Ashtead Group PLC

LSE:AHT

Earnings Call Transcript 2019-Q3

[Operator]

Hello, and welcome to the Ashtead Group plc results for the third quarter. [Operator Instructions] And just to remind you, this is being recorded. So today, I'm pleased to present Geoff Drabble, CEO; Brendan Horgan, COO and CEO Designate; and Michael Pratt, CFO. Geoff, please begin.

[Geoffrey Drabble, CEO & Director]

Thanks to you, and good morning, everybody, and welcome to the Ashtead Group Q3 results call. Today's call will follow the usual shorter format, albeit with our new dynamic team. So a review of the financials by Michael will be followed by an operational update from Brendan, and then we'll move on to Q&A. So before I hand over to them, let me just cover a few highlights summarized on Page 3 and generally try to set the scene. It's clearly been yet another strong quarter with rental revenue of 18% year-on-year. Again, the primary driver of growth remains organic investment, but we've supplemented this with GBP 491 million spent on bolt-on acquisitions. And we've added 112 locations in the year-to-date as we broaden our product offering and geographic reach. And of course, the combination of this fleet investment and larger footprint provides a great platform for further growth as we implement our 2021 plan. And Brendan is going to cover all of this in more detail in just a moment. So we continued to deliver well in a market that was supportive and continues to play out as we anticipated from both a cyclical and a structural perspective. And this strong underlying business performance continues to be supported by a strong balance sheet, and this has been underpinned by our recent refinancing. So as always, we continue to grow responsibly. And therefore, unsurprisingly, with a clear momentum in the business and a supportive market backdrop, we expect our full year results to be in line with expectations, and importantly, we can continue to look to the medium term with confidence. And so with that, I hand over to Michael to detail the financials.

[Michael Richard Pratt]

Thanks, Geoff, and good morning. The group results for the 9 months are shared on Slide 5. And as Geoff said, it's been a good quarter and 9 months with strong growth in revenue and profitability. The group's rental revenue increased 18% on a constant currency basis, and we maintained margins despite opening 62 greenfields and completing 9 acquisitions in the period. The EBITDA margin was 48% and the operating profit margin 29%. As a result, underlying pretax profit was GBP 888 million, up 18% at constant exchange rates. The more significant 34% increase in underlying earnings per share reflects the benefit of the low U.S. tax rate resulting in an overall effective tax rate for the group of 24% this year compared with 31% last year and a lower share count as a result of the share buyback program.Turning now to the businesses. Slide 6 shows Sunbelt's 9-month results in the U.S. Rental and related revenue was up 19% as Sunbelt continued to benefit from the generally strong end market, and to a lesser degree, the impact of cleanup efforts following Hurricanes Florence and Michael on which Brendan will comment further. The operational efficiencies in mature stores offset the drag effect of new stores resulting in an EBITDA margin of 50%. As a result, operating profit improved 21% to $1.2 billion at a 32% margin. Turning now to Sunbelt in Canada. Slide 7 illustrates how the scale of our operations in Canada has been transformed by the acquisition of CRS last year and, to a lesser extent, Voisin's this year. As a result, year-over-year comparisons are not particularly meaningful. In absolute terms, Canada contributed $257 million in revenue and $47 million in operating profit in the period. In a period of rapid growth, the key is to strike a balance between growth and profitability. Canada has achieved this, delivering an EBITDA margin of 37% and an operating profit margin of 18%.Turning now to the U.K. on Slide 8. A-Plant's rental and related revenue grew 3% in the quarter. This reflects a 5% increase in pure rental revenue with a lower rate of growth in ancillary revenue. The market in the U.K. remained relatively flat with a competitive rate environment. Good drop-through maintained the EBITDA margin at 37% for the period, and the operating profit margin was 15%. Slide 9 sets out the group's cash flows for the 9 months. The strong margins we discussed earlier produced cash flow from operations of GBP 1.5 billion, giving us substantial flexibility as we remained focused on enhancing shareholder value within our capital allocation framework. This free cash flow was more than sufficient to fund both our replacement and growth capital expenditure. Consistent with our capital allocation framework, we invested GBP 1.4 billion to grow the fleet in a strong U.S. market and continue to take market share. We spent GBP 461 million on bolt-on M&A as we broadened our specialty capabilities and enhanced our geographic footprint. And we continued the share buyback program announced in December 2017, spending GBP 327 million in the period and a total of GBP 550 million as of today.Slide 10 updates our debt and leverage position at the end of January. As expected, net debt increased in the period as we continued to invest in fleet and bolt-on acquisitions and continued the share buyback program. This was all achieved while maintaining our leverage ratio in the middle of our target range at 1.8x EBITDA. It's also worth noting the scale of the asset on the other side of the balance sheet supporting our debt. As shown on the bottom right, there's a healthy gap between the secondhand value of our fleet and our net debt. Both our leverage and well-invested fleet will continue to provide a high degree of flexibility and security as the cycle progresses.We've taken advantage of good debt markets during the period. In July, we issued $600 million of 5 1/4% bonds due in 2026. And in December, we extended our senior credit facility to December 2023 while increasing it to $4.1 billion and reducing the effective interest rate. As a result, our debt facilities are committed for an average of 6 years at a weighted average cost of less than 5%. What I like about our debt is its profile. It's a smooth extended profile through to 2027 with no large individual refinancing needs. And with that, I'll hand over to Brendan.

