Good morning, and welcome to Ashtead Group plc year-end results presentation. I'm Geoff Drabble, chief executive, and with me today for the very first time is Suzanne Wood, our new group finance director. Welcome, Suzanne. You've got a tough act to follow, but these numbers should help a little bit. It looks like you're the first person ever to get standing room only audience, too. The presentation will follow the usual format. After a brief overview from me, Suzanne will cover the financials. I'm going to cover the underlying trends that are driving these numbers. Probably more importantly, we will go on and have a look at the outlook and how we see this business developing from this point onwards. As always, we will close with Q&A.
I am delighted to be able to report that the momentum we have established over a number of quarters was continued in Q4, and as a consequence, the group has delivered record group pre-tax profits of GBP 131 million. This strong performance resulted in group EBITDA margins of 34% and group ROI, including goodwill, of 12%. Excellent progress. Our strong U.S. team has clearly capitalized on the opportunities presented by the market, and we have backed this with group investment of GBP 476 million, with further significant investment plans for 2012, 2013. We are making excellent returns on this organic investment, as demonstrated by the fact that despite the scale of the fleet growth and the de-aging, we have further reduced net debt leverage to 2.2 times EBITDA from 2.7 times a year ago.
We are also pleased to propose a final dividend of two and a half p, giving us a total for the year of three and a half p, a 17% increase. The strong end to 2011/12, supported by an encouraging start to the new financial year, allows us to anticipate further growth with or without end market recovery. As a result, it is likely that our profits in the coming year will be ahead of our previous expectations. Let me now hand over to Suzanne, who will take us through the financials in more detail.
Thanks, Geoff, and good morning to everyone here today, and also to those listening on the webcast. We appreciate your interest in Ashtead and this opportunity to provide you with an update on our business. I'm pleased to share with you this morning what we believe is a strong set of numbers. As most of you know, our results have improved consistently with each quarter this fiscal year, and the fourth quarter was no exception. We reported an underlying pre-tax profit of GBP 26 million, compared to GBP 3 million for the same quarter last year. This profit performance was driven first by our rental revenues, which rose GBP 37 million or 16% in the quarter. Secondly, our performance was enhanced by ongoing cost control and efficiency initiatives that improved our operational leverage and drop-through.
As a result, our EBITDA rose by 37% year-over-year, and our EBITDA margin improved from 26% to 31% in the quarter. I also should mention at this point that exchange rates did not have a significant effect on either the annual or the quarterly comparisons. Turning now to the Group's full year results, we set forth on this slide our annual revenue and profit figures. Given that end construction markets have not yet recovered, we were very pleased to report an increase in our underlying pre-tax profit from GBP 31 million to GBP 131 million, representing a record year of profitability for Group. It is fair to say that a number of things went right for us this year, notwithstanding the broader economic concerns. For example, a number of weather-related events, our hurricane, floods, and tornadoes throughout the year, coupled with an extremely mild winter, positively affected our results.
For the full year, our rental revenues grew by 21%. These higher rental revenues, combined with our previously discussed operational leverage, produced a 36% increase in EBITDA and an 87% growth in operating profit for the year. As a result, our EBITDA margin improved from 30% to 34%. And as a final point on 2012's results, our net interest charge was GBP 18 million or 24% lower than the prior year as a result of changes we made to the debt structure in April 2011. Now let's take a more detailed look at the numbers on a divisional basis. We'll begin with Sunbelt, since the U.S. was the primary driver of this year's performance.
From this graphic, and in particular from the revenue bridge on the top right, showing the changes in revenue from one year ago, you can see that Sunbelt's revenue growth was generated principally by a 13% increase in fleet on rent and a 7% rise in yield. On the bottom right of the slide, the EBITDA bridge demonstrates our drop-through. So despite increased volume and activity levels this year, our costs only grew by $75 million. Thus, approximately $153 million, or 69%, of Sunbelt's incremental rental revenue growth was brought through to EBITDA. And as a final point before we leave this slide, I'd like to just point out that Sunbelt's EBITDA margin improved from 32% to 36%. Moving on now to A-Plant's divisional results on the next slide. We were encouraged to see progress in the U.K. as well.
