Ashtead Group Plc (LON:AHT.L) has reported robust financial results in their Q1 Analyst Call, with significant revenue growth and an optimistic outlook for the future. CEO Brendan Horgan and CFO Michael Pratt highlighted the successful execution of the Sunbelt 4.0 plan, which has driven customer growth and performance.
The company's record EBITDA of $1.3 billion reflects a 5% increase, while group rental revenue and total revenue have risen by 7% and 2%, respectively. Ashtead Group has expanded its North American presence with 33 new locations and remains confident in its full-year guidance, expecting results to align with previous forecasts. The call also addressed the upcoming retirement of CFO Michael Pratt and the appointment of Alex Pease as his successor.
Key Takeaways
- Ashtead Group's group rental revenue and total revenue increased by 7% and 2% respectively.
- Group EBITDA reached a record $1.3 billion, up 5%.
- The company invested $855 million in CapEx, expanding its North American footprint.
- Full-year results are expected to be in line with June guidance.
- Debt position stood at 1.7 times net debt to EBITDA.
- Revenue, capital expenditure, and free cash flow guidance for the year were reaffirmed.
- Positive construction market outlook, with growth in mega projects contributing to revenue.
- Michael Pratt to retire in September 2025, with Alex Pease appointed as CFO designate.
- Trading in August mirrored Q1, and rental revenue guidance for the year remains unchanged.
Company Outlook
- Ashtead Group expects full-year results to be consistent with June guidance.
- The company is positioned for strong performance and financial growth.
- Mega projects pipeline valued at $850 billion expected to contribute to future revenue growth.
Bearish Highlights
- Some marquee projects are winding down, leading to a decrease in fleet on rent.
- The UK market has faced challenges in rate progression.
Bullish Highlights
- The construction market outlook remains positive with ongoing growth in mega projects.
- Businesses in Canada and the UK delivered good growth.
- Rental rates are expected to continue progressing.
Misses
- A settlement between a customer and project owner delayed revenue from a project.
- Utilization dropped due to halted work on a project.
Q&A Highlights
- The company is matching fleet availability with present and future demand.
- CapEx is expected to be at the lower end of the range for the year.
- There was some slight benefit from the active hurricane season in the specialty business.
- Used equipment sales have normalized, with more equipment disposed of at the end of Q4.
- The location of the new CFO in the US does not change the organization's structure.
The company's approach to the current economic environment includes a focus on operational efficiencies, cost leverage, and careful management of capital expenditure. The company's efforts have resulted in average rental rates that are closely monitored and progressing across their entire network. Ashtead Group has also taken steps to optimize its workforce, reducing headcount while increasing market density and branch synergies.
Inflation concerns were addressed, with Horgan noting that inflation is lower than in previous quarters and that rental rate progression is vital to match or exceed overall inflation rates. The company's disciplined approach to acquisitions was emphasized, particularly in light of high valuations in the current market.
Ashtead Group's strategy remains steady in the Film & TV business and the Canadian market, despite the normalizing environment. The company does not anticipate significant changes to its business following the upcoming election. The call concluded with a note of thanks and an invitation to the next half-year results call in December.
Full transcript - None (ASHTF) Q1 2025:
Operator: Hello, and welcome to the Analyst Call for Ashtead Group Plc Q1 Results. I’ll shortly be handing you over to Brendan Horgan and Michael Pratt, who will take you through today's presentation. There will be an opportunity for Q&A later in the call. So now over to Brendan Horgan and Michael Pratt at Ashtead Group Plc.
Brendan Horgan: Thank you, operator and good morning everyone, and welcome to the Ashtead Group Q1 Results Presentation. I’m speaking this morning from our US support office and I'm joined on the line by Michael Pratt and Will Shaw in London. It is not been long since we saw many of you in Atlanta and then in June following our full year results and so this morning will be a light touch with a brief update on our progress. Turning to Slide 3, I would like to start this morning by addressing our Sunbelt team members and recognize their engagement, learning, enthusiasm and early focus in executing on our Sunbelt 4.0 plan. Beyond the clear and actionable plans surrounding the five primary elements of 4.0, customer, growth, performance, sustainability and investment, there are the foundational elements which are people, platform and innovation. The team has leaned into their strengths of people and culture to not only make early advancements within each actionable component, but also the health and safety of our people, our customers, and the members of the communities we serve. This is demonstrated by following our best-ever safety performance year, which we've shared is last year, with another record quarter in the very same leading and lagging measures the team delivered on last year. This further emphasizes our cultural mindset surrounding safety. It is not one of reaching a destination, rather achieving milestones. As is the case with many things complacency is the ultimate threat. So to our team, thank you. Thank you. Thank you, for your efforts in the first quarter and your ongoing commitment to Engage-for-Life. Moving into the slides. Let's begin with the highlights for the quarter on Slide 4. Strong revenue growth continued in the quarter with group rental revenue and total revenue up 7% and 2% respectively, while US rental revenue improved by 6% and total revenue by 1%. Group EBITDA improved 5% to a record $1.3 billion. And as expected, lower used equipment sales and increases in depreciation and interest cost on a larger fleet resulted in adjusted PBT of $573 million and EPS of $0.97. From a capital allocation standpoint and in accordance with our priorities, we invested $855 million in CapEx, which fueled existing location replacement and fleet growth and greenfield openings. We expanded our North America footprint by 33 locations by 22 greenfield openings and a further 11 through two bolt-on acquisitions, costing a combined $53 million. Following these investments, our net-debt to EBITDA leverage is 1.7 times, which is towards the middle of our new long-term range of 1 times to 2 times. These results and investment activities demonstrate our confidence in the ongoing health of our end-markets and the fundamental strength in our cash generating growth model. And accordingly, we expect full year results in line with our June guidance. On that note, I will hand it over to Michael, who will cover the financials and outlook.