[Brendan Horgan, Group COO & Executive Director]

Great. Thanks, Mike. Good morning. We will start our operational update on Slide 12. You'll see Sunbelt US delivered another strong quarter with 20% growth. The organic momentum continued, contributing 15% revenue growth while the benefits of our bolt-on activity throughout the year contributed an additional 5%. This growth is a result of our continued execution of our 2021 plan as well as strong market dynamics, as I'll cover on the slides to come.So as we move to Slide 13, this will demonstrate well the demand behind our growth. Utilization continues to be at strong levels, and importantly, it is coupled with a good rate environment. We had difficult comps in each of these measures with far more hurricane activity in last year's Q3, so these results demonstrate further the strength in our end markets. As I said, the rate environment is good. Regardless of hurricane comps, rates on absolute basis are better than a year ago. Further, I should note to that February rates are already nearing 2018 midsummer levels, which indicates a very healthy rate environment as we enter the spring season.Moving to Slide 14. Mix remained a headwind to yield for the quarter with the monthly component of our business increasing to 75%. This duration mix really reflects length of projects and the core nature of rental today rather than the top-up nature of years past. Also worth mentioning is the trend we're recognizing of customers holding on to equipment longer to move to the next job or to the next project. Demand is high, as are backlogs, and we're seeing customers extend rentals as a result. As in previous quarters, whether yield is up or yield is down, it has no impact on margins. The quarter and year-to-date margins remain at the same strong levels as the same period last year while ROI has improved to 24%.Slide 15 shows our continued 2021 plan progress with a nice mix of greenfield and bolt-ons added in the quarter. What stands out is the momentum behind our specialty growth. We've added 42 specialty greenfields in the year and further complemented the specialty business growth with 2 key bolt-ons in the quarter. Specifically, we acquired Apex, which is a 3-location pump business, and Underground Safety, an 8-location trench shoring business, both of which closed in November. Since quarter-end, the bias was also to the specialty business as we've added Temp-Air, a 13-location climate control business. I'm sure we'll add some color to these more recent bolt-ons in our full year results come June.Slide 16 shows a number of macroeconomic, end market and industry activity forecast. In December, I shared what were broad and positive market indicators. Now here we are 3 months later and these views hold true and are further solidified. The spring season, and indeed, 2019 are now in clear view. Industry forecasts are strong, and the latest positive ABI and Dodge Momentum Index only further support this. Our end markets are busy and signaling no change in course. No one market indicator or forecast tells the full story or should be overreacted to. However, what we are seeing today is a broad set of data, internal and external, pointing to ongoing positive times ahead. This level of revenue growth demonstrates the broadening end markets we're reaching as a result of our scale, advancement of our market plus our strategy and specialty business evolution, all positioned to give great service to our customers through availability, reliability and ease. Further, I think it's important to note that in unusually soggy winters, like the ones that we've been in, that our performance demonstrates our success penetrating nonconstruction markets. Our addressable market continues to grow as square footage under roof and MRO opportunities continue to compound.Moving on to our Canadian business, which you'll see on Slide 17. We continued our expansion by leveraging