Earnings Call: Q1 2013

Sep 4, 2012

Good morning and welcome to the Ashtead Q1 results conference call, which is being hosted by myself, Jeff Travell and our Finance Director, Suzanne Wood. As usual, the Q1 will be an abridged version of our full and half year presentations and we will move quickly on to Q and A. So turning to Page 2 on the slide pack, which hopefully you either have or is available on our website and the overview of our performance. Obviously, we are delighted to report record group profits of £61,000,000 driven by strong revenue growth and improving margins as we continue to build on the momentum now well established in the business. This strong performance is underpinned by a very strong balance sheet. You will recall that just after our full year presentation in June, we refinanced our bond and this together with the earlier ABL extension has given us both lower finance costs and longer term maturities. Suzanne will cover this in more detail in a moment, but in short, our business is demonstrating high margin organic growth. We are investing in both the size and age of our fleet and we have an attractive long term debt facility, which enables us to continue to take advantage of opportunities as they occur. As a result of this momentum and our outlook for the balance of the year, we now anticipate that our profits will be materially ahead of our earlier expectations. So let me now hand over to Suzanne to cover the financials in more detail. Thanks, Jeff, and good morning. I'm pleased to share with you on Slide 3 what we believe is a strong set of numbers for our Q1. As most of you know, our results have improved consistently for a number of quarters, and it's nice to see that trend continue into the new fiscal year. For the Q1, we reported an underlying pre tax profit of £61,000,000 compared to £34,000,000 for the same quarter last year. This profit performance was driven principally by our rental revenue, which rose 15% in the quarter. In addition, our performance was enhanced by ongoing cost efficiencies and improved operational leverage. As a result, our EBITDA rose by 34% year on year and our EBITDA margin improved to 40% in the quarter. On slide 4, we provided a view of the group's revenue and profit split by division for the last 12 months ended 31 July. On a group basis, our underlying pre tax profit for this period rose from £53,000,000 to £158,000,000 and our EBITDA margin for the last 12 months improved to 35%. Looking at the operating divisions, you'll note that Sunbelt's performance was particularly strong in terms of revenue generation and as we continue to benefit from market opportunities despite the relatively flat in construction markets. When coupled with an approximate 70% drop through of incremental revenue to EBITDA, Sunbelt achieved a 37% EBITDA margin, in line with previously reported peaks. A Plant also improved its EBITDA margin to 27%. And while returns in the U. K. Business are still lower than we'd like given economic conditions, they are moving in the right direction. Jeff will cover this divisional performance in more detail shortly. Turning now to Slide 5, we've outlined the positive steps we've undertaken since November 2009 to improve our debt structure by both extending maturities and reducing our interest cost. Our declining interest cost is shown across the bottom of the chart. Most recently this summer, we upsized our asset based senior bank facility from $1,400,000,000 to $1,800,000,000 with no cost and no change in our loan covenants. Given the group's growth, we felt it appropriate to upsize the facility. Then in July, we redeemed our outstanding $550,000,000 9 Percent Bond and replaced it with a new $500,000,000 bond bearing interest at 6.5% and maturing in 2022. These actions will reduce our full year interest expense by £8,000,000 and represent a quick payback on the exceptional costs associated with the transaction. We continue to believe that our existing debt structure is well suited to our asset intensive business and provides us with substantial capacity to fund future growth. As Jeff mentioned, our weighted average debt maturity is now 5.7 years. Our weighted average interest cost is approximately 4.3% and we effectively have no financial monitoring covenants given our current borrowing availability. This combined with our young fleet age positions us well at this stage in the cycle. That concludes my comments on the results and therefore I'll hand it back over to Jeff. Thanks, Suzanne. So starting with Sunbelt and the revenue drivers for the quarter. You can see that we've had a very strong growth in volume at 13%, but also a slightly better than anticipated year on year yield improvement of 4%. So despite the tougher comparators, we continue to deliver good year on year improvement. To the right of the page is physical utilization. Based on some of the comments I have seen and heard, I'm not sure that this is the best understood indicator in the world. And this chart shows this year's utilization as compared to 20 eleven-twelve and 2,005-two 6. Using these years because they are our best 2 years ever in terms of physical utilization. As you can see, other than in late May to June when we were adding a lot of fleet, remember the fleet size is up 15% year on year, our physical utilization remains strong. This is a measure that needs to be looked at in the