In a very tough market, total revenue grew by 14%, including, as shown on the revenue bridge, a 1% increase in volume and importantly, a 6% rise in yield. Raising yields is critical to improving this division's return on investment to levels above our cost of capital. As we transition now to the next slide, we'll shift our focus from profitability to cash flow. As you're aware, our cash flow generally runs contra-cyclical to profit. So during the worst of the recession, we sharply curtailed our capital expenditure and gently aged our fleet, and as a result, substantially reduced our debt by almost a third over a three-year period. As we move into a different phase of the cycle, we've begun to invest in renewing and growing our fleet. You can see this clearly from the table on the slide as our cash payments for CapEx doubled this year.
Importantly, even after significantly investing in our fleet, and even after covering our cash interest and our cash tax payments, our free cash flow was only slightly negative for the year at £13 million. Therefore, our organic growth was funded largely from operating cash flow, and this is in keeping with the guidance that's previously been given. In a few minutes, Geoff will talk a little bit more about our recent acquisition of Topp, which was a business specializing in climate control. With respect to our outlook for CapEx in fiscal 2013, I'd refer you to the guidance that we included in this morning's statement. From a cash payments perspective in 2013, we expect net payments of approximately £400 million after disposal proceeds of approximately GBP 100 million. As in prior reinvestment years, the majority of the fleet deliveries will occur in the seasonally busier first half.
As you can see on this net debt and leverage chart, the absolute dollar amount of our debt rose only slightly at April 2012 as a result of the fleet investment activities that we've talked about. From a leverage perspective, this modest increase in debt was more than offset by our earnings recovery, and therefore, I'm happy to report that our leverage declined from 2.7 times last year to 2.2 times at April 30th. Our long-stated objective, as you will recall, has been to manage our net debt to EBITDA leverage between two and three times over the cycle. At this stage, we'd anticipate operating at the lower end of that range. We remain committed to this course as we believe it provides the greatest financial flexibility and strikes the right balance in a cyclical business like ours.
The outlook for the medium term is that our debt, therefore, should remain broadly flat at constant exchange rates, rising only as appropriate growth opportunities present themselves. As we just demonstrated this year, we'd expect leverage to continue to gently decrease as earnings recover in the cyclical upturn. This is in keeping with our general practice over the past 10 years of funding our organic growth CapEx, as well as our maintenance or replacement CapEx from cash generation. Lastly, we should touch on our debt structure. As shown here, we believe that the structure we have is well suited to our asset-intensive business, and it also provides us with substantial capacity to fund future growth, either organic growth or the small bolt-ons that Geoff will further discuss.
We have no debt maturities till 2016, effectively no financial monitoring covenants at these availability levels, and our blended cost of debt is 5.4%. As we announced this morning, we further enhanced our position by increasing the size of our committed senior bank facility from GBP 1.4 billion to GBP 1.8 billion, with no changes in terms or conditions or pricing on that facility. Given the group's strong growth, we felt that it was appropriate to upsize the facility, and after giving effect to that upsizing, our headroom or availability under the facility at April 30th was $735 million. That concludes my remarks, and at this point, I'll hand it over to Geoff, and he will review his view on the divisions and our outlook.
Thanks, Suzanne. Let me now look at some of the drivers behind those excellent results, starting with Sunbelt Rentals, and this analysis on page 12 that we shared with you many times before, which breaks down rental revenue into its constituent parts. I think the key takeaway here is the continuation of the strong performance that we've seen in previous quarters, despite much tougher comparators, although as Suzanne said, we undoubtedly did benefit from a very mild winter. This strong revenue performance is also reflected in very strong EBITDA and ROI performance, with excellent progression over prior years. We are already heading towards historical highs. For consistency, we are disclosing ROI here, including goodwill. However, excluding goodwill, Sunbelt Rentals' ROI is now at 19%, up from 12% a year ago, demonstrating the great returns we are getting from our current organic fleet investment.
I think the underlying strength of our recovery since the low point in 2009/10 is also shown by the significant improvement in our fleet metrics. Fleet on rent is already up 20% against its low point and at all-time record highs. As importantly, at this stage in the cycle, we have also de-aged the fleet by nine months. What of course this demonstrates is our potential to experience further significant upside. These record levels of fleet on rent are being achieved even though end construction markets remain at historically low levels. In today's markets, access to finance is key. We are at historically low levels of net debt to EBITDA leverage, despite the significant investment that we have already made. As Suzanne highlighted, we have a healthy availability of $735 million.
