefore, would we undoubtedly benefit if the population of suppliers to that key account group was 2, not 3? Yes, we would. And we would be the only one left to really benefit. So we wouldn't be concerned about that. But I think that that might happen, that might not happen. The key to my mind is what we said right at the start some years ago, which was that diversification or that fragmentation where 61% of the market was tiny players is unsustainable. And look, it's gone from 61% to 48%. In fact, that's going to get smaller. My premise all along is whatever the top 3 currently have got about 23% to 24% market share. I think that population will ultimately have about 40% market share. And that includes very good growth from United. It includes very good growth for anybody else in that national group. It is that structural shift and consolidation in the industry, which is one of the key structural changes, which we will benefit from. Of course, the other one is increased rental penetration. And so the whole cyclical element, which I think has legs to go, is arguably significantly less important than the structural element. Remember, as good a set of performances as we've had for a number of years, the vast majority is from these structural changes. We've grown our market share from 4% to 7%. It's that share gain, not the growth in the market that's grown our top line and our bottom line and will continue to do so in the future. Okay, great. Thank you. Hi. It's George Gregory from Exane. Two questions, please. First, Geoff, EBITDA drop through on the same store basis is still running at 67%. Yes. When you look forward, any thoughts as to how that might evolve? I can't see any real reason why it would be that materially different. Look, don't shoot me with 68% and don't shoot me with 66%. But we've got over the initial hurdle. It was originally over 70%. And it was originally over 70% because we had spare capacity in the business. Therefore, we were adding top line growth and we weren't having to do the funding increase in capacity. That's not been true for a couple of years now. For a couple of years now, if we put more growth on the same store, we do need more mechanics, we do need a bit more land, we do need a few more trucks. Because remember, those increments of variable capacity that we are putting in are relatively small. And so I don't see any reason why not. Look, remember, those same store ROI has gone up to 27%. Look, if all I wanted to do was keep everybody happy with metrics, dollar utilization metrics, physical utilization metrics, yield metrics, all I would do was same store growth. I would never open a greenfield and I would never do a bolt on acquisition. And that's what we're trying to balance here. We're trying to balance still delivering good financial returns, I. E. The improvements in EBITDA, margin strong ROI, still deleveraging. But we're also recognizing that by broadening our geography and broadening the sectors in which we serve, we are creating a resilience to this business that will see us through many cycles. And so that's our trade off. Like I said, to improve our metrics is 100% currently within our control. That won't always be the case. The market will take over at some point in time. But right now, any softening in any of our metrics is purely down to the pace of the greenfields and bolt ons that we choose to do. And therefore, we can change that. And because we're doing it mainly through small bolt ons and greenfields, we're not taking that one great big leap. So sorry, to get back to your question earlier, we've probably the 50 locations, I'm picturing the chart in my head, Got 30 where we signed the leases, 20 where we haven't yet. I can certainly give you the zip codes and tell you exactly where they are. But where we are with lease negotiations varies. I think there's 2 of the 20 that we haven't actually formalized leases with yet. Thanks. And secondly, in relation to that question, you put on a chart the same store ROI for 2012. What does the 2014 number look like relative to the year? That's a good question. But ROI, we should have probably stuck that on. I can't remember the precise number. What I'll tell you, which is the question I think you're asking is the ROI in all categories improved between 20142015. So every category improved. What took what stopped ROI growing collectively was just the proportions that were not in same store versus the proportions that were in same store having added 82 locations. So I think it went forward, Mike's in the bag, a percent or so. So both categories improved. Like I said, I said earlier about physical utilization. Physical utilization on greenfields and bolt ons is only it was only 55% a year ago. But that 55% number had a lower drag on the overall number just because of the quantum that was in 55% versus the quantum that's in 60%. So all of the metrics are heading in each part forward the weighting that's killing us. Hi. Josh Paddell from Berenberg. You talked in the past the market share target of 12% by the bottom of the next downturn. Do you still think that's valid? Yes. I mean, look, depending on how you cut it, we're growing it somewhere between 2 and 3 times the pace of the market. We don't if you look at our capital plans versus some of our biggest competitors, it suggests that our organic growth is going