context of both fleet growth, yield improvement and flex capacity. As I said at the year end, I would anticipate being down 1% to 2% on last year, but this will not be a bad thing as it will give us some flex to take opportunities presented by the market. I continue to believe that this is the right strategy at this stage in the cycle and would obviously take a different view if we were looking at a more difficult market environment. As impressive as the revenue growth has been, a real characteristic percent the drop through in the quarter was a very impressive 79%, resulting in EBITDA margins excluding gains on sale of 44%, up from 38% only a year ago. We will continue to focus on drop through. However, it should be noted that there will be a small reduction as we embark on more greenfield sites in the second half of the year. Page 8 demonstrates the benefit of these strong EBITDA margins with both sides of our balance sheet having seen significant strengthening. We've been able to continue to step up fleet investment and both increase the size of the fleet, up some 14% over the year and de aged by 7 months. However, this investment has been achieved with a modest increase in debt and due to our improved EBITDA, a significant reduction in leverage. Looking forward to next year, having de aged the fleet to where we want to be so early in the cycle, we will be able to reduce the maintenance element of our CapEx and focus on growth investments, which identifies the opportunity for both further growth and further significant deleveraging. Moving on to Page 9 and A Plant. The market remains challenging and therefore we are pleased with a 7% growth in fleet on rent. However, the 1% decline in yield demonstrates just how tough a market it can be. However, profit is improving and opportunities continue to present themselves due to the quality of our service and our well invested fleets. The UK will continue to improve as the correction in supply and demand takes hold, but it will be a long hard slog from a low base. So to summarize, we continue to experience good growth and have continued to invest in a fleet that is now significantly larger and younger than a year ago and hence has greater revenue earning capacity. Due to the margins being achieved, we've been able to do this whilst at the same time reducing all leverage. This strong performance has allowed us to refinance our debt package at attractive terms, which will underpin our future performance whatever the market conditions. We therefore now anticipate full year profits materially ahead of our earlier expectations. So that concludes the presentation, And I will therefore hand over to Hugh for Q and A. Thank you. Okay. The first of 5 questions comes from the line of Jane Sparrow at Barclays. Jane, please go ahead with your question. Your line is now A couple of questions, if I may, just on the U. S. Firstly, on the 13% fleet growth. I wonder if you can provide a little bit more detail on how much of that you feel is coming from an underlying cyclical recovery, how much from market share gains and how much from the continued rental penetration over ownership? And then second question just on pricing, up 4%. Can I just ask, is that continued growth in the transactional rentals, which I think you'd already commented were back above previous peak? Or is that some recovery in the long term rental arrangements, which I think you'd previously said was still about 10% below peak? Yes, Jim, they're good questions. We've discussed this before given the sort of wide range of contracts that we write, it's hard to say what's cyclical recovery, what is structural change. My guess is, look, we are starting to see some mild recovery in starts. I mean, most of the statistics now are around that 3% to forecasting 3% to 4% growth this year in housing starts. I'm not sure we're seeing an awful lot of that on the ground as yet. We are seeing it in certain areas. Housing seems a bit better. Private, non res seems a bit better. But we are seeing declines in local and federal spend too, which is mitigating it to a degree. Perhaps one way to look at it is an interesting statistic. As you know, I'm a bit of a geek in looking at some of the analysis of some of our trends. July within this quarter, July this year was the most profitable month Sunbelt has ever had, the previous peak being October 2007, which I guess makes sense given where we were in the cycle. If you look at housing so you look at construction starts across those two periods, then construction starts were down 32%. Interesting, even though we had more fleet on rent in July 12 over October 2007, we wrote 30% fewer contracts than we did back in October 2007. So by that so clearly, we haven't seen that bounce back in activity yet. And our overall number of contracts is still low. So by definition, we are putting out more per job and more per contract than we were in October 2,007, which to me points to the fact that the majority of our improvement is through structural change. Now how you split that structural change between our customers renting more and taking market share, I have no idea to be honest with you. But I think that's quite an interesting statistic. The fact that our contract count is actually down in line with how construction is still down. So I would suggest that very little of this current Q1 has got anything to do with