Therefore, we have the flexibility to take prompt advantage of any opportunities provided, either by further structural change or a recovering market. Therefore, the consistent application of our long-term cyclical planning around debt and fleet investment, a plan we first laid out in the very different days of 2009, has enabled us to reach this strong position. As we said at the time, we know we cannot avoid cycles, but we can certainly manage them. What about end markets? Are they recovering or not? Current sentiment on the U.S. economy seems to swing from extremes of boom or bust. From our own perspective, we are not in a materially different place to where we have been for a while. I believe there are, as shown, some better economic indicators, which are also supported by our experiences on the ground.
It seems to be no longer getting worse and probably improving gently. It is likely, however, to be a long, slow haul, and given there remains fundamental issues that are unresolved, there could be bumps along the road in this recovery. Having said that, we anticipate further growth whatever the end market does, and we are confident that we will again outperform the general market. What does all this mean for us? Well, it means we have been encouraged to take a positive approach to our fleet investment. As you can see from the changes in the capital expenditure plan that we shared with you last time. We have pulled forward some expenditure into Q4 2011-2012, and also increased Q1. However, in aggregate, at this stage, we have not increased our guidance.
You will recall that through last year, whilst we were pleased at our record levels of physical utilization, we felt that it meant that we were leaving opportunities on the table as we had no flex capacity. The eagle-eyed amongst you will have noticed on page 12 that physical utilization has ticked down a little. This is merely a reflection of the high intake, and what's most important is that in May this year, we had 10% more fleet on rent than May 2011, which in itself was a knockout month. Moving to rates, you can see that we had an unseasonably strong winter, and despite tougher comparators, we maintained a Q4 gap of 6%.
We have highlighted before that May 2011 was exceptional and the gap would close, we are pleased to be starting June 1st, 2012, with a 4% improvement over June 2011, which is a little better than we previously expected. We believe, therefore, that our focus on organic growth leveraging our existing network is working as supported by this chart. This is one we've shared with you before, we have updated it for this year's stats, in my opinion, it gets to the heart of our successful year. You can see how our strategy to expand our existing location capacity has resulted in the growth of the number of higher return large and medium-sized locations. Most encouragingly, you can also see how the margin in ROI across all categories of location has improved significantly.
In my mind, this shows the shift in our operational efficiency, it's this which fuels our confidence that we will exceed previous peak margins. We believe that the existing footprint still retains the potential for a further 15% volume growth given current end markets and practical physical constraints. We will also this year start to accelerate our greenfield openings as we believe the timing is now right. End markets are stabilizing. There is likely to be opportunities from changes in the competitor base, the current real estate market means that we can be far more cost-effective than our previous expansion phase. We will focus on filling out non-clustered markets and entering into geographies where we have no exposure, we will also respond to specific market hotspots, for example, oil and gas. This will be a gradual buildup, accelerating in future years as hopefully markets recover.
Looking forward, we see a medium-term opportunity for 100 further locations. This therefore also brings us to the question of where does M&A sit in our priorities, particularly given United's acquisition of RSC. Again, nothing has really changed. There seems to be lots of options out there, we have the luxury of being able to be selective given the strong organic growth story, we believe a degree of prudence is still wise with the current macro uncertainty. We are predominantly looking for bolt-ons, not transformational deals, the focus will again be on Specialty, we will consider geographical fill-ins for general plant and tool. Why Specialty? Because it broadens our market exposure away from construction, reducing further cyclicality, the higher technical input does drive higher ROI, as demonstrated by this slide.
To further explain the strategy and the attractiveness of these true relatively small bolt-ons, let's briefly look at the acquisition of Topp as a case study. This was a well-managed, stable niche business focusing solely on climate control, which is a product we already have significant exposure to and sits readily alongside some of our existing Specialty business. However, as you can see from the examples on the photographs on the slides here, the types of application are very different indeed, and the Topp customer base opens up a much broader range of cleaner trades, such as facility management and events. The business was strong but only regional. It's an obvious strategy for us to use our footprint to expand an existing Oops. I'm all over the place here. To expand an existing model nationally. Also, the financials are just compelling.
