Ashtead Group PLC

LSE:AHT

Earnings Call Transcript 2019-Q2

[Geoffrey Drabble, CEO & Director]

Right. Good morning, everybody, and welcome to the Ashtead Group half year results presentation. We'll be following a very usual format. So as usual, Michael Pratt is here to cover the financials, but also, following our recent announcement, Brendan Horgan is also here. It's probably very timely because we can actually hear what's really happening in America, in American markets, but also, he's going to cover what we've been doing from a greenfield and a bolt-on perspective in terms of furthering our strategic objectives. So with that, let me set to scene with some highlights. Well, it's been a half where we've delivered really impressive revenue growth in markets which are still very, very supportive. We've seen significant progress with our strategic objectives with both greenfields and bolt-ons, and the group's added 80 locations in the half. In that period also, we've increased our rental fleet by 15% at constant currency, and this was all achieved whilst maintaining very strong levels of physical utilization, again, reflecting the strength of our end markets. A real highlight for me this quarter has just been the strength of our margin. And as Michael's going to detail in a moment, in the second quarter, Sunbelt delivered a very impressive 35% EBITA margin, and these margins have been translated into very healthy cash flow. So after significant investments in growth and after spending GBP 425 million on the December 17 share buyback program, we have still kept net debt to EBITDA well within our target range at 1.8x. So this cash generation gives us the confidence to increase the interim dividend 18% to 6.5p and continue our share buyback program. So with our business performing well in support of end markets, we now expect our full year results to be ahead of our previous expectations. And so with that, we'll get into the detail, and I'll hand over to Michael.

[Michael Richard Pratt]

Thanks, Geoff, and good morning. So we turn to Slide 5, which shows the first half results. And as Geoff said, it's been both a good quarter and half year with strong growth in revenue and in profitability. The group rental revenue increased 18% on a constant currency basis, and we maintained our margins despite opening 47 greenfields and completing 12 acquisitions in the period. The EBITDA margin was 49% and the operating profit margin was 31%. As a result, pretax profit was up to GBP 633 million, that's a 19% increase at constant exchange rates. The more significant 42% increase in earnings per share reflects the lower U.S. tax rate, which results in an effective rate of 24% for the half year compared with 35% in the same period, and also, there's a benefit there from the ongoing share buyback program. So turning now to the businesses. And Slide 6 sets out the results from Sunbelt in the US. Rental and related revenue increased 18% as Sunbelt continued to benefit from, generally, strong end markets and, to a lesser degree, the impact of the cleanup efforts surrounding hurricanes Florence and Michael. Geoff will comment on those in a little bit more detail later. The operational efficiencies of the mature stores enabled us to maintain EBITDA margin of 51%, and as a result, the operating profit increased 21% to $847 million at a margin of 34% for the half year. Turning now to Sunbelt in Canada. And the slide shows how the scale of our operations have been transformed by the acquisitions of CRS a year ago and then, to a lesser extent, Voisins in the earlier part of this year. So as a result of that, year-over-year comparisons are not particularly meaningful. In absolute terms, Canada generated CAD 167 million in revenue and contributed $36 million in operating profit. As we discussed at the start of the year, we're expecting margins in this business for EBITDA of around 40% and operating profit margin around 20%. Margins in the period were consistent with this with an EBITDA margin of 40% and an operating profit margin of 22%. Turning now to U.K. on Slide 8. A-Plant's rental and related revenue increased 3% in the period. That was a 5% increase in the pure rental revenue with a slightly slower growth rate in the ancillary revenues. The market in the U.K. remains relatively flat and the rate environment is competitive. Good drop-through maintained EBITDA margins at 38% and the operating profit margin was 18%. Slide 9 sets out the group's cash flows for the half year. The strong margins we discussed earlier contribute to GBP 967 million of cash inflow from operations, which gives us substantial flexibility to -- as we remain focused on enhancing shareholder value within our capital allocation framework. This free cash flow is more than sufficient to fund our replacement and growth CapEx in what is a seasonally higher period of spend. We invested GBP 959 million in the rental fleet as we look to grow in the U.S. market -- in a strong U.S. market and continue to take market share. In addition, we spent GBP 335 million on bolt-on acquisitions as we both enhanced our specialty capabilities and broadened the footprint, our geographic footprint in the U.S. We also continued the share buyback program, spending GBP 210 million in the half year. Slide 10 sets out our debt position at the end of October. As expected, net debt rose in the period as we spent on the rental fleet, we spent on M&A and we continued the share buyback program. As Geoff mentioned, this was all achieved whilst maintaining leverage within the middle of our target range of 1.8x EBITDA. It's also worth noting just the scale of the asset on the other side of the balance sheet that supports that debt. As you can see in the bottom right-hand corner, there is a significant gap between the second-hand value of our rental fleet and the debt on our balance sheet. It's both this leverage and well-invested fleet that will provide us with both flexibility and the security as the cycle progresses. Following the July bond issue, our debt facility is now committed for around about 6 years, and the average interest cost is just under 5%. What's particularly attractive about the structure is the extended profile of the debt and the fact that there are no significant maturities at any point in time. And so with that, I'll hand back to Geoff.