recovery in end markets in North America. One would hope that if this really takes hold that future quarters will start to see some benefit from that. And I think that's probably, see if I look into spring or summer of next year, our anticipation, but not in these numbers. In terms of rates, we've seen a tick up across all categories. We've probably seen a slightly better one actually in monthly. The transactional rates, you're right, continue to go higher and above previous peaks, which we think is very, very encouraging. And we are seeing a bit of movement in the monthlies also. So good gentle improvement across a broad range of categories. That's very helpful. Thank you. Pleasure. The next e mail is from the line of Eugene Clerc at Credit Suisse. Please go ahead with your question. Your line is now open. Yes, good morning. Rather than an e mail, I'll just ask a question I guess slightly easier. I guess three questions. First of all, regarding the gentle improvement in the U. S, could you indicate aside from end markets whether that's related to any geographical areas? 2nd of all, if you look at your margin performance in Q1, which was particularly strong in U. S, you highlight that because of the greenfield sites coming on in H2 this year, you're looking at a slightly lower drop through. But could you give some guidance for margin performance in the U. S. In particular for the remainder of the year given the strong Q1 performance? And then finally, I think, how different seasonality wise should we view this quarter versus the full year relative to last year's Q1 versus the full year? I mean, I think last year, your Q1 was just slightly less than 25% of full year profits. I mean should we expect something similar? Or if you could give us any guidance on that that would be quite helpful. Yes. Okay. Let me do those one at a time. First of all, in terms of the geographies, the geographic split, every single region is ahead of last year, both from a volume, a pricing and a profitability standpoint. So that's very, very encouraging. There are regions which are better than others. That's true. I think Texas is a very strong market. Anything which is being supported by power initiatives, any geographies relating to those are particularly strong. But I think as we have seen for a number of quarters now, the geographical improvement is broad based, which I find encouraging. In terms of margins, well, we don't really give guidance on margins. We sort of give guidance on drug through, because we don't run the business to margins. We run the business to drop through and revenue growth and the margin is the output not the input. We have seen a particularly strong drop through in quarter 1. I guess we're going to open around 10 to 13 stores in the second half of the year. That's the sort of range of targets that we're talking about. And I'd stick with our historical guidance on drop through, which is somewhere between 60% 70%. Probably towards the lower end if we do many more stores than that and it will depend on what the biggest issue will be the proportion of growth, which comes from volume and what comes from pricing. So we will stick to our historical guidance on drop through. I'm not sure I recognize your statistics on seasonality. Let me tell you how I look at it. In terms of seasonality, once you've had a Q1 like we've had and we know where we sort of know where August is going to come out, We sort of know where the half year is going to be. So we're likely to see similar trends to what we've seen in Q1 and Q2. If you look out of 4 out of the last 5 years, 70% of our profit comes in Q1 and 30% of it comes in the first half and 30% comes in the second half. Last year was unusual because it was a very mild winter and therefore we had a sixty-forty split. Our view would be and when we do our forecasting for the year, we are anticipating it looking a lot more like the historical trends of seventythirty. Perfect. Thank you. Our next question comes from the line of Justin Jordan of Jefferies. Please go ahead with your question. Your line is now open. Good morning, Jeff and Suzanne. I've got two quick questions. Firstly, a cheeky one in August. The statement says that the performance seen in Q1 has continued in August. So can we infer that 17% rental revenue growth in August also? You can actual knowledge as I've got because August finished at the weekend, Americas rather unfairly just before my results decided to take a holiday yesterday. So I haven't got a clue what the final numbers were for August. It's the honest answer. Having said that, it would be wrong to say I haven't been tracking it through the day. I know Ian is listening in on the call and so he will be shaking his head saying, of course, he knows. So look, it will be mid teens to slightly higher. It's been a good August. I just haven't seen the final numbers just yet. The only reason why we I know typically recently we have put in what the actual following months been. It's just it's a bit soon after the end of August to do that this year. That's the only reason. Okay. Thanks for that. Just moving on to, I guess, the factuals of Q1. Are there any specifics, I'm thinking in terms of the Specialty business or anything that sort of funniest that we should be thinking of in the 17% rental revenue growth in Sunbelt that were particular beats or misses or whatever just to explain what