On a standalone basis in 2011, Topp delivered an ROI of 68%. I did say it was well-run. In our first year, we will deliver a 17% ROI, including goodwill, and we are conservatively forecasting a doubling of the business by year 3 with a 25% ROI. You can see that these deals do not change the dial significantly short term, but they position the business very well for the future, and we would hope for further opportunities. Moving on to the U.K. and A-Plant, and clearly a very different environment. Having said that, as Suzanne highlighted, we have made progress, and it is not a drain on resources either financially or from a management perspective. This year has seen good yield improvement, as you can see from this chart, and this will remain our focus.
Obviously, that's difficult in current markets, and the team does deserve credit for a job well done. The outlook for the U.K. end market remains uncertain, and whilst there are some brighter hotspots around areas such as utilities, the issue remains that the decline in the public sector work is not being filled by an improvement in the private sector. My sense for a while, as you know, has been that 2012 is a potential low point, but again, as in the U.S., any recovery is likely to be slow and vulnerable to setbacks. As you would expect, we continue to consider our strategic options around the U.K., and we have the benefit, unlike some others, of having a full range of options available to us. We have no need to be a forced seller given A-Plant's performance and the relatively small proportion of the group's business in the U.K.
Also, we are better positioned than most to just ride this out given our ability to maintain investment. We do also have the firepower to consolidate if, whilst recognizing the challenges the U.K. market provides and the integration risk, it makes good financial strategic sense for the longer term. In short, we remain open to all sensible alternatives. To summarize, the business has performed well and is likely to continue to do so given the momentum we have established. We are at or near record performance across a broad range of metrics, despite still difficult end markets. Our fleet planning and well-managed debt structure gives us a high degree of flexibility, which positions us well for further growth, importantly, with or without end market recovery. As a result, we now anticipate that our profit for the coming year will be ahead of our earlier expectations.
That ends the presentation. We should now move on to Q&A, let's just follow the normal protocols. If you could just give us your name prior to asking the question for the benefit of those listening on the web.
James Brand from Barclays. Two questions if I may. Firstly, your expectation on exceeding previous margins-
Yeah.
Is that expectation pre or post the drag effect from these new openings that you're now expecting?
That takes into account the drag effect of the new openings. The drag effect on the new openings will be relatively small as compared to the significant upside we're getting from incremental volume on that semi-fixed cost base.
The second one, I know we're only a month on from completion, but can you just comment on the ground if you're seeing anything, any sort of fallout from the URI, RSC merger?
No, you're right. We are only a month on from completion. We've seen I would rather if it's no store closures, but there or thereabouts. No, it's still very early days at this stage.
Good morning, Andrew Nussey from Peel Hunt. One of the features of the business over the last couple of years has been the fact that competitors have struggled to get financing. I just wonder, with the U.S. economy beginning to look a little bit better, whether they're beginning to get some additional support from their lenders or if it's still a case of the status quo.
It's a good question. Our assessment is that there remains a two-tier debt market. I think as you can see from the announcements Suzanne made earlier, our ability to add GBP 400 million to our ABL at no cost, by no cost, I mean no extra interest cost and no upfront fees either, demonstrates for those who have performed well, there is an ability to utilize good debt markets. Our experience is our smaller customers and our smaller competitors still find access to finance difficult. If it is accessible, it's at a significantly higher cost, which has to be reflected in their business model, which has to be good for rates.
Right. It's Alex here at UBS. I've got two and a half questions, unusually.
Let me know which one's the half.
Yeah.
I'll only give you half an answer.
Can you talk a little bit about the monthly and the daily rates? The half is kind of what is the flow-through from the increases in monthly rates that you've seen this year into next year?
Yeah. We haven't put the slides in specifically this time on monthly, daily, and weekly. We did the last quarter. We tend to every other quarter. As in previous quarters, nothing's really significantly changed. On the daily rates, we are back and remain at previous peaks. Weekly, we're a good way of the way back, and we're still lagging in monthly. I wouldn't see any significant change in that until you see end market recovery. Our larger customers who are going for the larger contract work, margins remain exceptionally tight. Therefore, they continue to put pressure on pricing. If we are going to get any sort of benefit from changes in market structure, it's likely to be around the bigger accounts, which typically are the longer rental period and maybe at the lower end of our typical pricing range. Very similar to where we were before.