Michael Pratt: Thanks, Brendan and good morning. The Group's results for the first quarter are shown on Slide 6. We have, had a good first quarter with trading in-line with our expectations when we announced our full-year results in June. Group rental revenue increased 7% on a constant currency basis. This growth was delivered with strong margins, an EBITDA margin of 47% and an operating profit margin of 26%. After an interest expense of $144 million, which increased 22% compared with this time last year, reflecting principally higher absolute debt levels. Adjusted pre-tax profit was 7% lower than last year at $573 million. Adjusted earnings per share were $97.04 for the quarter. Turning now to the businesses. Slide 7 shows the performance in the US. Rental revenue for the quarter grew by 6% over last year, which in turn was up 16% on the prior year. This has been driven by a combination of volume and rate improvement in overall healthy end-markets. The total revenue increase of 1% reflects lower levels of used equipment sales than last year when we took advantage of improving fleet deliveries and strong second-hand markets to catch up on deferred disposals. The third actual component of Sunbelt 4.0 is performance, as we look to leverage the infrastructure and scale we developed during 3.0 and improve margins. This combined with our focus on the cost base and lower scaffold erection and dismantling revenue contributed to drop through for the quarter of 69% and an EBITDA margin of 49%. Reflecting the impact of gains, $42 million lower than a year ago due to lower used equipment sales and the high depreciation charge on a larger fleet, operating profit was $669 million at a 29% margin and ROI was a healthy 22%. Turning now to Canada on Slide 8. Rental revenue was 21% higher than a year ago at $222 million, aided by the recovery of the Film & TV business. The major part of our Canadian business is performing in a manner similar to the US, with rental revenue up 16%, driven by volume and rate improvement as it takes advantage of its increasing scale and breadth of product offering. Following settlement of the strikes in the North American Film & TV industry, activity levels in our Film & TV business have recovered, although they are yet to reach pre-strike levels. This contributed to an EBITDA margin of 43% and an operating profit of $46 million at a 19% margin, while ROI is 11%. Turning now to Slide 9. UK rental revenue was 6% higher than a year ago at GBP160 million. In-line with the 4.0 strategy, the focus in the UK remains on delivering operational efficiency and long-term sustainable returns in the business. While we continue to make progress on rental rates, these need to progress further. As a result, the UK business delivered an EBITDA margin of 29% and generated an operating profit of GBP18 million at a 9% margin and ROI was 7%. Slide 10 updates our debt position at the end of July. The increase in debt in the quarter relates principles of lease liabilities with external borrowings declining slightly. As a result, excluding these lease liabilities, leverage was 1.7 times net debt to EBITDA. Our expectation continues to be that we will operate within our new target leverage range of 1 times to 2 times net debt to EBITDA, but most likely towards the middle of that range. Turning now to Slide 11 and our guidance for revenue, capital expenditure, and free cash flow for this year. We're reaffirming the guidance we gave in June with US rental revenue growth in the 4% to 7% range. 15% to 19% rental revenue growth in Canada aided by the recovery of the Film & TV business, and 3% to 6% rental revenue growth in the UK. From a capital expenditure standpoint, our range of $3 billion to $3.3 billion is unchanged, although as we sit here today, we believe we will be around the bottom end of this range. Based on this unchanged guidance, we expect free cash flow of at least $1.2 billion with the big variable being where we land on capital expenditure. And with that, I will hand back to Brendan.