is a fantastic number? No. I mean, we asked that question a couple of times and I know people have asked us about hurricanes. Anything any hurricane will be in August, not in the Q1 remember. And it hasn't been a huge amount just yet. Look, our specialty businesses have had a strong quarter, but they've been having a strong quarter for a number of quarters now and have generally outpaced what you would call general plant and tools. That's a trend, which was existing 12 months ago and has existed for a while. So no, there are no special events during the course. I think that's a good solid underlying number, Justin. Okay. Just one final follow-up to, I guess, Jane's question just on rates. Where are we now on rental rates vis a vis prior peak? Can you break that down between sort of the kind of longer term customers vis a vis the sort of short term ones? Yes. Look, we can. It's not as precise as you'd like it to be. My guess is now, we are 6% to 7% down of previous peaks. To do the calculation, when I started doing my October to July comparison, because I was interested to know what the differences were, we've started doing it. It's quite a complicated task to do it very, very precisely because you've got to look at the inflation element of the increased fleet on rent. So the fleet on rent, if you look at it in value terms, looks a lot bigger, but some of that is because at original cost, it's just cost more. It doesn't mean I've got more pieces of equipment out on rent and then you get into spec changes, mix changes. So look, as precise as we can get it, 6% or I would have said was 6% or 7% down from the peak. Okay. Thanks. Our next question is from the line of Andrew Nossi at Peel Hunt. Please go ahead with your question. Your line is now open. Yes. Good morning, Suzanne. Good morning, Jeff. A question on A Plant, if I may. And just a little bit more color around the quarter's performance relative to the performances we've sort of seen over the last few quarters. A little bit surprised to see that yield there, but equally quite a good gain on average fleet on rent. So just is it a mix issue or perhaps been a little bit smarter on price to try and drive up returns? Yes, it's a mix issue. We've had a couple of big contract wins and those wins are at the more aggressive end of the pricing range. What we have seen is we're trying to develop a business which looks a bit more like Sunbelt in terms of its focus on small and regional customers. And if I look at the trends, stripping out 1 or 2 big significant wins, then we have seen good pricing improvement and good improvement in yields in those areas in this quarter as we did last year too. However, you then lump in 1 or 2 big national accounts and those good percentage gains off a lower base just get a bit dwarfed. Having said that, it's still tough out there. There are a number of major contracts and those contracts remain a feeding frenzy for rental companies and rates are pretty awful. As I said, I don't believe that's not true. Mathematically, some of the yield and rate improvements people have put out there are accurate. All people have done over the last 12 months is stop doing the really stupid stuff, but average prices haven't gone up and average prices are not going up. But there are less dumb prices around which helps push up your average. We aren't seeing an environment where rates on a like for like job are increasing, which is what obviously we're seeing in North America. And that's when you're seeing real price improvement when you're seeing that sort of tick up. Got you. Okay, great. Thank you. Okay. Our next question is from the line of Alex Hu at UBS. Please go ahead with your question. Your line is now open. Good morning. Okay. So just to start on the kind of intra quarter momentum. So I was wondering if you can just say, I mean, the volume momentum by mass must have accelerated, but did it accelerate each month sequentially? Or was it just the last few months were better than May? Just wanted to understand the intra month the intra quarter stuff there. And also what was it driven by? Was it just increasing fleet growth or we're actually taking market share as you go through the quarter and everything? Yes. Look, your maths is bang on. I mean, If we've given the main number and come up with a quarter number, then the last 2 months have to be better than the 1st month, but the maths doesn't work. A level maths, I've got A level maths. Yes. I'm of an age where there were all levels, but as everyone says now, all levels were better than GCSE. Mine wasn't very good. Look, yes, we had a slightly improving trend through the quarter, which is why when we say August is mid to high teens, it's more in line with what July was than it is what May was. So yes, look, we have seen some improvement. What's driving that? Look, we're just not that good, Alex. My guess would be that we are continuing to gain some market share. Certainly, our growth surpasses any forecasts I've seen in terms of improvement in the end market and even improvements in the rental industry. So we continue to gain more share. I think that, like I said, I do get very geeky about some of these analysis. For us to be doing more fleet on rent in July 12, even though we've got 30% fewer contracts, just says people are becoming more reliant on rental. There. There is more activity per contract. I think that