Ashtead Group PLC

LSE:AHT

Earnings Call Transcript 2021-Q4

[Operator]

Hello, ladies and gentlemen, and welcome to this Ashtead Group plc Q4 call. I will shortly be handing you over to executive -- Chief Executive, Brendan Horgan; and Finance Director, Michael Pratt, who will take you through today's presentation. Before I do so, can I just remind you that this call is being recorded. [Operator Instructions] I'm now delighted to hand over to Brendan. Please begin your presentation.

[Brendan Horgan, CEO & Executive Director]

Thank you, operator, and good morning, and welcome to the Ashtead Group full year results presentation. I'm speaking from our field support office in South Carolina. Joining on the line from our London office are Michael Pratt and Will Shaw. Today will be our fifth set of results under these virtual circumstances. But so far, I think we can agree the format has served its purpose. Before getting into the highlights of the year, I'll take this opportunity to extend my deepest thanks and appreciation to our devoted team members across all geographies and disciplines who have come through for our customers, our communities, our investors and indeed for themselves and their colleagues. I hope they're proud of what they have accomplished together. And although I may be biased, I think it's been nothing short of remarkable. It's in the spirit that I'll turn to Slide 3, where I'll give a brief look back on the year as it relates to our internal and external messaging and delivery with a consistent focus on our stakeholders. As we always have, but perhaps amplified throughout this period, we defined our stakeholders and honed our focused energy and efforts on coming through for each with the aim to emerge in a position of improved strength. Beginning with our people, and as we always do, we made their safety our first priority, and I'm happy to report a consecutive record year from a safety metric standpoint for our U.S., U.K. and Canadian businesses. During this period, it was something every one of our team members had to stay focused on when distraction would have been easy. I will literally repeat the words I used last year at this time: adjacent to safety is 1 zone wellbeing and their career is an important part of this. From the outset of COVID-19, we were determined to safeguard these careers because under the circumstances, it was the right thing to do. Given team members across the business, the comfort of knowing we were there for them. It's easy to be a great employer during good times, it's what businesses do during times of challenge that define their real character. This position we took and related decisions around working rules, special pay time-off, et cetera, we believe were important early moves, which were not only the right thing to do, but were material contributors to our performance and positioning moving forward. For our customers, we were there for them as essential service providers during these remarkable times. We quickly adapted to the new normal by leveraging our technology and scale to satisfy our customers' demands and requirements. Our customers were working to manage through these times, and we were right there with them. We experienced what I characterize as a flight to quality, not only during the earlier pandemic times, but increasingly as it relates to partnering on upcoming projects and events, many of which involve sustainable solutions, something that will be a key differentiator in the years to come. For our investors, in a way it's simple, the actions taken by and for our people and our customers allowed us to outperform the market by maximizing opportunities. Throughout this period, we designed and launched a renewed strategic growth plan, quickly reduced leverage to just below the low end of our range, put in place a new buyback program and increased our dividend for the 16th consecutive year. As we begin the new financial year, we'll remain focused on delivering for all our stakeholders and taking advantage of the exciting growth opportunities we see. So let's get onto some of the more straightforward highlights for the year on Slide 4. The highlights pick up where we left off in March with our Q3s and trading update in conjunction with our Capital Markets Day in April, perhaps with a bit more momentum. Our market-leading performance in the year shows the strength of our model. This has been demonstrated during good times, but now proves itself equipped during more challenging times of an economic cycle. The business delivered PBT of GBP 1 billion and record free cash flows of nearly GBP 1.4 billion in the year, contributing to lowering our leverage to 1.4x net debt to EBITDA, a desirable place to be with the momentum we are experiencing in the business today. In a year where agility mattered more than most, we went from pausing our greenfield and bolt-on program in the early months of the pandemic, to opening an industry-leading 29 greenfields in North America and returned to bolt-ons, completing 5 in the fourth quarter. Together, these actions and results put us in a position of strength as we enter our strategic growth plan, Sunbelt 3.0. In April, we announced our latest buyback program of up to GBP 1 billion over the next 2 financial years, and I'm incredibly happy today to announce our proposed final dividend of 35p, which will amount to a full year increase of nearly 4%. This should demonstrate the confidence we have in our business and the future, while recognizing the cash generation in the year. I'll turn now to Slide 5 to cover our initial fiscal '22 guidance. Consistent with our approach in the reported year, the slide frames our current estimate of the year-on-year revenue change by business unit in their respective currency as well as group level CapEx and free cash flow. Beginning with rental revenue. We anticipate the U.S. to be in the 6% to 9% growth range, Canada to deliver growth of 20% to 25% and the U.K. to grow 5% to 8%. From a CapEx standpoint, we began the year with a range of 1.37 billion to GBP 1.54 billion, all leading to a free cash flow in the GBP 600 million to GBP 800 million range. We'll update this on a quarterly basis as we progress through the year. On that note, I'll now hand it over to Michael to cover the financials in more detail. Michael?

[Michael Richard Pratt]