our recently built scale, which Michael would have referred to earlier, in a market where we still have comparatively low share. Throughout the year, we've invested in the business with existing location fleet growth, greenfields and bolt-ons with the aim of broadening our fleet mix and geographic service capabilities, all leading to our strong pro forma rental revenue growth of 20%. As is the case with U.S. end markets, we continued to see positive indicators in Canada.Now to the U.K. on Slide 18. Our A-Plant business delivered Q3 results, which were virtually identical in revenues and profits as the same quarter a year ago. Considering the market conditions, our watch-closely approach while being focused on operational performance and customer service, I think, is a prudent one. Our A-Plant leadership team is engaged and plotting the course ahead, taking the market realities in full account as you would expect.Turning now to CapEx on Slide 19. Our guidance for the current year is unchanged from what we gave in December. I would anticipate we will end the year at the higher end of the range, reflecting another 3 months of on-the-ground market strength and further supported by the earlier-mentioned reaffirmed market forecast. Our early outlook for fiscal '20 is largely more of the same, particularly in Sunbelt US. You'll see an increase in replacement as we enter a larger replacement year, reflecting our investment in 2012, '13 and similar levels of growth CapEx as market demands remain high. This projected level of CapEx, together with our current year fleet growth, would anticipate rental revenue and profit growth in the low teens.Moving now to capital allocation on Slide 20. The order of our priorities are unchanged. You'll see we've invested GBP 1,290,000,000 in existing location fleet and greenfield openings and a further GBP 491 million on bolt-ons. As we expected, this has been an active bolt-on year as there were a number of deals in the pipeline as we entered the year. We've also completed GBP 550 million of our original buyback program, which we expect will be GBP 675 million by the time of our full year results in June. And as previously announced, we expect to spend no less than GBP 500 million in buybacks next fiscal year.In summary, it's been another good quarter of revenue and profit growth with every component of our 2021 plan executing in full stride. Our margins are strong as is our cash generation, which we will continue to allocate in line with our stated priorities within a leverage range of 1.5 to 2x EBITDA. So based on the guidance we've just given on fleet growth and a reasonable estimate for likely impact of M&A, we anticipate low to mid-teen rental revenue and profit growth for the coming year. When combined with the impact of our ongoing share buybacks, we expect our EPS growth to be in the 15% to 20% range, consistent with our 2021 plans. This is obviously a general heading, and we will review each element of capital allocation as we progress through the year. Therefore, we expect full year results to be in line with expectations, and importantly, the board continues to look to the medium term with confidence.With that, we'll ask the operator to turn the call over to Q&A. Operator?

[Operator]

[Operator Instructions] And we go to the first question, which is from Andrew Wilson at JPMorgan.

[Andrew J. Wilson, Analyst]

I just actually wanted to start with a question on Canada, please. It's quite difficult to model, obviously, because it's lots of, I guess, moving parts in terms of seasonality and obviously the shape of business has changed dramatically. I'm kind of really more interested in a broader question of just how you are finding the development of the business there against the kind of initial plans and kind of as those plans developed where you thought you'd been in Canada? So I guess, it's a broader question on how you feel about Canada.