to be at least double this. We don't I don't know how that all changes with M and A. So given the pace at which we're gaining market share, the fact that we're doing it profitably and still managing our balance sheet well, I see no reason why we won't continue to trend. Now precisely where we get to will depend on macroeconomic factors of how long we've got left in the cycle. My personal view is we've got quite a long way left in the cycle. It's very different having a U. S. Audience to a U. K. Audience. The U. S. Audience laps when you talk about are you anywhere near the end of the cycle. They tend to think well as it started. But it is very, very busy. I was in Ohio recently, Columbus, Ohio. I used to have a friend who worked for Asda who bought flowers. And I always thought whether you bought flowers or not was a great general indicator of health. When I was in Columbus, Victoria's Secret were building a new corporate headquarters. And I've decided if Victoria's Secret's are doing so well, headquarters, that's as good a benchmark for the general economy as I need. It's Rory McKenzie from UBS. As you showed that map in increasing shades of green, how do you find the expansion to new areas? And is there more of an inclination to start with bolt ons or greenfield? Look, it's a good question. And you come back to metrics to a certain degree. If you look at this chart here, so I'm looking at Page 14 here and you look at the REI of greenfields versus acquisitions now, acquisitions are a bit tilted because it doesn't have goodwill in it. You would say you're going to get less hassle about metrics and you're going to do it quicker if you do it with bolt on acquisitions. That's just a fact. There's just no getting away from that. So why not do more bolt on acquisitions? So why are we going to do 20 Greenfields in the Q1 rather than 20 bolt on acquisitions? We I mean the benefit of greenfields is whilst they are a shorter term drag on your metrics, You're starting with exactly what you want, where you want it. And there's always some compromise, either be it on location, fleet age, fleet mix, caliber of staff, relationship with Exona, which you have to take into account. So from a pure metrics perspective, short term, you would do bolt on acquisitions all day long. However, if you really want a rifle shot at geography and a fleet mix and a fleet age, again, one of the biggest factors we have in terms of our ROI is remember the poor souls who get measured on ROI, you open a greenfield, all your fleet is new. It's a nightmare. Whereas your partner down the road has got an average age of, let's say, 3 years, He's doing an ROI on fleet that's been depreciated for the last 3 years and you're doing an ROI on brand new fleet. So for a whole host of metrics perspectives, bolt ons are better. But we're not just here to drive short term metrics. We have to be cognizant of them, which is why things like leverage, drop through, progression in EBITDA. And what you can't just say, forget all the metrics because we're doing this grandiose long term strategy. You have to strike the balance. And so what you'll find, Rory, I would suspect is a good balance between it. We bought a lot of we did a lot of board on Zola Greenfield, Astyan. We need to give them the opportunity to have the fleet mix and fleet age that we think that they need to get market share. And that's why right now some of our physical utilization metrics look a bit low. So by some of our yield and drops them because you can see what we've said to these people like these 6 revolving with 40% physical utilization. No one's getting beaten up about 40% physical utilization. I hate it when Suzanne comes up with better one liners than I do. That's my job to come up with one liners. But she came up with a great one in the most recent Boeing, but he said, what's more important? If a customer calls us up and says, have you got it in new location? Is it more important to say yes or is it more important to say, no, I haven't got it, but guess what, I've got 72% physical utilization, okay? So and the answer is as you establish your presence in a new market, you have to be able to say yes. Just one follow-up on that. On those acquisitions, does that 26 percent return include how much extra fleet you've gone in or is that coming year? Yes. Can you say how much that is in proportion? How much of that? I'll have to get back to you on that. I don't but it's something we can easily work out. And then just one more, sorry. You're right, the same store trends in terms of rates or yields, particularly now that the small players are ramping up their fleets? Yes. No, that's a really good question because the obvious answer would be and it's true, I think a sign of how strong the economy is, there is no doubt that our smaller competitors are now spending more on fleets than they did once before. And that was always going to happen. I mean, the key in the long term is to paste on quantum I. E, how quickly are they increasing their capacity versus how fast the market's growing in like in all markets, kind of that imbalance. Medium term, I see it as nothing but positive. And I think we're starting to see that already, which is as they start to increase their fleets, they are facing up to the reality of current pricing for Tier 4 product. And therefore, rates that we're