[Geoffrey Drabble, CEO & Director]

Thanks, Michael. So turning to the detail of Sunbelt's U.S. rental revenue. We continue to outperform our original expectations with 19% growth in the quarter. And as you can see, the bolt-on performance is in line with our expectations, so the principal driver of this outperformance and the principal driver of our growth remains our organic investment. So let's turn to Page 13 now just to look at all of this in a little more detail. As you know, last year was a particularly active hurricane season. We had 3 significant events. This year there's been 2, which again, unfortunately, caused major devastation. But partly due to the timing of the events and partly due to the geographies affected, we've generated $15 million of revenue from hurricanes this quarter as compared to $35 million last year. So if we adjust for this difference, the underlying revenue growth in Q2 was a very impressive 22%. And this momentum was carried into November, which is why we are tweaking up our revenue and CapEx guidance today. Now moving to rate. And the significant bump last year due to the hurricanes does affect the prior year, as you can clearly see from the chart. So year-on-year rates are flat as we lap these tough comps. However, the overall environment is really positive. So if you look at the chart there on the right and rates, as you'd expect, fell as we sequentially went into winter. However, our winter low points this year were the same as what the prior year August high points were, pre the hurricanes. And let me tell you, on a historical basis, that is a very, very strong performance for winter. And since this point, we've seen good seasonal rate improvement, which, as I said earlier, has encouragingly continued through November also. The noise in the headline rate has also been affected by the scale of the green and bolt-ons we've done in the first half and which Brendan's going to talk about in a moment. Therefore, we have added more detail to the rate chart to show the rate evolution, which is the yellow line there, for just the same store. So if we take out the drag effect of greenfields and bolt-ons, you can see the strong sequential improvement on same store. So I think, this further analysis is just there to confirm that we remain in a very healthy rate environment. Turning to Page 14. Mix remains a yield headwind with the monthly portion of our business increasing to 71%. And this, together with the tough comps, contributed to negative 2% yield. So this yield metric continues to be volatile as it was, indeed, last year. But I think really important metrics to highlight on this page are, and in the second quarter, we grew fleet on rent by 21%, we delivered 52% EBITDA margin and a 35% EBITA margin and a 24% ROI. So clearly, we're seeing significant growth in gaining market share, but also clearly, this incremental business is very, very profitable. Moving on to physical utilization. And despite the fleet growth we mentioned earlier, it's remained very, very strong. So I've included upfront here the split between general tool and specialty to try and fully explain what's going on in the markets. So as you can see, total and general tool utilization remains at or near record levels, but the real development over the last couple of years has been the year-round improvement in specialty as we continue to broaden our markets. Therefore, even though we're clearly in a strong cyclical period for general tools, especially business is now up to 24% of our total and we've seen 20% compound annual growth in that area over the last 3 years. So even as we grow and enjoy the benefits of strong construction markets, we continue to successfully diversify the business. This broadening of our specialty offering is a trend we expect to continue. That doesn't mean that we don't also see significant opportunities for our general tool business. And the first half has seen good activity in both areas. Our overall 2021 plan remains in place, but we have accelerated some greenfields to respond to the significant market consolidation that's been taking place. So in the first half, we've opened 44 greenfields and expect to complete somewhere in the 70 to 75 range for the full year. And we've also spent $386 million on bolt-ons, and we continue to have a very good pipeline of opportunities. So to look at what we've been doing in this whole area of greenfields and bolt-ons and our strategic development, it's a great time to hand over to Brendan.

[Brendan Horgan, Group COO & Executive Director]