Brendan Horgan: Thank you, Michael. We'll now move on to some operational detail beginning with the US on Slide 13. The US business delivered good rental only revenue growth in the quarter of 7%. Specialty performed strongly up 17% in the quarter with General Tool up 3%. Consistent with what we have said previously and others in the industry have been noting, time utilization was lower than in Q1 last year. There is capacity to better utilize fleet as we progress through this year and we are managing our CapEx plans accordingly. Importantly, rental rates have continued to progress year-on-year, doing so despite utilization movement I've just mentioned. This is again affirmation of the ongoing good rate discipline in the industry, as a result of the ever-clear structural progression we've experienced over the years. Moving on to Slide 14, we'll cover the outlook for our largest end-market, which is of course, construction. Consistent with our usual reporting of construction activity and forecast, this slide lays out the latest Dodge figures in starts, momentum, and put-in-place. Due to the timing of the results, the put-in-place figures on the top right have not changed since our last presentation in June. We will be getting the updated figures from Dodge in the next week or so, but based on the latest sneak peak, we've seen for construction starts, we don't expect significant changes from what you see here today. The outlook for construction growth continues to be underpinned by mega projects, which are representing an increasing proportion of our rental revenue. As we covered quite extensively during our full year results and subsequent shareholder engagement, there is an ongoing softening within the local run-of-the-mill as we call it, commercial construction space as the effects of a prolonged higher interest rate environment weighs on local and regional developers. This, of course, impacts some of the small, mid, and regional-sized contractors. If as is being forecast, the Fed starts to move interest rates downwards at the September meeting and hopefully, this will start to re-energize this area of the construction market and we will begin to see some of the planning progress to permitting. Overall, the construction environment looks to be positive as we progress into 2025 and beyond. The mega project landscape, which we've covered in great detail in April and again in June, continues to demonstrate progress in both starts and in planning. You can reference the data in the Appendix Slide 27. Unsurprisingly, the latest data has slightly more starts in the fiscal year '25 to '27 period than illustrated on the slide. This mega project landscape reality, driven by de-globalization, manufacturing modernization, technology and infrastructure, is here to stay for quite some time to come. Moving on to Canada on Slide 15. Our business in Canada continues to deliver good growth with rental revenue in the quarter of 21% coming from existing General Tool and Specialty locations, as well as greenfields and bolt-ons. And as is the case in the US, rental rates continue to progress in the quarter which we expect to continue to be the case moving forward. As Michael mentioned, activity in the Film & TV business has recovered following the strikes last year, although it's still lagging the pre-strike levels we experienced. We are operating on the basis, this is the new normal for the time being. Our focus in Canada, which is embedded in our 4.0 plan is to continue to increase our addressable markets, beyond construction, as we've done so well over the years in the US. The runway for growth, improved density, market diversification, and margin remains significant. Turning to the UK on Slide 16. The UK Delivered good rental revenue growth of 6%, driven by market share gains in an end-market which continues to favor our unique positioning through the industry's broadest offering of General Tool and Specialty products, which is unmatched. The Sunbelt 4.0 plan for the UK will lead to an ever more diverse customer base and increased TAM, while bringing greater focus and discipline on the necessary levers and actions to deliver acceptable and sustainable levels of ROI and free cash flow. This business has transformed in recent years. And as I've previously said, Sunbelt 4.0 is designed to add the final piece to the transformation. Now, before I turn to the summary slide, I would like to comment on the announcement we made this morning in conjunction with our results of Michael's intention to retire in September 2025 and the joining of Alex Pease, as CFO designate. I could go on and on about the many contributions Michael has made to the success of our business and what a pleasure it has been to partner with him over the years. However, Michael is not packing up just yet and therefore, there will be plenty of time to do that down the road. Michael will be very much here and engaged in a manner we've all been so accustomed to. And you'll get to see him again, high and all during our half-year roadshow. I'm most pleased, however, we’ve the opportunity to ensure a smooth transition between Michael and Alex and look forward to Alex's joining in early October to learn our business while also transitioning the CFO responsibilities. Let us summarize on Slide 17. We've had a strong start to the year. We are well-positioned for the future, as we embark on the execution of Sunbelt 4.0, through which we will extract the benefits of the well documented and ongoing structural progression present in our business and our industry. We will deliver strong performance through volume gains, pricing progression, margin improvement and strong return on investment, resulting in an ever stronger financial position through earnings growth, strong free cash flow, and operational and capital allocation optionality, greater than at any point in our company's history. For these reasons, we look to the future with confidence and full-year results are in-line with our expectations. And with that, we'll turn it to the operator to give instructions for Q&A.
Operator: Thank you. [Operator Instructions] And our first question comes from Annelies Vermeulen from Morgan Stanley. Please go ahead.
Annelies Vermeulen: Hi, good morning, Brendan. Good morning Michael. And many congratulations on your retirement, Michael. I have three questions, please. So firstly, could you give an update on the scaffolding customer, if there is any timing or any sort of update on the resolution and the timing of that, if you have any visibility? And then secondly, on the drop through, which is very good in the first quarter. Could you share your thoughts on that, your expectations for the full year, and how you expect that to progress through the quarters? And then lastly, on Canada, you've mentioned, you assume the new -- this is the new normal for Film & TV work. I'm just wondering, does that leave you with any excess fleet in Canada? I assume some of the equipment can be redeployed to other end-markets, but I also imagine there is some Film & TV specific equipment. So how are you managing that? Thank you.
Brendan Horgan: Great. Thanks, Annelies. I'll do one and three and turn two to Michael. As it relates to the project where the customer was in Chapter 11, and there was a contract dispute between contractor and owner, we have seen a lot of progress there, specifically around a settlement that was reached between a customer and project owner, which resulted -- that was all in keeping with the courts, so to speak in terms of the approval of that. So we are feeling increasingly confident when it comes to the full collections of that. However, this no doubt has delayed and slowed down that project. So, as we would have said in June, we are expecting significantly less revenue from that project over the course of the year. And, Annelies, you would have seen that, actually, or heard that from Mike when he was talking about lower scaffolding, erection, and dismantle revenues. But this is one that's just going to play out over the course of the year. Our team's done a really good job engaging throughout this, and we're working on relationships with the new contractors that will take on that project when, not as or not if, but when that project really ramps back up again. And we will keep you updated as we move through the quarters or move through the year. As it relates to Canada, of course, you are speaking about the Film & TV business, where we're saying this is just – we are viewing this as the new normal. And by that, we are certainly talking about how we invest in the business, but really how we build the infrastructure or how we level off the infrastructure in that business, which the team has done a good job dealing with the ups and downs that we've experienced in that from pre-COVID to through COVID to through an actors and writers strike to make sure that we keep that adequate to or to the level that matches well the overall activity. To your question on do we have too much fleet then, we are building that -- when it comes to the fleet that we support those sets, et cetera with that's a lot of the Specialty and General Tool equipment. And what you'll see there really is how we moderate CapEx related to what we invest in Canada, and that's how we are proceeding there. But I think, first of all, it is positive in terms of, you know, the industry is up and running. We're doing really, really well when it comes to share. And we're still synergizing in terms of cross-selling, but we're just taking it all sort of at its present level. Michael, you want to touch on drop-through?
