Earnings Call: Q3 2015

Mar 3, 2015

And good morning, everyone, and welcome to the Ashtead Group Q3 Trading Update. We'll be following the usual format today. So let me kick off with some highlights on Page 2. The quarter saw a continuation of our strategy of same store organic growth supplemented by greenfields and bolt ons. Once again, this has delivered a strong financial performance in revenue and profit growth, which Suzanne will detail in just a moment. It was particularly pleasing to see strong performances from both Sunbelt and Air Plant. And our confidence to invest in the business is clear with £783,000,000 spent on capital and £162,000,000 on bolt on acquisitions. Organic growth remains our focus, but the geographic and sector diversity which our M and A spend is delivering is a key element of our strategy and growth. You will note from this morning's press release that we completed the further two deals in the U. S. Just after the period end, 1 in general tools and 1 in climate control. Even with these significant levels of investment, we continue to grow responsibly, generating strong returns and maintaining leverage within our stated objectives. So with the momentum established in the business and our confidence in end markets, now anticipate a full year result ahead of previous expectations. So on a positive note, I will hand over to Suzanne to cover the financials in more detail. Thanks, Jeff, and good morning. Our 3rd quarter results are shown in more detail on Slide 4. And as Jeff mentioned, we were pleased to report an underlying pre tax profit of £114,000,000 as compared to £80,000,000 for the same period last year. Consistent with past quarters, the principal driver of our profitability was top line growth. At constant rates of exchange, our rental revenue increased 25% as compared to the same period last year, reflecting strong performance at both Sunbelt and A Plant. Jeff will review this in more detail in a moment. With the added benefit of our operational leverage and continued emphasis on fall through, the group's EBITDA margin improved to 44% and our operating profit margin improved to 26%. On the next slide, we've shown our results for the 9 months. On a year to date constant currency basis, our underlying pre tax increased by 33 percent to £379,000,000 Our rental revenue grew by 24% at the group level and we also benefited from the operational leverage I mentioned earlier. During this period, our EBITDA margin increased to 45% and our operating profit margin rose to 28%. Our focus on leverage and balance sheet management remains an important financial discipline, which underpins our business strategy. And on slide 6, we summarize our current position. As expected, the absolute amount of our net debt increased at the end of January, reflecting our investment in organic growth in small bolt on acquisitions. However, given the strength of our EBITDA margins, our leverage ratio remained in line guidance. That concludes my comments. So I'll hand it back over to Jeff. Thanks, Suzanne. Okay. Let's look at what's happening in each of the divisions starting with Sunbelt. Page 8 details the year to date and the quarter looking at both the structural and cyclical elements of our revenue growth. As you know, this is how we like to look at the business internally. I think this page clearly supports what I said during the introduction that is our strategy is working. We continue to see growth both on the same store basis as we invest in fleets and leverage our scale advantages and from bolt ons and greenfields as we broaden the geography and sectors we serve. The Q3 was strong with same store growth of 19% reflecting robust end markets and share gains. The impact of greenfields and small bolt on M and A is also evident contributing percent year on year revenue growth. I think this mix of both structural and cyclical opportunity is very encouraging and we continue to see a long runway of further growth ahead. Turning to Page 9 and looking at revenue another way. You can see that again Q3 was very similar to recent quarters. Yield remained a plus 2% year on year. There was no change in physical utilization and volume of fleet ton rent was strong at plus 26%. Looking now at AirPlants on Page 10 and it's a very similar story, A consistent improvement in yields of plus 4%, together with a 17% year on year growth in volume, delivering a strong revenue performance. We continue to benefit from gently recovering markets, but are also clearly taking market share. With the platform we've created over recent years, a well invested fleet and strong service metrics, we anticipate a sustained period of growth well ahead of the market. So turning to Page 11, what does this mean for Capitorn and in particular fleet investment? For the current year, both Sunbelt and Air Plant will be at the upper end, if not slightly above the increased range we detailed at the half year. As you saw earlier, volume growth remains robust and as we enter the busiest spring season, there is nothing on the horizon which affects our macro planning. As we start to focus on next year's fleet investments, again, we anticipate good growth in both divisions. As a consequence, we see next year spend being at least as much as this year and probably higher. As in previous years, we will flex our actual spend to market conditions as we progress through the year. We have the benefit of still buying fleet in relatively small increments and on relatively short lead times and we will continue to fully utilize this flexibility. The allocation