Good morning and welcome to the Ashtead Half Year Results Presentation. I'm Geoff Drabble, Chief Executive, and with me today is Ian Robson, our Group Finance Director, but also Suzanne Wood, currently CFO of our U.S. business Sunbelt. As you know, Suzanne takes over the reins from Ian when he finally sails off into the sunset next July. It's great that she can be with us here today. The presentation will follow the usual format. Following a brief overview of the performance from me, Ian will cover the financials, I will update you on operations and the market, and we will conclude, as usual, with Q&A, all of the proceedings being broadcast. Let me start with an overview of what has been a very good first half for us. Obviously, we are delighted to report record first half pre-tax profits of EUR 84 million.
We are demonstrating very strong performance across a broad range of financial and non-financial metrics, which provides us with confidence as to the medium and long-term outlook. We continue to benefit from the structural market changes that we have discussed in the past. However, our margin and return on investment improvement is also a result of the strong execution of both our fleet investment strategy and our dedication to ongoing operational efficiency. In short, once the markets have provided us with an opportunity, we have positioned ourselves both operationally and financially to take full advantage of it. Our good operational delivery continues to be supported by a well-thought-out debt structure and our refinancing earlier this year, which lowered our finance costs and extended maturities. This is now looking at a very well-timed decision. Despite our significant investment in fleet, we have again delivered, as Ian will detail in a moment.
This high availability allows us the flexibility to invest with confidence in opportunities that arise. These results, therefore, find us already at or near record performance, with cyclical recovery still to come. Once we continue to invest in this growth opportunity, we are also aware of our commitment to a progressive dividend policy and have therefore increased the interim dividend by 7.5% to EUR 0.01 per share. Overall, a very pleasing first half performance with improving trends across a range of measures. As a result, we now anticipate a full-year profit substantially ahead of our earlier expectations. Let me now hand over to Ian to take you through the detail of a very healthy financial performance. Excuse me, before we just move on to that, I don't know how it's all coming across on the web, but there's a shocking echo in here.
If we could just get the technology right, that would be nice.
Is the water in?
No idea. Do you know what he's on?
Okay, I'll be careful.
There's a bad echo.
Right.
Okay, thank you, Geoff, and good morning to those here in the room and to those listening on the webcast. I'm pleased to have a strong set of results to share with you this morning. Let's start by looking at the second quarter, which is typically our seasonally strongest quarter and one in which this year, as you'll see from this chart here, we earned pre-tax profits of EUR 51 million, nearly 3x greater than last year's EUR 18 million. The profits growth was driven by the strong growth in our rental revenues, which rose by EUR 55 million, or 25% in the quarter, and by the high drop-through, which meant we increased Q2 EBITDA by EUR 33 million, or 40%. The pre-tax results also benefited from an interest charge, which was EUR 5 million lower than last year, reflecting principally the benefits of the changes we made to our debt package last April.
Turning now to the results for the half year on slide five, as you'll see, these show a similar picture, but with the restatement of last year's results to this year's exchange rate having a bigger impact because the dollar was strong in the first quarter of last year. Again, as you can see, operational leverage was very strong, with 22% growth in half-year rental revenues, driving a 35% increase in EBITDA and 75% growth in our operating profits. Including the interest benefit, pre-tax profits and earnings per share nearly tripled to EUR 84 million and 10.7p, respectively. Turning now to look at the half-year results on a divisional basis, let's look first at Sunbelt, the main driver of our strong performance.
As you can see from the revenue bridge on the top right of this slide, Sunbelt's 25% rental revenue growth was delivered principally by a 12% increase in fleet on rent and a 7% increase in yield for the half year. The fleet on rent growth accelerated in the second quarter to 14%, as Geoff will show you a little later. From the EBITDA bridge on the bottom right, you'll see the strength for the first half drop-through, with costs rising by only $37 million, and as a result, 67%, or $76 million of Sunbelt's ex-empire rental revenue growth was brought through to increased EBITDA. This was a very strong drop-through rate, bearing in mind the significant increase in rental volume and activity in the half, and one we're very pleased with.