Thank you, Geoff, and good morning. You have seen Geoff, on this last slide here, just point out the progress in our greenfields and bolt-ons over the period, but it's clear to see we've had a very active expansion. We've had an active expansion particularly in the period. And we've done this because we see the opportunities in the markets, both as a result of some of the recent industry consolidation as well as the overall strong demand that we are feeling and seeing from our customers. Our strategy is unchanged and our activity levels are simply timing as we take advantage of these market opportunities. What this represents is just an acceleration of our 2021 plan. Importantly, it demonstrates the flexibility that we have in these plans to react to the market conditions, whatever they may be. As Slide 17 illustrates, our expansion is both geographic and product-based, adding a nice mix of general equipment and specialty locations through our greenfield and bolt-on program. These additions advance our offerings across many geographies, from a service proximity and convenience standpoint, as well as adding a broad range of products through our specialty expansion. In this half alone, we've added locations with product solutions specific to our power & HVAC, pumping, flooring, trench shoring, climate control, ground protection and industrial tools. We've done all this to service our ever broader customer base and our end markets. As we continue on the expansions theme here on Slide 18, we'll take a somewhat deeper dive into one of our more recent bolt-ons, specifically the acquisition of Interstate, which we would have completed on the 13th of August and covered to some degree in our Q1 results. The addition of this business, with a real notable presence in the large New York City and Philadelphia markets, accelerates our cluster with all the cross-selling and margin enhancements benefits that this will bring. Even though we've said this many times, I'll point out again, our bolt-on strategy focuses on revenue synergies, and the Interstate deal is a really good example of that. It brings this business with a good presence in the market but also in areas where Sunbelt has historically been underrepresented. However, if you think about Interstate, their product offering would have been purely aerial, so this creates the opportunity for us to cross-sell into the Interstate customers our much broader product offering while, at the same time, it allows us to better service our existing customers with an overall better aerial offering. As we move to Slide 19, I think this demonstrates really well the revenue synergy impact we've had by introducing this broader customer base, and the product range and the overall really leveraging of this Sunbelt platform in these markets. So in the 10 weeks since we've owned this business, we've increased their time utilization, as you can see, from 60% to 73%, all while improving the time utilization in our incumbent Sunbelt locations in these very same markets. When we look at rate, it should come as no surprise that the Interstate rates, they were lower than ours. This slide shows relative rental rates using Interstate's 4 largest product categories as compared to Sunbelt's in the same markets. And as you'll see, there's anywhere between a 10% and a 20% difference in that rate. I think this brings us back nicely to Geoff's earlier point when he was referencing the impact of bolt-ons and greenfields specifically to our average rates. These always have some drag on rates, but as rate will inevitably and ultimately follow time utilization, we will begin to see these improve as we leverage the overall platform that I mentioned earlier. On Slide 20, you'll see here from a market view standpoint -- look it's easy for me to stand here and say, on the ground, the markets are very active. Virtually irrespective of the geography in which we operate, the markets are active, and they're active from a very broad aspect. We can look at construction, say, sure, construction is busy and it's busy with a nice mix. But what really stands out to me is the activity across our general equipment and specialty businesses in areas like special events, and maintenance and the many rentals taking place in ordinary square footage under-roof applications every day across our entire business. So the outlook remains strong whether we look at the latest IHS ARA forecast, which was released in November, increasing industry revenue to $66 billion in 2022 just for the U.S. and $72 billion for North America in total. In this, they project greater rental revenue growth in every one of the component years through 2022 than they did just in their previous forecast from 6 months ago, so very recent uptick there. Their forecast, of course, takes into account more than just construction as they have some understanding of rental penetration and areas like MRO and square footage under roof like we've also pointed out in the slide. Another measure worth mentioning is the most recent America's builders and contractor indicator -- backlog indicator, sorry. So as you'll see here, it is showing improved momentum and it's actually at an all-time high. This is an interesting one to me, given if you really think about what the makeup of the participating members of ABC would be, it's a very broad range of contractors who work in a very, very varying range of end markets, project size, et cetera. This outlook is further supported by the spend from this year's corporate tax cuts, which will really only begin to translate into projects in 2019 and beyond, and we're actually seeing the early signs of this with significant sized projects nearing start, things like data centers, distribution warehouses and multiple examples of office expansion and renovation. We have to look no further, really, than the Amazon HQ2 project or, better now said, HQ2 projects that were just announced last month. So the trends in our business and in the forecast like those I've just covered are easily clouded, it seems, at the moment. It's been a long recovery and, as a result, it's normal for people to ask how much longer will it be. My answer to that question goes back to what I said in the beginning. We see good end markets and, on the ground, we continue to see growing backlogs. Nonetheless, we watch closely key lead indicators. And, sure, the pace of growth will, at some point, inevitably slow, we just don't believe there's evidence of that being any time soon. Moving on to Canada. Like the U.S., the markets are very strong. And I think it's important mentioning that we're uniquely supported by the increase in demand from our customers, both those that are originating in Canada and those where the relationships would have began in the U.S. Not dissimilar to what we would have experienced in the U.S., we find these customers wanting a broader product range, coupled with the convenience and coverage of added locations. I'm very happy also with the integration of our recent acquisitions in Ontario, specifically those of CRS and Voisins, from which we now have the platform. We have the platform to gain further share in the general equipment and specialty space, again, similar to the progress we would have demonstrated in the U.S. over the last several years. In fact, in the quarter alone, we've added a power generation and flooring business, thus the beginning of folding specialty businesses into that platform I referenced earlier in the Ontario market. In the financials, as you'll see, we have continued progress with pro forma rental revenue growth of 21%, and as Michael would have said earlier, margins becoming in line with our near-term expectations. So with that, I will turn it back over to Geoff.