Thanks, Brendan, and good morning. The group's results for the year ended 30 April 2021, as shown on Slide 7 show a strong performance with all businesses showing healthy growth in the fourth quarter. Group rental revenue increased 1% on a constant currency basis, which is a remarkable achievement given the backdrop. However, while for the year as a whole, revenues increased, the lower activity levels earlier in the year had an impact on margins. This reflected, in part, our decisions not to make any team members redundant as a result of the pandemic, not to reduce pay levels nor take advantage of any government support programs. Moreover, throughout this time, we continued to invest in the business, including our technology platform and our rental fleet. Furthermore, in addition to not reducing pay levels, we continued to pay bonuses, made additional discretionary payments to our skilled trade workforce as a mark of thanks for their hard work and dedication in challenging circumstances and increased wage rates in response to an increasingly competitive labor market. As you saw at our Capital Markets Day, one of the core principles of Sunbelt 3.0 is to lead with ESG. While understandably, the focus is increasingly on the E, the S is critical to our business, and more importantly, it is part of our culture. This is evident from the decisions we took during the year surrounding our people. While there was a drag from these decisions, we took for the long-term benefit of the business, the EBITDA margin was still healthy at 46%. And with an operating profit margin of 24%, adjusted pretax profit was GBP 1 billion and earnings per share were 166p. Turning now to the businesses. Slide 8 shows the performance in the U.S. Rental and related revenue was 2% lower than last year at $4.9 billion. As we've discussed previously, we took an early decision at the onset of the pandemic to protect our most valuable assets: our people and our fleet. Our average fleet size was slightly larger this year than last year. Furthermore, we continued to invest in the business, particularly in our technology capabilities. While this approach had an adverse impact on margins, it has been more than vindicated by our significant market outperformance as we take share. There are a lot of moving parts in the numbers this year, as illustrated in the fourth quarter, both in absolute terms and relative to last year. This year, the fourth quarter benefited from a reduction in our allowance for doubtful debts. Whereas last year, we increased this allowance in the fourth quarter due to our concern over increased levels of irrecoverable receivables due to the pandemic. However, this did not materialize and cash collections have remained strong throughout the year and particularly in the fourth quarter. As a result, only 50% of the reduction in rental revenue dropped through to EBITDA in the year. Margins were also affected adversely by used equipment sales. While secondhand values remain healthy overall, our proceeds were affected by both the type of assets sold and the sales channel selected for disposal. Despite these factors, the EBITDA margin was still healthy at 49%. Operating profit was $1.44 billion at a 27% margin and ROI was 20%. Turning now to Canada on Slide 9. Rental and related revenue was 21% higher than a year ago on a reported basis at $436 million. This includes the benefit of William F. White acquired in late 2019. On a more comparable basis, excluding Whites, rental revenue was 3% lower than a year ago. The Whites business was severely affected by the pandemic, but has bounced back strongly since production resumed in the autumn last year, and revenue was a fourth quarter record for the business. These factors contributed to the Whites business generating a profit of $29 million in the year and enhancing overall Canadian margins. That said, we've seen improvement across the Canadian business. The legacy Canadian business's EBITDA margin, excluding Whites, improved to 43%, and it generated an operating profit of $69 million at an 18% margin. These margins are in line with our initial goal for the Canadian business of 40% and 20%, and the operating profit is better than last year's $54 million. This is an impressive performance in this environment and demonstrates strong cost discipline in what is still an immature business, which does not yet have the benefit of well-developed clusters or the depth and breadth of our full range of specialty businesses. Turning now to Slide 10. U.K. rental-related revenue was 18% higher than a year ago of GBP 481 million. This was a strong performance of the breadth of our product offering and commitment of our team members enabled us to support all our existing and new customers and provide essential support in the national response to COVID-19. Our support to the Department of Health accounted for around 29% of revenue, with a large proportion of this relating to the services we are providing in support of the rental. Turning now to the cost base. This reflects our continued investment in the operational infrastructure of the business as part of Project Unify and the cost to service the department of health test sites. Our investment in the operational infrastructure included a charge of approximately GBP 10 million to reshape the operating footprint of the business taken in the second quarter. This was taken as an impairment charge and is included within depreciation for the year. These factors resulted in an EBITDA margin of 30% and an operating profit margin of 10%. As a result, U.K. operating profit was GBP 61 million and ROI recovered to 10%. Slide 11 sets out the group's cash flows for the year. This slide tells a powerful story and demonstrates the strength of our business model. We have maintained a strong focus on working capital management, particularly the collection of receivables, which has resulted in cash flow from operations of GBP 2.3 billion. This, combined with the decisive action we took to reduce capital expenditure, resulted in record free cash flow of just under GBP 1.4 billion. It is important to recognize that while we've reduced our capital expenditure this year significantly, this has not been at the expense of the future. We have executed on our fleet disposal plan as intended, but with lower demand overall, we replace only highly utilized assets and spent the balance on growth assets where demand was high, particularly within our specialty businesses. This is where we get the phrase growth disguise as replacement when talking about capital expenditure. That said, as you can see in the middle of the slide, we've spent absolute growth CapEx in the period, which has been to meet demand servicing the Department of Health in the U.K. and in our Canadian Lighting and Grip business, resulting in fleets larger than they were a year ago in the U.K. and Canada. Slide 12 updates our debt and leverage position at the end of April. We used the cash generated in the year to reduce debt and leverage, which, at 1.4x, excluding the impact of IFRS 16, was at the bottom of our target range. This benefited from our stronger-than-expected earnings performance and fourth quarter cash collections. To put this into context, as you can see from the chart on the top right, this is as low as leverage has been in April in the period since 2012, and in reality, since long before then. This point is worth dwelling on. Never has the flexibility of our model being more clearly demonstrated than in this year of adversity. Our ability to flex capital expenditure down at short notice and generate significant free cash flow against an adverse market backdrop has enabled us to reduce leverage consistently through the year from 1.9x a year ago to 1.4x by the end of the year. This is the strength of the model. Looking forward to '21-'22, we expect leverage to be in the lower half of our target range of 1.5x to 2x. As we've said on many occasions, this strong balance sheet and flexibility gives us a competitive advantage and positions us well for the future. It's important to recognize that this has been achieved while we have continued to invest in the business through retaining our people, investing in our technology capability, greenfield openings, additional capital expenditure to both support the pandemic response and take advantage of growth opportunities and GBP 125 million spent on bolt-ons. It is this position of strength that has enabled us to outperform the market and take share. Our debt facilities are committed for an average of 5 years at a weighted average cost of 4%. Both our leverage and well-invested fleet continue to provide a high degree of flexibility and security and enable the business to be on the front foot as we embark on Sunbelt 3.0. As you will have seen from our results announcement this morning, we are changing our reporting currency for the coming financial year to report in U.S. dollars. Slide 13 shows this year's results and last year's as they would have been if we had been reporting in U.S. dollars. We've put out a separate press release this morning that provides additional detail with a 5-year track record and quarterly splits for the year we've just completed. Reporting in dollars make sense for the business as our reported results will reflect more transparently the underlying performance of the business and reduced reported earnings volatility due to currency fluctuations. We made this change effective from 1 May 2021, and so our first results reporting in U.S. dollars will be for the quarter ending 31 July 2021, which we are due to release on September 16. We will declare future dividends, starting with the interim dividend for next year in U.S. dollars and pay them in sterling based on the prevailing exchange rate shortly before payment. Shareholders will have an option to receive in dollars. Before I hand back to Brendan, it will be remiss of me not to thank the finance team for the enormous effort involved in enabling us to report in U.S. dollars. When you read the detail, you will see that this has involved restating our results from 1 May 2004 onwards. No simple exercise, so thank you. Brendan?