Before leaving this chart, I'd also draw your attention to Sunbelt's margins, which despite end markets at 30-year lows, are already now back to 38% for the first half. Indeed, for the second quarter, it's even stronger at 39% margin. Geoff will share more details on how this was achieved and the margin outlook in a minute.
Lastly, on earnings, slide seven summarizes A-Plant's results. In a tough market, it's 14% total revenue growth, includes, as you can see, an 11% increase in rental revenue, with both fleet on rent and yield particularly growing well, as you can see from the revenue bridge.
Drop-through to EBITDA from the rental revenue increase is lower than we would normally expect this half, but this is due to a number of non-recurring reasons. We are therefore encouraged by the progress we're making with our U.K. business, although we remain conscious that U.K. ROI is still well below cost of capital. As we've said previously, low ROI is an issue that applies across the whole of the U.K. market and which will necessarily take time to resolve given the tough market backdrop. We are particularly pleased with the 6% yield growth in the first half that A-Plant delivered, as raising yield is a prerequisite to improving our returns.
Moving now to cash flow, this is, as usual, proving to be contracyclical to profits as we return to investing strongly in renewing and growing our fleet after three years, three recessionary years, in which we generated EUR 400 million and paid off one-third of our total debt in the three years to April 2010. For the first half, we also have a greater-than-normal EUR 30 million working capital outflow, almost entirely due to funding increased receivables, and this will, of course, largely reverse in the second half. As a result, you may expect the cash conversion ratio, which you'll see is 84% for the first half, to reach our usual 90%+ by year-end.
In terms of the year-end outlook for net CAPEX, the other driver of cash flow, I'd draw your attention to the guidance we included in this morning's statement where we say we anticipate net CAPEX payments to rise to around EUR 300 million by year-end. With EUR 219 million already invested in the first half, you'll see that we're now back to the seasonal profile we exhibited prior to the recession, with a significantly greater CAPEX spend to support higher activity levels in the seasonally busier first half. Putting this all together, as you update your models, I'd expect you to anticipate a cash inflow in the second half and hence lower net debt by year-end.
Even as of October, as you can see from slide nine, leverage has continued to reduce despite that high discretionary investment in growing our rental fleet and stood at 2.7x net debt to EBITDA at 31 October, down from 2.9x a year ago. We continue to work to our long-held 2x-3x through the cycle net debt to EBITDA leverage guidance, and as we confirmed in this morning's statement, we're also targeting a further reduction in leverage in the second half. Finally, for me, a chart to demonstrate just how robust our debt structure is and how much capacity we have to support our growth plans.
With no debt maturities until 2016, no amortization on our facilities, and also effectively no financial monitoring covenants, and a blended interest cost of just over 5%, our structure remains very robust and, as importantly, very well suited to our asset-intensive business. That therefore concludes my remarks this morning, so I'll now pass you back to Geoff for more on our operations and the outlook.
Thank you, Ian. As Ian said, the key driver of our performance is the improvement in our U.S. rental revenues. While this familiar chart largely shows more of the same, what is notable is the acceleration in volume. This strong volume is a trend I expect to continue, and we will cover the rationale for this throughout the rest of the presentation.
Structural shifts in the market and the lack of finance continue to provide volume opportunity for those like ourselves who correctly read the market, invested early, and have the financial capacity to continue to do so. Pricing opportunities do exist, which again I will cover in a moment, but there is a limit to what certain elements of the market will bear without end market recovery. Therefore, unlike in cyclical recovery, where the revenue growth is typically split 50/50 between volume and price, current market trends are likely to continue to generate a two-thirds, one-third split. What is clear is that end construction markets have not provided our strong first half revenue growth, as 2011 construction volumes are in fact still lower than 2010.
Having said that, I believe that the lead indicators, and indeed our experiences on the ground, do point to a stabilization in end markets, and my view for 2012 is that it will be broadly flat. This is a slightly more pessimistic view than some forecasts, but given recent forecast accuracy, it is probably a sensible base case on which to do our planning. That being the case, where has our significant volume growth come from, and why will it continue? I believe that both our strong volume growth and yield improvement are being driven by a shortage of quality equipment, not an increase in end demand. When I look at our record levels of physical utilization, despite a first half fleet growth of 8%, and the continued strength of secondhand equipment pricing, this all points to an ongoing shortage of quality equipment.