[Brendan Horgan, Group COO & Executive Director]

Yes, well, I will start with this, and no different to what I just said covering the slides, we feel really good about the Canadian market in general. And we feel as though, similar to what Michael would have covered in his update on Canada, that our progress is about where we would have expected it to be. You're right in that it's difficult to model given that last year alone we would have 3x-ed the business, so obviously you have some noise in the figures in the short term. But look, Canada is a strong market. We're just getting to the point of being able to fold in our broader products and service offerings, as I had mentioned. We're bringing into the business the specialty businesses. We're enjoying a lot of pull from customers, frankly. So customers are looking for more alternatives in the markets that we're servicing and you're seeing that in that volume growth. I mentioned the pro forma, 20%. When you look at it, obviously, you'll see the EBITDA margins remaining the same year-on-year and a bit back in EBIT. I think it's worth mentioning that. And it's as simple as this: when you do acquisitions like we would have done with CRS back in August of '17 and then Voisin's in the current year, you have follow-on CapEx and you follow on CapEx to those businesses in order to do what I had talked about and that is broaden your product and your service range, thus, changing the reach in your end markets and you just have a bit of an absorption to work through with that CapEx. And obviously, there are some seasonality issues. But by and large, it's moving in the right direction. Remember, a year ago, for full year in '18, our EBITDA margins would have been 30% and EBIT up 13%. So clearly, we're seeing progress and the absolute scale of the business continues to move forward.

[Andrew J. Wilson, Analyst]

And can I just -- a quick follow-up actually on A-Plant. Just looking at the yield development, it's clearly been quite different across the 3 quarters. So I guess, it's more a question of kind of helping to understand that a little bit.

[Brendan Horgan, Group COO & Executive Director]

Yes. I mean, first thing first, that is going to be a makeup of just some composition in terms of fleet that would be on rent year-on-year. But I think it makes a broader point when it shows the change in yield whether it be positive or it be negative and how it doesn't have a tie to what those margins are as we've said. But yes, really nothing more than just some composition mix year-over-year.

[Operator]

Okay. We're now over to Rajesh Kumar at HSBC.

[Rajesh Kumar, Analyst]

Can you give us some color on how the cost pressures in the business are developing in the fourth quarter of the year? And when you are giving your -- when you indicated mid-teens growth for the next year, what sort of cost increases have you budgeted within that?

[Brendan Horgan, Group COO & Executive Director]

Well, first, I would just say there's no developments really to speak of. They are really no different than what we've been talking about. And most importantly, I think the headline would be, obviously, there is some inflation in general in markets, whether it be wage or it be general supplies. But you can see the business is absorbing that well. So we're just managing it. We're just dealing with it. We have continued the strong margins even on the back of having added 112 locations just through 9 months. And in terms of next year, we would expect that growth ranges we've given with fall-through levels that we've been talking about in the kind of plus-50 realm. So in general, it is an aspect of the business that we continue to digest and manage and to continue to take all of these developments, if you will, to our advantage.

[Rajesh Kumar, Analyst]

And this drop-through guidance you're providing to us, is that excluding the margins you would make on disposals, I'm assuming? Because that may be a bit dilutive giving you've got a bit more disposals coming up in the next couple of years.

[Brendan Horgan, Group COO & Executive Director]

That's going to ebb and flow based on mix, based on age of disposals. But yes, ours is based on EBITDA fall-through excluding disposals.

[Michael Richard Pratt]

Yes. Rajesh, that way we kind of exclude both disposals and the sales of past mergers, I think, that is just because their margins are very different. So when we talk about drop-through, we're talking about rental revenues.

[Rajesh Kumar, Analyst]

Appreciate that. And you will report that because, so far, disposals have been not as big an issue. But for the next 3 years, you will see the disposals grow quite a lot. So I'm assuming you're going to make it amply clear in your release?

[Michael Richard Pratt]

Yes, we won't change because you're right, the process on disposals, and hence, the amount of disposals you make could significantly distort that figure. So we excluded -- we've always excluded and we'll continue to exclude it from the CapEx and drop-through.

[Rajesh Kumar, Analyst]

And just one last one, if I may. Can you quantify what sort of drag you've had on your margins from opening of greenfields in the last 3 years? So greenfields don't make the same kind of margins as the mature branches, so have you had any incremental drag? Or is the drag at the same run rate as the last couple of years?