[Brendan Horgan, CEO & Executive Director]

Thank you, Michael. We'll now move on to some operational and end-market detail beginning on Slide 15. I'm encouraged to report a return to growth in Q4 within our U.S. General Tool business. Rental revenues were 7% better than last year. You may have expected growth in the quarter given the comps, but worth noting, we've also eclipsed pre-COVID 2019 levels in General Tool. Our Specialty business delivered another noteworthy quarter, delivering 18% growth year-on-year. Bear in mind, this is growth on top of growth as we never took a step backward leading up to or during the pandemic. This performance demonstrates, on a full year basis, the diverse makeup of our business and the tangible effect the uniquely powerful cross-selling capabilities our model delivers. The bottom right graph on the slide depicts how well the rental industry has managed supply through the period. The industry entered the pandemic with a fleet 9% larger than the previous year to a fleet size 3% smaller today. To state it clearly, the current supply and demand equation is as good as it's been for years. This dynamic, coupled with our gain in market share over the period, has led to current record levels of utilization across many of our operating regions, further setting the stage for what has been promising sequential rate movement in late spring and early summer. These are good conditions. These conditions will, of course, be shaped in part by the end markets we operate in. As we turn to Slide 16, we cover the ordinary set of construction and rental industry forecast. Before covering, I'll remind you that construction, while our largest market, is less than half our business. However, it remains a meaningful, desirable and important part of our end market, so we'll cover in some detail. Not surprisingly, construction starts are expected to recover in 2021, reaching pre-COVID levels by 2022 and growing through 2025. These starts and put in place figures are supported by residential construction, which has been a positive surprise throughout the year and showing no signs of slowing. Leaving the remaining nonresidential component from a put-in-place standpoint, forecasted to decline in 2021 before returning to pre-COVID levels in 2023. These are the most current forecast time will tell as to their accuracy. The current activity levels we are experiencing in the business, which I covered on the previous slide, aligns with the positive Dodge Momentum Index, which is at its highest levels since 2007 and the strong ABI figures. Importantly, we can say the same for our business in nonconstruction segments, such as MRO, emergency response and the very early return to live events. There seems to be an abundance of momentum in the markets. As I said a moment ago, these are good conditions. Turning now to our business units outside of the U.S., beginning with Canada on Slide 17. As Michael covered, our Canadian business performed well, considering the difficult conditions the year brought. On an underlying basis, meaning without William F. White, our pure rental revenues declined only 2%, while delivering record profits and margins, undoubtedly noteworthy outperformance of the broader Canadian market. Our ongoing focus on advancing the beginnings of our clustered markets in Canada and the establishment of our Specialty business platform is showing positive early results. Part of this Specialty business is, of course, our Lighting, Grip and Studio business, William F. White, who gained share in the period in the exciting film in production space while advancing cross-selling wins with a broader Sunbelt product lines. This business delivered the best quarter of their 50-year history. As we've said for some time, our runway for growth in Canada remains long. Moving on to Slide 18 to cover Sunbelt U.K. The business has executed well throughout Project Unify and is carrying great momentum producing advancement and wins on many fronts and is now poised to enter Sunbelt 3.0 to deliver on the longer-term objectives laid out during the CMD. The outperformance in the year was a combination of COVID response efforts and the ongoing gains as well as positioning in the broader construction, infrastructure, maintenance and events markets. Let me be clear, this has been a year of progress in the U.K. business. To add definitive context, our current fleet on rent levels, excluding that on rent to the NHS, is greater than prepandemic 2019 levels. Sunbelt U.K. continues to support over 500 NHS COVID testing sites. At this stage, we are fully in the maintenance and ongoing services phase. We are unclear as to the remaining duration and site count implications, but anticipate some level to be ongoing through the coming winter. I'm sure we can all agree that we look forward to the time when these sites are no longer necessary and are given the order to demobilize. Infrastructure work remains active in areas such as utility, telecom and highway. And our relationship with Tier 1 contractors that cover the infrastructure and commercial construction segments remain strong, as we routinely service their needs over the year. Cross-selling inside the business has been a very tangible outcome of the Unify efforts and has led to good wins in absolute as well as share of wallet across a broad makeup of customers. As you will know, live events sector was a material driver of a number of our specialty business lines, which went to virtually 0 in the early days of the pandemic and has largely stayed there until just recently. We are seeing the beginning of certain events returning. A current example is the G7 Leadership Summit last week. We provided accommodation units, fencing, barriers, solar light towers, electric bikes, power generation and flooring products. This is a carbon-free event, meaning all of our products are either powered by renewables, such as solar or HVO fuel. Having delivered on an event like this positions us well across the group with our events partners, particularly as they move toward a low-carbon agenda. This is an exciting space, which Sunbelt will surely lead the way as live events return, which they are beginning to. Moving on to our fleet plan for the year on Slide 19. This is consistent with our initial guidance given with our Q3 results in March. Our CapEx levels are anticipated to return to levels similar to fiscal 2020. On the slide, you will see the component parts of the guidance I gave at the front of the presentation by country and between rental and nonrental spend. Our usual and extensive fleet planning exercise carried out last fall and early winter proved more important this year as the supply constraints are significant as OEMs work through supply chain and workforce challenges, while ramping back up their production levels. So our partnership with the world's leading manufacturers in our space and early engagement to secure our build slots was more vital than many previous years. We're in a good position to receive delivery in accordance with this guidance. Although I will say that the exercise is far more complicated than putting numbers on the slide. The landings and disposals of fleet, both by composition and geographic allocation will be fluid as we progress through the year. Our ability to navigate this through experience, utilizing technology and real-time analytics, I believe, will be an advantage during this critical period. I'm going to transition here from results to our strategic growth plan unveiled during our capital markets event in April. Most of you watched our virtual event live or took in the replay at some point. However, I thought it would be worthwhile to do a flip through this morning of the key deliverables. Turning to Slide 21. The construct of Sunbelt 3.0 can be summarized with these 5 strategic actionable components. We are planning to do a deeper dive into 1 of these at a time in conjunction with future quarterly results. However, I will briefly touch on each one now beginning on Slide 22. We will grow our General Tool business with a focus on advancing our clustered market strategy. We have set our sights and formed a detailed plan to achieve cluster status in 49 of the top 100 DMAs, where we will deliver heightened service to our customers while achieving the financial benefits, also known internally as cluster economics. You will notice we're off to a good start. We've opened 12 greenfields and completed 2 bolt-on acquisitions, which added a further 4 locations, all in just the first 6 weeks of the financial year. Slide 23 illustrates our Specialty business road map from a revenue and rental penetration standpoint. I cannot overemphasize the work that went into this, specifically, the market sizing and rental penetration levels by Specialty business line and then utilizing this information to develop detailed plans to deliver a combined Specialty business with $2.4 billion in revenues by fiscal 2024. We view this 3-year plan as a milestone, not an endpoint as we see a path to business exceeding $6 billion over time. Let's turn to Slide 24. Andy Wright and Phil Parker covered with you our 3.0 plans for the U.K. during the CMD. In keeping with the strategic theme we set course on nearly 2 years ago, I'll summarize the slide by stating that theme. An understood business model, leveraging the strength of our diverse product offering to bring service to our customers unmatched in the U.K. market and by extension, delivering long-term and sustainable margins, cash generation and returns and a business we can be proud of. This is what the Sunbelt U.K. team has been doing, and I'm confident they will deliver through 3.0. Moving to Slide 25. We covered in more detail than ever before our technology ecosystem during the CMD. It's difficult to do our technology plans inherent in 3.0 justice on a single slide, so I am simply summarizing 3 primary areas of development: customer experience, order capture and fulfillment and dynamic pricing. Our technology capabilities are a differentiating factor, very much visible to our customers and core to driving improved efficiencies within our operations. Slide 26 covers our actionable component to lead by way of ESG. We set course to reduce carbon intensity 35% by 2030 and more near-term milestone of 15% by 2024. This is a commitment we take incredibly seriously and have resources in place to deliver. It is also important to understand how ESG, particularly environmental and social, serves as a catalyst to advanced rental penetration across vast product lines and our vital role in making this a reality. Perhaps the E gets much of the attention, but we must not dismiss the S, particularly in the business made up of skilled trade workforce, whether it be health and safety at our locations and the broad and diverse sites we service thousands of times a day or the importance of career advancement opportunities, training leading wages and benefits. To deliver on these things, a business must possess the culture, infrastructure, financial resources and supporting cast. Our actions surrounding the ESG are clear. This leads us nicely into capital allocation on Slide 27. It is our fifth actionable component, but I will cover here along the lines of our priorities, and as they remain unchanged, it should come as no surprise. Throughout the year, we invested in existing location and greenfield fleet additions. And in Q4, returned to bolt-ons after a COVID-driven temporary pause. Our returns to shareholders through the earlier covered proposed final dividend and buyback program, all in keeping within our stated leverage range. To conclude, let's turn to Slide 28. This has been a year of outperformance throughout all of our geographies and equally a year of positioning for future sustainable growth and success. Our model has demonstrated for years the ability to thrive during good times, and we can now see clearly that during more challenging periods in the economic cycle, rental and, in particular, our unique approach between General Tool, Specialty and Clustered Markets is designed to deliver a reliable alternative to ownership to an ever-broadening lineup of end markets. This increasing propensity to rent, combined with our ability to gain market share, enables us to perform strong in a broad range of market conditions. Our business has embarked on another phase of ambitious growth. Sunbelt 3.0 is clearly defined and understood, giving us a road map to benefit all of our stakeholders as we continue to grow this exciting business. The scale of our business is now such we can fund strong organic growth, while continuing to generate positive free cash flow, which provides immense flexibility within our long-term leverage range. For these reasons and coming from this position of increased strength, we look to the future with great confidence. And with that, operator, we'll turn it over to Q&A.