I'd just like to clarify that point also. When we talk about moving the number of stores into the medium and larger category, let's just clarify that's not a change in strategy in our part. What we call medium and large, some of our competitors would consider to be extremely small. What we consider small, I don't think we'd even class as a location. We absolutely remain committed to being a provider to that smaller contractor where there's a greater proportion of those daily better rates. For now, the drop-through is clearly better on the daily rates. That's our experience. I know others have a different business model. We will remain committed to that, but I still think it's some time before we see significant shifts in those rates for the bigger accounts.
Okay. Just to press further, are you able to give us a number on what the carry-through would be from the improvements in monthly rates this year?
Actually, we can show you what's happened with rates, but we haven't done any activity-based costing that says therefore that's what the flow-through is.
Okay. The other question, just coming back to the point about large, medium-
Is this the full one or is it the half one?
This is a full one. This is the second. You just put me off. Hang on.
I'll give you the half then.
Yeah. In terms of when you do this with the clustering strategy, does that tend to be all large, or does it tend to be a mix across the medium, small, large?
That is a good question. Typically, where we are looking to build out clusters, I think you will find there will be a combination of large and small. Typically, we will probably be looking for one or two larger stores as being logistic hubs, but we will be looking for one or two smaller stores, too, to get to sort of downtown small. Also in clusters where typically, while you will see initially a greater proportion of the new stores being Specialty, it will be adding a Pump & Power store, adding a scaffolding store where we currently just have, now adding a Topp store, where we typically have just had a general plant and tool explosion.
Okay. Just one other one on that. Then the margin differential between where you have got clusters and where you are not adequately clustered would be roughly what?
I have not got a number for you. I guess typically, a bit like with the larger stores, we get better margins where we have.
In a cluster
where we can utilize the fleet better amongst the stores. We can optimize our logistics and fleet movements, too. Again, typically it's better. I don't have a number, Alex.
Okay. No, that's great. Thank you.
Alex, I would just add to that last question that typically in a clustered market, you're going to have a number of general tool stores certainly, but you're usually also going to have a Specialty business there, be it a Pump & Power or scaffolding store. With the inclusion of a Specialty business store like that will tend to drive the returns a bit higher, and it also allows for the cross-selling opportunities that Geoff talked about.
Justin Jordan at Jefferies. I've just got one very simple question, but it's got, I guess, two or three parts, or maybe two and a half. Just on capital allocation. Obviously, you've increased the ABL by $400 million, and you've got, by anyone's standards, ample headroom and a balance sheet that allows you a lot of strategic options. Can you outline the board's thinking between potential organic growth opportunities. I'm thinking obviously greenfields as well as the 15% additional fleet headroom within the existing branch network, and contrast that with acquisition opportunities-
Sure
et cetera, just how the board tries to allocate capital between the two of them and their particular-
That's a good question. I can see there being a natural tendency to believe, well, they've increased the ABL by $400 million. What are they going to do with it? Our planning continues to be predominantly focused around organic growth. We think the returns to shareholders and returns to the business are proven to be substantial. We believe with a combination of additional capacity on existing stores and with the greenfields, there is significant upside from organic growth capacity. The analogy I would use on why have we taken $400 million of extra capacity right now. Well, our organic growth CapEx last year. Our general growth was greater than we anticipated when we first did the refinancing back last spring. However, we prudently incorporated in that facility this very opportunity to use an accordion to expand by $400 million.
Given that, given the general economic macro situation, credit markets could again get very, very tough. The analogy I would use, given that we think that that is a potential possibility, given we were passing a petrol station and we could fill up for free, why wouldn't you fill up for free?
Sure.
If you look at the fundamentals of what's driving our business improvement, it is the fact that this access to capital, this strong balance sheet, when smaller competitors and smaller customers don't have that access, is the fundamental of our business model at the moment. Frankly, if the credit markets do get tougher now, that decision will look even better. Again, we look at lots of opportunities. As you can imagine, we could fill this room with presentations from investment bankers giving United Rentals about RSC, therefore, we should do a transformational deal, too. That isn't at the forefront of our thoughts. We have very consistently stuck to this strategy.
I mentioned today, you remember we gave you that fancy chart back in 2009 of this is how we will get through this recovery from both a cash and a profit perspective. We remain committed to that business. We remain a cyclical business. Managing the debt, managing the fleet through the cycle will bring forth significant returns, as we're already seeing before cyclical recovery.
Steve Woolf from Numis. Can you just split out the yield improvements that you're seeing in the Specialty business versus general, if that's possible?