Michael Pratt: Yeah, -- on drop-through. Yeah, it was a good quarter for drop-through. There is always some ebb-and-flow as to what happened last year, what happened this year. But when you take -- and it's -- building on what we set at 4.0 in terms of leveraging the cost base, but also paying particular focus to the cost base. And as I touched on, we've benefited from this lower level of E&D revenue, which has a lower level of cost associated with it. So as we look forward to the rest of the year, we would now expect drop through will start with a 6 rather than a 5 most likely. I'm not going to guarantee you 69% for the year, but I will say you should start with a 6 rather than a 5.
Annelies Vermeulen: Perfect. Thank you, both.
Operator: Thank you. Our next question comes from Lush Mahendrarajah from JP Morgan. Please go ahead.
Lush Mahendrarajah: Good morning guys. Thanks for taking my questions and my congratulations on your upcoming retirement. A couple from me, please. The first is just on local construction. I guess, is that sort of playing out how you anticipated or sort of how you guide with the full-year results? Or is it sort of worse than since then? And then, I guess tied to that, some of your sort of smaller competitors who don't quite have the benefit of mega projects and perhaps Specialty like, are they being a bit more irrational around pricing on some of those local contracts? So that's the first question. And then the second one is just on that drop-through. Again I appreciate it is going to be higher this year for a number of factors. But when that E&D does come back, would we need to think of drop-through below 50s or can that sustain sort of above 50 type percent going forward when that comes back as well?
Brendan Horgan: Sure. To your question around local construction, I think the best way to characterize it is we are just seeing a continuing trend. This has been quarters now that we've seen. And the way that happens, of course, is you are in a very active period from the starts that would have previously begun. And as you work through and you see some of those projects come to an end, there are simply less of those sort of projects going into the funnel. The important thing, though, around your question what are the smaller independent rental houses doing? Are they staying disciplined in price? I would say this, they are continuing to keep a watchful eye on what we, and I'll say, we in terms of the larger competitors out there doing. And I think what you're seeing, and that across the Board is ongoing discipline and ongoing progression. One really key point that maybe you didn't raise in the question, but it is worth adding is what we are seeing is they are moderating CapEx and that's the important thing when it comes to the overall fleet balance that is out in the marketplace. And we are seeing that across the board when you tune into the OEMs who largely supply this industry. Michael may clean me up here a bit on drop-through if you would like, but I just want to make sure, I mean, certainly E&D will ebb and flow. It is not going to change so much. So as you go below 50, as you would have alluded to or asked a question around, but I want to make sure we're not missing the point here in terms of Sunbelt 4.0 and the third actionable component, which was performance. And that's not only performance in terms of -- for our customers, but it is talking about operational efficiencies that we are working to put into the business. But also a discipline on leveraging our cost base and in particular our SG&A. So what you are seeing is actually the second quarter in a row, Q4 and Q1, where we are seeing that come through in the P&L, and we would expect that to continue.
Michael Pratt: Yeah. No, all I would add is, you know, on what we said in 4.0, if you go to the slide at the back, I forget what the slide number was, but you know, we talked about the 4.0 drop-through in the mid-50s. And so you'll always have a degree of nuance quarter-over-quarter, et cetera. But it is more -- when scaffold and E&D has gone up in the past, we've called it out as being a drag. It is just particularly marked in this quarter. It was a big drop off, is the honest answer, because work on this project basically just stopped. So normally it is more gradual. So you'll always see some impact as it ebbs-and-flows. But it was more exaggerated. It was more exaggerated this time around.
Lush Mahendrarajah: Okay. Super helpful. Thanks, guys.
Operator: And our next question comes from Suhasini Varanasi from Goldman Sachs. Please go ahead.
Suhasini Varanasi: Hi, good morning. Thank you for taking my questions. Just a couple from me, please. You've mentioned that you've had lower utilization on the larger fleet in this set of results. Can you maybe talk about the need to balance CapEx to in order to get the utilization up through the rest of the year? What are your plans on this? Will you be modifying your CapEx guidance, for example? Second one is, maybe could you just talk about the quarter. You had mentioned at the time of the full-year results, how trends were in May. Maybe if you could comment on June, July, August and how you see the next quarter versus second half of fiscal '25. Thank you.