of spend between replacement and growth and its phasing impacts how it all translates into fleet growth. While this is an imprecise science so early in our planning, we have tried to help with some guidance on what growth we are anticipating as shown here by division. An allowance for greenfields at a similar level to this year is included in these capital projections. However, as usual, we have made no predictions for M and A either in terms of initial acquisition price or follow on fleet investment. So to summarize, and I make no apologies for the fact that Page 12 is exactly the same slide as 1 quarter ago as so little has changed. Just to make it different, I was tempted to add a bullet point saying it was a reassuringly dull quarter, but could not bring myself to call 25% revenue growth dull. Our strategy and operational delivery has remained unchanged and I think we are seeing the benefit from the breadth of geographies and sectors that we now serve. We are confident in returns available from further investment in the business. And once again, our focus will be same store organic growth, but this will be supplemented by Greenfields and bolt on acquisitions. This investment will continue to be made in line with the financial parameters we have outlined previously. That is leverage at or below 2 times EBITDA and drop through at around 60%. Our responsible investment to date has allowed us to establish a strong financial and operational base for the business. Given that we are still in early cycle and continue to see further structural opportunities, we look forward to the medium term with confidence. And with that, Hugh, I'd like to hand over to you for the Q and A session, please. Thank you very much first question is from the line of Our first question is from the line of Chris Gallagher of JPMorgan. Please go ahead. Your line is open. Good morning. Just a couple of questions. One around where would be the focus in terms of reaching of future greenfields and potentially maybe some M and A? And also in Canada, what's the penetration of rental in Canada and where do you think that could go? Thank you. Yes. I mean in terms of our greenfields and our bolt ons, our strategy remains unchanged. We are looking to fully cluster the major metropolitan areas or top those top 100 markets. And we're looking to fill in gaps in the map where our market share is lower than it is in other areas where we're more established. I would have said on balance, our both our greenfields and our both on M and A will trend towards more specialties and general tools. But to its large extent, it sort of it depends what opportunity presents themselves at different points in time. So our strategy is unchanged. Rental penetration in Canada, I don't know to be perfectly honest. What I would say is I know we've got a minute market share and our initial aspiration is to get to around about a 5% market share. So we've done that one that first small acquisition. We are planning some greenfields in the coming months once the weather gets a little bit better. And we will be we've already started introducing some significant quantities of organic fleet growth. So our target is to get to around about a 5% market share initially in Canada. And we think that's a very realistic target. Thank you very much. We now go to the line of Steve Wolf at Numis Securities. Please go ahead. Your line is open. Morning. One question sort of in terms of the asset sale level you're seeing in the U. S. I mean as you add more kit, the fleet age obviously comes down through the maths. Do you think you'll find yourself sort of selling less kit out in the market now given the strength of demand and the young fleet and therefore the benefit of that flowing through to fleet on rent? And then secondly, in the U. K, just in terms of a bit more color on maybe the regional performance, what type of kit is highest in demand and maybe who you think you're taking market share from? Thanks. Yes. I mean, if you can Steve, as you've seen for a few quarters now, when you look at our total revenue growth versus our rental revenue growth, total revenue growth is less than rent revenue growth. And one of the main reasons for that is we're just not selling as many assets as we would certainly proportionately relative to the size of the fleet. So for some time now, unless we get a back off rent, it's hard to sell it. It's the truth of the matter. So we have sold relatively less. In truth, there's probably a bit of catch up to be done in Q4 just to get to normal levels of fleet planning. So we aren't selling off a lot. I think when we're all in Miami, we thought, well, look, there's a couple of big auctions coming up both in Houston and Orlando. If there was any great fears about oil and gas, perhaps we'd see an influx of fleet being sold in those auctions and we just didn't. So I think it's true that most people are hanging on the feet more now and using it because it gives you better returns from rental now. At some point in time, you have to catch up with normal cyclical planning. So no, yes, it's true. Our proceeds from sales are not what they might normally be just because it's out on rent. In terms of the U. K, it's a pretty broad race recovery. I think we've talked in the past about how London centric it was. Again, you will see that the returns in air plant have improved significantly and part of that is we are deliberately focusing growth in higher ROI either markets or product sectors. So we again, at early stages of the construction cycle, you are going to get more