helps explain also some of the significant drops in too, because without that transactional activity, we've been able to keep a good handle on the transactional costs and the variable costs. So we've got the best fleet we've ever had out there. Look, I know people look at mathematical calculations of months of fleetage. If you'd ask Brendan, either he or I wonder around the operations right now, there isn't a profit center manager wouldn't tell you our fleets in the best condition it's ever, ever in its history. So we are definitely benefiting from the quality of our fleet, the quality of our service and the stability of our organization. Is that helping us gain market share? Yes, I think it is. Because again, if you wander around and you drive around particularly some of the smaller competitors' yards, there has never been a bigger difference in the quality of our equipment relative to our competitors. That gap is has in practical terms has to be the greatest it's ever been. And I think that's helping us deliver excellent customer service and enhance gain market share. Okay. And then just to understand, I mean my next question is on the rate momentum. I'm going to just can you confirm that that was pretty much stable through the quarter? What's the understanding? The momentum on rate, so the 4% rates sounds like it was the same average as in May. It was. But in terms of the new fleet coming in to the fleet, was that front end loaded within the quarter? Or was that fairly much consistently through the quarter? I mean, it was sort of it was mainly May June. You can see it if you look at that chart on physical utilization. You can see when it all landed because we had that dip in physical utilization where if you remember last year, I said, look, the physical utilization is great, but if I'd had my time again, I would have brought in a little bit more fleet at the beginning of the spring because I felt we were leaving opportunities on the table because we just didn't have the fleet. We didn't suffer from that. We were determined not to suffer from that at this spring. And maybe as we brought in a little too much in a little too short a period of time. So you can see when the fleet came in, when you if you just look at our physical utilization chart, Alex. Okay. Okay. That's perfect. And then my last question, just going back to I think it was Justin's question on rates being 6% or 7% of previous peaks. Although on my spreadsheet, I get a bigger variance versus previous peak. But that's a by the by. What does that make for your longer term margins do you think where you can get to because that's obviously still quite high drop through? Look, it is. I mean, look, you know that we have I have we have always said that and I've been saying for a while, it just looks like a little bit more realistic now than when I first said it. Certainly in America, I think we'll get the mid- to mid-40s EBITDA margins. Look, I think the daily and weekly stuff, given we are well ahead in almost every region now of previous peaks, do not be do not assume that we can only get back to previous peak rates. I think the increased dependence on rental, the imbalance between supply and demand and the tight credit markets means there is every reason to believe a cyclical recovery we can get above previous peak rate. I stick with my guidance in terms of I think we can get the mid we can get the mid-40s in terms of EBITDA margins. I am sure your spreadsheet can come up with a better number than that. But I think that's a very realistic expectation. Okay. And then sorry, just my very last part, just geographically I should have asked question. I have no idea anymore. I've lost count. But in geographies where non res is stronger than the average, have you is there any evidence there to support rates being potentially going over previous peak? Yes. Look, we have a number of we have geographies now where we are seeing rates, which we would have never have dreamt possible. I'm not going to tell you where they are, but anyone in the industry will know where we mean. We have been very pleasantly surprised. And I think it's a combination of I would improve discipline. Remember, we've shown you a number of times this new software pricing that we've got this Zilliant software, which I think works well. I think it's the hardware available to the sales force to make those decisions is undoubtedly helping drive that. And there is just this incredible shortage of good quality equipment. And as I said, our fleet now is as on a walk by visit and I am probably the least qualified person to do that walk by visit. But even to an untrained eye like my own, the fleet is in as good a quality as it's ever, ever been. And so that's why we are sort of pointing to the fact that we will be able to reduce our maintenance capital expenditure next year and therefore really sort of start throwing off some opportunities from a cash perspective just because we do not need to de age the fleet anymore than we need to. Typically, we don't reach this point until the top of the cycle. We've never been in this luxurious position to have this age of fleet this early in the cycle. Okay. Okay. That's very clear. Thanks very much. Thanks, Alex. The next in our trio of questions in queue is from Mark Howson of Oriel Securities. Please go ahead with your question. Your line is now open. Good morning, chaps. Can