[Geoffrey Drabble, CEO & Director]

Thanks, Brendan. So let's complete the set by turning to A-Plant. And we're very much on plan to deliver what we expected. We're continuing to get sensible volume growth, we're pushing at physical utilization and we're trying to keep a sensible handle on rates, which, as Michael pointed out earlier, is allowing us to deliver consistent margins. And we're going to continue to control costs and fleet until we get greater clarity on end markets, but we expect to remain on plan for the balance of the year. And what does all of these mean for CapEx, here on Page 23? Well, our strong momentum with fleet on rent is reflected in our increased guidance for both the U.S. and Canada. As you might expect, from what I've just said, the U.K. remains on its original plan. Therefore, the group's anticipated net spend has been increased to between GBP 1.25 billion and GBP 1.4 billion as we respond to the needs of the market and our market share opportunities. Turning to capital allocation on Page 24. Look, our priorities remain absolutely unchanged. Obviously, when your cash flow from operations is nearly GBP 1 billion, as Mike pointed out earlier, you've got a few options. But our focus remains on organic growth, as you can see by what we just said on fleet spend. And then we look to bolt-on M&A where we spent GBP 362 million. We've increased the interim dividend, in line with our progressive dividend policy to 6.5p a share. So after all of this and subject to remaining within our 1.5 to 2x leverage targets, we allocate the balance to share buybacks. So we expect to spend GBP 675 million under the December 2017 program and anticipate a minimum spend of GBP 500 million in the financial year '19/'20. But given the recent weakness in global stock markets, we, of course, review the relative returns of M&A versus buybacks. And we believe the deals we've done and hope to conclude in the near term have a very sound strategic logic and represent value-enhancing opportunities, and we will continue to look at deals of that nature. However, we do remain flexible as to the relative capital allocation between these 2 priorities going forward. And as I said at the beginning, given the scale of our cash flow, we have lots of options. So to summarize, look, it's been a very good quarter where we've seen good revenue, gained share, delivered strong margins, and cash generation has been an improving trend through the quarter. Our organic growth story continues to deliver responsible growth as we maintain leverage within our conservative range of 1.5 to 2x EBITDA. In addition, as Brendan just highlighted, we've opened a number of greenfields, completed further bolt-on acquisitions as we continue to broaden our geographic and product reach. During this quarter, there's been another very significant milestone, and that's been the finalization of our well-flagged CEO succession. If I could add a personal note to all of this, I am delighted that it's going to be Brendan leading the business forward to yet further success. And of course, I wish him well, mainly as a shareholder. So with that and to wrap it all up, just to remind you all that we continued to perform well in support of end markets, and we expect full year results to be ahead of our prior expectations. But most importantly, we continue to see good opportunities well into the medium terms and remain committed to our 2021 plans. So that seems like the appropriate point to move on to Q&A, and you all know the drill.

[Geoffrey Drabble, CEO & Director]

Question, Andy. That was pretty quick to get your hand up.

[Andrew Murphy, Analyst]

Andy Murphy from Bank of America Merrill Lynch. Just on that CapEx slide, I'm quite interested to see that you've increased the replacement CapEx by quite a considerable amount. I was just wondering what your thought process was behind that as I would have thought you would have been pretty much on top of what needed replacing probably years in advance.

[Geoffrey Drabble, CEO & Director]

I mean, a lot of it is a reflection, for example, of the amount of bolt-on activity. So when we buy businesses, there is always a little bit of extra activity as we reconfigure the fleet and to make sure that we have a consistent offering across all locations, so that's an element of it. There is a bit of old truth that after a period of heavy hurricane activity, some of that stuff comes back pretty beaten up, and so there's just -- so there's some timing issues and there is some tidying of it. It doesn't signal any great change in our normal activity levels.

[Andrew Murphy, Analyst]

And the second question was just around the direction of rental rates with regard to U.S. interest rates, which have been heading up. Does that help you in any way?

[Geoffrey Drabble, CEO & Director]

In theory, yes, eventually, of course, because it's going to make -- a whole host of things are going to make the original cost of equipment likely more expensive, be that tariffs, be that steel inflation, be that interest cost. I am not sure there is as direct a correlation as there may be on your spreadsheets, but the overall rate environment is very strong. I think one of the problems with rates is people expect things to happen very, very quickly and look at the short-term impacts. If we go back to the Page 13 a second, look, people get awfully worried about what's happening in the quarter or in a month and how quickly things translate. The way I would look at is, if you go back to October '16 and go to October '18, look, over a 2-year period, we have increased fleet on rent by 42% and improved rates nearly 5%. Now if you asked me in October 2016 and if I draw a straight line between those 2 points, would I be happy with that, the answer would be yes. Now what you've got to sort of ignore is the wiggly bit of string between those 2 points. Do I expect good rates improvement going forward? Yes. Would it always be a completely straight line? No. You can get too much noise. Look, we've got good momentum going into November on rates. Does that mean it's going to be great in the next quarter? Well, it will depend on how cold it is and how many heaters we get out on rent. It literally can make that -- that noise can make that level of difference. But the overall rate environment, and look at our margins and look at our return on investment, remains very positive.

