Earnings Call: Q2 2014

Dec 10, 2013

Good morning and welcome to the Ashtead Q2 results presentation, where Suzanne and I will look to add some color to the very pleasing results we released earlier today. The presentation will as always be followed by Q and A, which will also be broadcast. Well, I did a very pleasant job to start off with this overview, which I think you will agree clearly demonstrates the continuing momentum in the business. Revenue growth for the half year is 23%, which has resulted in record pre tax profits of £212,000,000 up 49% on the prior year. This growth continues to be very profitable with group EBITDA margins up to a very healthy 43% and most importantly, group return on investment improving to 18%. We have continued to invest in the business with £401,000,000 spent on the fleet and a further £61,000,000 on bolt on acquisitions. I think it's further testament to the strength of our margins that we have been able to do all of this whilst continuing to delever. Our experiences on the ground together with encouraging lead indicators allow us to look forward with increasing confidence and as a result we are raising our full year capital guidance to £700,000,000 to ensure we are able to support our customers in the new financial year. In addition, in line with our progressive dividend policy, the interim dividend has been increased by 50% to 2.25p per share. So overall, a very healthy picture and having done the easy introduction, I'll hand over to Suzanne to fill in the detail. Thanks, Jeff, and good morning to everyone here today and also to those listening on the webcast. Our 2nd quarter group results are shown on Slide 4. And as Jeff indicated, our positive year over year trends continue with pretax profit for the quarter of £113,000,000 compared to £79,000,000 last year. Consistent with recent periods, our profitability was driven principally by a 23% increase in rental revenue. This performance was further enhanced by operational efficiencies, which helped to deliver a 30% increase in EBITDA and an improvement in our EBITDA margin to 44%. On the next slide, we've shown our results for the half year. Again, we were pleased to report this morning a 49% increase in underlying pre tax profit, which rose to £212,000,000 a record for us. In the first half, our group's rental revenue grew by 25%. These higher revenues combined with our operational leverage produced a 32% increase in EBITDA and a 41% increase in operating profit as compared to the same period last year. EBITDA margin improved to 43% and importantly, our operating profit margin improved to 28%. Let's take a look now at the first half numbers on a divisional basis beginning with Sunbelt on Slide 6. At the top right of the slide, we've provided a rental revenue bridge outlining changes from last year's first half to this year. As you can clearly see, we continue to capitalize on market opportunities and that's reflected in Sunbelt's 17% volume growth and 6% yield growth. On the bottom right, the bridge demonstrates our drop through for the half year. Excluding gains on sale, we brought through 61 percent of our incremental rental revenue to EBITDA despite the opening of new greenfield Moving on to Slide 7 and A Plant. Moving on to Slide 7 in A Plant, we were encouraged to see this level of improvement. Looking at the bridge on the top right, you'll note that our rental revenue growth in the half year was comprised of a 23% volume increase and a 10% yield increase. EBITDA margin for the half year was 31%. Now to be clear, the amounts shown on this slide do include the results of Eve Trackway, an acquisition we completed in May. But if we exclude Eve, then the core A Plant business still showed a healthy growth. Its rental revenue, excluding Eve, increased by 16% in the half year, reflecting 10% more fleet on rent and importantly, a 5% improvement in yield. On Slide 8, we'll shift our focus to cash flows. Historically, the 1st 6 months are marked by a significant investment in our fleet to meet seasonal demand and this year was no exception. Cash payments for new fleet net of disposal proceeds, were £408,000,000 As a result, our free cash outflow was £137,000,000 but we expect this seasonal pattern to moderate in the second half. Additionally, you'll note that we invested £61,000,000 this year on a number of small bolt on acquisitions, which Jeff will discuss in more detail shortly. The next slide outlines our debt and leverage profile. As expected, the absolute amount of our net debt increased this October as compared to last. This was due principally to the fleet investment perspective, the increase was more than offset by higher earnings and therefore our leverage ratio declined from 2.4 to 2.1 times. This reduction was in line with our view that improving EBITDA margins will allow us to support further growth while still continuing to delever. Looking forward to April 30, we expect this ratio to reduce to around 1.8 times, and we maintain our view that in the medium term, we will sustain leverage below 2 times. On Slide 10, we've provided some additional color on our revised capital expenditure plan for this year that you will have seen in the earnings release. Given the strength that we're currently experiencing in the U. S. Markets and our return on invested capital, we now expect to spend £700,000,000 2014. We've shown on this slide the anticipated allocation of this amount between replacement and growth with approximately 65% of the rental CapEx directed towards growth. As always, our plans remain flexible depending on market conditions, and we will adjust this as appropriate throughout the remainder of the year. With respect to fleet disposals, we now expect cash proceeds of about £100,000,000 and therefore, with this level of proceeds, we our net delivered CapEx will be approximately £600,000,000 As we continue our growth, it's appropriate to take a look at our return on investment, which we said for some time is the best medium term indicator of the strength of our business and therefore the best way to evaluate it. With this in mind, the group's progress as reflected on Slide 11 is pleasing. Here you see that our ROI has steadily improved and is now at 18%. I hope what's clear from this chart is that our focus on