Clearly, what would undermine this position would be a rebalancing of the supply side of the equation. However, I believe that this is unlikely before any recovery in the general economic environment. Let me try and just justify that statement. The chart here on page 15 details historical and projected fleet investment by the rental industry as measured by Global Insight. Here you can see that, as you would probably expect, the peak spend was during the boom construction years of 2004- 2008. Based on average life cycles, you can see that we are now into the prime replacement years of this investment, as shown by the box on the right of the chart. This box, of course, only represents status quo replacement. The projections for future spend, given general economic uncertainty and lack of low-cost finance, are not at anything like these levels.
This provides an opportunity for those who have the financial capacity to take up some of the slack. This is exactly what has happened and explains why the big are getting bigger. What I would really love to be able to show you is exactly the same data for our customer spend profile to support the trend to rental. This is the other major structural shift which is going on. Unfortunately, reliable up-to-date data is just not available. However, based upon discussions with a broad range of manufacturers and customers, not surprisingly, the peak spend years were also from 2004- 2008, and therefore they also are looking at the need for significant replacement expenditure in the near future.
I think it is clear that in current construction and finance markets, that level of replacement expenditure is pretty unlikely. It is for this reason that I think the environment continues for increased rental penetration. This all points to an opportunity for us to gain market share, be it from smaller competitors or from increased rental penetration. When you look at our spend on fleet as a percentage of the rental industry total, as highlighted by the red line on this chart, you can see the success of our strategic fleet planning. You will recall us back in 2008 talking about managing the cycle. We clearly cut harder and earlier than others, but importantly, have read the market correctly, and we've invested earlier and harder also, which has positioned us well for these structural changes in the market and hence our market share gains.
You can see how the reinvestment phase of the strategy has played out from the chart here on page 17. We started to reinvest in spring of 2010. We did so cautiously, however, and we deliberately back-ended the spend to both match our improving performance, but also to create an event when taken together with the front-ended spend of financial year 2011, 2012. This event meant that $382 million of fleet landed early season, which had a significant impact both on the morale of our own staff and the attitudes of our customer base. The impact of this first mover advantage can be clearly seen when you look at our sequential rate chart, which is the chart at the bottom of the slide.
Having maintained the rate gap during the winter of 2010, 2011, which you will recall was our objective this time last year, this well-executed plan allowed us to raise rates by 3% in a single month, by far the largest monthly rate rise that the company has experienced. We then again successfully maintained that gap through the season. Not surprisingly, we have planned for a similar-sized event for next spring, with most of the orders already committed. This time, it is much more about meeting our volume requirements, and I would not expect as large a one-off rate rise this time. However, this performance does show that our long-term strategy of managing the cycle remains central to how we're going to develop this business. Ian talked about our strong margin progression and the high drop-through to profit from our rental revenue growth.
Given the proportion of volume growth, this is a particularly strong performance. What is allowing us to deliver this is our ongoing efficiency improvement. The major restructuring we undertook in 2007, 2008 is producing sustainable benefits, as evidenced by the fact that we are now at record levels of fleet on rent, but with a headcount that is 23% lower than when we last had these sort of activity levels. Encouragingly, however, there are still significant opportunities to make this business even leaner, and a number of the initiatives we started back in 2006 and stuck with despite the downturn are now beginning to bear fruit. Two examples of these are our ongoing initiative on delivery efficiency, which will provide an initial $10 million per annum saving, which will come in gradually over the next three years as we replace our truck fleet.
On a very similar theme, our whole-life asset costing work will again provide efficiencies as our new fleet lands, and this will deliver an initial $15 million per annum saving. I point to these only as examples of how we can continue to transform the efficiency of this yet still young business. Undoubtedly, the greatest opportunity, however, is in pricing through better analytics and differentiating the customer potential. We began this initiative back in 2007, and again, we have stuck with the investment and development through the downturn. We always knew that it would be a period needed to gain acceptance from the sales force and that the real benefits would be only as utilization has improved, and this has clearly been the case. Let's look here at the impact that these pricing initiatives have already had, particularly on the more transactional opportunities.