Brendan Horgan: Sure. The utilization and therefore, fleet size and therefore CapEx, all that's a balance. What we're trying to do is we are trying to match our fleet and our fleet availability with present demand and what we see as future demand. And given all of the discussion that we've had around that local run of the mill commercial construction that's also balanced by the mega project work. So what you see in action today is, you will have had a fleet plan for the year and you want to make sure that you keep agility in that. So as some of the local branches, so to speak, have a bit less demand when it comes to what CapEx needs that they will have, you are able to actually be agile, as I said and direct that more towards fueling these mega projects. So that fleet is remarkably fungible. And as you are doing all that, you're balancing the availability that you are looking to extract a bit better time utilization, which we know we are capable of doing as we progress through this year. And it's all finding that equilibrium. Because remember, not too long ago we were coming off of what was anomalous sort of high of time utilization when we had both strong demand and we had constraint in the supply chain. So certainly as we progress through the year, we will have a better feel for what CapEx looks like from a full-year standpoint when we come on to December. But as Michael would have said this morning in his prepared remarks, we expect CapEx, as we sit here today, to be at the bottom end of the range that we've put out there for rental fleet. To your next question, in terms of how trading is, you know, we obviously just completed August, and August looks a lot like Q1 did. So that's why we are keeping our guidance where we are in terms of rental revenue for the US and the broader group, and we'll have a -- obviously, a more current view when we get to December for the half year.
Suhasini Varanasi: Thank you.
Operator: Thank you. We'll now move to our next question from Rory Mckenzie from UBS. Please go ahead.
Rory Mckenzie: Good morning, it is Rory here. Two questions, please. Firstly, on average rental rates, it sounds like they are still up low single digits compared to last year and continues to progress. Can you just talk more about the range of that across your businesses? For example, what's that within specialties, the local general tool business and mega projects and any regions that stand out one way or another? And then secondly, rather than focusing on drop-through, I wanted to ask a question about the cost base and the cost savings. I think that apart from the pandemic, this is the first time since 2010 you've been reducing headcount. And I think, Page 27 shows that US headcount is now down about 7% from the January peak. So can you talk more about where and how you've been doing that, that right-sizing within -- in the business and what the outlook is over the rest of this year? Thank you.
Brendan Horgan: Yeah, sure. Rory, first, on average rates, yeah, we are seeing rates progress and, you know, we don't quote the exact number. You would have heard what we were targeting for the year while you were in Atlanta. And we remain vigilant on moving the needle throughout our entire network. So whether that be specialty or GTA, they are going to be quite similar geographically. There's nothing to really point out in terms of one region that's moving versus another, not so much. It's really across the board. The important thing there is, as I said, when it comes to various types of customers, you get to your larger strategic, more contract based customers, if you will, and you have a larger proportion of those that will have pricing, that will be on an annual basis. And obviously, when we get into October, November, December, you are going through those negotiations and we are looking to set the pricing higher based on the inputs that we've shared, and we'll continue to do that throughout the year. So there's no real standout there to speak of, simply our ongoing vigilance. And we have all of the reasons to do that when it comes to cost of labor, when it comes to the inherent inflation from a replacement CapEx standpoint, albeit we're seeing year on year pricing from an OEM standpoint, flat. So moving on to drop-through and cost savings, and you pointed out on hedge, remember, there is one part of there, which of course is E&D, which is a rather large number. You are talking about several hundred on one project alone, so that will play into that. And otherwise, again I'll go back to our performance actionable component, not just in Q1, but what we had begun putting into place before we would have launched externally Sunbelt 4.0. As we've increased and we did more so than at any point in our history, the density of our markets, we have the opportunity to synergize. So if we were to take field service technicians as an example. As we progress and have more locations, once upon a time, we would have needed two field service techs per location. And when all of a sudden, you have 14 locations in one market, you do not need 28 field service techs, you might be able to do it with 16 field service tech. So what you are seeing is the manifestation of that and you are seeing the individual branches working within a market to synergize and leverage that overall headcount. And that's what you are seeing in the figures.
Rory Mckenzie: That's really helpful. Thank you.
Brendan Horgan: Thanks, Rory.
Operator: Our next question comes from Arnaud Lehman from Bank of America. Please go ahead.
Arnaud Lehmann: Thank you very much. Good morning, gentlemen. I have three, if that's okay. Firstly, very strong specialty in the quarter. Was there any support from the hurricane? Have you seen a busy or a quiet hurricane season so far? The second question is on used equipment sales. We knew it would come down, but I think it came down a bit more than I expected in the first quarter. Maybe could we have a guidance for the full-year or is Q1 a good indication of what to expect going forward? And lastly, obviously congratulations to Michael for his upcoming retirement. Could you give us a bit of color on the selection of Alex Pease, as the new CFO? Did you consider, did you and the Board consider internal options? And considering Alex will be, I believe based in the US, does that change anything in terms of the organization? Thank you very much.
Brendan Horgan: The specialty business, there would be some slight benefit to, in particular, our power and HVAC business, which is up plus 20% year-to-date, but it is certainly not a remarkable shot in the arm there. Yeah, it was rather active, but not quite the sort of hurricane that would have left the prolonged level of response. Certainly across the board, when we look at the hurricane activity thus far this year, it would be a net neutral at best, just given the type of storms that we experienced and really the longer than usual rain and soggy weather that would have gone across most of the, let's just say mid-Atlantic states along the Eastern seaboard and even into the Northeast, but nonetheless we will see what happens from a response standpoint, but nothing notable there. Used equipment sales, I think your characterization is reasonable. What we've seen is we've seen really now the full normalization from a second-hand value standpoint, as Michael would have pointed out, gains on the year, I'm sorry gains year-on-year for the quarter were circa $45 million less. We were anticipating lower gains in the year overall. Perhaps it's -- about what we would have expected for the first quarter. We'll see what we guide to when we get to the half year as we experience a bit more of that. But again, just a normalization. Furthermore, I’d say that the team, the business would have really as Michael would have also said, took advantage even through Q4. So we have disposed of a bit more toward the end of Q4, as we were looking to extract a premium value, so to speak, but nothing really to point out there, not at least at this juncture. Moving on to Michael's coming retirement and what we considered in terms of his replacement. Sure, we would have gone through the internal candidates, so to speak, that we had. But in the end, after casting a quite hardy net into the marketplace to see what the availability was. We came across Alex. I think you'll find Alex is remarkably experienced. We like a lot of things about Alex, obviously and look-forward to his joining. And as I said, giving him the opportunity to learn the business while we work through a very well-choreographed succession to your suggestion or question around should we be thinking anything more based on having a US based CFO. I think, in any circumstance, one could envision our next CFO replacing Michael with all of his incumbent experience and understanding of this business in no shape or no, I can't imagine a situation whereas our next CFO would not be based right here next to our executive team in the US. So no one should read any further into that than simply if this were two years ago or even five years ago for that matter, we would have more than likely landed right where we are.