you hear me? I'm Capes. Yes, sorry. Just I'd sort of hate to sort of fly on the water as it were. So we've been very, very bullish. But just and understandably so, I mean, if you look at the RAS figures for equipment sales, auction values in the last couple of months, I mean, July was down 0.2 sorry, June was down 0.2. And then July sort of accelerated to a 41 percentage point drop in secondhand equipment values. And yet your margin on sale for used equipment rental sales has gone up during the period. Obviously, that relates to the increases being in secondhand values periods year on year would have an effect. But just as a precursor sort of as an early sort of sign of maybe things might not quite be as good as we hope in a year's time in the U. S. I mean, what do you read into that sort of drop in equipment, secondhand equipment value falls in the last month or 2? Is that an effect of United and RSC dumping kit on the market or is it something else? No, it's not that yet. I suspect it could be an influencing factor depending on where they are with their fleet reconfiguration come the winter. But it's certainly not that yet. If you were to go back, I think there was a decline last July too. So having some degree of seasonal decline is not unusual. There was a big element of replacement expenditure this spring. Therefore, there's a little bit more secondhand equipment around. Look, we continue to be at we measure what we get in proceeds as a percentage of our original cost. And we track that obviously over months years. We are getting we are now back to the best rates, the best prices we have ever got for our second hand equipment. So and to be careful with the Rouss measure too, that's a bigger basket of products than our basket of products. I think the pace of growth will slow. And for different points in the cycle, I think it's a better or worse indicator a better indicator in terms of what's going to happen with rates. We're still seeing improvement in rates. We're still seeing improvement in our asset categories, but I expect that to slow. I also expect you're right that we could well see a major fleet reconfiguration from United and RSC in the winter auctions like November through February and that might have a temporary effect. So look, from our perspective, there is still clearly a shortage of good quality equipment. We're still getting yield improvements. And yes, it has tweaked down for a couple of months. You're right. But it's not something we're terribly nervous about. And what's the latest you've got from the United RSC merger? I mean, the last time I looked, they were reducing locations by 15%. Presumably equipment will be going down and maybe not quite in line with that, but it will be coming down. So what's the latest I don't expect equipment to come down anything like in line I think the whole point of producing the locations is to have the same amount of fleet out on Brent for a lower operational cost. Now that would seem a big And the mix will be a little bit wrong, which is why there will be a significant there could be a significant change, but it's not going to be anything like 15% more. It's not going to correlate with the number of stores that they close. I mean, they're going to close somewhere around 200 stores. And I mean, that number keeps ticking up. I think their last announcement was 180 something from up from their original announcement. And that's how it feels. That takes some housing. It takes some moving. And once it's got to its new home, the mix will not be perfect. So there will be a correction during this winter, I would guess. Typically, people will take advantage of you've got 1 year's get of the jail free in terms of exceptionals. I wouldn't be surprised if people didn't take advantage of that. But I wouldn't expect a correction to that sort of degree. Our next question comes from the line of Steve Wolf at Numis Securities. Just one on the operating statistics at the back of the results this morning. Just noticing that depots have gone up certainly at Sunbelt. And I'm just looking at the headcount versus where we were in April that's come down. Just wondering if there's anything tied to efficiency or Well, remember, TOPS has been will have been added in there to when they've got a number of small locations, 2. So you've got 1 or 2 different variables there. So basically what you've got, if you look, we're broadly flat on last year, up a little bit in terms of headcount. We're down relative to the year end even though you've added tops in, which again is just a reflection of us trying to keep driving efficiency. That's why you get the drop through that you get, Steve. Sure. Okay. Lovely. Thanks, guys. The next question is from Mike Murphy at Numis. Please go ahead with your question. Your line is now open. Yeah. Good morning, guys. Just in terms of the CapEx guidance, did the board consider maybe ramping up a little further in terms of the investment in capital? I know you said previously that you had invested ahead of the competition. And as a result, you are now reaping the benefits of that forethought. I just wonder whether you might take the average age lower and just push home the advantage over the competition, Jeff? Has that been discussed at the board level? No. You're absolutely right. I mean that whole sort of macro fleet investment capital sort of balance sheet strength