On the chart, you can see how rates have progressed from their peak in January 2007, split between short-term transactional and longer-term rentals. Here you can see the benefit of differentiating and categorizing the specific potential, not using one size fits all. For our transactional customer base, we are already back to our previous peak rates. What is particularly encouraging is that despite weekend markets, over 50% of our districts are already above their previous peaks, and I believe there is real upside potential in this category of the business in the medium term. Longer-term rentals to larger accounts, as you would expect, take more time to recover, although we have seen encouraging progression this financial year, which should continue. However, I would reiterate the point that many of these customers still face tough market conditions, which we need to consider as part of our long-term customer relationships.
Therefore, significant improvement will only happen in this category as markets start to recover. Pulling this all together, you can see from this chart that across a broad range of metrics, we are at or near previous peak performance. Our fleet on rent is at record levels. Q2 EBITDA margins are already at 39%, and we have invested early to resize and de-age our fleet. All of this, of course, being achieved at the low point in end construction markets, which has to be positive in terms of our medium-term outlook. Of course, to truly take advantage of the position that we have managed ourselves into, we need the firepower to continue to invest when opportunities present themselves, as we have done recently with some distressed asset purchases.
Therefore, the fact that we retain such high availability, as shown by the chart on the bottom right, is important in these difficult credit markets. Our relatively low leverage and long maturities remain a major differentiator to our peers. Moving on to A-Plant, we have continued the trends we saw in Q1, and the rental revenue growth is encouraging. However, no one in the industry is making acceptable returns, and there is a low likelihood of them doing so in the immediate future. Therefore, unless rental rates rise, we are stuck in a downward spiral, as there is unlikely to be significant extra volume in the near future. Therefore, to improve returns, we must and will continue to focus on rates even at the expense of utilization. I believe the outlook for the U.K. general market is far from encouraging.
Exactly what the impact of a range of potential government initiatives will be is still unclear. For our part, we are clearly in better shape to just ride it out than our U.K. only based competitors, and we will continue to make sensible investment in the business based upon the returns available to ensure that we are in the best possible shape when markets eventually recover. To summarize, we clearly have momentum, as evidenced by a wide range of performance indicators. We continue to benefit from structural shifts in the market, but our results also reflect the strong execution of a clear, consistent strategy for managing the cycle. At a low point in our end markets, we are at or near record performance with the balance sheet strength to take advantage of further opportunities. This provides us with confidence as to the longer-term outlook as markets eventually recover.
In the short term, we expect current trends to continue and now anticipate a full-year profit substantially ahead of our earlier expectations. Thank you. That ends the presentation. I will now hand over to Q&A. For the benefit of those listening on the web, if you follow the usual protocol, which is stating your name and organization, please proceed with your question.
Morning. Mike Murphy of Nearest Securities. Geoff, can you tell us why the growth has accelerated from 10% to 14%? Sorry, actually, which sectors have accelerated from 10% to 14% or driven that 10% to 14% growth quarter on quarter?
Yeah, no, it's a good question. As you know, Mike, going back right until where we started being concerned that we were going to just get hotspots through stimulus spend, we have monitored our volume growth across sectors and geographies very, very carefully. It's true that our specialty businesses have continued to grow at a pace ahead of our general plan and tools, but both businesses have performed well. I think what's most encouraging, Suzanne and I actually were with all of the sort of district and regional managers only a couple of weeks ago down in Phoenix there, and they were presenting their current business scenarios and what they saw as their outlooks.
What was particularly encouraging to us both was the fact that every single district has more fleet on rent and better yields than it did a year ago. It also is true some geographies are stronger than others. Texas and the industrial market is particularly strong at the moment. We are all genuinely seeing it across a very broad range of products, a very broad range of geographies, and a very broad range of end markets.
Thanks. J ustin Jordan, RBS. Can you just give us some insight into the thinking regarding potential CAPEX in fiscal 2013? I appreciate you've got it up this morning to EUR 400 million gross, EUR 300 million net for the current year.
Yeah, no, that's a great question. I've got to tell you, it's the thing we spend the most time thinking about above all of us.
We do as analysts also.