[Unknown Analyst]

I'm [ Steve Golden ] from Deutsche Bank. So just on the point about rates before, I think you said it's minus 2%, but...

[Geoffrey Drabble, CEO & Director]

The yields were minus 2%. The rates are positive. Well, rates were flat quarter-on-quarter, yield is negative.

[Unknown Analyst]

Okay. Was there a hurricane impact within...

[Geoffrey Drabble, CEO & Director]

Yes, because the composition of the fleet on rent changes between the relative levels of hurricane activity. So there was the -- how you sort of delta from flat rates to negative yield is a combination of the fact that we now have 71% of our rental was monthly, so there's a contract duration perspective and there's also an element of the type of fleet you have on rent. So yes, they're the 2. So it's not a reflection of what we're getting from the same customer for the same piece of equipment.

[Unknown Analyst]

I just wanted to ask you about wage inflation in the U.S. as well, particularly as it relates to your drivers and trucking costs, in particular, are going up significantly in the U.S. Is this something that will affect you? How much of that you expect can be passed on?

[Geoffrey Drabble, CEO & Director]

It is something that I would go so far as we were the first person to start highlighting wage inflation. We started highlighting it when people were arguing with us that it didn't exist and that was a reflection that the U.S. economy wasn't very good if I go back far enough. But we have been suffering, as like everybody else in the industry, some level of cost inflation for a number of quarters and a number of years now. But as you can see, by the evolution particularly of our EBITA margin and our ROI, we're just dealing with it. We're dealing with it with a combination of rate, we're dealing with it with a combination of efficiency and leveraging our scale. So yes, it is a reality of the current, very strong markets, which exist in America. You would have seen that drop-through for the quarter was 53%, up from 50% in the first quarter. So we're just dealing with it. I mean, it's a reality of business now. There's no point arguing about it or trying to worry about it, you have to adjust your business and pull whatever levers you can pull to make it happen, but remember why it's there. People kind of want it both ways. It's there because there's a shortage of labor because the economy is so strong.

[Rajesh Kumar, Analyst]

Rajesh Kumar from HSBC. Just on the U.S. wage inflation, you very kindly provided us why it's strong and how you're able to counteract that. In terms of market opportunities, do you find any opportunities arising because they have a labor shortage in terms of growth, in terms of providing any additional service?

[Geoffrey Drabble, CEO & Director]

Yes, I think we've told -- absolutely. Look, it is a very tight labor market. There is likely to be inflation not only in operating costs but capital equipment. As the capital equipment becomes more expensive to purchase, and both the cost and complexity of taking on operational skills to support that fleet become more difficult, people are more likely to outsource and look for shorter term, flexible solutions and rental, of course, is perfect for that. And as Brendan has talked about and articulated very well over the years, this whole concept around square footage under roof is driven by the both cost and complexity of ownership. So anything that makes ownership more costly and more complex plays absolutely into our hands and our principle, which is: if we focus on availability, reliability and ease, why would you not rent? So, yes, I think that absolutely drives people to rental.

[Rajesh Kumar, Analyst]

And the second one is on the U.S. market. We've seen United Rentals do a lot of acquisitions, market is consolidating at a really fast pace. How do you think about your strategy in terms of procurement, in terms of competition in the light of what's going on?

[Geoffrey Drabble, CEO & Director]

Look, as we think -- I think -- I hope we've repeated a number of times, and I'll now hand over to Brendan to answer this too. We think our strategy remains unchanged. And again, I've seen people say, well, they're going to end up with all this purchasing power. Well, reality is, because of acquiring lots of old fleet and they're having to integrate businesses, they're not spending a lot on fleet, they're spending a lot on M&A and actually were. So they're unlikely to get a purchasing advantage. Again, for a long time, I have been a big proponent of consolidation in the market. And you remember, we've had various slides over the years saying the big will get bigger and that disconnect between the top 2 and the rest will be positive for the market. So I think their strategy makes all the sense in the world. Clearly, when you're doing that scale of consolidation in a short period of time and your primary focus is cost synergies that, in the short term, undoubtedly provides us with opportunities, and hence, the acceleration in our greenfields and some of our bolt-ons to make sure we have both the geographies and the products to take advantage of that disruption. So if you look at the scale of our organic growth and our market share gains, its cost us a lot less to get to that revenue growth than some of those and I'll let Brendan comment on how he sees the whole consolidation...