operational efficiency, organic fleet investment and small select bolt on acquisitions has put us in a solid position from which to consider the prospect of further investment in the business, a plan which Jeff will now discuss further. That concludes my comments on the results, and I'll hand it back over to Jeff. Thanks, Suzanne. So let's start with Sundance and we'll take a broader look at the operations and our market opportunities. Page 13 has the usual metrics for the quarter and half, which show that we continue to have strong year on year volume growth, plus 15% and yield improvement at plus 5%. We also continue to invest in the fleet, which in dollar terms is now 23% larger than only 1 year ago. I think the physical utilization trends are interesting and demonstrate that this was our best ever period of fleet management. Physical utilization has remained remarkably steady at around 73% throughout the first half. Typically, it's much lower in the Q1 and higher in the second, neither being particularly good. I would just remind every one of my comments of a year ago when utilization was just too high and we were under pressure in terms of service and unable to respond to new opportunities as well as we would have liked to. At this steadier pace, we have retained sufficient flex to continue to gain share as witnessed by our industry leading revenue growth and have been able to drive further margin improvement as Susan has just detailed. Page 14 once again highlights the long term market opportunities we shared with you at the year end. I would like to cover these once again to ensure that we have fully communicated why we are increasingly confident that they all continue to provide significant long term opportunity. So let's start with construction recovery where there is the potential for significant upside from current low levels. The data can be misleading with big swings in different elements of construction. For example, large residential gains have been counterbalanced with reductions in institutional and non building expenditure, thus subduing overall growth headlines. However, most encouraging for us is the growth this year in commercial and industrial starts at +13%, together with very encouraging forecasts for 2014 2015. The chart on the right reemphasizes just what our business mix is. I haven't had the say this since 2007, but just to remind everyone, we are a late cycle non residential business. When non residential construction starts improve, we tend to see the benefits 12 to 24 months later. Remember that prior to this recovery, even though construction began to fall in 2,006, our best period, excluding recent performance, was the 12 months to July 2008 as projects already started reached completion. Therefore, our current expectation is that we should see a period of sustained growth. But let's look at how we see the cycle unfolding. What I've shown here on Page 16 is the last three construction cycles from start to finish and the early stages of the current one. As you can see, the length and shape of the cycle tends to follow 1 of 2 patterns. In 'seventy five to 'eighty two and 'eighty two to 'ninety one, the initial recovery was very aggressive. But as a consequence, the overall cycle was relatively short lived. However, as you can see, the current cycle is following the steadier recovery of the early 90s. And given current imbalances in the economy, I like most commentators continue to support the view that a long steady recovery is the most likely shape this time around. Okay. So now let's move on to market share gains where we believe we have the opportunity to double our market share from 6% to 12%. This may seem aggressive until you look at some of the facts supporting our confidence. Over the last 3 years, we have consistently grown at 2 to 3 times the market growth rate. And as you can also see, we have a 10 year record of growing share. Way too much has been attributed to recent changes in the market rather than recognizing the long term structural trends and the benefits of our model. This trend has a long way to go as we have some clear competitive advantages, again, as witnessed by our market leading operating metrics. So let's try and explain in a bit more detail just how and where we will gain all of this market share. I think this page here is pivotal to understanding both the scale and the nature of our opportunity. The map shows our market share by geography. Basically, anything in green or geographies where we already have our target 12% market share and dark green is share north of 15%. This demonstrates that where we have the footprint, our model delivers at least our market share target. Look, we've come a long way in a relatively short period of time and our geographic imbalances reflect this. However, it is only a matter of time before we achieve similar results across a broader geography. As I said earlier, we have never had before this scale of competitive advantage or this balance sheet strength with which to execute our strategy. So to add a little bit more color to this, there are 18 out of the top 100 markets in America where we have no locations at all and a further 30 where our share is lower than our average share. So we believe there is significant opportunity in existing and new geographies for further expansion. I thought it might also be useful to look at a real example of how we balance greenfields with bolt on M and A in order to fill those gaps in the map. Highlighted is an area covering 800 square miles where 1 year ago we had one location, 1 new greenfield, dollars 15,000,000 in fleet and therefore pretty much zero market share. Within 1 year, we have 7 locations, fall through acquisition, a second greenfield and we have tripled our fleet. Based on 2 further greenfields we now have in the pipeline, we will by next financial year have 9 locations, dollars 80,000,000 with the fleet and will have transformed our presence. We also now have a great springboard for organic fleet investments as this market should support double our existing fleet. We believe this blend of bolt ons and greenfields is one we can successfully roll out across a number of geographies, the precise mix being driven by our existing presence and the quality of opportunities