demand for dump diggers and big booms. We are trying to more than compensate for that by focusing our retentions on a broader range of equipment. So I think the relatively new news is it's a lot less London centric and it's a much broader base of jobs than it was, let's say, 12 months ago. And from a market share perspective, is that coming largely expense of the locals, would you say? It's not quite as I don't know. It's hard to say. It's not a well a well followed market. We there are a number of peers who have announced their results recently and based on our relative performance, someone's also taking share from them. But that's specifically yes or not, I don't know. Thanks very much, Steve. Our next question is from the line of Rory McKenzie at UBS. Please go ahead. Your line is open. Good morning, guys. Just 2 for me, please. Firstly, can you talk about the impact on the drop throughs of the growth mix? I'm just trying to think about what the impact could be if that mix changes more in the next year because your combination from Greenfield and bolt on just picked up over the past three quarters, while the same store growth has been high but steady? And then secondly, we didn't feel much disruption in Miami, but can you give any color on how your trading was impacted by the snowmageddon in the East Coast of the U. S? Thanks. Yes, sure. Yes, look, our same store growth has been fairly steady. It's a bit better in Q3 than it had been in previous quarters. We said for a while, we're anticipating somewhere around that mid teen mark in same store growth. Of course, it's the same percentage with against tougher comparators. Now our overall drop through was 59%. Our same store drop through has been 67%. Therefore, what you would if all we wanted to do was improve metrics, then you would do less greenfields and less bolt on acquisitions. We are not buying businesses with either the dollar utilization or the EBITDA margins of the ROI of ourselves. So their initial impact is reduces some of those metrics. So clearly all of those metrics improve the greater proportion of our growth, which is same store growth. It's one of the reasons why we like same store growth. We discussed in my hand. I also think the more we invest in same stores, it becomes this virtuous cycle of scale whereby we just further and further differentiate ourselves from the local competition. So not only is it financially attractive, I think in terms of structurally gaining an market share, it's the most attractive investment we get. So if we go through a period where same store growth is a greater proportion, then of course then a lot of those metrics will improve. So we would trend. So there was not if there'd be none in the last quarter, drop through would have been 67% not 59%. It's a straightforward. So of course, remember, given we've done so many deals and opened so many greenfields in the last 12 months, there's a very large population going into same stores over the course of the last 12 months. And therefore, just looking at year on year percentage growth is a little misleading given how the population moves during the course of the next 12 months. Okay. Thanks. We now go Sorry, I didn't answer the last question. The last couple of weeks has been really, really tough in terms of weather. If you I think in Miami, I accurately said that sequentially pretty much every week year on year had been better than the preceding weeks. And you can see that in how the Q3 revenue growth was higher than the Q2 and the Q2. That was absolutely true what went to Miami and it's been slightly less true over the last 2 weeks. There's been snowmageddon has been a bit of an issue on the East Coast ice storms around across the broader geography even down through Texas, the Carolinas certainly last week certainly disrupted our business. I was trying to talk to Francis in Texas to listen into a budget meeting with 13 people and one person made it because of the weather. So yes, it's been disruptive, but it's a blip. We all look, it's winter, sometimes in winter you get bad weather, that's just how it is. It doesn't change the quantum of work that needs to get done. It just delays it a little bit. And actually net net it's beneficial. There will be flooding now because of when the snow melts that will create flooding. There will be more burst pipes. There will be more holes in the road. So on a net I always think bad weather is better than good weather. It just affects the timing of certain things. Okay. That's helpful. Thanks. Okay. Now we go over to the line of Andy Murphy at Bank of America Merrill Lynch. Please go ahead. Your line is open. Good morning, Jeff. Good morning, Susan. I just wonder, you just talk about the obvious, any sort of feedback on the oil and gas markets, what your customers are saying to you, whether there's anything about pricing, anything on one of the issues that we get sort of bold ass is about risks of fleet moving around and perhaps putting pressure on prices in various areas? And then could you just sort of flesh out on that last point about sort of the weather impacts? Can you talk a little bit about sort of recent trading since the period end over the broader part of the group please? Thank you. Yes. Yes, sure. Look, Olive and Grass I think as you can see from our same store growth has been the great nonevent to date. Have we seen some bits of equipment come back? Yes, but like only because we're looking for it. If we weren't looking for it, nobody would notice it. It's minuscule. We have not moved a single piece of equipment