[Operator]

[Operator Instructions] Our first question today is from the line of Jane Sparrow at Barclays.

[Jane Linsdey Sparrow, Director]

Two questions, please. Are you able to provide a bit more color on what promising means when you're talking about sequential rate increases? Perhaps if not an exact number, then maybe are we talking sort of low-single digit, mid-single digits? So just a bit more color there. And then perhaps following on from that, the 6% to 9% U.S. rental revenue growth that you're targeting for the full year, what are you factoring in there for rate? And given supply chain constraints, is it fair to say that potential upside to that number is more likely to come from rental rates and M&A rather than additional organic CapEx given it's hard to get hold of equipment at the moment?

[Brendan Horgan, CEO & Executive Director]

Sure. In terms of color on rate, I would say it this way: when we look at our, as I said, promising, sequential rate movement in April and then again in May, we have to go back to 2014 to put together 2 months where we had as much sequential movement as we experienced. Look, I've shared, I think, on the stage during CMD. When we look at our internal targets, not to be confused with budgets or guidance, we've challenged the business to have rates 5% higher this coming April than they were last April. Now will that come true? Time will tell. I do think from an overall supply and demand standpoint, we are poised to deliver that. And I would just say the momentum in those first 2 months would amount to that if we were able to deliver. Again, time will tell. In terms of our guidance at 6% to 9% and your point in terms of what's baked into that from rate? As I said, the 5% is not baked into that. We have a bit of rate, but nothing extraordinary in that guidance. But your point on how we could exceed that is a really good one. We outlined our CapEx guidance, and we've worked, as I said, with our OEMs to secure those build slots. This may just be one of the years that as ambition and driven -- as ambitious and driven as our team is, we maybe couldn't spend more than what we've given guidance on through our OEMs. And if we did, it's likely to come late in the year, not earlier. So we're managing disposals, as I said, in order to satisfy the demand we have, which, as I noted, many of our regions are now posting record levels of time utilization. So yes, more of that outperformance would then come by way of rate and the bolt-on M&A activity, which we've already gotten off to a good start.