available. So as you can see on Page 20, since we announced our depot expansion strategy just a year ago, we have made really good progress. We now anticipate adding around 50 stores this financial year. Certainly, in the first half of this year, we had a good mix of both greenfields and bolt ons, and I believe this balanced approach is a sensible one. As you can see from the chart on the right, in such a fragmented industry, there are lots of opportunities for further consolidation, but they have to be the right deals in the right geographies. Having said that, organic growth in our existing geographies together with greenfields will remain our primary spend and we should remain focused on operational execution, driving further ROI progression and we will remain ever mindful of our leverage commitments. And finally, you can see why we like this mix of organic growth and small bolt ons. It is a low risk, high return strategy and plays to our operational strengths. It is also a strategy with a very long runway ahead of it. Okay, let's now turn to rental penetration and the opportunities that continue to exist there. Again, I think that Sunup got a little preoccupied with the short term impacts of credit availability. If you stand back and look at the charts, this is a long term structural trend, which has gone on for the past 13 years. This is no sudden response to tight credit markets. In addition to the long term trends, there are currently some very specific drivers, largely linked to technology changes and equipment inflation, which continue to emphasize rental as an attractive part of any construction company's business model. Highlighted on this page are 3 key equipment types you will find in any fleet, the 60 foot boom lift, the telehandler and the skid steer loader. All shows shown is an indexed market price detailing 2,006-seven recent pricing and next year's price now that's Tier 4 will be fully implemented. As you can see, there is going to be significant inflation, which will be a major factor to any of our customers or indeed smaller competitors with old fleets who are faced with heavy replacement spends. Our suppliers have already identified that sticker shock as they call it and understanding of the technology is resulting in a greater proportion of their output going to rental. In addition, it is likely to result in our smaller competitors either shrinking or aging their fleets. This was totally predictable and explains our strategy of aggressively reducing our fleet age over the last 2 years. As you can see from Page 24, the benefit of our fleet de aging is that nearly half of our fleet is under 2 years old. The fleet which is coming up for replacement in the next few years, I. E. That which is 6 years or older is only 30%. Now contrast this with the typical age profile of our customers or indeed our smaller competitors, where at least 60% has to be replaced in the near future at much higher prices. This will be a significant financial burden. Therefore, our young fleet and purchasing power gives us a meaningful market advantage and this will allow us to continue to produce above market revenue growth. Moving on to A Plant and it is great to be able to recognize a super performance. Rental revenue growth was 35%, but obviously this included, as Sasan said earlier, the acquisition of Yves. However, excluding this, rental revenue growth was still 16% with 10% volume growth and 5% yield growth. And as you would expect, in tougher markets, we have been pushing high physical utilization. But again, as in the U. S, if current trends continue, we will start to increase growth CapEx and perhaps reduce physical utilization a little to allow us to flex to gain further market share. Again, we believe we are well placed to continue to gain share utilize the competitive advantage our strong balance sheet provides. In terms of outlook for U. K. Construction, it does look a little more encouraging and I sense that we are past the bottom. However, what I've tried to highlight on Page 26 here is that with 41% of total construction still being public and infrastructure, no matter how good residential is, until we are more certain of direction here, we will continue to invest responsibly. However, what is encouraging is that we're making good progress in ROI well before a cyclical recovery. ROI through the cycle is the measure for any rental company and we are now well on our way to a more sustainable returns profile in the UK. It is pleasing to see that a consistent execution of a simple customer focused strategy supported by sensible fleet investment is delivering better returns and solid market share gains. So to summarize, both of our divisions clearly have good momentum and are supported by a strong balance sheet. We continue to invest responsibly in the opportunity and our strategy remains heavily weighted to organic growth, but it will be supplemented with bolt on acquisitions, both in new geographies and specialist markets. Simply put, it's all just more of the same. We are very focused on operational delivery to ensure further ROI progression and we will retain a disciplined approach to debt leverage. Consequently, we are looking forward to the medium term with increasing confidence. We now anticipate a full year profit towards the upper end of current expectations. We have increased capital guidance to £700,000,000 for the year and the interim dividend has been raised by 50%. And with that, I will now hand over to Q and A where for the benefit of those on the web, can you please use the usual protocols of saying your name before you ask the question? Good morning. It's Andy Murphy from Merrill Lynch. Just a couple of fairly simple questions. I was just wondering about your desire to double the market share. I was just wondering whether you could give us a flavor for the timing when you think you might get to that 12% and whether you think the emphasis will be M and A or organic? I think I know probably where that was going to end up. And then just in terms of the CapEx increase, could you give us a flavor for or confirm when that's going to land? Will it be in place for the new financial year? Yes, sure. Look, in terms of the market share gains, it's difficult to be precise. I mean, a lot of it will depend