from any location to another location and we have seen no evidence of anybody else doing it either. Now it is one of the levers we can pull. But I think what happened was a bunch of people asked us what levers we could pull if something terrible happened and what we said was we would move fleet. I think there was then this presumption that there was this mass repopulation of fleet around America. It just hasn't happened. I think one of the other things which I think is notable, there's been 2 very, very big auctions since we were all in Miami, 1 in Houston, 1 in Orlando in terms of auction sales. If people were terribly worried about all of this, they would have dumped fleet in these auctions. And frankly, we look to see if that was the case. There was relatively low volumes in both auctions and there was no evidence whatsoever of it being people dumping telehandlers and rooms trying to so thus far from a volume perspective, it's been the great nonevent. From a pricing perspective, given pressures of customers asking about pricing at the moment, of course they are. Have we had to give anything up significant yet? No, we haven't. So we're a quarter in, not a lot's happened. I'd reiterate, it's 6% of our business. I think I've seen some industry statistics that said of the total industry fleet, it's about 10%. Of that 10% less than half of the people have the infrastructure to move the fleet somewhere else. Given the strength of the markets anywhere else, another 3% or 4% of fleet moving somewhere else would get swallowed up in a heartbeat. So I understand why people are nervous about it. If you look at our statistics, all of our peer statistics, the auction results to date, it's a great theoretical argument, but we've seen nothing in practice. But let's be clear, we've given some guidance for Texas for our fleet's growth next year. We're budgeting growth in Texas next year in terms of fleet growth perspective. We have significantly more fleet on rents in oil and gas today than I did 1 year ago. And current trading? Current trading is strong. There's been a minor tick back over the last week or so with the weather. And as I said, if you look on Page 9, you can just about see that in the fiscal utilization numbers. But absent that, the market had seen continuing previous trends of just getting stronger. So the market is very good. Remember, I can understand why there was this fear that it was going to be the short term blip where all of this fleet came off very short term as a result of the oil and gas price. That hasn't happened. Now what we should be thinking about is thinking more to the medium and long term and what is positive impact of lower energy prices on the general economy, which flows through to the rest of the 94% of our business. The short term blip, which everybody panicked over, clearly hasn't happened. Great. Thanks, Geoff. We will now go over to Dave Phillips at Redburn Partners. Can I just ask a bit more about the guidance for fleet growth next year and the CapEx that you mentioned today? I think, Jeff, you said that there was no expectation of greenfield or bolt on in your volume growth number that you put in the slide. No, there's an allowance for greenfields. There's a resumption that we do somewhere between 2530 greenfields. Okay. 2530 greenfields, cool. But presumably within the $12,250,000,000 to $13,250,000,000 CapEx range of the outlook, is there any expectation of bolt on in that or how do you think about that? That's where there's a difference. Remember, there's always going to be a degree of interchangeability between whether it's greenfield CapEx or whether it's M and A spend. Having said that, when we do M and A, there's obviously the initial acquisition price, but a normal characteristic is there's any significant level of follow on capital. Investment. Yes, fleet investment. So when you look, it was a pretty busy year in terms of both greenfields and bolt ons. What I don't want to do is set a target for M and A spend just to hit a percentage of growth number. So that's an immature way to run the business. The minute you set a target, you're just going to do the deals for the sake of hitting the growth number. And we want to do each one on its merits. Now realistically, is there going to be some? I will be very surprised if there is none. And then so what we're trying to say is, look at this stage, we aren't budgeting M and A, but our strategy of it being a predominantly organic focused strategy remains unchanged. But we've had very good track record of getting good returns by broadening our geography and our sectors through bolt on M and A. And that's likely to continue given we think remember, one of the big pluses I see of this lower oil price is it will elongate as well as improve the economic recovery in North America. So we believe we are sufficiently early in the cycle to still be active from a bolt on and greenfield perspective. Yes, understood. So just to make sure I'm thinking about apples for apples, is that mid to high teens anticipated volume growth is completely separate from the greenfield element of the 10% growth that you delivered in Q3 from bolt ons in greenfield? No, it includes the Greenfield. Yes, that's the same. So the bolt on element is not included in the mid-90s. The bolt on element is not included. That's correct. Understood. Thank you. So if you take that as a volume, I guess you stick a bit on for you see, you pick the number somewhere between mid and high teens. You stick it on a bit for yields and probably got unrealistic we put a little bit on