[Brendan Horgan, Group COO & Executive Director]

No, I think you've got the majority over there, Geoff, but I think it comes back to that key point of the difference between our expansion plan. And it's been pretty consistent from out of the gates for us, both the plan of growth that we had pre our 2021 plan, which we rolled out in 2016, and also our 2021 plan that we've had ever since. And all along, it was a complement of greenfields and bolt-ons being folded in where it made sense to fold them in. There is just -- I don't think you can underestimate the impact between viewing it as a revenue synergy add-on versus a cost synergy. Look, in our business, when you look at M&A and you look at the cost savings, cost synergy opportunities you have, sure, we'll have little cost savings here and there when we integrate the business because there'll be a CFO in the business and we don't need 2. So simple things like that will be, but when you get to the point of closing addresses and you get to the point of reducing overall heads because, I mean, in the end, in our business, cost savings are people, they are fleet and they are facilities. And in a market where we have 8%, 9% market share, we have all the opportunity to be looking for all these cross-selling synergies like in the instance that we gave with Interstate. And look, we are not worried at all in the current climate about us losing any of our advantages from a strength of purchasing standpoint. We buy bigger than our own shoes, so to speak. So our spend would have been even more so than what our share was within the industry. So rest assured, manufacturers and suppliers into the rental space, they pay very, very close attention to us.

[Geoffrey Drabble, CEO & Director]

I mean, being the kind guy that I am, obviously, we'll give Brendan all the best slides for his first time up here. But, I mean, this slide here is just huge. I mean, think about it. Think of all the disruption and the potential loss of revenue as you go for cost synergies. If you move your physical utilization from 60% to 73%, all of that revenue growth kind of comes for free. You've already got the locations, you've already got the fleet. If you can then sort of start making progress in that delta in the rates too, and that's before you get into all the cross-selling opportunities that those 7,500 customers that they had who have never rented heaters from them before, never rented sort of air conditioning units before. So if you start looking at those revenue synergies, it's why we like buying these smaller businesses, which are strong in a product or strong in a product category and developing the revenue synergies. Now it doesn't mean to say that cost synergy doesn't work, the evidence would be that it does. It's that's our model, and we're very happy with it.

[Steven John Woolf, Analyst]

Steve Woolf from Numis. Just sticking with that M&A point. How have you found then on the bolt-on M&As -- with the way that the market's gone more recently, how have you found the multiples then of those? Have they not changed as much?

[Geoffrey Drabble, CEO & Director]

Again, we've got to be very, very careful, because what I said about capital allocation is true. It's run for 20 or 30 years. It doesn't change the price because our stock price has fallen by whatever it's fallen over the last 2 or 3 months. So we've not seen any significant changes in multiples. But back on planet earth, it doesn't affect what an average guy thinks his business is worth. And again, the primary multiple relationship remains how much fleet are we buying from them and not -- secondhand prices haven't really changed.

[William Kirkness, Equity Analyst]

It's Will Kirkness from Jefferies. Just a couple, please. Please clarify your comment on growth in November's, 22% rental revenue rate. And then secondly...

[Geoffrey Drabble, CEO & Director]

Look, I mean, I haven't seen the absolute finals, could spin around that number. It was a really good November.

[William Kirkness, Equity Analyst]

Okay. Great. And then secondly, any color on the type of kit for the extra CapEx? Is there anything in particular that stands out or...

[Brendan Horgan, Group COO & Executive Director]

I mean, well, I think Geoff mentioned earlier, keep in mind, part of our CapEx as it will change over time depends upon the bolt-ons we would have done late last year and earlier this year. A significant portion of it would be going into specialty business. You don't get growth the way that we have, that Geoff would have demonstrated, if you don't do that. But keep in mind, our ability -- part of our success over the years has been our ability to react to the market. So react to market to be able to bring in the gear when the gear is in demand. So we work very closely with the manufacturers that I have mentioned earlier, and we'll be working with them on backlogs. We don't hesitate for 1 minute. If an asset was planned to go to replacement in Chicago and we have opportunity in Philadelphia, we will divert that asset from where it would have gone in Chicago as a replacement unit, make it growth in Philadelphia and then we'll put another asset in the build for that later replacement in Chicago. But no, broadly though, our fleet mix hasn't changed.

[Geoffrey Drabble, CEO & Director]

I mean, we continue to see really good growth in market share in our general tool operations. You can see that from our greenfields and -- but we continue to remain committed to developing our specialty business. As I was revising last night and reading through the press release again, it struck me when -- if you get a chance to look at the press release, look at what we've done since the quarter end in M&A. And it's really quite interesting because in the U.K., there's 2 really cute little specialty businesses, there's a survey business and a hoist business, which are sort of like lifts you see on the outside of tall skyscrapers going around here. And then in America, we've bought another trench-shoring business to add on to maybe as we develop our trench shoring offering. And quite frankly, following on from United's acquisition of Baker Tanks, we bought a really cool pump business. So even since the quarter-end, there's 4 very, very specific specialty businesses, which in their own right are not massive and aren't going to move the dial in the short term in terms of our financial numbers, but as a platform for further development, it really shows you the scope that we have to develop our specialty business. Oh, my God, it was a reading last night.