on the length and shape of the recovery. So I think we will do it between now and the bottom of the next downturn because remember, we get some of our greatest competitive advantage with our balance sheet. So precisely how long that is, it's difficult to say. We think it's a very realistic target. You look at that map, the risk is that you look at it and you see all those white bits and think, well, we must be going into the white bits. That's not really the case. The key to this is making light yellow, dark yellow, dark yellow, light green and light green, dark green and dark green even darker. And I don't think people quite understand just how big some of our imbalances are in terms of market share. Our model supports significantly more than 12% market share in lots of those geographies. I mean, let me try and give you an example. New York is not surprisingly the biggest market in America and there's a 20,000,000 population in New York. We have market in Suzanne's home state of Virginia, which is sort of Newport in Norfolk. There are 2,000,000 people in that market. I have more fleet on rent today in Newport, Virginia than I have in New York City, okay? I've got probably somewhere north of 35% market share in Newport, Virginia. So what we will be doing is we will be filling in places like New York, one of the small acquisitions you will have seen when you get into the detail of the press release was in New York. There's another one on its way hopefully early in the New Year, a couple of greenfield openings. So it's a case of that combination. I still think the predominant growth will be fleet investment in our existing stores and greenfields. Bolt ons will be an important element because what it does is it gives you a bridgehead. Once you've got the bridgehead, we know how to build out that bridgehead. So the majority, R and D, will be organic growth in existing and greenfields. In terms of landing of the CapEx, look, it's going to be back ended. This is going to have little or no impact on this year's numbers. This is all about being ready for next spring. And we've got better over the last 3 or 4 years. Historically, we kind of run the business like a bunch of accountants. And so we wanted all the new fleet to arrive on the 1st May because it was the new financial year. Well, that's about 3 months too late to get it in ready for when the market actually wants it. So what we want to do is ease it in a little bit more steadily now because otherwise it's just a big disruption to the business. You can't focus on customers and land all our fleet at all the same time. But our experiences on the ground now is we're incredibly busy. So with a combination of what we're seeing in terms of construction activity today, which will carry on and new projects scheduled for the spring, we want to make sure that as the market picks up and perhaps supply chains get strained, we're well positioned to support our customers. So very much back ended in order to get off to a good start next year. Thank you. David Phillips at Redburn. Hugh, let's ask them 1 by 1 rather than bombard you. Are there any sort of decent sized acquisitions out there, not mega, but maybe $100,000,000 Yes. Yes, they're not. Great. That's good enough. Whether they want to sell. But yes, no, there are 3 or 4, not many more than that, of reasonable size in geographies we would like where they make some sense. And we have incredibly strict criteria. We don't want a major overlap. We don't want a fixer upper and we want to look at their fleet profile. We what bolt ons give us is time. We have enough knowledge of the market to do it ourselves. We don't have to have bolt ons, but in a brand new location, it just gets us there a little bit quicker. Sorry, I'm digressing. I might be answering some of the questions. I apologize. But it's an interesting stat this, which is historically when we opened greenfields and I think when we stood here a year ago, we said it takes 1 year to break even with a greenfield. Well, it doesn't any longer. It takes 6 months. And the reason why it takes 6 months and not 12 months is our scale and our presence in the market. What we find now after 6 months we're breaking even, but what we also find is 80% of the customers who are renting from us already rent from us somewhere else in the country. Therefore, we're a well known entity now and therefore we naturally attract people who dealt with us elsewhere in the country before when nobody had heard of us. It just took us longer to attract business. Yes. That's great. You did answer my second question, so we can skip over that one. Psikic as well. Yes. Talk about regionally, there is very big differences in the market share. Yes. Appreciate it may be commercial, but presumably you see quite a big margin difference as well. Oh, my yes. No, that's a really good point. Where we have our clustered markets, where we can share resources, then without a shadow of a doubt, you see a step change in the operating margin because each individual location hasn't got to carry all the staff, all the fleet, all the trucks, it can share them. So you get you absolutely get an improvement in margins where we have what we call our clustered markets. Absolutely right. Fine. And I'll just ask one more than hand on. I'm sure you watch with interest with United talking about 2.5x to 3.5x net debt to EBITDA as being their target range, which we could debate forever where that's right. But we're then doing a share buyback at the lower end of that, you're going to generate a lot of cash even with this heavy investment over the next few years. If I announce, what can I do with this far out as that? I say what they said, we'll probably do one day not to be precise for an amount. We're not quite sure what it was going to be. But so look, yes, you're absolutely right. We are going to be potentially very cash generative. We continue to look at a full range of ways of best using that cash. At the moment that's heavily weighted towards growth. We're also making sure we hit our debt commitments because we said we want to run-in a range of below 2, which we will be at by about the year end hopefully, all things being equal and we want to stay there. But yes, ultimately, as the moment arrives, we will look at all uses