Arnaud Lehmann: Very clear. Thank you so much.
Operator: Our next question comes from Neil Tyler from Redburn Atlantic. Please go ahead.
Neil Tyler: Thank you. Good morning, Brendan, Mike. Two from me, please. Firstly, sticking with the CapEx question. If you take the sort of midpoint of your rental revenue guidance and the low-end of the CapEx guidance, I think you end up with sort of OEC value growth of about 3.5% and volume growth of perhaps 2%. Does that take you by the end of this fiscal year to a sort of time utilization situation that you're comfortable with sort of back on an even keel? Or do you think scope through the 4.0 remainder timeframe to push time utilization back up and further than that point? And then second question on the growth components and sort of -- and trying to sort of tease out mega projects as on well -- or those you are currently active on. Obviously, we have heard that some that have broken ground are making sort of slower progress than expected, and presumably some that started in 2021, 2022 are tailing off a bit. So on those projects that you are currently working on, I appreciate this is sort of difficult to bundle together, but are they still able to deliver a net positive revenue contribution over the coming 12 months, or do you need new starts for the mega project piece of the revenue pie to grow from here?
Brendan Horgan: Let's -- we'll start with the second there. Certainly, you have some projects that were marquee projects that are beginning to wind down and we are seeing fleet on rent on those projects. Depending on the projects, some will have $10 million in OEC and they have gone to $5 million. And some will have -- would have had $120 million in OEC or original equipment cost, as we abbreviate that by -- that will go down to -- that have gone down to $50 million, $60 million, $60 million, $70 million. And over the course of Q2, Q3, we will see those continue to come down. While at the same time, as we would have talked quite a bit about in April and again in June, we've had more recent wins. And you are right when you characterize, and it is hard to just generalize what happens with these mega projects. Some mega projects break ground and get ramped up quite quickly, particularly when you get to the smaller end data centers as an example. But certainly, when you get into these larger projects, like these fabs that we are experiencing that we're loading into now, they are going to have a bit slower start and it is going to be more that slope we would have described many times where it takes four or five quarters from breaking ground to get to, you know -- your kind of max output on that project, which then lasts for quite a long time. Because the common threads we are seeing is, these projects, there are a lot in the hopper. As I would have said in my prepared remarks, there are more projects and more value if we refer to as a -- for instance, Slide 27 in the pack, you would have seen that 501 projects for $759 billion in value or cost between this current fiscal year and fiscal year '27, so that three-year window, and today that looks more like $850 billion and $600 billion and a few projects that are coming into that hopper. So, you know, it is something that will move in that manner. But overall, I think the key to it is mega projects will make up a larger proportion of our revenues, as we do progress through next -- this year. But as we go into next year, I think we see quite a few more of these coming online. But all-in-all, that's all baked into what we are given from a guidance standpoint. Moving on to the CapEx question, and really what you are getting to is utilization. Yeah, I think your characterization of that is correct. When we get toward the end of this year, we would expect to see that -- us extract some upside in time utilization. But another way to look at that or characterize it is really what we've been going through, as a result of coming off of those anomalous highs in time utilization and the inflation in the replacement and growth CapEx, we've seen for some time now the depreciation growth outstripping revenue growth. And I think really that's one way of looking at all of that. And we would expect, as we get to kind of Q4, will again be in the position of revenue outpacing depreciation. And in a way, that's what we're looking for. I hope that answers what your questions were.
Neil Tyler: It does. Thank you very much. Thank you.
Operator: Thank you. With this, we're going to move to our next question from Karl Green from RBC. Please go ahead.
Karl Green: Yeah, thanks. Good morning. A couple of questions from me. Just on the comments you made about the rate discipline amongst the smaller and mid-sized players. And obviously, they are keeping an eye on what you are doing, as you've already said. I mean, just thinking about squaring the circle there where there is clearly high inventories in some of the auction channels, and they’re clearing at lower prices at the moment, so that equipment is finding a home. Is this kind of the balancing part of that equation? The fact that actually ownership is slightly ticking up, because I think some of the rails and [Ritchie] (ph) data is suggesting that a lot of equipment is actually staying in the US rather than going overseas, as was the case in sort of previous downturns. So is that the right way to think about it would be the first question. And then the second question, relatedly just going back to that very high drop through of 69%, just in terms of the delta between, say, the mid-50s and that 69%, is it fair to say that the vast majority came from that lower E&D revenue base? Or was it the fact that you said other dynamics there going on in terms of facing costs, headcount, management, and debt? Thank you.