Yeah, there we are sitting with record levels of physical utilization, and a bit like you guys, we can play on a PC and go, "What if?" We're halfway through this year, and we've given you guidance for the balance of this year. We have also explained what we have done in terms of early commitments to beat any supply chain issues for quarter one. Clearly, we're anticipating it being a pretty strong event. I mean, we're a double depreciation spend year this year, and it is likely to be a similar sort of proportions next year. Before we can get a precise number, we need to go through the budgetary process and see not only what we see from a macro perspective, but what they see on the ground coming up.
I'll tell you right now, my expectation is they're going to want more than we have currently planning on giving them. The other big common theme when we're in Phoenix is, "Just give me more capital." Of course, what we're trying to do is marry that enthusiasm with a commitment to continue to deliver because we've got one eye on construction markets and one eye on credit markets. I think what is particularly encouraging is how we've been able to balance significant growth and market share gains with further deleverage. You then come into the practicalities of just how much fleet growth does the operation absorb and retain its high level of service that it's generating at the moment. That's a very long answer to a very short question, which is it's likely to be around the double depreciation year again, but we haven't done the budget yet.
Thanks. Just one quick follow-up, if I may. If you jump back to fiscal 2008, previous peak EBITDA was 38%. I'm just trying to factor in the cost savings you're outlining this morning, along with obviously the good work you've done over the last several years now, along with the structural growth you're seeing in the market and the pricing power you're enjoying, not just you, but obviously the industry. Where should we think about future peak EBITDA margins?
You can play.
They're obviously going to be higher in the EBITDA.
You can play on the same PC spreadsheet that we all play on, and you can get terribly excited about all of this if you aren't terribly careful. To be fair, we have consistently said, even in dog days when people thought it was madness to say so, that we would get beyond 40% EBITDA margins through this next cycle. Clearly, based on the fact that we're 39% right now, that doesn't look like the most aggressive target in the whole wide world. Somewhere north of 40% is perfectly reasonable. How far north will depend on how long before cyclical recovery, pace of cyclical recovery, etc., but clearly well beyond previous peaks.
Can I just follow on from that question? I've got another one. I'm just looking at it slightly differently. In the downturn, you took out how much, and how much would you expect to stay out structurally? Yeah, Bearing in mind the extra EUR 25 million you were talking about there, how much do you think stays out structurally in terms of the cost base?
I think the way I look at it, really, what we have done is we've replaced the current pricing differential with efficiency savings. We are not getting beaten up by demands for headcount improvement. We are operating at record levels of physical utilization. The sense I get is our service level is particularly good. There are one or two other sort of operational performance metrics which I consider to be key ones. For example, the proportion of fleet that's actually down waiting to be repaired, transportation recoveries, etc., where again, we are at or near previous peaks, which tells me this leaner organization is running as effectively and as well as it ever has done. Therefore, clearly, it will be more cost has to come in.
I stick with on the ongoing basis that the general rule of thumb we've always applied has been that we get 90% drop-through of any pricing improvement and we get 50% drop-through of any volume improvement. The 50% might be a little bit better right now. We are able to cope with the volume element. Therefore, the blended average might be slightly better than what the proportions of volume and price are. There is no big pressure for a new big step change in the cost base. If you remember when we were in Charlotte, we felt that we could add 25% volume onto our existing infrastructure. Really, that's what we focused on continuing doing. What you've seen here is sort of like 8%- 10% of it going in already. There is a fair old way to go. There will be some greenfield opportunities.
We've opened four pump and power locations this year, and I would expect another three specialty locations to be opened between now and the year-end and maybe one or two general tool operations. We are gently starting to add to our geographical footprint, but the key driver remains organic growth through the existing infrastructure with high drop-through, which allows us to drive revenue, drive profit, and continue to deliver.
Okay. Sorry, following on, I still have my other question, but it's following on. In terms of utilization, so physical utilization, let's say 70% was the kind of goal last time. That presumably goes a little bit higher, doesn't it?
Yeah, look, again, we have surpassed our expectations in the sort of level of it. I don't think it goes a lot higher from where it is right now. I think if you're building in growth into your model, it has to come from fleet investment, not an improvement in utilization. What we've seen this time round is revenue volume growth from a combination of additional fleet and improved utilization. I think going forward, it has to come from volume growth. Look, we are sweating the assets pretty hard right now.