[Brendan Horgan, Group COO & Executive Director]

Well, look, in this set of results, we don't have that particular slide. You would have recalled in previous decks, most notably the half-year deck, in the Appendix, we would have shown the maturation, if you will, of margins by cohort. And there's nothing different. So the obvious answer is, well, of course, had we not added 99 locations in fiscal year ending '18 and the 112 that we've shown today, our margins would be higher. However, we continue to see great progress of our openings progressing as we would expect.

[Rajesh Kumar, Analyst]

And you will present that slide in the future, right?

[Brendan Horgan, Group COO & Executive Director]

I think you'll see it again.

[Operator]

Okay. So we're now over to Rory McKenzie at UBS.

[Rory Edward McKenzie, European Support Services Analyst]

It's Rory here. Firstly, just on the hurricane comps in the U.S., Brendan. Did they get tougher year-over-year in Q3? And so did the underlying business accelerate, is that a fair comment? And then, secondly, just on that first look at the CapEx guidance for 2020. Given the spend this year, you're already going to exit FY '19 with a high level of kind of fleet growth year-over-year, but clearly through the budget process you found even more demand. So can you give us more detail about regions or areas within that? Obviously, in equity markets, it's all feeling a bit more uncertain, so kind of what underpins that once that budget process that I know you guys go through at this time of the year.

[Brendan Horgan, Group COO & Executive Director]

Sure, Rory. So first thing, the hurricane, you're right to point out. If you remember in Q2, our reported was 19% and we said it's 22% underlying absent the hurricanes. We just reported 20%, and it would be more like 24% underlying. So on a year-to-date basis, that's going to be 21%, 22%, so all what you might have expected. From a CapEx standpoint, I'll address first just your question in the absolute and then talk about some of the market factors you've talked about in general. But yes, CapEx, that's a program that we go through in terms of looking at the various markets and I will say not different than the growth we're experiencing, which is in every geographic region we cover and every specialty business that we have, regardless of the vertical, we're seeing good, healthy growth. So that good, healthy growth from a CapEx guidance standpoint would be allocated accordingly and that's pretty much across-the-board. In terms of less certainty in the marketplace, I think a bit like in my comments covering the slide, I think there are various times when 3 months may be important -- or more important or less important than other 3 months. But if you ask me, the 3 months between when we reported in December and today was an important 3 months. Back in December, we felt as though all of the signs that the markets were giving us were positive. We said as much. Perhaps the financial markets thought a bit differently. Well, here we are 3 months later and we feel like we did in December with the only difference now we have even 3 months' clearer view. So we do look forward to the fiscal year to come. And we don't think that there is a chance that we see anything other than what we're expecting throughout the year. So our CapEx goes to that. And obviously, for the understanding of everyone, really, by no means does this mean we've cut a PO for GBP 1.5 billion in CapEx. We have plenty of flexibility. This is just our early guidance as we sit here in March.

[Rory Edward McKenzie, European Support Services Analyst]

Yes, of course. All sounds good. And then maybe just one kind of follow-up. It wouldn't be a results call if I didn't ask about supply trends in the market and competition. So anything that you talked about, changing in behavior of either your competitors or people you've seen in the market, particularly over, as you said, that kind of key 3-month period where there was one certainty out there. Have you seen any changes in how those have behaved over that time period?

[Brendan Horgan, Group COO & Executive Director]

Yes. No, I don't think that there's anything worth noting. We continued to work very closely with our manufacturers and suppliers. It's what we focus on, and we see no hints of any sort of oversupply coming into the market.

[Operator]

Okay. We now go over to Andrew Nussey at Peel Hunt.

[Andrew Nussey, Analyst]

A couple of questions from me. First of all, in terms of the bolt-on activity, obviously, it's slightly growing significance in terms of the revenue trend. But -- and I fully appreciate it can't be predicted with any certainty. But really, is the pool of opportunity out there still of very high quality? I'm just conscious of the pace of consolidation that there has been out there and the availability of attractive opportunities moving forward. And secondly, just picking up on your comment, Brendan, about customers holding on to fleet between jobs. I've sort of found that interesting, I wonder if you'd give a little bit more color around that, particularly given the ease at which customers can on- and off-hire through various digital platforms.