is has been a key driver for us through this. Look, given our debt structure, there is always the availability to invest in fleet as it's needed. As you can see, in Sunbelt, we've increased the fleet 15% and fleet on rent has gone up 13%. So we've got a bit of spare capacity there. If the market continues to improve, we will continue to invest. But we're at a stage now where we are at an optimum fleet age. There is a point whereby your fleet is demonstrably better than the older, poorer fleet available by your smaller local peers. We are at that point. All we will get very little incremental business by further de aging the feet. We would just reduce our ROI, Steve. Sorry, Mike. Yes, Mike. That's all right. And in terms of the if you were to change that policy, I mean most of the CapEx clearly comes on because the first half of the year is the most important in terms of sales. But if you didn't change that by the half year presumably, it would say it is. I know you're guiding at the moment gross additions of €450,000,000 and that for the year. But I mean does it remain under review that €450,000,000? Dollars Yes. Look, if you look at last year, we changed it about 3 times. So look, we put out a guidance which is our best to guess at the time. However, given our strong balance sheet, it can be reviewed in a heartbeat. Brendan and the guys on a regular basis will sit down and say, look, I've got an opportunity. There. This market in particular is growing and we sit down, we review it and invariably say yes at the moment. Right now, we generate if you take out goodwill, we're generating 20% ROI in Sunbelt and the cost of debt just over 4%. It's not rocket science. But yes, I think you're right, Mike. I mean, that's something that we would plan to do an update on at the half year. You're exactly of the $450,000,000 of spend, the majority of that comes in the first half. So if we were to take a decision to increase that level of spend, it would certainly be for something that would happen in the second half, presumably in the Q4 because there's really no point in having it here and sitting presumably over the winter. No, no. As Jeff, you just pointed out 20% pretouch return on ROI on the Sunbelt business. I'd be keen if I was in your shoes. I'd be keen to push out as much kit. It was as prudent with managing that growth. And I just feel that And you're absolutely right. And it's a balancing act. We undoubtedly got it on the light side last year. As great as our numbers were, there was a degree of frustration in the business that, oh gosh, I wish we'd invested a little bit more. In Quantum, I don't think we've invested too much this year. I think we piled it into the business a little early in the year and we had some digestion problems. And that's the thing you've got to bear in mind. There is a pace at which the business can digest this. There's a pace at which the market can digest this and continue to make sure we get acceptable yields. Now to your point, look as much volume as you can get at these prices in its ROI will do. And it's striking that balance. We don't want to go on a great big just land grab. I think our policy of good solid growth with an excellent service level to our customers and a high drop through has proved to be a successful one. But we have been relatively aggressive in our CapEx. I remember only a couple of years about now being criticized because we were ramping up our CapEx. It wasn't me. No, it wasn't you. I know that. We've had 3 years of saying where we've got too much debt. I'm waiting for the inefficient balance sheet comments to come along anytime soon. I don't remember a couple. So as you rightly know, it's about striking the balance. We think we've got it about right. Do we know? No, we don't. But the great benefit of this business is those individual capital decisions are small incremental spends with relatively short lead times. We can flex this model by ads or disposals very, very quickly into relatively small degrees, right? And that's why I think something people forget about it. They look at this asset base and think it's this slow turning super tanker. It's not. We can be very, very flexible at the pace of growth and the pace of reduction. And just one further point on that CapEx. Presumably, given that you are a big spender, what are you seeing in terms of supplier terms both pricing and payments? Last year there was some pretty big inflation last year as people I think took advantage of the big catch up in replacement spend and also hid behind some of the Tier four changes. We are expecting a more fulsome discussion with the supply base this year round because our view is they've had their increases and we're right in the middle of that now. We normally do that we normally have those negotiations and make our commitments between now November. Okay. But I would look, given what's happening with commodities, given what's happening elsewhere in the world, I would not anticipate the same sort of inflationary pressure that we saw last year. Fair enough. Thanks guys. Okay. As there are no further questions, Geoff, I'll return the conference to you to close. Thank you. Well, look, once again, everybody, thank you for a great set of questions and your interest and participation in the call. And we look forward to updating you again at the half year. So thank you very much indeed and good morning.