Yeah, you may have seen, Alex, here LTM physical is at 69%. We're essentially at the guidance that we'd said was about the maximum we would do on a 12-month basis.
If you go back to the chart, Alex, if we go all the way back here to page 14, look, we don't measure LTM. I know you guys measure ATM, and it helps you do the model. I get utilization every day, and I'm interested in what it is that day. The key really is where is it now? In 4 November, for us to be sort of mid-70s, we have once before been at that level in the middle of Hurricane Katrina, and we managed to sustain it for two or three weeks, and then we really started to struggle to maintain it. We are consistently operating at that level of physical utilization.
That combination of being able to do that with such a linear operation is one of the very encouraging trends I see about our ability to continue to have a high drop-through into profit from our revenue growth.
Okay. My last one, any anecdotal comments around smaller competitors? You mentioned last time, I can't remember if it was either 8 or 10 information memorandums that you had. I wonder if.
Yeah, I'll assume you know me. I've got an anecdote for everything.
Really?
Yes. Clearly there is a two-paced recovery here. You know, our peers, United and RSC, have put strong revenue growth numbers out, and the big are clearly getting bigger. By the same token, only two weeks ago, we bought a business with a very good quality fleet out of bankruptcy. It was a fairly sizable business. We didn't acquire many of the people. We did not take on any of their locations. We just bought the assets. We bought $30 million of original cost of assets at around $17 million. We increased our aerial fleet in the Los Angeles area by 50%. It was two to three-year-old equipment, and where it's something like 80% utilization. In a strong market where we're performing well, we've still got competitors going broke. You can see United have just announced a little acquisition in sort of the Marcellus Shale area there.
There are a lot of little opportunities bubbling under for us all. Some make sense for others. Do not misread the performance of us, United and RSC, to be the market as a whole. The big are undoubtedly getting bigger.
Thanks
Okay. Thank you. Mark Hassel from Oil, three questions, if I may. Firstly, on inflation or potential inflation in sort of machinery costs, if buying from the manufacturers. Can you give us a feel for their capacity and what their indication is for this kind of thing?
It's becoming an increasing issue. On balance, it probably helps us rather than hinders us as it happens. Again, if I just go back to one of the charts, this chart on 15, you can see we've assumed general inflation of 15%. If we're replacing, and that's a number I expect for the market, I expect us to be slightly better than that because of our spending purposes. This is trying to represent the market. There has been significant commodity inflation, which is starting to be passed through. Our manufacturers are seeing very full order books. They're not seeing full order books from our customers or indeed the rest of the rental. Remember, what's happened during this downturn is non-U.S. construction for many of our suppliers has become a much bigger proportion of their business.
When you spend time with our customer base, your global developing markets are very, very strong. Agriculture is a really strong market for any equipment manufacturers right now. Given the strength of commodities, mining has been very, very strong for them too. Therefore, there is some pricing pressure, and together with that, they obviously cut out capacity. What that means is as people look to replace, they're looking at a significant cost relative to their previous purchase price. I don't want to get into it because we could be here all day talking about it, but there is this added complication of tier four engines. As you recall, all of the tier four engine changes that happened to on-road vehicles a little while ago now apply to off-road vehicles, 75 brake horsepower and above. Some of those inflationary impacts are very, very significant. It depends on the product.
If you're looking at some big generator, you can be looking at 40% inflation because of a tier four engine, because a generator is just an engine in a box. Clearly, the lower the proportion the engine is in the total product cost, the lower. Managing that inflation is going to be a significant factor going forward. One of the reasons, one of the benefits, we've got it on the bullet point there, Mark, one of the benefits of our early spend is we got well ahead of the curve in filling out all of the tier three engine capabilities of all of the manufacturers. Pretty much anybody who suddenly decides today, "I want to invest," is going to be having to invest in tier four technology.
I think many of our customers will not choose to be the first guys to go into tier four technology, and they will absolutely choose to rent that from us instead. Inflation is going to become an increasing factor, but right now, we're slightly below that. If I'm replacing a 2004 asset in 2011, I think our inflation is about 12%.