[Operator]

Our next question is from Rob Wertheimer of Melius Research.

[Robert Cameron Wertheimer]

It seems like the last year was one where you took a pretty good step forward relative to the whole universe of competition, whether it be from the technology initiatives that you put in or keeping the labor force at cash flow that allows you to sort of buy fleet. So I guess what I want to ask is sort of a competitive question, I'll ask it from the lens of labor. What do labor markets feel like right now? Do you anticipate that you have any trouble hiring for the growth that you have? And obviously, the moves you made were supportive and probably pressing for the rebound we've had. And then just any comments on generally the competitive gap as it exists, either through that lens or anything else as you we kind of return to growth in the industry and you guys are ready for growth?

[Brendan Horgan, CEO & Executive Director]

Sure. Thanks, Rob. From a -- look, let's just address skilled trade workforce. It's -- I mentioned it in my covering of the slides there. And if you look at things like even Dodge Momentum, we're just saying you read about that and some of the challenges that are being faced in the market and certainly attracting and retaining probably the latter being the primary is challenging for many. We are seeing evidence that our decisions throughout the year have retained our workforce well. But we're being very proactive. And by that, I say I've not shared this externally until just this minute. But actually, Monday, the 21st, we are putting forth an increase to our skilled trade workforce of $1.25 an hour for every single person. And when you do the math around that from a base wage standpoint and anticipated over time, you're talking about a $300 a month increase in their take-home pay and $3,600 a year. And I say that because in no way, shape or form where we behind the times, we have a leading wage philosophy in the business, and we are certainly experiencing and recognizing the inflationary environment when it comes to wages, but we're taking a proactive step. Now will we get all of that back in a quarter's time? Of course, we won't, but we need to do that. The other part of that is not just the pay. It's the environment that we are focused on creating, part of which is actually technology. And through that technology, it creates an improved work environment for our skilled trade team members, whether it be in our shops, it'd be our drivers who are making our deliveries and pickups or be our field service techs who really want to have that technology, particularly today as you're hiring the sort of younger entrants into the space. They expect that to be at the palm of their hand, whether it be schematics for a piece of equipment or a very simple way to phone a friend, so to speak, in terms of reaching out to our command center, our central command center, where our central technicians are helping them. So what does that mean from a competitive landscape standpoint? I think really most importantly, these things are ingredients to or catalyst for an increase in rental penetration. And in the end, that's really what it's all about. We're clearly confident that we will take our, let's -- somewhere between fair share and unfair share of what that brings, and we're positioned to do that, not just in our General Tool business but our Specialty as well. So I hope, in general, that answers your question, Rob?

[Robert Cameron Wertheimer]

Yes. It does.

[Operator]

And our next question is from Annelies Vermeulen, Morgan Stanley.

[Annelies Judith Godelieve Vermeulen, Research Analyst]

Just a couple from me. So just a clarification on the store openings so far. Obviously, at the CMD, the plans that you announced basically implied 2 openings per week. You mentioned 16 greenfields since the 1st of May, which would imply a very good start. Were those all in general tool or were there some additional Specialty on top of that as well? And if you could talk a little bit on how the pipeline looks over the coming couple of months, that would be helpful? And then secondly, on the market for deals, you've obviously done a return to bolt-on deals earlier in the year. And I'm just wondering what the market for deals looks like now that the U.S. economy has opened up a little bit more? Are there -- are you seeing more opportunities, better multiples, that sort of thing? Any comments on that would be helpful. And then perhaps just 1 more on the growth that you reported in Specialty. I'm just wondering if there's any particular segments within that, whether it's HVAC or flooring or whatever that has driven those in particular? And what is driving that? Any comments on that would be helpful.

[Brendan Horgan, CEO & Executive Director]

Sure. Thanks, Annelies. In terms of cadence or pace for greenfields, yes, during the Capital Markets, we said we would end the year at about 936 locations and add 298 to get to our 1,2,3, 4 locations by April 2024. That was not exactly linear, if you will, in terms of our plans. So we're a bit ahead of pace of -- for the first year. The first year, I think, had a plan of about 90 greenfields and then we pick up that pace in year 2 and year 3. Clearly, we've entered with a good clip. Not to mention, we actually finished a bit ahead of that 936 at the end of the year. So good pace there, and I would expect that to continue. In terms of makeup, if you look at those added by way of greenfield and bolt-on it was 50-50. So the greenfields were biased to Specialty, and the bolt-ons just so happen to be General Tools. So that start was 8 and 8 in the 6 weeks. In terms of markets for deal, it's a really good question. And I think there are a few things that come into play. Certainly, the pipeline is strong. The active dialogue that our business development team, you will have all met Kurt Kenkel during the CMD. Kurt's a busy man. So he's in lots of conversations with prospective suitors. The business development team is also very active in planning for integrations, et cetera. So I would characterize it like this. There are a number of interested parties out there who are in discussion. Interesting from a tax standpoint, though, as people or owners, I should say, are now considering what happens from a capital gains tax treatment or what happens from that standpoint? So I would probably say just a couple of months ago, with the looming concern that perhaps capital gains tax rate would go up from its sort of 22%, 23% to 43% or so may have actually act as an accelerant to get some conversations started. And now some are looking at the latest sort of rumblings from the administration that perhaps if there's a capital gains tax increase that would be backdated or begin in April this current calendar year. So maybe that acts as a bit of a suppressant. But in the end, time will tell. We're less worried about the pace or the rush in pursuing these and more in the relationships that we're building with these potential bolt-ons. But I think thus far, it's pretty good when we've done 2 in the year and we did 4 or 5 in Q4. So that should give you an indication in terms of pace. In terms of multiples, no change. We covered the multiples that we've been paying and the deals that we've done in Q4 and Q1 are no different than that. And finally, you mentioned Specialty in terms of any standouts. How can I resist sharing that if you look at the out of the gates 20% growth in Specialty just in the month of May on top of that 18% or better than that 18% we saw in Q4. And frankly, it's really shared nicely. Our power and HVAC business is in the 20% range. Our flooring business is nearing 50% growth year-on-year. Climate control is strong double digits. So there are no real standouts other than standouts among standouts, I suppose.

[Operator]

And our next question is from Will Kirkness at Jefferies.