happy to enjoy with very aged Tier 3 product in their fleet make no financial sense given the reality of the real cost of new Tier 4 product. Therefore, if they're going to sustain anything like a sensible return, then they have no option but to increase their fleet sizes. And our customers are facing the same thing, which is why where normally now you would anticipate the trend to rental to be slowing a bit, I don't think we are because I think people are waking up and thinking it costs how much to own 1? And thinking, do you know what, rental doesn't seem such a bad option. So I think ultimately, of course, as more people, more capacity into the market, your potential to get rate increases could potentially start emitting. That of course makes sense. But I do think there's a very specific reality right now that people are selling very old cheap bits of equipment and having to buy very, very young expensive bits of equipment, which has to drive rates to positive territory. I think let's be clear. Oil and gas was on this steaming train. There was a thing as a steaming train. I guess it is. Anyway, you're on this great growth all the way through to December this year sorry, December last year. We are now flat. We had all of our damage in February March. Our fleet on rent and our rates haven't moved in 8 weeks. I mean like when I say it haven't moved, like you look at it every day and think I've changed the number, the fleet on rent is just the same. But the comparables get tougher, because all the way through to December so when people have said, I've not seen very, very little impact on oil and gas, that's because in quarter their quarter ones last year, their numbers looked a lot worse than they did by quarter 4 of this year. So people's comparators are going to get tougher. Of that, there's no doubt. And so we're going to have to think of probably by Q1 better ways of differentiating and spreading all of this out. So there is going to be a growing headwind on rates across the industry because of oil and gas. But we need to differentiate that with what's happening elsewhere in the industry. Chris Gallagher from JPMorgan. Just a quick question on capital finance the kind of peer to peer software called Yard Club where people lend equipment. Can you talk a little bit about that? Yes. And the technology in the industry? Yes, sure. I don't know if everybody knows what Yord Club is. Yord Club is business that started where tiny, tiny, tiny business started where basically if you own fleet, the theory is you put it into a club and you all share it. And therefore, you transfer the equipment around. I think it's the greatest vindication of the shift to rental that I've ever, ever seen. Because why are people doing it? Because it's basically there's a tacit admission that you don't get sufficient good returns or sufficiently good utilization by just owning it yourself. Now for very large pieces of equipment that need to be rented for very long periods of time and you come to the end of a project and you think what do I do with it, it's an option. Frankly, I still think people will just sell it. Why would they let somebody else borrow it for 6 months rather than realize the cash? In a very competitive industry where 70% of our business gets called in for delivery the same day or the following day, who's going to phone up the competency? Can I have yours instead? So it's an interesting concept. Caterpillar tried to make a big deal of it, but everybody knows Caterpillar been promising to do all kinds of weird and wonderful things in the rental industry forever. I've been here 10 years and none of it's worked. This one seems the most desperate one I've heard to date. But anyway, but of course in a world of technology and go comparison website, it seems the sexiest, coolest thing in the whole wide world. But think about it logically. All it's saying to people is you don't get a good enough return by owning your own equipment. I agree, they don't. Anyway, all the technology in the industry, yes, it's moving ahead. If you look at all the things a lot of you have saw us in front of that, our pricing, telematics, our logistics systems. It's an this was a very young industry that's evolving. It's the one of the so technology is developing. I think the likes of us and United and all the key guys are leading that technological charge. And it's one of the justifications I have for saying the large will get bigger. The big will get bigger because of their capacity to invest both in hard assets on the ground, but also in things like technology. If everyone gets hung up about the fleet investment and the right to do so because you can kind of do some calculation and work out what it means for fleet growth. Over the last two years, we've spent over $140,000,000 improving our delivery trucks. In the last 18 months, we spent over $20,000,000 not on greenfields, just upgrading the quality of the facilities that our customers go and visit to improve the overriding brand image of this business. You wouldn't do any of those things unless you were absolutely confident in the long term structural opportunity from this business. You would milk them and generate short term metrics improvements. One of the great benefits of this industry is we've got a bunch of people who are doing just that. And there is only a handful of