Okay. Second, just looking at your U.S. fleet size, I think from memory last July, it was about $2.3 billion in original cost terms.
It's still about .
Following through your growth plans that you highlighted in April, can you give us a feel from where you'd get that, when you would get that to about the $3 billion market, 2015 or 2016?
Why don't you just ask me to do a revenue projection instead? Wouldn't that be?
That's kind of.
Should we just get straight to the question rather than go around the houses? I don't know, Mark. I mean, clearly, we are going to continue to grow. We've said we believe our existing footprint can absorb a lot more. You're already seeing we're spending up to 7% , and I think that number will be higher for next year, sort of 7% of the industry. We're gaining market share. Clearly, our fleet size will grow. The pace will depend on end markets. The pace will also decide on where we ultimately decide is our best strategy in terms of balancing growth in the business to sensible leverage reduction too. I suspect we will get there. We're still only at 6% or 7% market share in a very fragmented market, but exactly over what timeframe, you're better on models than I am, Mark.
Finally, just the third question, probably one more for Ian. Can you just give us a flavor for looking at the interest costs that we've seen in this second quarter, the flavor for the full year in terms of overall interest costs for the group?
Yeah, debt has risen a little bit as we go through the half, but it's going to, because of the reversal of the working capital, come back down. I'd expect pretty much double where you are at the half year plus a small amount.
Morning. Alex Magni from HSBC. Three quick ones. If I can just probe, on slide 19, the transactional versus long-term rentals, is that a value figure?
No, it's a period. It's the period of rental. It's very, and though we have two types of rentals, we have a range of customers, but in terms of the rental profile, we have people who will call us at 4:00 P.M., want it at 8:00 A.M. tomorrow morning, and want it for the day. Okay? Those guys, we need to realize they want that equipment. There are very few people who are actually able to produce that equipment of the quality they require on time and take it away when they want. We need to be getting a better price for that.
Therefore, what we have done is for those sort of transactional rentals, you know, be it a day or be it a week, we have significantly increased our pricing opportunity, recognizing the quality of our fleet and the quality of our operations and the fact that we can actually do that when others can't. That pricing environment right now is very different to, if I use an example here in the U.K. for example, if Balfour Beatty want to rent light towers on Crossrail from October through to March, that's not the most transactional business in the whole wide world. They're also going to get three or four quotes because they're going to plan that weeks in advance, and that's a very different pricing environment. The difference between transactional and long-term is the length and type. It's the length of the rental and the type of customer.
Could you, how much, what proportion of revenue is transactional roughly?
It varies seasonally. Part of the seasonal change in yield is not because we change prices, just we get more transactional work in the summer than we do in the winter. We get golf courses, we get resorts, we get landscape gardeners. If you wanted to do a general rule of thumb, you'd say 60% long-term, 40% transactional. Typically in the upturn, you get more transactional, which is one of the reasons why our yield accelerates. It accelerates because we're getting better pricing, but it also accelerates because the proportion of transactional is higher.
Great. Just a question on the makeup of CAPEX. I'm presuming that's going to be in line with sort of the average makeup of your fleet. Is there any?
Thre are some variations. Specialty pump and power is probably getting a larger proportion of the total, but bearing in mind it's only sort of 20% of the total. In a macro sense, it doesn't move the dial significantly. We're probably trending again more to our core area of the lighter end of equipment. No, nothing that's going to significantly, that you're going to see in big swings in terms of current fleet mix, Alex.
Okay. Just last one. At the end of Q1, you gave us the August growth rate of about 25%. Today you've said that November remained good. Is there any quantification of how good November was?
Yeah, look, it's very similar to what we've experienced in quarter two.
Okay. Thanks. Sorry, Mark Hassel from Oil again. Just your man full of anecdotes. Can you give us his anecdotes?
What do you all want on?
Just about the U.K. because I mean, Speedy gave us an anecdote the other week of 20%- 25% capacity has come out in their opinion. They can't quantify it.