[Brendan Horgan, Group COO & Executive Director]

Sure. Well, first, in terms of the bolt-on pipeline, I've said as many times before, maybe not to this exact audience, but the landscape is very broad and there is a long, long careers' worth left of bolt-on M&A out there. Our list is long in terms of that which we constantly engage with. I like to call it our ground game, we have people that are out in the business every day talking to and building relationships with owners. So there should be no feel that there is a lack of ongoing bolt-ons there to be had. The important thing to note is this: that the pace of bolt-ons and of the timing by extension, that is one that is very discretionary. So most of the businesses that we acquire, no different than the Temp-Air business that I just mentioned, is not a business that's going through a process. These are businesses that we have developed relationships with over the years. And we reach a point where we say, let's push a bit now to get this one done in the next quarter or something like that. I do think, as I would've said and you would've noted in some of the kind of guidance, our actual engagement of the, let's call it, plus GBP 100 million variety deals that we're trying to push to the finish line at this very moment compared to what we were a year ago is a bit less. So I wouldn't be too surprised if you saw a year to come that was a bit of an absorption and consolidation period. It does not mean that we won't do any bolt-ons. It just means at this very minute we're not pushing any of those, as I said, of that size kind of toward the finish line. Don't mistake that, however, with any sort of signaling that our expansion is done. Our greenfield program, as we have been, that is exercised and up and running and we expect that to continue fully. So I hope that answers that part. When it comes...

[Andrew Nussey, Analyst]

Can I just jump in? So just to be clear: the value that bolt-on acquisitions can bring is as important as ever? Sort of the quality of the bolt-ons, not just the volume of the bolt-ons?

[Brendan Horgan, Group COO & Executive Director]

Oh, absolutely. We have no change in that whatsoever. So the bolt-ons that we have just completed in the last quarter or so are just as valuable as the bolt-ons that we did 2 years ago and I'm sure as the bolt-ons we will do next year. So there's no change in that.

[Michael Richard Pratt]

And Andrew, the important part, it is the quality of them that you're referring to there. So it's not volume, it is the quality that's important to us.

[Andrew Nussey, Analyst]

Yes, okay. I'm sorry, the fleet point?

[Brendan Horgan, Group COO & Executive Director]

Yes, yes. Moving on to the customers. What I mean by that is, and really, it's a trend that we've been seeing as you would have seen it in that monthly component. Remember, a big part of our mix are the kind of small to midsized contractors. And by that, I mean contractors of both construction and nonconstruction. And yes, they have tools at their disposable. But by nature of a big backlog and an activity environment like we have today, contractors tend to run behind. So although they have the ease, as we talk about with all the tools that we have, they are finding themselves in a position to keep that unit or units and move them straight to the next job or project. So I wouldn't read into it too much other than simply just giving some color around what we talked about around mix.

[Operator]

Okay. We actually have another question and that is over to the line of Steve Goulden at Deutsche Bank. [Operator Instructions]

[Steven James Goulden, Research Analyst]

I just wanted to dig into the CapEx. So you were saying before about replacement CapEx picking up from the '12, '13 vintage. Can you give us any feel for as you replace that CapEx, what kind of premium -- how should we think about that? Should we think -- what kind of premium should we be building in given inflation and particularly building in tariffs around aluminum and steel recently? And how should we think about CapEx in terms of a potential slowdown? So obviously, if -- you can't keep growing at mid-teens top line, so if we have a slowdown or marked contraction, how should we think about CapEx in terms of both growth, i.e., would that grind to a complete halt? And also how much flexibility do you have in what would probably be a rising replacement requirement? And also, what kind of impact does the M&A have? What's the average age of the kit that you've been acquiring through brownfield? And then final question. Just if you can clarify a little bit on the pricing environment this fall. I think Brendan was saying that pricing for February was coming up to around summer levels. So if you could just give me a bit a clarity, I think I read it earlier on the pricing was roughly flattish year-on-year.