of cash. We are as you can see pushing up the dividend. Right now rather than special dividends or buybacks that's our primary focus in terms of returns to shareholders. We think there is significant room to grow in terms of the dividend. But remember what we've also committed, we have committed that we will raise it to a level where we know we can sustain it all the way through the cycle. Now we believe what we hopefully showed you today, there is a long term structural opportunity here. We don't want to be superheroes for a couple of years at the top of the cycle and then slash and burn on the way down. So part of our long term cyclical planning is a predictable normal dividend. And so we have to hit those thresholds first, but then clearly we look at other uses as and when the time is appropriate. Thank you. Hi. Justin Jordan from Jefferies. I've just got 3 related questions. Firstly, on I guess the key new news this morning of increased fleet investment from EUR 560,000,000 to EUR700,000,000 gross. Is there anything we should be aware of in terms of evolving fleet mix within that? Nothing significant. I think typically as the cycle improves there is a greater demand for the lighter end of equipment. So hopefully we will see us probably investing more in the lighter end of equipment and in small tools. Our fleet investment in our specialty markets has on average been greater than it has. So there will probably be a slightly greater proportion, but we're talking rounding differences. We're all going to suddenly show you a pie chart it's moved materially. So no tower cranes then? No tower cranes then. Okay. Just second question. I press that you got specifically in Q3 a really tough yield comparator, obviously because of Sandy last year. That's a question. One of your peers is talking about for calendar 2014 yield being potentially 3% to 4%. Does that seem like a realistic number for you for calendar 2014 when you get through obviously a Sandy issue? Yes. Look, I mean, we always try and be a bit vague because we don't know. Look, this inflation will have to force rate improvements because otherwise people aren't going to get the returns. The great news about this remember is that 50% of the fleet that's less than 2 years old, the rates in a year or so's time will be linked to the purchase to current purchase prices, which will help our dollar utilization undoubtedly. Look, we have been in that low single digits range every quarter for about 3 years now. It's hard to see why it would change significantly. So if I'll take 3, 4, if it was 4, 5, would you shoot me? So it's going to be of that order. Just one final one. Just following on from Dave's question on M and A. There is obviously, I guess, a potential large transaction in this industry in the next, whatever 6 to 12 months, number 3, Eric is literally looking at strategic options. Is there a scenario where that might be appealing to Sunbelt? Bolt? There's always a scenario where something is appealing. Is it probable? No. In my opinion, I don't think it is. If you look at that map, if you look at our fleet mix, what we need now is rifle shots in the products, in the geographies where we are light, not a big blast where we're already strong. And what you would see is there would be a high level of overlap. I think what we've seen with other big consolidations in the industry is the dis synergies from overlap in terms of revenue can be very, very significant. We remain committed to our ROI progression. We remain committed to our leverage. We think we've got a long, long runway. So there's always a price and there's always a situation where things are possible. But I would say it's not probable. Good morning. It's David Brockton from Liberum. Can I just ask two questions around the U? K. Business? In the last quarter, and I think if you strip out yield, you've got a 5% yield improvement, which I think is the first positive well, materially well, some material, but decent sized movement in yield for the U. K. Business. I'm just wondering if you could give us thoughts on that one? Yes, it was not really. I'm sorry. But if you go back far enough, almost 18 months ago, we were showing improvement in yield. We bought the assets from one of our biggest customers in the U. K. Last year and I kept saying every time, look, it looks like it's negative, but actually underlying everything apart from the adjustment of this is positive. And I think we actually went through that story every single quarter. We have actually seen quarter on quarter yield improve it's been tiny. Let's be absolutely clear, it's been tiny for a little while now. There is no question about it. It has accelerated. My belief is that we have the best quality youngest fleet in the industry. We think we give a great service. And when as the revenue growth starts to come through, there is an increasing confidence in our sales force and management expecting a decent return from that. So yes, it's true that the rate of growth has accelerated, but it hasn't just started in the last quarter. What was really encouraging, I was looking very briefly at the November statistics, we got sequential improvement in rate in November. I don't think that's ever happened in the U. K. Before. So that was there are some very encouraging trends in both volume and pricing in the U. K. Moment. Okay. Thanks. Actually, I'll change my second question. Just on the exit rates in the quarter, I just wonder if you could give us a feel for what the exit rates in terms of revenue growth were for each part of the business? Yes. Looking for the U. K, it was broadly what it was in the quarter. In the U. S, the quarter will be affected by Sandy. Glad you asked this question, otherwise I stuck a slide in for no reason whatsoever. There is a slide there that shows all of last year by quarter and the 1st two quarters of this year by volume and by price. And as you can see, remember we talked about Sanddep, we said look we had a plus 5%, plus 6% benefit of Sanddip, which all came in yield. It was all due to delivery costs, generators, fuel on generators, etcetera. Based on what we've seen in November and the 1st couple of weeks in December, the volume growth you saw in Q2 of this financial year is about the same. It's give or take 15%. The