for M and A. The only problem is we do have no idea what that number is. Exactly. And would it be to given what you were saying around about the aging of the fleet and lower disposals, is 2016 a year you should thinking about expand the fleet by your non investment means? So you've got your project capacity in place and you've got the ability to maybe put 3 or 4 months on to fleet. So fleet growth could actually go from that aspect as well as CapEx and EBITDA? No, that's absolutely spot on. Whilst we have historically said, let's not let's assume similar levels of physical utilization as you saw over in Miami about that whole thing about project capacity. It's about speeding up the availability of fleet and therefore where that ought to play itself out is in a slightly better physical utilization. Yes. Great. Thank you very much. Very clear. Our next question is from the line of Justin Jordan at Jefferies. Thank you very much. Your line is open. Thank you. Good morning, everyone. Can we just go back to slide 8? I know you called it reassuringly dull, but can you just talk us through the acceleration in the like for like rental revenue growth from the 17% in the 1st 6 months to 19% in the last quarter? Because obviously, people were probably expecting some modest slowdown in that from energy. And I think you've dealt with that, frankly, in the last few questions. But can we just talk about some sort of explanation as to why the like for like has accelerated? Are there any particular aspects of non risk construction and specialty that you're seeing strong growth in or particular geographies that you want to call out that are just particularly working for you for some reason? Yes. I think it was predominantly through general tool stores. It wasn't the acceleration And we, And we again, we highlighted Miami, we highlighted it in December 2. We saw an acceleration in the pace of activity through the year. The reason why we've called out good strong CapEx numbers for next year is based on what we're seeing on the ground once the weather breaks, spring looks like a very busy season for us. There is absent financial markets who are preoccupied with oil and gas. If you look at employment statistics, wage growth statistics, the fact that people effectively have had a tax cut because of lower energy and gas prices, Life feels pretty good in North America at the moment. So it was just a continuation of existing themes, Justin. Okay. Just one quick follow-up on rental rates. In prior quarters, you've called sort of like about a minus 2% mix effect of bolt on M and A and new store drag and that sort of thing impacting on the sort of the 2% rate you've declared in prior quarters. Is that still around that negative mix similar number going forward? And then what should we be thinking about in terms of Yes. If you break it down, it's always worth itself out as minus 2. And we dealt with this in the first quarter saying we thought it took at least a year for this to wash through. But one tweak I'd say is it doesn't change anything. When we break it down to rate and mix, if the last two quarters were plus 4, minus 2, it's probably now plus 5 in rate and minus 3 in mix. We've got and some of that might be weather, the minus 3. Ring. The one thing when the weather gets bad, you lose daily contracts. So what you have is the longer monthly contracts and you have the you lose your transactional business. Nobody if somebody's got something on rent and the weather is terrible, they probably keep it on rent. Nobody goes out and just does a daily activity when the weather is terrible. So the rates are a little bit better and the mix was a little bit worse, but net net net it all just worked out to do. Okay. And just sort of one final thing. You've obviously, double utilization is trending nice steady at around 60%, 61%. I appreciate there's a negative impact here of new branch openings organically and bolt on M and A because you're not buying anything with the same dollar utilization of your own business sadly. Going forward, are you confident of being able to at least hold something like a 60% dollar utilization going forward even with the impact of growth? Yes. Give or take, it's exactly the same question around drop through. The impact of M and A and Greenfields affects dollar utilization, yield drop through ROI, like a number of metrics because we're buying businesses without with I see that as a positive in terms of there will come a point in time when the level of those greenfields and M and A breakdowns. Again, remember through Chart Twitter on the website from Miami, we showed how over a period of a 3 year period, those businesses evolved to our average. Now what we have now is those who are going through that maturity curve and some new ones that are coming on at the bottom. So the precise number will depend on that mix. That's a into breaking down every single metric between same store, greenfields and bolt ons. We do it on the drop through because drop between same store greenfields and bolt ons. We do it on the drop through because drop through became a key measure over a period of time. But we obviously track same store dollar utilization, new acquisition dollar utilized in greenfields and therefore our confidence in our ability to maintain strong levels of dollar utilization. Again, we could improve it by not doing any greenfields and not doing any acquisitions. If we just wanted to drive the metric, as it is, we're growing the business significantly whilst delivering high returns and managing our leverage. We think