[William Kirkness, Equity Analyst]

Two or 3 here, if that's okay? Thanks for the comment on specialty growth in May. I wondered if you could just give U.S. rental revenue growth overall for May, that would be useful? Secondly, also thanks for the comments around wage rates. Just wondered if you could talk about what new joiner inflation is running at in percentage terms or perhaps put a percentage around that $1.25 per hour that you referenced? And then lastly, I just wonder if you could help on utilization. I know you don't disclose it explicitly anymore, but just on the chart, you're obviously up in terms of fleet on rent versus '20 and '19. I think your is modestly down in the U.S. year-over-year, but still up very strongly versus '19. So I just wonder if you could help us with utilization? It sounds like it's up to sort of pretty decent levels.

[Brendan Horgan, CEO & Executive Director]

Yes. Thanks. From May growth in U.S., it's 17%, 18%, 17.5%. In terms of wage, this inflation from a wage and wage pressure standpoint, I mentioned the $1.25. It works out to be about 6% increase for our nonunion skilled trade. There's about 7,000 of them in North America alone. And that brings our average for our skilled trade workforce just under $25 an hour. Frankly, I think it's something that we'll continue to move in that direction and maybe even move faster than some might think, which, again, I don't think is a bad thing. I think it's something that you have to be proactive in, in order to make sure you have the absolute best that are out in the marketplace, which we're confident that these steps continue to put us in a good position. I think you worked out the utilization pretty well on your own. If I just maybe add a bit of color around that. If we look at the month of April and the month of May in each 7 out of 12 of our regions in the U.S. and 8 out of 12 of the regions in the U.S. in either of the 2 months had their best ever time utilization in the month of April or in the month of May. So I think that's a pretty positive sign. And again, it comes down to really now making sure that we have availability for our customers because we don't want utilization to tip too high. We like to be able to say yes because after all, available is 1 part of that availability, reliability needs. So as I said, we're going to temper our disposals until we get a better feel as to what demand looks like. But yes, we'll -- as I've said, these are good conditions. Utilization is strong; momentum is there in terms of rate; and from a specialty standpoint, rates not part of the equation. That really truly comes down to availability reliability needs. I hope that answers your questions?

[William Kirkness, Equity Analyst]

Yes, that was perfect.

[Brendan Horgan, CEO & Executive Director]

Great. Thanks, Will.

[Operator]

Our next question is from Neil Tyler at Redburn.

[Neil Christopher Tyler, Research Analyst]

Two questions. Firstly, on CapEx, and I suppose, Brendan following up from your comments just then about tempering disposals. Given the meticulous plan that you put together for the CapEx for the April 2022 year, I wonder, are you having to bring those planning procedures forward for the following period given that the bottlenecks that exist in order to have access to more fleet? So I suppose that's the first question. Are you accelerating the CapEx planning process over the medium term? And the second question is on rate. It feels just running some numbers in my head as you talk about the cost inflation that a sort of 4% to 5% rate increase you'll probably be required across the group in order to maintain margin. Is that a sensible way to think about things?

[Brendan Horgan, CEO & Executive Director]

Those are the 2 of them, Neil?

[Neil Christopher Tyler, Research Analyst]

Yes. Those are the 2. Yes.

[Brendan Horgan, CEO & Executive Director]

Great. Well, first of all, I'd say -- let me answer your second first. A 4% to 5% on average would more than adequately handle inflation that we see today. Things could change, but I think that, that would more than absorb that. If we're in the maybe 2% on average for the year or a bit more than that, that's probably in a sort of maintenance margin range. But you bring up cost inflation. I think it's important to look at this in 2 categories. One, let's look at our fleet, our rental assets. And we can look at that both in terms of replacement and growth. But if we just -- if we look at fleet and given the way that I mentioned through or covered in the results presentation there, this exhaustive review that we go through. If we look at the assets that we fleet planned for and therefore, secured build slots with our OEMs. They're all on order in various stages of purchase order as we speak. The assets we're replacing on average, we're going to dispose of. Today, actually, we were just looking at this the other day, the average age of those assets this minute that we've yet to dispose of is 7 years, 10 months. So by the time we dispose of them, let's just call it kind of 8 years. Those assets that we have or will replace in this fiscal year, their life cycle inflation averages 3.25% in North America. So in the U.S., it's about 3.75% and Canada is minus 2%. I think that's important to understand because what it shows is from that 8-year-ago time, how much sort of buying power we have accumulated, how much more we spend in general. And look at Canada, obviously, we weren't in Canada 8 years ago, but we have some legacy assets from acquisitions that we are buying today less than the business would have bought 8 years ago. So that's what's happening now. That is not a statement in terms of what happens to fleet inflation in the coming year. I think that, that is -- know that, that is yet to be told. We are doing our part to make sure that we can minimize it as best as possible. But in the end, will be some inflation out there. In terms of our planning or future planning, as you suggested, best way to answer that is this. Our fleet team is actively engaged with all of our primary OEMs and as we speak, not just planning for FY '23, but actually planning into FY '24. So as part of Sunbelt 3.0, we are working with our partner OEMs and to actually a telegraph, if you will, our replacement needs all the way through calendar 2024. So we're talking about what our supply and pipeline might look like beyond Sunbelt 3.0. We're not firm in fixing purchase orders, so don't worry about that, but that's the level of engagement that is required. If you talk to any world-class OEM, they will tell you that if they have a customer who helps them manage their longer and, if you will, their supply chain, it's what they value most and working together that way is what helps curb inflation, although there will be inflation But remember, it will only be for 1 year, if you will, of our overall fleet, depending on how long that lasts. I hope that answers your questions, Neil?

[Neil Christopher Tyler, Research Analyst]

That does. That's super helpful.

[Brendan Horgan, CEO & Executive Director]

Great. Thank you.

[Operator]

For our next question, we'll turn to Andrew Wilson at JPMorgan.