yield is going to be give or take 0. It might be plus 1, it might be minus 1, just because we have it's against us. So as you can see, look, we've remained incredibly steady. Notwithstanding Sandy, we will be remarkably steady again. And so our expected exit rate for our anticipation for the quarter is low to mid teens, I guess, might be a bit better. I mean, I don't know if you're American football fans, if you watch Philadelphia Eagles on Sunday night, there was 6 foot of snow. And so if it keeps snowing like that for 6 weeks, all bets are off. So it's a difficult time of the year to be precise. But somewhere around mid teens seems, I mean fundamentally, the volume has stayed very, very strong. Normal rates are fine, but we've just got to see normally in terms of the comparator in quarter 3. Good morning. Alex Maglin from HSBC. 3 please for me. On growth, we've had this discussion before, but I was wondering where we were. If you looked at the depot network that's been, say, open for 2 years or more, so your mature set, how much more capacity do you think that could absorb? $500,000,000 I think was the number a while ago. Where do you think we are on that? Yes. I think we're a little less than that, but not a lot. We are extending some of our locations. Remember, it's not as if we have to buy a whole new location necessarily to increase capacity. To increase capacity, we need a couple of more trucks and a couple of more drivers and a lay down area, ideally exactly adjacent to our location. But if it happens to be across the street, that's not the end of the world either. So we have very few fixed cost of infrastructure constraints. If you go back to one of Suzanne's slides here, it's a number which doesn't often get talked about. So let me just get back here one of our capital slides, sorry, in seconds. But we spend a huge amount of money. All of this other is trucks. We have an enormous fleet of trucks. Not only is our fleet age the youngest it's ever been, when you go it doesn't look like we've got an old truck in the fleet. So there are some very easy tweaks we can do to improve that capacity. I'm not saying they're on a handful of locations, but I bet I could list them where we have physical constraints and probably need to move location. But remember, it's this is not like building a new factory with lots of big fixed cost. It's getting a bit of extra land, a couple of more mechanics, a couple of more drivers. And in the main, we're in out of town locations where it isn't difficult to expand our footprint. Okay. And then the second question on the yield equation. Could you give us some color on what's happening on daily, weekly, monthly? And how much of the yield was driven by a mix effect in those, if at all? Mix, virtually not. And remember we do yield and so we haven't got this mythical mix issue in terms of our yield number. We're at the stage now where daily and weekly remain above previous peaks. But remember that in play, that's why previous peaks are on relevance because the previous peaks were to get a return against an asset that cost 100. If that asset is now going to cost 130, previous peak rates are pretty irrelevant and that's what we keep pushing to the sales force, forget previous peak rates. So but we are beyond previous peak. We are just about there on monthly. So on average, we are ahead of historic what were historical peaks, but we need to be. So that's why dollar utilization is such an important measure because that encapsulates a combination of yields and the cost of the assets. And dollar utilization, Simon, it was 61 percent? 61 percent versus So again dollar utilization continued to go up. We will probably in the spring start to see a few more longer transactions because if non res really takes off then you're going to get a few bigger projects where assets typically stay on there a little bit longer. But I don't think it's going to be massively meaningful, Alex, in terms of our yields. Okay. And then just last one from me and coming back to sort of the peak analysis. If you look at the potential for cyclical recovery, in a lot of the Gulf states, the amounts of employment in construction is not too far away from the 2,007 peak. Now that may be an energy related I am surprised that it's not already significantly greater. The level of activity in the Gulf States in terms of we'll do it at the full year. We showed a geographic expansion in terms of part of our expansion. We could have equally shown a set of charts about how we've grown in oil and gas business. And Paz will share that information at the full year in terms of how we go through greenfields and acquisitions to build a specialist business. We have quite a sizable oil and gas business now where we mainly operate at the wellhead. They're burning off something like 50% of the gas they're producing in Texas because there's nowhere for it to go. So the amount of building activity in the Gulf States around refinery capacity is absolutely phenomenal. And we know from our own scaffolding business, it is incredibly hard to get labor. So I would anticipate that employment in the Gulf states will go way beyond previous hires. Okay. Thank you. James Marrow from Barclays. Just on your point about dollar utilization. I think last time at the peak it was 68%. It was probably yes, but that was sort of pre nation's rent I think. Mid-60s. Mid-60s. Okay. But so just going to your point on the inflation that you've seen in the equipment pricing. If you've got this young kit that you've paid say €120,000,000 for on your index in the slide, Other people are paying €140,000,000 for it. Presumably, the rental rates are going to be driven off that €140,000,000 So would dollar utilization be above mid-60s? It should be. I mean, there's likely to be a hiatus for a year where it's what proportion of Tier 4 is being sold and rates readjust themselves. But absolutely, the whole point is that 2 years of under fleet will be being rented in 6 or 7 years' time. In 6 or 7 years' time, everybody's reference point for rates and acquisition costs will be the higher inflated price. And remember, not only have we done well in terms of buying early, our discount relative to our smaller competitors is significant. So that price you quote on that slide of