businesses, including the 2 market leaders, us and United, who are investing in that long term brand image and capacity through the cycle. And that's together with these 144 locations reaching maturity is what really excites me. Good morning. Andy Murphy from Merrill Lynch. Two questions. First of all, you're talking about your net debt to EBITDA level of staying below 2 from the current level of 1.8 times. I'm just wondering whether that's a general comment or whether you're trying to indicate that maybe you're leaving the door open to invest further CapEx or perhaps greater M and A than you've been seeing in the past? And secondly, that's a question for Suzanne. In terms of the growth of the or the growth figures, you've got different growth rates in terms of the overall growth and rental growth. I was wondering whether you could pick the sort of nonrental growth elements of the growth at the group level? Well, let me take the first bit and Suzanne, if you do the same. But in terms of the general look, what are we seeing? Well, we're not seeing a lot really with our we'll keep leverage below 2 times EBITDA. What we're saying is that we recognize that keeping a strong balance sheet in what is still a cyclical business makes all the sense in the world. So we are reaffirming the fact that we will grow responsibly. If the right deal came up and we went to 2.1 for 3 months, would we do the right deal? Yes, probably we'd have to show a very clear way how we got to. But equally, the right deal might not come up and we might go down to 1.5 or 1.6 or 1.7 whatever. We're basically keeping all options open based on the right thing to do for the business at the right time. The key Andy is we have options, and we are keeping those options open. We have no we are not a financially driven business in the sense that we think low leverage is bad. Through the long haul, I think most cyclical businesses have a fairly toxic mix of operational leverage and financial leverage. And over the appropriate time, I would like our financial leverage to be a bit lower. But equally, we are not going to miss out on the right opportunities to grow at a period point in time. So keeping a broad base of saying, look, we'll keep below 2%, I think gives people good comfort about the responsibility with how we target growth and also the flexibility to make the right investment decisions for the business. Ancillary revenue, that's not those aren't numbers that we revenue growth. It's about 22% for the full year. And those are component pieces in there, one of which, for example, is would be delivery charges to customers, which has a bit of the gas element. And as gas prices have fallen, certainly you're not charging quite as much to customers as you would have been in the past. And even just as you would have been in the past. So again, it's worth looking at that difference between rental revenue growth and total revenue growth, you need to look at the press release. So ancillary revenues have not risen as quickly as rental revenues. But the vast majority, be it directly in oil or diesel that we charge that are used in the bits of equipment or is it incorporated in a delivery charge, has come down. So it's what we pay for gas too. So that's why the margins have still gone up. So it's as much as anything, it's that pass through element through oil and gas is why ancillary charges are lower. It's Daniel Johansen, UBS and Connor. Just to make sure that I understand this correctly in terms of opening the new stores, at unchanged capital expenditures, if a higher proportion is to opening new stores, does that lead to slower sales and EBIT growth than it would otherwise or? No. It makes no difference. Look, the question was really about initial operating metrics. So if we open if we buy a business with $5,000,000 worth of revenue, we start with $5,000,000 worth of revenue, The pace of growth is from where 5 to wherever it goes to. We open up a greenfield, we start with none and then the pace of growth. So we are fairly relaxed about the balance between the 2. Ultimately, I think the balance over the course of the year will be as it's been because it's been fairly consistent over the last 2 or 3 years. But we have phases where we do more greenfields and we have phases where we do more bolt on acquisitions. But in terms of through a 1 or 2 year period, the metrics work themselves out and the pace of growth and the returns are about the same. Okay. And then coming back to oil and gas. Obviously, so far we've seen a big impact on exploration drilling and stuff like that. But we haven't seen anything on production. Oil production remains at peak levels in the U. S. Do you know where I mean in the example of the telehandlers for example, are they going into the production phase or to the They're going into a bit of both. You're right. Well, the production element, it depends where you look. Again, if you remember when we talked about this in January, there are very different dynamics in different basins. So Canada, the Dakotas have been hit significantly more than say the Permian Basin. Even within Texas, Permian Basin has done relatively well relative to Eagle Ford, and it's all about marginal cost of production, etcetera. Our view would be, as we said, as we explained and you look at the chart we showed both in January March, we have a good