[Andrew Nussey, Analyst]

I'm Andrew Nussey from Peel Hunt. Again, another couple of questions. In terms of the greenfields, you've also accelerated your plans. Does that make it harder to bring the next wave of greenfields through, whether it's an issue with zoning, cannibalization?

[Geoffrey Drabble, CEO & Director]

Look, I certainly can. I'm not just sure like, how things changed.

[Brendan Horgan, Group COO & Executive Director]

I can get used to this. Are you available in June?

[Geoffrey Drabble, CEO & Director]

[indiscernible] out the coffee.

[Brendan Horgan, Group COO & Executive Director]

Look, anyway, it won't come as much of a surprise. Keep in mind 2021, one of the fundamental changes from what our previous expansion plan would have been is building out our platform for clusters, right? So obviously, you will have seen a lot of these ads in areas that we would have otherwise served, but we're just under-clustered. It's not coincidence that it happens to be relatively East Coast biased. I did mention some of the recent industry consolidation, and I think you'll find that's where quite a bit of it has been. Look, in terms of us finding land, is it harder to find land than it was to find land in 2012? Well, of course, it is. Is it harder to find businesses that you can just upfit that are just sitting ready-made? Well, of course, it is. But we have a very strong ground game, so to speak, of a team that's constantly out there looking for facilities and properties. Obviously, sometimes we will complement that with bolt-ons as well. But just look West of the Rockies. So look in terms of where that opportunity continues. We could talk about a population, put-in-place construction, et cetera. An example I'll give you, if you look at the state of Florida, we have about just over $1 billion, $1.1 billion in fleet invested in the state of Florida. There's about 20 million people population-wise in the state of Florida. California, we have about $600 million invested, there's 37 million people. So just think about -- that comes out to about, like-for-like, it would be $2.1 billion in fleet we would need to have the same level of penetration in California as we have in the state of Florida. So plenty of tail left on this for sure from an expansion standpoint.

[Andrew Nussey, Analyst]

Going back to Interstate slide and the utilization improvement, is that a sort of like-for-like or is there some sort of seasonal influence on the utilization?

[Geoffrey Drabble, CEO & Director]

No. Like, I mean, utilization in aerial is very, very -- there may be a tiny bit, but by the time you're in May through to November, you're a full steam ahead.

[Brendan Horgan, Group COO & Executive Director]

The 13th of August to October 31, right? I mean, the business literally said, let's get to plus 70 by Halloween, and there you have it. Eventually, George, I've tried.

[George Nicholas Gregory, Research Analyst]

It's George Gregory from Exane. Just one, please. Geoff, or Michael or Brendan for that matter, when you think about when you do your scenario analyses for the various potential outcomes over the next few years, how do you actually settle on a level of potential yield compression in any of your businesses? What metrics do you look at, if any?

[Geoffrey Drabble, CEO & Director]

Well, look, the hard bit with yields. Can we talk about rates rather than yields. The yield bit's hard because it's hard to be precise on the mix in terms of the precise mix of rental contract length, where we're now in great markets, and as Brendan said, there's a number of major projects either just started or about to start where we're going to have super-length contracts. We used to talk about our mix between daily, weekly and monthly contracts. And in those days, monthly contracts were monthly contracts, i.e. they typically were out for about a month. The problem with monthly contracts now, a monthly contract really means it's out for a year or 2. So the whole dynamic of the business has changed. So the mix bit's difficult, so we look at it more from a rate and a volume perspective. And we look at all of the lead metrics that Brendan has. We consider inflation because, ultimately, inflation will, over time, play into it all. So we model a rate environment, and we guess what impact that will be in terms of yields and we model volume growth. So we sit down and look at all of the lead indicators Brendan saw there, and we try and put in an analysis of how much market share we think we can gain. And we do that by district, like what is our upside potential market share by district, and we add on a bit of a line for bolt-on acquisitions. So like we look at all the lead indicators, we focus more on rates and the yield is a bit of a finger in the air, to be perfectly honest.

[George Nicholas Gregory, Research Analyst]

I suppose that -- your returns are, obviously, far higher than they were at this point of the prior cycle, but industry returns, presumably, are higher than they were at this point of the prior cycle.

[Geoffrey Drabble, CEO & Director]

In the main. Look, remember we are not -- Michael knows it. I was at -- look, we are at low 50s EBITDA margin in the state. We're typically buying businesses at around mid-30s. And, yes, they're a bit higher, but they're not as much higher than they were in the previous than you -- as you might think because we've been a -- remember our -- we've got it in the appendices. They go all the way through the cycle. When we -- the problem is when people look at where we are now and where we were in previous cycles, you're not comparing apples with apples. So remember, in the past, we saw in those charts where we see existing stores, how much bigger they've got, how we've leveraged to scale. So we were in a relatively unique position in that we had a relatively immature portfolio of locations and, therefore, got a lot of free growth within those stores. And I'm not sure a lot of the smaller players have that same scalable opportunity that we have. Isn't in there anyway? Maybe it's not.