inflation, that the market price? Is that your That's why we deliberately put an index rate. We're not going to embarrass our supply base by putting our price down. And then just following on to the market share doubling. Obviously, you said there's potential to extend the existing footprint sorry, build in the existing footprint. But the new greenfields that you're opening Really got masses to go. Yes. I mean, if you look at that example we give of what we call a Central Plains District, we've gone from nothing to 5% or 6% market share. We should be 12% there. So we can double even But on that point presumably that requires quite a lot of new management resource to run those branches. So where are you getting those people from? It's the great thing when you come out of a recession and you've not cut the cut as much as others. We've got people who have kind of been with us through some very, very difficult times. And we've and that's why we like this strategy of bolt ons and greenfields. We have a lot of bench strength in assistant managers ready to be managers, managers ready to be district managers, district managers who've been doing the job for 7 or 8 years ready to be regional vice Presidents. And that's why we like it. Do I have the senior management team to do a significant transformational M and A. That's debatable to be perfectly honest and I suspect no one in the industry has. So but that's why we have lots of potential. Now we have to improve in certain core areas. We talked a couple of presentations ago about some of the efficiency opportunities which exist, which are clearly flowing through. Because for us to be doing that level of bolt on in greenfields and still have over 60% of drop through says we have to be inherently more efficient in our core business. And so it's great that those efficiencies are starting to flow through. But that's why people say, well, why not $800,000,000 Why not $900,000,000 CapEx? Well, because we're trying to balance a whole series of things here. There is what will the market be? What is the opportunity? What financially can we do? But to your point, Jane, look operationally what can we do too. And so I think we're growing at a pace that we find quite reasonable. Why 50 locations because we've got 40 districts and there's 1 new location each and everybody can manage 1 new location. Now that's not quite how it works out. But nonetheless, it's we are very probably I come from an operational background. We're very, very mindful of the operational execution. Mike Murphy, Nynae Securities. Three questions please all surrounding CapEx. First of all, why the decision now to increase CapEx? You'd already increased it slightly for Q2. And you might have thought actually given the fact that Q3 is normally slow for CapEx that you might have delayed that decision to Q4. So why? In the same way as we got shot for not giving guidance in Q2, even though we said the risk was to the upside. We never get just for the avoidance of that, we won't be giving guidance in Q2 next year either. We always give guidance in Q3 because we're starting to plan for our spring. And if we want this fleet to land in February, March, April, we need to be placing orders in November, December, January. So now is the perfect time to do 2 things. Assess where we believe the overall market is, see specifically where we are and where our supply base is and place orders. This is the most important capital guidance of the year. I know you're going to give a number at the year end because it fits in with budgets and things like that. But really, the core of what we're going to do next year is based on this decision. And so we always give guidance in Q3 because it's the most appropriate time to do it. Okay. And follow on questions from that part of the 3 part question. Have prices been agreed on the kit that you're buying? And thirdly, you mentioned the discount significant. Can you give us some idea of your buying scale percentage discount relative to your me or the man in the street walks in and wants to buy a bit of kit from the manufacturers? Yes. Yes, prices are agreed. We ordered early and therefore we think we have done a good job in terms of we're very happy with the prices. That's a good job, Joe. Sorry? What's a good job? Good job is a good job. These things are all relative, Mike. In terms of the discount, look, it's significant. I don't want to embarrass our supply base, but it is significant. We bought a business in September where they had a bunch of fleet arriving and we just said cancel it unless we're getting our prices because the gap was it's significant. It's more than double digits and it's significant. I don't want there to be a queue outside of my supply base for small contract saying I want Astrid's prices. And it is meaningful. And it is based on the deal what's really what's great when you do a small bolt on acquisition, we stand here and say all small competitors of this, well, we bought a bunch of them and now we know exactly what they're like. So it is significant what our and the purchasing advantage we have today is the greatest we've had in our history. Okay. And finally, on the mix of kit, how much now is Specialty? Because Specialty was 40%. How much? I won't try and flick through the slides because we've got about 300 and it takes whatever. But if you flick through the slides, specialty, it's now about 30% of all this. And with that increasing, your dollar utilization on specialty, I think if I remember from previous notes, it was about 70% or certainly over 70%. I seem to remember 77%. So naturally, as you keep investing in the specialty side of the business, surely You should remember. Yes, look, it's true. Look, our stated objective is for by the bottom of the next downturn, specialty to be 50% of our business. However, the reason why we want so much specialty is it is stable. So therefore, when we go into cyclical recovery with construction, that 30% will drop. For no other reason, it won't grow as much as the cyclical business grows. So it's not where it is at the top. So it could be back down to 20% again by the peak of the cycle. But the key is what is it bottom to bottom. So be careful. It isn't going to become a bigger percentage during cyclical recovery. Thanks. Sure. Gregory