[Andrew J. Wilson, Analyst]

I just have 1 left, actually. A lot of the areas I wanted to discuss have been covered. It's kind of a question around -- I guess, it's really on the M&A side. And just I'm interested in the potential sentiment amongst the vendors as some of the better assets that you might have not been able to buy previously that might be interested in? And it's really thinking about the sort of -- you look at Ashtead performance through the downturn where you've clearly been able to continue to invest. And that, I presume, hasn't been true of businesses in the same market, then you come out of into a recovery phase and basically, it's extremely hard to get equipment and it's getting increasing expenses to do so. Has that sort of driven a shift in terms of some of these vendors, basically convincing them that selling might be a better idea than trying to continue to fight this out? It just seems to me that the last 12 months will probably have given people a pretty stark, I guess, explanation of what this market is going to look like and almost, therefore, be a bit more inclined to sort of join with Ashtead rather than try and compete against? I just interested in terms of our sentiment.

[Brendan Horgan, CEO & Executive Director]

Sure, Andrew, if you're ever looking for anything else to do. come on board. I don't know -- look, you framed it all really well. There's not much color I can add. The -- look, the discussions we have, there's no question. If you've not planned really well, you're not getting much equipment this year, plain and simple. Furthermore, I bring back to that ESG piece. There will be over time. I mentioned what we did with the G7 in the U.K. I was on a data center site 3 weeks ago, I'll leave the town out of the commentary. And when I was there, I was meeting with the owners Head of Sustainability, I was meeting with the General Contractors Head of Sustainability, and we were there to deliver the world's first ever fully battery-powered, nonhydraulic driven skid steer loader, if that means anything to you. So my point is, that sort of investment is significant, and there will be barriers to enter, so to speak, and you have to have the level of sophistication in the team that actually understands what we're trying to do because OEMs need us to partner with them as well because we have the sort of a playground, if you will, or sandbox in order to test these sort of products. And it's those sort of things that independent owners of varying sizes are beginning to get their minds around and saying, am I really ready for that journey? It's a very different one. But again, I think you've really on your own in the question almost answered it and highlighted it really well. Thank you, Andrew.

[Operator]

Our next question is from Arnaud Lehmann at Bank of America.

[Arnaud Lehmann]

Firstly, just on your CapEx guidance, I believe you increased a little bit this morning. And that's, I guess, related to your comments around some inflation. Is this an increase in volumes or an increase in value, I guess, is my question? Do you have to spend a bit more to get the same amount of equipment coming to your warehouses or to the building sites? Secondly, would you mind giving a bit of color on what you expect in terms of drop-through for called 2022? Obviously, rental rates are improving, volumes are good, but there is also cost inflation, maybe some fixed costs coming back, maybe traveling around a bit more. So any color on that would be appreciated? Thirdly, so you're moving your currency of reporting to dollar, I think that makes sense. Is it a first step? Are you thinking of, let's say, U.S. dual listing or anything like that or is that it for now? And lastly, on U.K. equipment sales, I think there -- this -- for 2021, like 2x to 3x the size of 2020 in terms of actual sales, what would be the normal run rate for this going forward, please?

[Brendan Horgan, CEO & Executive Director]

Great, Arnaud. Let me tackle your third question, then I think the rest are primed for Michael. In terms of currency reporting, as we've announced this morning, and I think Michael covered well, look, it as clear as it can be. It is simply a transparency, it is simply the vast majority of our revenues and profits are in U.S. dollars. And finally, for me, to be able to keep up with all of these numbers, it's a whole hell of a lot easier if I can just speak in dollars instead of going back between dollars and pounds, there's nothing else to be read into that. We will be reporting from Q1 on in U.S. dollars. So I'll hand the rest over to Michael.

[Michael Richard Pratt]

Yes. So I'll pick up on the CapEx point. It's more a refinement point as we went through the budgeting process. You've heard Brendan talk about the level of life cycle inflation we're getting. So there's no -- if you think about when we do our planning and when we agree where we are for the current year, there's not a significant impact there. So it's more that we just picked up the amount you'll see I think we know we raised the lower end of the range and the upper end of the range by about $100 million in the U.S. So there is nothing more than that than sort of a refinement of the process. In terms of drop-through, you're right, there are -- the year we just had a lot of moving parts and as a consequence, they have a knock-on effect as we go forward. As we alluded to at the Capital Markets Day or talked about on the Capital Markets Day, we'd expect drop-through to improve as we go through the 3-year period. But in the coming year, we expect it probably to be in the low 40s when you think -- we've talked about the bad debt reserve release that we had this last year, if you think about we have over time coming back into the business, you've got T&E coming back into the business, et cetera. And you're right then also to touch on inflation. So a lot of moving part, but they are sort of headwinds, which once you get on to a normalized basis, if you were to, I'm not suggesting I do it, just if you try and normalize, you would get back to sort of somewhere in the 50s that we normally talk about, but there are some headwinds this time around. In terms of U.K. equipment, I think what you're looking at -- you're referring to the U.K. equipment sales, but you're just talking about the difference between, I guess, rental revenue and the total revenue in the U.K. as we talk about, that's not all used equipment sales at all, a quite a bit of that is sales for -- in support of the NHS. So where we are supporting the rental, there are various products that we're having to buy in and then sell on. So the way things are going to normalize almost go back to prior years. Going forward, there should be no real change in the balance between rental and total revenue. It's just with the work that we're doing for the Department of Health, et cetera, then there is a slight divergence this year and obviously for the year coming as well.

[Operator]

[Operator Instructions] The next question, which is from Karl Green at the Royal Bank of Canada. [Operator Instructions]

[Karl Green, Analyst]

Just a couple of final questions for me. Just firstly, in terms of managing the labor force and thinking about minimizing the need to hire in new talent. What sort of labor capacity slack do you have at the moment? I'm thinking there in terms of being able to offer people incremental over time to their total wage package goes up, they feel happier your retention continues to improve? And then the second question unrelated, just around depreciation. Given that tightness of supply, are you likely to see any assets over the coming 12 to 18 months, which are going to be rented out but are fully depreciated? Or is that too much of a risk in terms of reliability from your perspective?

[Brendan Horgan, CEO & Executive Director]

Great. Thanks, Karl. I'll take the second one first. In terms of -- we -- there's no risk there in terms of that aging, if you will. And certainly, it wouldn't be, in most cases, fully depreciated. Some would hold some sort of residual. I think Michael may have something to add to that.