balance of fleet. I think that it's now as I said, it's now a lot steadier. I think where we've lost it, we've lost it as much in production as we have upstream because that's where most of our equipment was. So I don't think there's another wave of downturn if oil prices stay where they are. All bets are off if it drops another 20 books a gallon. But again, even if that happens, what's the worst that can happen? I've got to find a home for 500 heavy handlers out of a population in general tools of about 10,300. And 15% of that are due for disposal at any point in time. And again, the view was, well, everybody's going to flog off all of this fleet and it's going to hammer secondhand markets. It hasn't. There's been 1 or 2 specific auctions in Houston where people sold off junk, where it did have an impact. But generally speaking, secondhand equipment prices remain very, very good because in the context of of course when all of that came off rent in the middle of the winter, if this had all happened in October, it would have been a total nonevent because the construction markets would have been so busy. It would have got gobbled up. It actually happened at about the worst time humanly possible in terms of our cyclical construction markets. And even allowing for that, it's really had relatively little impact. Now there's still people with more fleet to move, more fleet to sell. And so I think you'll see probably higher disposals than you normally see at the half year. But look, we're at the hands of what happens in the oil price. Every indication we've got right now is that it has settled down a lot. That's certainly how our customers are acting. They're starting to talk about longer term investment decision. And the key here is if oil prices go up, which is a huge debate, we could debate that all day long, there are 3,500 holes drilled in America ready to frac. Usually, there's a lag between oil prices going up and people drilling the wells. Now there isn't that lag. So when it tips up, it will tip up at a pace because the drills have been the holes have been drilled. They just need to be fracked. And so there's this huge population ready just to bounce as and if oil prices rise. Don't underestimate the pace at which in various basins the U. S. Oil producers are generating cost savings and efficiencies and lowering their marginal cost of production. Mark Hester from Canaccord. Three questions, if I may. Just first two simple ones. Top questions, can you give us a feel for sort of like for like wage inflation is the first one and sort of the cost of purchasing machines? You've seen that starting to come up? Yes. Like for like wage inflation is 3% to 4%. Probably going to have a guess trend closer to 4% right now. We stayed at the forefront of paying all the way through our guys good salaries. I think our starting point is the U. S. Economy is really strong right now. If you look at all the employment statistics, number of people moving jobs because they can, it's all pointing to a positive direction. Our view is you have to stay ahead of the curve, otherwise you lose your good people. And therefore, we are I believe we do stay at the forefront of that. And therefore, it'll be somewhere between 3% and 4%. If I was a betting person, it'll be closer to 4% than it will be 3%. In terms of pricing inflation, it's 3% 2%, 3%. Some product categories very little. It's normal levels of inflation, which it has been since the hike. But that's for buying like for like. Remember that's not buying a Tier 4 and replacing a Tier 3. And finally just to me the cheeky question. If you're seeing investors sitting out there for us to see United, you see lots of investment banks writing notes saying what a wonderful deal would be for us by Hertz presumably the same investment banks who are pitching to get them to do the deal, call me a cynic. Why would you not be interested in buying Hertz yourself? I mean, I appreciate from my perspective, if you see the returns, sort of things like RSC and Power and Pump and stuff in the past and I can see all these things. But can you just spell out why? Look, you won't be surprised to know that you've all got colleagues who beat a regular path to our door and destroy Amazonian rainforests with these books, which all look exactly the same, with this unique idea that we do something like that. So there's nothing terribly new there in all honesty. Why not? Look, it's times like this when our advisers say never say never. But we've got a model that works, all right? The one thing I've said consistently that I admire United for is the timing of their RSC deal. They did it at the perfect point in the cycle with lots of room to get it wrong because the market was going to be their friends. We have a desire to have a mix of business and to have a size of business. I think we get more precisely what we want in a more responsible manner doing it the way we've done it. Also United bought when they bought ROCE was arguably there in the industry. No questions. Who we aspire to be way back when, when I joined, we were doing a pretty good job of catching them up. I don't like fixer uppers. If that's it from a Q and A perspective, once again, thank you very, very much indeed for coming today and the very interesting questions. We look forward to seeing you in a not too distant future. Thank you.