from UBS. Just one question please, Geoff. On the slide about market penetration, you talked about moving into markets like New York. I appreciate that as you deepen your share of a market, your margin should go up. But is there a counterweight in that in the larger more competitive markets? There is greater pressure to secure the same return. So net net, you can't make as much money as you might be able to do in say one of the smaller markets? That's not been our experience today. Look financially, it's a very logical argument and I'm sure it will play out that way in certain geographies. That I have no doubt. Our experience remains that our model of going for a very transactional business across a broad range of products to a broad range of suppliers, people pay for the service. The statistics I gave out in the last presentation or the presentation before is 70% or it's now more than 70%, 70% something of our business gets called in for that day of delivery or the following day. Those people aren't shopping around, okay? Those people are demanding a very responsive service. We are there are other business models, which are perfectly valid business models, but they're different to ours. And our view is, particularly in a recovering market, the pressure to complete on time, the pressure to be able to access fleet outweighs some of those pricing pressures that you suggest. But it is wrong to say that that would never happen, of course, it will. Steve Wolf from Numis. Just in terms of the sort of the bolt on acquisition part of that, are there any areas now you feel you're still particularly weak on and would like to sort of add? And secondly, also in the particularly in the U. K, obviously, you've had EVE, just other areas that you might be interested in? The answer is Lourdes is the honest answer. We split our specialty acquisitions into 2 categories. We say more of what we've already got, all of which have room for expansion. So pump and power, oil and gas, climate control, which we love all of those areas and we would like to add to those. But there are some sectors where we really aren't in them yet. But our customers are creating a demand. I'll give you an example of that with the transmission space. In terms of maintaining overhead power lines, etcetera, we've got little or no presence in that market. We think it is fundamentally assets rented out from a network. We have network. We have access. So there are a range of areas where potentially we could go in. So we added oil and we used to have pump and tire on scaffolding. We added climate control and we added oil and gas. Oil and gas, I we'll start writing the full year presentation. We will explain what we've done with oil and gas at the next full year presentation. It's a very similar story to what we've explained in terms of the geographic expansion today. So we will continue to expand oil and gas climate control pump and power and we may well add 1 more to it all. Just two quick follow ons from me. Jeff on the asset inflation point, if you stripped out the Tier 4 related equipment, what's the rest of the asset base inflating? That's a good question. We see around about I'll do the math. It must be like high single digits. From 2006, yes, because remember how we measure it is from 2,006, 2017 to when we come to replace it. So it hasn't been significant. It hasn't been very significant. The big, big driver has been Tier 4. Okay. And then the second one, and just coming back to the CapEx budgeting point. As you're now going into sort of the winter soft patch, how do you get visibility? What are the things you look at to understand what the spring and the early summer are going to be like to drive that? We look at jobs currently on the ground, which need to go to completion. So we might have we may not have an order for that job, but the job site is there. So we know we will probably get our market share of it. Okay. The work may slow during the difficult, but it's going to pick up again in the spring. We have some fairly detailed models now, particularly when we look at things like greenfields where we look at put in place construction. We talk to our customers and we take a view from that. But all I can tell you is, right now, bearing in mind it's November, we have an incredible amount of fleet out on rent and there are a lot of job sites. And unless there was a financial Armageddon, there are a number of projects scheduled to start in the spring. And these are the sort of projects that have been planned both from an architectural position and financially put together over a long, long period. And so we know what's slated to start in the spring. And that gives us a lot of confidence. If you look at sectors, lodging sector is really strong, offices, retail is even strong at the moment. So our core non res markets are really picking up. I'm delighted the statistics are better because for about the year I've been thinking this makes no sense. We think it's great, but none of the statistics say it, at least now the statistics are caught up with our experiences on the ground. Thank you. Hi. Jessica Gill, RBS. Just in terms of the re aging of the kit, you've obviously made a significant number of disposals and you continue to make those disposals. Could you give us a feel in terms of the disposal market? A, in terms of demand and B, in terms of realizable value? Yes, they're both great. And because of that whole inflation thing, they're going to continue to be great. Because what people are going to do is they're going to avoid buying a new Tier 4 both from a pricing and a technology understanding perspective. And our Tier 3 old ones are going to look great. So the second hand market remains very, very robust both in terms of demand and you can see that a number of you get the Roush statistics and the Rous statistics continue to be positive. 2nd hand equipment prices are way above where they've ever been historically. But again, you need to compare that with the current purchase price. And so that whole inflation element for Tier 4 has a very positive effect on our disposal process. Well, that's the end of the questions. Once again, we'd like to thank you for your interest in the company and we look forward to seeing you in the full year. Thank you.