We'll have to get back to you on that one. It's not something we typically do. If anything, we're probably right now getting better improvements in general plant and tool than we are in Specialty. We are in a phase. The volume growth in Specialty is significantly greater than the volume growth in general plant and tool. Given the returns we have on Specialty, which you can see are incredibly high, our focus of attention in Specialty is to grow the footprint and grow our market share. There is less emphasis on growing rates than there is in general plant and tool. It's not an analysis. It's analysis we could do, but it's not analysis we focus on terribly.
Nick Spoliar at WH Ireland. I just wondered if it's possible to flesh out a bit how much of the progress is, you talk about weather related, hurricanes, the mild winter, and so on.
Yeah, Suzanne's probably best at this. Suzanne's been doing lots of analysis on our behalf to try and figure out what happened.
Sure. I'll be happy to try to answer that for you. I just begin by saying, as you can imagine, it's a very difficult number to derive because one would have to make a number of different assumptions across many geographies in the U.S. as to whether or not the fleet would have been out on rent had there not been a weather-related event. With that as a caveat, we have put pen to paper to try to figure that out, and as we can best determine it, we think all of those weather-related events that occurred, including the very mild winter, may have improved the PBT last year by an order of magnitude, maybe GBP 10 million-GBP 15 million. Again, that's a guess at best.
Marc Lawson from Mirabaud. I've got a range of questions, if possible. First, just on staff costs. I see that overall staff numbers year-over-year are up 5%, and yet the costs, we've got the last three months year-over-year, are actually up 10%. Can you give us a feel for what's happening with staff costs, and particularly going forward? Are we looking at 5% increases like for like?
Yeah, I absolutely can. I think the first thing I would say is that when you look at salaries and staff costs generally, that I think year-over-year have gone up by order of magnitude, if I remember the number correctly, maybe 12% or 14%. Look at that in terms of standalone, a 13% increase in fleet on rent. There are some variable bits to our business. As fleet on rent rises, we do need more drivers, mechanics, et cetera.
When you look at it in that manner, and you think about the fact that for the year Sunbelt had a 69% drop-through, that we are doing a pretty fair job of controlling costs and taking, with respect to the staff numbers, which for those of you in the room that may not have had an opportunity to see it, that's on page 27 of their earnings release. The staff cost, of that, about 100 related to Topp employees. Of course, since we did that acquisition in April, all of those 100 employees would have come in. Based on the number of greenfield stores that we added throughout the year, we would have added about 50 employees related to that.
You take that 5% increase year-over-year in employee costs and really strip out the Topp employees and the greenfield employees, you get down to a much more normal growth rate.
Look at those staff costs. To me, there's two key statistics in there. The relatively low increase in dollars staff cost relative to increase in activity. That's a very positive number. The low number of headcount relative to increase in staff cost. This remains a cyclical business. The key is learning lessons from cycles. We are flexing the labor that we've got. We're giving them more overtime, we're giving them more sales commission, and we're giving them more profit share. We're not bringing in fixed costs. There will be a point in time, I hope it's a long time in the future, where we will want to correct this business once again. Therefore, having learned from as rates rise, profits rise, flexing the fixed cost base rather than adding more fixed cost base is very central to how we're driving our operational efficiency.
Okay. Second question, if I may. Just on the full year margin on equipment disposals, sort of edged up by about 200 basis points to about 13% from 11% last year. Can you give us a guide to secondhand equipment values in the U.S. in May and June so far? Obviously I'm aware of what they are from Rouse up to April.
Yeah. If you move on to page 32, obviously I'm sorry it's in the appendices. We've got lots of slides we could show you, we'd be here all day, it's not that you'd probably enjoy more. We put in there the Rouse valuations. As you can see, the Rouse valuations continue to be strong. Therefore, as we go through this strong investment and strong disposal, their margins are likely to tick up, as they have done in recent quarters.
Presuming that's up to April, though. I was saying, I'm aware of what the figures are for Rouse up to the end of April. How have you found your experience of auctions in May and June?
May and June, we are landing pretty much all of it. We don't sell very much in May or June. May and June's about how much we land, not how much we get rid of. All of the indications on the ground are that secondhand equipments continue to be strong. I think the critical factor in this remains that for those who are capitally constrained, their only access to incremental fleet is probably secondhand markets. They are undoubtedly being supported on anything above 75 brake horsepower by people are wanting to grandfather in Tier III engines rather than incur the significant on-cost on Tier IV. I wouldn't see anything which isn't going to continue to maintain very strong secondhand values going forward.