Brendan Horgan: Sure. I will take the first and Michael can take the second. You know, what you are alluding to there around rate is the structural progression. So, yes we will continue to see rental take share from ownership, and that is what we have seen, and that is what we will continue to see. I think the key, really from an understanding standpoint when it comes to rate and the discipline that we see in the industry, using the inputs that we would have shared so clearly in April when we were together in Atlanta, is really the decoupling of the notion that second-hand values are influencing what rental rates are doing. For a long time, that was a heavy focus, and when we would see any sort of softening in second-hand values, you would see that corresponding softening either in the pace of growth of rates or an absolute, whereas rates would go backwards. And this isn't a new Q1 phenomenon. We've been seeing, actually second-hand values come down for the last five, six quarters from what was the cycle peak, so to speak if you will. So there is not all that much to be taken as -- or to be read into there. Yeah, we know Ritchie very well. Of course, there's a bit more of the fleet that's being sold, that is staying within the US, but there is still quite a lot that does leave the shores of the US and go elsewhere in the world. But either way, we have a perfectly liquidity second-hand market for used equipment, and the values will ebb-and-flow based on demand of buying that second-hand equipment. But it doesn't feed into what we are expecting or looking to garner when it comes to progressing rental rates. Do you want to talk drop-through, Michael?
Michael Pratt: Yeah, I guess the upside is a combination of all of those factors. I would say, the E&D piece is maybe about a third of it or maybe just over, but the rest of it is, again focus on the cost base and leveraging the cost base.
Karl Green: Okay, great. And just to follow up on the first question then, so can you give a kind of vague indication as to what sort of percentage of OEC you are seeing on your used equipment sales just year-on-year, how that's trended just because of the sense of the normalization, as you called it?
Michael Pratt: Yeah, if you go back in time, we always talked about sort of mid to high 30s, as a percentage of OEC. Over the past few years, it is been in excess of 40% of OEC, and we are back into that sort of mid to high range for 30s for a percentage of OEC.
Karl Green: Great. Thank you.
Operator: Thank you. We will now move to our next question from Allen Wells from Jefferies. Please go ahead.
Allen Wells: Hi. Good morning, guys. Just two for me. Most of mine have been asked. In terms of the US rental growth, obviously, we've seen that slight sequential slowdown into the fourth quarter. The guidance is 4% to 7%. Can you just talk a little bit about how you, at least at this stage in the year, see the shape of growth through the rest of the year? Like, I guess most people would have expected to see a general easing in terms of the trends, but also mindful of easing comps as we move through the year. And actually, the fact that the organic growth number that you printed was broadly stable. That is my first question. Thanks.
Michael Pratt: Oh, sorry. I'm happy talking. And Will's pointed out I was on mute. So you -- given where we were and given what our guidance is, you would expect it to be slightly slower in the second half or next nine months than in the first, or else we -- our guidance will be slightly different. So we are at 6%, which is, yes, it is towards the end. We still expect to be somewhere in that range of 4% to 7%. So I don't -- and given that range, you are not going to see big variances quarter-over-quarter. Clearly, the one thing that might influence is if there are events, and particularly at these lower levels, if you are growing 20% a year, an event is probably on a growth rate is not significant, whereas if you are growing at somewhere between 4% and 7%, if there happened to be two or three events, then it might have more of an impact on that. But as we've said before, we're not planning on that. So you'd expect something sort of a moderating profile, as you go through the year.
Allen Wells: Okay. And then just a quick kind of follow-up on rate as well. Obviously, you guys talked about it – it is still progressing. But could you maybe just talk about how that looks sequentially, just directionally? Are you still seeing -- I guess we are still seeing inflation in the cost base, but inflation is probably lower than it was a quarter or two ago. So is the rate environment still slightly easing as you move through, even if it is still progressing positively? Just the industry data seems to just that I see. But I just wonder what you guys are seeing internally.
Brendan Horgan: Yeah, I mean, it is progressing. It is progressing not quite as quickly as it would have in years past. And when you think about that overall inflation environment, when inflation is being printed and it is being discussed the way that it was, it does make it a tad bit easier to have those discussions with customers, which is why, again, I'll draw back to the inputs that we covered, our pricing formula to the business in Atlanta, where some of you were spectators. That is precisely why we're going at it that way. So what you sort of read or taken in across the industry, I think, is a reasonable characterization, and we would expect it to continue to progress about the same as we go through the year, while we set our sights on what is more important, and that is the ongoing rental rate progression that can match or deliver a bit better than overall inflation.
Allen Wells: Okay, great. Thanks, guys.
Operator: Thank you. We will move now to our next question from Will Kirkness from Bernstein. Please go ahead.
William Kirkness: Thanks. Good morning. And just two from me, please. Just wondered if you could cut that General Tool plus 3% anyway to give us a bit more color. It sounds like it might be sort of mostly rate. So I don't know if you could break that down, maybe by regions or kind of segments. And then secondly, just on the UK, I think you said for a while that rates aren't really progressing where you would like them to be. I just wondered what the impediment is and what kind of the -- what actions you can take there. Thanks.