that's a responsible thing to do at this stage in the cycle. Thank you. We now go to Alex Magni at HSBC. Please go ahead. Your line is open. Thanks. Good morning, Jeff. Good morning, Suzanne. A couple from me. Just two quick ones on CapEx and then one on the effect of diesel. On CapEx, could you give us a sense of how much of that might go into specialty versus general tool? I'm thinking of the FY 'sixteen guidance. Is there a change in the proportion there? There's not. And I know honestly the honest answer to the question Alex, is I don't know right now. We've gone through the initial first half of top line budgets, So, Zan and I are out in America next week dotting ice and crossing T's that is if the weather breaks and they can actually finish them. And so, I don't know. I would not anticipate a significant difference. If the waiting was any way it would trend towards more specialty, but look, can we come back to you, Dave, full year by which time we will know that in more detail? Sure. The second one on that, as you're looking at your budget and you're looking where you're going to fill in, how would that affect the proportion of extra large and large depots over the course of the next year? Yes. That's again a good question. Remember, you can broadly work on the assumption that all greenfields start at the very small end and work their way up. So it's same store growth, which is driving people up the curve. And it is the greenfield CapEx, which is and the M and A CapEx, which is typically bringing in people in either the small or medium sized locations. I can think of one occasion, maybe 2, 2 locations that we bought that would actually go straight into the extra large category. So typically, we they go up that curve over a period of time. So it's the same store growth, which is driving up that curve. Okay. And if you look at our CapEx last year, 75% of the capital we spent went in same store growth. I would expect a not dissimilar number going forward. Understood. Thank you. And then last one. If I look at the sequential improvement in the EBITDA margin, it looks sort of on trend with what we've had for some time. But bringing that back to the effect that lower distribution costs might have had, particularly on diesel, I suppose a 2 part question. What has been the experience on the diesel cost side? But equally, to what extent are you having to lower the surcharge proportionately? So what's been the net effect through the P and L from that, please? I don't know the answer to that right now, because it's going to there's too many moving parts. I'm not even I'll be honest with you, I'm not even trying to unify this. I think it's an interesting bit in the if you look at the press release in a bit of detail, we break out our revenue growth by the quarter and the 9 months where we break out on ancillary revenues, one thing you will see in the Q4 is that ancillary revenue growth is plus 19%, whereas it's plus 22% for memory for the 9 months. So clearly, whilst it is hard to get increases in fuel for our equipment and indeed delivery. Now as it happens, we have had increases just we haven't had 22% increases. So the slower pace of growth. So it's going to take a quarter or 2 for that to balance itself out. But you're absolutely right. Some of the saving will stick and some of it will have to be passed on. Right now, we aren't giving away great reductions in either transport, Got it. Understood. Thanks. We now go to the next question. We Got it. Understood. Thanks. We now go to the line of Josh Puddle at Berenberg. Yes, hi there. A question on your smaller competitors in the U. S, please. You've previously commented that they're being slow to invest in their fleet despite the positive outlook. I was just wondering if you're seeing any change there. No, not really. We just had the AR ratio and every AR ratio for the last 7 years has come out with announcements saying it's the best show ever and people are going to spend more money than ever before and it never happens to quite be the case. Do I expect people to spend a bit more? Yes, I think a lot of it will be in replacement. I think the key is not what they spend, but the extent to which they replace and which they grow. If you look at the ROUTES data, the general industry fleet ages are still high. Therefore, I would still anticipate a greater proportion of their spend to be replacement, not growth and that's borne out with discussions I've had post ARA with some of the big equipment suppliers. So I expect people to spend more, but I do not expect the fleet growth from our small competitors to match the growth in the market. Therefore, we think there's a vacuum into which we can invest. Okay. Thank you very much. We now go to the line of Mark Howson of Canaccord. Please go ahead. Your line is open. Yes. Good morning. Two questions, if I may. The first question is just on CapEx. Obviously, you raised CapEx guidance, which shows confidence, etcetera. But just how much of that is also due to, obviously, the more items that you buy that are Tier 4, they're more expensive. So is there also a like for like increase in the cost of equipment that you're buying from the manufacturers? Can you just say something about that? That was the first question. Yes. Look, I mean clearly Tier 4 engines are more having said that built into going forward on a year on so if you were to look back on an asset we bought today relative to the cost of the asset we are selling and replacing because of Tier 4, there has been significant inflation. However, between the year just gone