[Brendan Horgan, Group COO & Executive Director]

Okay. Well, if I missed any of those, just let me know as I work my way through them. So look, in terms of the CapEx, particularly the replacement piece, it's really more of the same. So remember, we've gone through replacement. We've gone through replacement for quite some time. In terms of what we -- I think I understand your question there in terms of what's that replacement cost look like as it relates to what that would have cost, say, 7 or 8 years ago when we would have acquired it, and that's going to be a kind of 15% range over the period of time. But that's what we've been experiencing. In terms of the age of what we're getting at bolt-ons, the answer is it's a range. You have some that have an older fleet. You have some that have a newer fleet. Given the overall size of that, as we fold into it, it just goes into our overall program that we go through from a replacement standpoint. So in general, that's the fleet part that you've asked. In terms of pricing, like we said, no, I wouldn't say that it's just flat. Earlier in the year, we would have been certainly higher for the quarter. For Q3, we are in that all-in like-for-like 1%. Underlying it would be the 2% to 3% that we have been talking about, and you would have heard our peers that are publicly listed in the U.S. talk about and a bit higher than that because Q1 and Q2 would have been more in the 1% to 2% range.

[Steven James Goulden, Research Analyst]

Okay. And sorry, just to close up on the CapEx point. Just on growth CapEx, what -- how should we think about growth CapEx given that your 2021 plan, if you do come into a slower market, do you very much put the brakes on that and bring that down to near 0? Or keep going ahead because you see an opportunity to grow there?

[Brendan Horgan, Group COO & Executive Director]

I think the key is it all depends. You tell me what kind of recession, and I'll tell you in general how we might spend. So it's a rather broad question because there are lots of different types of recessions. The key will be this: in general, you will spend the maintenance, but in some ways, maintenance can be used as growth. By that, I mean, let's just say we have a slowdown that has certain heavier consequences in certain geographies where we may have a higher level of penetration and we have fleet that is aging in that area that we would look to replace. We'll replace that asset, but we may deliver that asset into another market where we have lower penetration. So in general, from a modeling, if you will, a downturn standpoint, you would say you kind of spend the depreciation and look at it that way with a lot of flexibility both from an additional growth if you felt as though the market was tolerant of it.

[Operator]

Okay. We are now over to the line of Andrew Gibb at RBC.

[Andrew Alexander Gibb, Analyst]

Just a couple from me. Just on the rate environment, obviously, on Slide 13, we can see the sort of positive rate environment you're seeing at the moment. But if we were to look at that on a same-store basis, would we be thinking that to be even more pronounced, i.e., the sort of drag effect of bolt-ons and greenfields? And then, secondly, just on the sort of greenfields and bolt-ons, something we haven't talked about a bit for a while in terms of the 2021 strategy is the progress on clustering. Just how that sort of strategy is progressing, please?

[Brendan Horgan, Group COO & Executive Director]

Yes. Well, first with the -- from a rate standpoint, yes, of course, if we showed same-store, same-store would be better. We showed that at the Q2. It's not something that we will plan on always putting in there. And if you think about that rate -- one thing I think it's worth mentioning is, again, let's look at this over a period of time. So there, we're showing you 2 years and a quarter, and over that period of time, we would have added about 45% in total volume and we would have had a rate improvement of 5% over that period. So in general, very strong. And obviously, there is some drag on that overall rate given our level of greenfields and bolt-ons. And Andrew, your second question was around...

[Andrew Alexander Gibb, Analyst]

Just in terms of the sort of progress on clusters. I mean, it's something we sort of talked about in the last sort of Capital Market Day in terms of that progress and just the way you were thinking about the sort of greenfields you opened, the bolt-ons and how that's translating into the development of clusters in North America?