[Michael Richard Pratt]

Yes. All I'm going say, we've talked about a lot in the year just gone, we have a pretty well-proven path as to when we look to dispose of assets. And so we are -- we'll continue that -- the fact that we're talking about a few months, if we delay disposals in the early part of the year just to deal with sort of the higher levels of demand as we go through the summer season. But no, we will look to adhering to our fleet plan because it's all geared to what is the optimal time to keep an asset and to get the best returns from it.

[Brendan Horgan, CEO & Executive Director]

Right. And to your question on sort of managing this labor force as we refer to as skilled trade. There's 2 pieces, one in our existing businesses. And if we look at our time utilization that I mentioned, we do have some capacity. Our overtime levels are not quite back up to what they were at peak, which means that we're seeing some efficiency improvement given the relative fleet size that you would have heard Will Kirkness point out. So there's a bit of latent capacity, so to speak, there. The other part, of course, is our greenfield program. So when you're opening 2 greenfields a week, there is a significant recruiting campaign that goes on. And our recruiting department is certainly heavily involved in those markets. The good thing is, of course, you would have heard from Brad Lull during the CMD, how telegraphed our greenfield program is. So we know in what geographies we will be adding greenfields in February or next June, so that gives our recruiters the opportunity to do it that way. But sort of the brand from an employment standpoint. When we talk about the things that we have, not only what we did in terms of no redundancies, et cetera, in the year, the bonuses, the safety environment, the training, all of those things go into it significantly. And that's what today's workforce is looking for, and we have a lot of emphasis and investment going into that.

[Karl Green, Analyst]

That's really helpful. And just following on from that, have you got any retention statistics you can share in terms of how that's tracking at the moment versus, say, 2019, I guess, 2020 is probably quite irrelevant?

[Brendan Horgan, CEO & Executive Director]

Yes, you'll see them all in the annual accounts. When we talk about skilled trade, in particular, we'll be in the low- to mid-teens from a voluntary turnover standpoint, which, I think in the current environment, is not a bad pleased to be. But understand our business, driving one of our trucks, 50,000 GVW vehicle and a driver who is trained and operates 2,200 SKUs of serialized assets on and off. It's not for the faint heart. And we tend to know pretty soon there's sort of a magic milestone of 12 to 18 months that once we have one of our skilled trade team members who stay at that point from that point on, we kind of can't even get rid of them. They like it. It gets in their DNA. So that's kind of how I would put context to that.

[Operator]

For our final question, we'll turn to Rahul Chopra at HSBC.

[Rahul Chopra, Research Analyst]

I have a couple of questions. In terms -- one is in terms of provisions. I think you earlier said that you had good collections towards the end of this year. So can you just remind in terms of what's probably in terms of provision, how much was the contribution? And if there could be a potential tailwind looking forward in terms of FY '22 first quarter or second half, first half? That's the first. Secondly, in terms of the CapEx facing of GBP 5.5 billion, can you just give a shape in terms of how should we think in terms of the phasing for the next couple of years? And in terms of -- can you just remind us in terms of ESG adoption rates? And is there any potential upside to CapEx from the ESG transformation? Or is it already baked into those CapEx numbers?

[Brendan Horgan, CEO & Executive Director]

Mike, do you want to handle provisions?

[Michael Richard Pratt]

Yes. Let me take the receivables one. I think what we said is cash collections were strong throughout the year. And I suppose the way to sort of characterize it in terms of where we ended up at April, and this is probably the best way to sort of characterize it in the U.S. We ended up with the position at the end of April, whereby despite revenues being higher than they were in Q4 of last year, we ended up with receivables lower than they were at the end of Q4 last year. So if you go April this year to April last year, we ended up with lower receivables and a better aging, which is what contributed to it said, well, you don't need the level of provision that you had before. So that's a dynamic with impact on how we came up with where we were from a provisioning perspective at the year-end.

[Brendan Horgan, CEO & Executive Director]

In terms of -- I think I understood your question in terms of CapEx phasing and sort of future years, I think for actually that question and your ESG sort of angle on that, it's important to understand that Slide 32, which we have in the appendix of the results this morning. And it really comes down to this sort of fleet profile we have. So to answer your first question, you can see quite clearly we've made a step change in terms of replacement in the current fiscal year, which is part of these figures. And there's a modest increase in -- over the next couple of years. But you'll really see there's quite a bit of consistency until we get to the point of replacing the assets we would have acquired in 2019, which is that next step change. So you're not even talking about -- you're talking about 2027 kind of range at that point in time. And when it comes to your question, if I understood the sort of lens in which you were asking it through, correctly, what happens? So I mentioned the battery-powered skid steer loaders. So what happens if the battery-powered skid steer loader becomes mainstream, it does not mean that the diesel-powered skid loader, creates an early grade for itself. Instead, what you'll find is it comes back again to that fleet aging profile. From a manufacturing standpoint and a sort of financing, if you will, in the broader equipment space, manufacturers can only manufacture enough in a year to replace the assets needs replacing and satisfy the growth there may be in a year. So when they do that, it goes into those bands. So next year, we will replace the then 8-year-old assets. And if there is some significant innovation, which there will be innovation, but it's not going to be overnight, it's going to be over time, then you would address that year. You wouldn't address the 3-year-old assets. And that's kind of the way that your best sort of seen that go down the road. This is probably a good question to add some color to the statement I made during the results, and that is beginning in Q1, we will pick up 1 of our specific strategic actionable components in Sunbelt 3.0 and add a bit more color. So certainly 1 of those, I'm not saying exactly when, will be ESG, that will be very focused on not just the 35 by 30, but actually giving tangible anecdotes as to what's happening in the marketplace and how we are addressing that. So I think that's probably a good area to speak in more detail to the question that you've asked, if that is all clear, Rahul?

[Rahul Chopra, Research Analyst]

Yes. I think that's helpful. Really helpful, yes.

[Operator]

So that concludes questions on today's call. I would now like to pass back to Brendan for any closing comments.

[Brendan Horgan, CEO & Executive Director]

Great. Thank you all for your participation this morning, and we look forward to speaking with you following our Q1. Take care.

[Operator]

Thank you, everybody. You may now disconnect your lines.