Brendan Horgan: Well, on the second, when it comes to the UK, it is just what the industry lacks there is the -- that element of structural progression which is so put in place here. And that's the -- that's one part of the limiting factor. The other part of the limiting factor was the six inches of space between the two ears on the human head. And that part we are pushing more and more, and we are seeing progress in rates in the UK. And the team which is leading that effort is doing good. So we would expect that to continue. When it comes to the US, I mean, Will, you are asking us to report specifically on what our rental rates are and we won't do that. In terms of regional color, we have 11 regions in the US and we have nine that are up year-on-year in rental revenue. We have one that is flat and we have one that's back ever so slightly, which is the upper Midwest. So, really what that demonstrates is, it demonstrates strength throughout the geography. And in Canada, it would be up across the Board. And then, of course, our specialty business, we see a big range there. We'll see our flooring business that will be up low-single digits, and we'll see climate, power, and HVAC up really nicely. And we will see little businesses that are just getting started, like our fencing business that's up almost 400% year-on-year as we are extracting the benefits of the greenfield opening campaign that we would have had over the course of 3.0. But overall, the environment is doing what we would have largely expected.
William Kirkness: Great. Thanks very much.
Brendan Horgan: Thanks, Will.
Operator: Thank you. [Operator Instructions] And our next question comes from Mark Howson from Dowgate Capital. Please go ahead.
Mark Howson: Hi. Good morning, gentlemen. Just briefly on a couple of questions on bolt-on acquisitions. Obviously, we focus very much on CapEx and how that's rolling out, and yourself and the industry. Have you found the prices of bolt-ons sort of probably just a bit too much to bear at this point in the cycle? Something you might want to do when things -- if things do become tougher, it is easier to pick things up. And that -- or is that reflection of that, or is it just a question of something else?
Brendan Horgan: I think, you know, it is really more. It is really more. I mean, let me be clear. There is no shortage of available M&A to do in our industry. We still have thousands of independent rental companies in the US and Canada that are entertaining selling. If you sort of put a level on that compared to prior periods, it still remains high. What you are seeing is that we are pushing back a bit when it comes to the value of some of these bolt-ons. We all would have been taught or learned over the course of our careers, that as interest rates get higher, private deals sell at lower multiples. And that isn't exactly what was happening over this period of higher interest rates. So we are drawing a bit of a line in the sand. And the good part with all that is we are not losing out on opportunity because so many of the deals we do, as you know, are shoulder tap. In other words, they are not being run through a process with a broker. So we have lots of deals, if you will -- on the burner that we are testing and feeling, and we'll buy them when we'd like to. But overall, I don't think there is all that much to read into that. Your question would kind of imply as times get tougher, there may be more availability. It just all depends on what we say or what you would say or what circumstance you would paint in terms of times get tougher. When you actually go through a period of slowing, you will have a lot of independents who will rather wait until they can repair their P&L a bit and entertain a sale then. But either way, still, there is a flush landscape of M&A, and we are just being disciplined buyers.
Mark Howson: Okay. And just a couple things for me to finish off. Just on the election front, you've seen much difference between what Kamala Harris's view on things like the Inflation Reduction Act and Infrastructure Act versus Biden. So, you know, the difference in Trump, “Drill, baby, drill!”. But you see anything between Harris and Biden in terms of how the outlook may change?
Brendan Horgan: No, I think, I mean, overall, if you think about -- whether you think about, you know, their positions on tax or their positions on investment infrastructure, it is really still very much, you know, Biden, Harris meaning, together in terms of how they are portraying, what they believe and most importantly now, what Harris would put forth. But either way, we will be consistent in what we've said, which is what we of course, believe to be the case. Whichever direction you go, the core fundamentals of our business and the core fundamentals of structural progression will continue. It is -- I would characterize it as remarkably unlikely that any of the sort of trifecta of acts, whether that be infrastructure, it be chips and science, or it be IRA, have any demonstrable change as a result of the same, in essence, administration or a change in administration? One thing I would have talked quite a bit about during the full-year roadshow is, you know once upon a time, you will remember, most of us would have learned that the most powerful person in the US isn't necessarily the President, but rather the Chair of the Federal Reserve. And I would say, at this particular juncture, that might be a reasonably good default because so much, when it comes to overall activity levels come down to what do we see from a cost of borrowing or interest rate environment. So time will tell when it comes to the election, but we don't expect much one way or the other.
Mark Howson: Finally, from me just say well done to Michael. And I think you've done an excellent job over the years. So thank you very much.
Operator: Thank you. And we will take our last question today from Katie Fleischer from KeyBanc Capital Markets. Please go ahead.
Katie Fleischer: Hey, good morning. Just one question for me. You talked about the normalizing environment in the Film & TV business and how you are thinking about that as the new normal going forward. Just wondering if that changes your thoughts on that business in general or the Canadian market, if you see any sort of shift in strategy going forward to adjust to this new normalizing environment.
Brendan Horgan: No change in strategy, just running the business as we should paired with what that market availability is. So no change whatsoever.
Katie Fleischer: Okay. Thank you.
Brendan Horgan: Thank you.
Operator: Thank you. With this, I would like to hand the call back over to Brendan for any additional or closing remarks. Over to you, sir.
Brendan Horgan: Great. Thank you all for joining this morning. And we look forward to speaking with you as along our half-year results in December. Have a great day.
Operator: This now concludes today's call. Thank you all for joining. You may now disconnect your line.
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