[Brendan Horgan, Group COO & Executive Director]

Sure. Well, I think you'll find that we are ahead of pace in terms of the actual physical elements of building out the business. As we would have said it, the first half, we had chosen to accelerate that given a number of things from an end market condition standpoint and some of the consolidation that was out there. And you would have also noticed on the map a very large portion of those adds are not in new geographies we've never served, rather they are in areas where we already have coverage thus adding to the cluster. Certainly, in the quarters to come, we'll give an update in terms of that market layout, which, again, you would have seen in the appendix of the first half that we would have updated through the end of last year showing that progress to the markets and we'll continue to do so, but certainly moving ahead of plan.

[Operator]

We are now over to Charlie Campbell at Liberum.

[Charlie Campbell, Housebuilding Analyst]

Just 2 quick questions from me, really. Firstly, on the U.S. Just I think I know the answer to this from what you've said. But just to be clear, there's no difference presumably on the outlook for construction and nonconstruction end markets, you'd be positive on both just to sort of make sure that we've understood that correctly. And then second question on the U.K., sort of fairly large plant-high company just went into administration recently. Does that create sort of threats or opportunities for A-Plant?

[Brendan Horgan, Group COO & Executive Director]

Well, first of all, the U.K., you're right. We are positive both on the nonres -- construction end market in U.S., sorry, and certainly in the nonconstruction piece as well. As we've talked about for quite some time, when it comes to square footage under roof and MRO, I mean, given where that is in terms of its maturity, we see that positive for some time to come. In terms of the U.K., Geoff?

[Geoffrey Drabble, CEO & Director]

Yes. I mean, you're right, a fairly large business that had gone through receivership. I mean, it was a very specific business. Is there any direct impact to A-Plant, perhaps a little. I think it's a demonstration when you can run it through a list of our peers and also we have very rich brothers over in America have relatively low margins and pretty strained balance sheets. I don't think it's necessarily going to be a big help in the short term. But if we are going to go through more difficult times, having a well-invested fleet and a very conservative balance sheet clearly will provide opportunities, which is why we are taking a long-term, but pragmatic view of the U.K. market. So nothing specific. But yes, you're right to identify the relative strength of A-Plant relative to most of its peers in the U.K. market.

[Operator]

We are now over to the line Steve Woolf at Numis.

[Steven John Woolf, Analyst]

Just one from me in terms of the infrastructure market exposure, perhaps things coming out of the planning side now. I just wondered how much of that has impacted your thinking in terms of the CapEx outlook?

[Brendan Horgan, Group COO & Executive Director]

Yes, I mean, infrastructure in general, there are pieces of it that have been going along, depends on what type of infrastructure you're talking about in general. Obviously, there are components like airports that have been going on that we have been participating in. So it's not -- there is no set aside for or a carve-out in that CapEx that anticipates any change in infrastructure or any sort of new wave of infrastructure. Certainly, if there were a grander infrastructure plan to come, I think we would certainly be benefactors of that and would look into it. But in today's CapEx, Steve, there's no real tie to that.

[Operator]

Okay. The final question in the queue is from the line of Will Kirkness at Jefferies.

[William Kirkness, Equity Analyst]

I just had a quick question on the utilization. So the dollar utilization has been very consistent over the last few quarters, just a slight nudge down in the physical utilization. Is there anything to read into that? Is that just sort of a mix and timing and things like that?

[Brendan Horgan, Group COO & Executive Director]

No, Will, look, I mean, anything in that pipe, as I call it, if you look at the utilization over the last 3 years, it is strong. So there's nothing to read into in terms of any indication of what's to come other than we continue to have strong time utilization.

[Operator]

As there are no further questions in the queue, may I please pass it back to you for any closing comment at this stage.

[Geoffrey Drabble, CEO & Director]

Okay, guys, if that's the end of the questions, I mean, clearly, it's been another strong quarter in the business. Has very obvious momentum through to the end of this year and well beyond. So with that, I'm sure the guys will look forward to seeing you at their full year results presentation.

[Operator]

Okay. So this now concludes the call. Thank you all very much for attending, and you can now disconnect your lines.