and the year ahead, we are anticipating very little in your comments on oil and gas, we haven't really seen much impact to date. I mean, first of all, it doesn't surprise me. I mean, if you look at the United Rentals conference call a couple of weeks ago, I mean, they didn't say they didn't expect anything either right now, but it's more like Q4 calendar 2015 because given the cuts of CapEx and some cases OpEx amongst the oil companies, it would be calendar Q4 2015 rather than Q1 2015 that it would have an impact. So I'm just a bit surprised you say you haven't seen it now. I'm surprised that you were looking for it now because I wouldn't have expected it now. Now. I don't know. I think Mike is right. I mean clearly if these prices continue there's going to be continued pressure. So we would not anticipate significant growth. We would probably expect it to be a small amount of decline. I think what's important however is there's these headline numbers about how number of well heads have halved. Therefore, people are looking for the correlation in that to our equipment. I think what both ours and United's comments should reassure is that neither of us have significant exposure to that highly explorative side of the market. Therefore, trying to correlate what we're going to see from the volume perspective relative to explorative oil fields was slightly overdone. Now if there is significant cutbacks in production from existing wells, then that will have some impact. Although to an extent, whether you produce it at 70% or 100%, it doesn't make a whole heap of difference in terms of what equipment you need. It's just how hard it's working. And if there is a significant downturn or in the longer term downstream capital project that will have a bigger impact. I think the former, either significant reduction in volume is the sort of things we might see in Q3 and Q4. But again, remember how smaller proportion of our business is. The bigger capital projects, they're the sort of things you're not going to say for 18 months to 2 years because we haven't seen a single large capital project that has either been delayed, suspended or stopped. Now the question is and most of these are multiyear projects. The question is how many more new ones are going to come along to replace those over the next 12 to 18 months. So there could still be some impact. Remember, our direct impact of 6%, if you include indirect, I. E. All of our exposure to oil and gas states, it's 10%. It would be ridiculous to say that there wouldn't be some slowing over time if oil and gas prices stayed low for a long period of time in that 10%. However, it's going to happen over the long term and therefore the positive impact that flows through the over 94% of our business will be flowing through by then. So if I look at over the last 3 years we posted great results and sequestration and the reduction the cuts in institutional expenditure were a bigger headwind to us than I suspect oil and gas is going to be. No one bothered about those things because it didn't get the publicity that oil and gas was good. So it is not unusual that at different times in the cycle we see different elements of our market growing at different paces. And I just think this is just another one of those swings Mark. Thank you. Our next question is from the line of George Gregory at Exane. Please go ahead. Your line is open. Good morning, both. Just one question for me, please. I think following up on the previous one on bolt ons in Greenfield. When you look at the deals and the store openings that you have already done, What growth would you expect that to contribute next year please? I don't know. If you think about it, the greenfields and the bolt ons for the year to date have gone about 9. Therefore, if you I think the key is to look at the bolt ons or the greenfields because greenfields just get incorporated in with the CapEx number. So the bolt ons are full and if you've done them on average through the year, it should contribute to next year. I haven't I've not sat down and worked it out. Again, like I said, about a week or 2 away from doing formal budgets. But yes, there's got to be a percent or 2 growth, probably it's a bit more as a consequence of the full year effect of some of those, absolutely. Okay. Thank you. And our first question comes from the line of Pavel Molchanov. Please go ahead. Good morning. Okay. We go over to the line of Hector Forsyth at Stifel. Please go ahead. Your line is It's Stifel. We've in terms of on the CapEx guidance you're giving for next year at this stage, can you give an indication of where you might see leverage at the end of the year end of financial year 2016? Yes, Hector. What we have said about leverage and again, we'll be able to perhaps give some more guidance on this in June when our budget process for 2016 is complete is that we will keep guidance within the range that we've given, which is at 2 or below. That is largely dependent on M and A. At the current CapEx spend levels that we have indicated for next year should we do no M and A then the leverage ratio will drift down a bit from that 2 levels. So it's dependent on M and A, but certainly we will keep it within the guidance of 2 or below. Okay. Thanks very much. At this stage, there are no further questions in the queue. May I please pass the call back to you to close? Yes. Thank everyone for your interest this morning. We appreciate all the questions. And as always, if you have any questions, please feel free to call Jeff or me later on today. Thank you. Thanks, everybody.