Yeah, I think we're showing some of, similarly, which would support that view. I think that, you know, surprisingly, I'm agreeing with Speedy. That might be a first. Yes, I would agree that, you know, we're at the stage now where, well, you can see it ourselves. Look, we've got two, when your utilization is like our utilization here, you have two options. You forego your strategy of pushing up prices, or you lower your prices and you get the utilization to get a fleet on rent. It's a no-win game when you do that. We will probably slightly decide, I think we're going to de-age our fleet, but we're going to grow it. We're going to probably reduce it if we can't get utilization up at these rates. The problem for the industry, sorry to jump around here, you'll find these numbers in these slides in the appendices.
Otherwise, we'd have been here all day. There's the structural problem in the U.K. I mean, look at the progression in the U.S. and look at our ROI, and that's, and for Mike Murphy's benefit, that's ROI including goodwill. Obviously, if you look at the benefit of our, if you look at the benefit of our organic growth, excluding goodwill, we're up at 17% ROI in America at the moment. Our major peers also have got strong ROI. It is structurally a sound business. You know, we debated some of our advisors. We could have stood here and said, "U.K. profits are up 26%." 26% of nothing, still nothing. We deliberately didn't do that. Unless there is a structural change in how we do business in the U.K. nobody can live with those levels of ROI on a sustainable basis.
Therefore, we're better off having smaller businesses that are more profitable. Ultimately, the supply and demand of equipment will move back in our favor. The worry is, and where our profile is not much different to everybody else's, although it's 2003, 2004 it is because of the issues we specifically faced. Look, you can't only get an acceptable ROI in the one peak year in the cycle. Unless you fundamentally do something different, you're going nowhere. Look, you might show 10%, 50% growth off a low base, but you're still going nowhere. That's when Ian said one of the reasons why we haven't had the drop-through we'd expect. We have done a lot of restructuring within the U.K. businesses, and as you know, we don't stick things out there as exceptionals. Fixing your business is what you're supposed to be doing on a day-to-day basis. That should not be exceptional.
Can I keep the microphone just for a second? Is there anything you could flag to us going forward in terms of your expected flow-through of future revenue gains to EBITDA? Given, I mean, we're looking at 60%- 65% being about right, given the volume price structure that we're talking about, or is it?
Yeah, I mean, ultimately, it will depend on where that balance between volume and price actually plays out. I mean, clearly, there's both drop-through from price improvement and the risk from volume growth. On the assumption of that sort of 2/3s, 1/3 split, you know, somewhere around 60% seems a sensible number. We will reach a point with cyclical recovery where there is going to be pent-up price increases that we have saved, and it's going to be significantly higher than that. That point undoubtedly will come. However, that won't come before cyclical recovery.
Mike Murphy at Nearest. Just on the outlook segment again, Geoff, if I can just tie you down a bit, because I know actually you have very expensive investment bankers that pore over this, but you say the profit growth contained the pattern established in the first half. When we look at the pattern established in the first half, you've seen an acceleration in volumes, and let's say 10%, 5%, 7%, 10%, 14%. The pattern would suggest that that is an increase if you follow that pattern. The same on yield. You've got yield growing at 7%. If you go back Q3 and Q4 of last year, clearly you'd started to see yield improvement coming through. Just tie it.
I would expect, oh, the problem we've got, Mike, is it is just seasonally almost uncertain period, you know, which is one of the reasons why we haven't put the November number out, because, you know, if I put out the sort of Q1 and Q2 first month number, then that's what the quarter is going to be. The fact that November started at a particular rate, if it snows all every day in January, the quarter is going to look like nothing like November. You know, we would anticipate to continue to have good year-on-year yield improvement. Whether it accelerates above current percentages, that might be an ask depending on the climate. You have to be careful. There are structural changes which are clear in Q1 and Q2 that can be distorted by seasonal patterns in Q3 and Q4.
In terms of yield, my expectation would be that we will aim to do what we have done in the last cycle, sorry, in the last season, which was maintain the gap. Most of you know Brendan [Arce] over in the States, and he's spending a lot more time in London. Now he spends some time on the tube. Mind the gap has been embedded in his psyche. Everywhere you go in Sunderland, now you hear people saying, "Mind the gap." People have never been on the tube in London. Just keep saying, "Mind the gap." I promise you it's embedded as a philosophy in the U.S. business.
If there aren't any further questions, thank you very much for your attendance today, and we look forward to updating you at the end of the third quarter. Thank you.