[Michael Richard Pratt]

Yes, you have passed it.

[Geoffrey Drabble, CEO & Director]

I have passed it.

[Michael Richard Pratt]

Yes.

[Geoffrey Drabble, CEO & Director]

All right, fair.

[Michael Richard Pratt]

I'm sorry the ROI...

[Geoffrey Drabble, CEO & Director]

The ROI is...

[Michael Richard Pratt]

It's right in the back.

[Geoffrey Drabble, CEO & Director]

You see -- I got straight to his slide -- so I mean, the issue is and I understand people are going, but oh my goodness, it was like 30% group EBITDA margins and now with 47%. If 30%, what happens again? But you're just not comparing apples with apples. If you look at the fleet which was in the same stores and the margin, we can dig it out again. I'm sure Michael can share it with you. We've showed you many times what's happened to those most mature locations in terms of stores. Then we're just a completely different business in terms of scale and how we leverage the fixed cost base.

[Andrew J. Wilson, Analyst]

It's Andy Wilson from JPMorgan. And just a couple of quick ones, I hope. Just in terms of thinking about the CapEx planning and, I guess, fleet planning more generally, has anything changed in terms of kind of where you see the optimal fleet age?

[Geoffrey Drabble, CEO & Director]

No, not at all. I mean, again, mathematically affected by the proportion of growth you have relative to -- so our fleet age came down very, very quickly not because we were doing anything different, just we'd had so much growth -- when I would [indiscernible] it's a slide for Brendan to share at our Capital Markets Day some time in the future. There's 2 things that make me very, very confident about the future. One is the chart Michael shows, which says, look how long our debt maturity is and look how steady it is. So there's not like this critical event that you have to get over. That's very different to where we've been in previous cycles. But if you would have looked at the fleet age too, what we typically used to have was like dollops of fleet age and then nothing happening, which meant there was always this event that you had to get over, which was that $1 per fleet. So our fleet age wasn't very representative because whereas now we've been spending not dissimilar sums for a number of years and, therefore, the distribution of our fleet age is spot on. But no, in terms of how we are managing it, other than the mathematics and a little bit of tweak because of the fleet mix, no, we're dealing with it exactly the same.

[Andrew J. Wilson, Analyst]

Have you seen any change in terms of how the industry is looking at fleet age?

[Geoffrey Drabble, CEO & Director]

No. Again, if you did look at all of our customers -- our competitors and our customers, like, they woke up in the end of July and thought life was great and they're waking up at the end of November thinking life is great. Someone else in some other markets has decided something else is going on, but no one else in the real world has seen any of that in terms of either their current activity levels or their prospects for the medium term, so no. Now if you're spending so much money on M&A, and you're acquiring what typically is a very old fleet and you're acquiring what is probably a disconnect fleet in terms of loads of different brands, you've got some management to do. You've got some serious fleet management to do to get that good distribution of fleet age and get a consistent brand identity into your fleet. But anyone who is just ticking along as normal. No, everyone's pretty conflicting.

[Brendan Horgan, Group COO & Executive Director]

And if you just look at -- if you look at Slide 34 that you'll have there just the delineation in terms of fleet age on that pie chart. Look, I mean, the likes of us and a few others, generally, are going to have a more modern fleet, a bit newer. Geoff's right about various expansion strategies that won't quite give you as precise a balanced fleet as what we find ourselves with today, but make no mistake, when you drop into those smaller independents, you will have an older fleet age.

[Andrew J. Wilson, Analyst]

And maybe just on Canada, and I mean, I can't remember exactly, but it feels like 1 year or so also since you've given us some of the numbers, and obviously, that strategy feels like it's really been ramping. Can you just give us a sense of kind of where you are versus where you thought you were? And kind of where you are in terms of how you assess that opportunity before you kind of, I guess, jumped in on that opportunity?

[Geoffrey Drabble, CEO & Director]

Well, Brendan?

[Brendan Horgan, Group COO & Executive Director]

Yes, I mean, well, I'll tell you I used the example before of California. It just so happens to be California has the same population as Canada, so it's kind of about the same-sized market. Look, it's a big market. We have considerably less market share than what we have in the U.S., but underneath it all, we find the very similar characteristics. So those customers, in particular, as I said before, are looking forward to someone that has a broader platform, bringing their specialties. Is it bigger than maybe we thought it would be? Well, it took a CRS to come our way in order to really materialize that. But what we have now is we have a nice platform for further growth on the west side, in British Columbia and Alberta, and then we have this nice platform in that overall Ontario market. So no, we are very positive about Canada and see a lot of the similarities between the 2 and expect to ultimately see our results continuing to grow. It's just we have miles and miles of runway.

[Geoffrey Drabble, CEO & Director]

That seems to be it, so on that note, thank you very, very much indeed. We shall -- well, Brendan will look forward to seeing you at year end. Thank you very much indeed.