Just finally, just on the cost inflation on new equipment purchases. Obviously got a big CapEx program coming up. What are you seeing from the manufacturers in terms of price rise?
Well, again, it's a massive swing depending on whether you're talking Tier III or Tier IV. Tier IV can see some quite significant increases because of the technological change. They can range anything from 10 to 30 something percent if it's something like a big generator. If you strip out that technological change, we're probably 3%-4% up year-on-year, something of that order. Suzanne, is that about right?
No, you're exactly right. Across most of the equipment categories, if you strip out those Tier IV engines that Geoff described, you certainly have a number that would be five or just a tad less.
Murphy, Merrill Lynch. I was wondering if you could perhaps talk a little bit about how you see the opportunities emerging from the merger of the competitors in the U.S., and whether you think that they're going to take their eye off the ball a little bit, which how much of an opportunity do you think that would provide you?
I don't think much, to be perfectly honest. I think they're two excellent companies. I think with a strong management team. It would be crazy to think it doesn't provide some opportunity. Certainly when we closed locations in NationsRent, we lost volume. Every single time we budget to close a location, we assume a proportion of lost revenue. There will be some. In the grand scheme of our plan, it's minuscule. I think an integration of that size does have its challenges. I think our story is about what we see as growth given the strength of our model, not because of any challenges that their model's going to face.
James Gilbert from Canaccord. As you remix the fleet away from general and more towards Specialty, what impact do you think that will have on physical utilization?
That's a good question. Physical utilization on Specialty products is significantly lower than general plant and tool. You have this sort of almost counterintuitive, you get a very high dollar utilization because the pricing is so great, but by the very nature of Specialty, it's used in special events and special occasions, and it's not out there as often. It will gently reduce the overall physical utilization. Given the relative proportions at the moment, there's going to have to be a reasonable shift before it becomes marked in our physical utilization numbers. You're absolutely right. There is this trade-off between physical and dollar utilization in Specialty products. If you look at Topp, which is our 68% ROI prior to the acquisition, its physical utilization is around 50%.
With that in mind, can you split very roughly the 2013 investment between the two?
I can.
Could you give us an indication?
I don't think we'll be sharing that one with you just yet, no.
Related questions. Remember before you said that from the peak, about 8% of the industry has kind of left or gone bust.
I think the number is a bit larger now, Mark, but of that order.
Can you give us a-
I think we're over a couple digits now, yeah
update of what that is?
Yeah. I think the last statistics were just over 10%.
Secondly, just on taking that into account, obviously, with the fleets of the majors, where would you say the industry fleet is at the moment? Again, last time you were saying it was down about 15% from the peak.
Yeah.
Increased a bit.
The honest answer is I don't know. The time to do that calculation is. We will do it for us the next quarter because such a huge proportion of the investment happens this quarter and the quarter just gone. If there's going to be a shift, it's going to be in the next quarter. Relatively little fleet comes in since we last shared that data in September. We'll dig that data out between now and next. The key is what comes in now. Everybody tries to land their fleet April through June. To be fair, that is one area where the whole United RSC integration thing. I know they have landed what they originally proposed to land as two individual companies. The big question then will be, having sat down and looked at it, how much do they sell?
I could see that being a fairly significant quantum towards the back end of the year. If there's no further questions, that will conclude the Q&A. However, before we wrap up, as I said right at the very beginning, this was a debut, a notable debut from Suzanne, but of course, it also marks the end of Ian's tenure as Finance Director. A number of you are going to have the opportunity over the next couple of weeks to say a more personal farewell to Ian. It's a little-known fact that Ian has now got iconic status on the web, given the quality and transparency of the financial results which he has been broadcasting now many times for Ashtead.
I sit here in the luxurious position of having a very strong business supported by a very strong balance sheet, as I said, an integrity and transparency to the numbers, which was not always the case in Ashtead's history. A huge thanks is required to Ian for getting us in that strong position on both a personal and a professional basis. He will be missed, therefore, if you would just join me in thanking Ian in the appropriate way for his incredible tenure and unstinting dedication to Ashtead, that'd be very much appreciated.