Good day, and welcome to Ashtead Group Q1 Results Conference Call. Today's call is being recorded. I'll now like to turn the conference over to Brendan Horgan, CEO. Please go ahead, sir. Thank you, operator, and good morning, everyone, and welcome to the Ashtead Group Q1 Results Call. I'm speaking from our field support office in South Carolina, and joining on the line from our London office are Michael Pratt and Will Shaw. Before getting into the results slides, I'd like to take this opportunity to speak to our Sunbelt team across the group to congratulate and thank them for their incredible contributions. This is primarily in recognition of two things. First is their dedication to the leadership and engagement of the people across our branch network, which now exceeds 1,250 locations, who in turn bring a similar dedication and even pride in servicing our customers. Second, for their ongoing resolve and continuous improvement mindset embedded in our safety culture. This culture extends from our branches to our team members' homes and indeed to our customers at their sites, projects, or events. Without these cultural elements, we would not be in a position to cover the ongoing growth and success of the business as we will today. As I usually say when signing off on company calls and communications, thank you. Keep leading positively and safely out there, and stay focused on people, people, customer, customer. With that, we'll move to the highlights on slide 3. The business continues to perform very well, delivering another quarter of strong revenue and earnings growth in end markets which I will characterize as high demand and structurally supportive. In the quarter, rental revenues in North America increased 28% over last year, the principal driver to PBT and EPS growth of 29% and 33% respectively. During this quarter of strong revenue growth, we continued to advance our strategic growth plan, Sunbelt 3.0, now in the second year of a three-year plan. We did so in part by executing on all our capital allocation priorities, beginning with nearly $700 million in CapEx, which fueled our existing locations and greenfield additions with new rental fleet and delivery vehicles. We expanded our North American footprint by 33 locations, 20 by way of greenfield openings and 13 via bolt-on acquisition. We invested $337 million in bolt-ons in the period, and returned $116 million to shareholders through buybacks. Despite these levels of growth, capital investment, acquisitions, and returns to shareholders, we remain near the bottom of our net debt to EBITDA leverage range. These results demonstrate the ongoing strength in our end markets and the fundamental strength in our cash-generating growth model. The business is performing better than our previous expectations in revenues and operating profit. However, on a PBT basis, this is offset by the now not surprising increased interest cost. We therefore expect PBT to be in line with our expectations for the full year. Let's move on to our outlook on Slide 4. Recognizing the momentum in the business from Q4 and throughout Q1 in demand levels better than targeted rental rate progress, pace of greenfield openings and bolt-on activities, we are increasing our full-year revenue guidance. We now anticipate the US to be in the 17%-20% growth range. Canada increases to growth of 19%-22%, and the UK improves to flat to -4%. From a CapEx standpoint and consistent with previous updates, we maintain a range of $3.3 billion-$3.6 billion, of which $2.7 billion-$3 billion is new rental fleet. These activities and anticipated business performance lead to expect free cash flow of circa $300 million. On that note, I'll now hand it over to Michael to cover the financials in more detail. Michael? Thanks, Brendan, and good morning. The group's results for the first quarter are shown on slide 6. As Brendan said, we had a strong quarter with the momentum we experienced last year continuing through the first quarter and into the second. Group rental revenue increased 26% on a constant currency basis. This growth was delivered with strong margins and EBITDA margin of 46% and an operating profit margin of 28%. Adjusted pre-tax profit increased 29% to $555 million and adjusted earnings per share were $0.944 for the quarter. Turning now to the businesses. Slide 7 shows the performance in the U.S. Rental and related revenue for the quarter grew by a strong 29% against last year, which in turn was up 7% on pre-pandemic levels. This is driven by a combination of volume and rate improvement in what continues to be a favorable demand and supply environment. The strong activity and favorable rate environment have enabled us to pass through the inflation we've seen in our cost base, both in general as well as in the direct costs related to ancillary revenues such as fuel, transportation, and erection and dismantling, which are growing at a higher rate than pure rental. This ability to pass through inflation can be seen in the EBITDA margins of our same stores, which continue to progress. However, while we have passed through the inflationary impact, these ancillary revenues generate a lower margin than the pure rental business and represent a greater proportion of revenue this year. In addition, we continue to open greenfields, adding 18 in the quarter and complement our footprint through bolt-on acquisitions. Inherently, in the early phase of their development, greenfields and bolt-ons are lower margin than our more mature stores. The locations added through greenfield openings and bolt-ons since the beginning of last year have an average EBITDA margin about 10% lower than our same stores, and it takes around 3 years for them to achieve average margins. These effects, coupled with the well-trailed increase in investment in the infrastructure of the business in support of Sunbelt 3.0 throughout last year, particularly in relation to technology, lowered the EBITDA margin by around 1%. Given these dynamics, we expect drop-through to improve as we move through the year, although it will be affected by the level of bolt-ons in the rest of the year. All these factors contributed to drop-through for the quarter of 43% and an EBITDA margin of 48%, while operating profit was $567 million at an improved 30% margin, while ROI improved to 26%. Turning now to Canada on slide 8. Rental and related revenue was 20% higher than a year ago at $159 million. The original Canadian business goes from strength to strength as it takes advantage of its increasing scale and breadth of product offering as we expand our specialty businesses and look to build out our clusters in that market. Our lighting, grip and lens business continues to encounter a degree of market disruption with the threat earlier this year of strike action in the Vancouver market, resulting in productions being delayed or transferred elsewhere. As a result, Canada delivered an EBITDA margin of 43% and generated an operating profit of $38 million at a 22% margin, while ROI is 20%. Turning now to slide nine. UK rental and related revenue was 11% higher than a year ago at GBP 149 million. This growth is despite the significant reduction in work for the Department of Health as we completed the demobilization of the testing sites during the first quarter. As a result, the Department of Health accounted for approximately 16% of revenue for the quarter, compared with 34% a year ago. The core business continues to perform well, with rental revenue 23% higher than a year ago. However, the inflation environment, combined with the scale of the logistical challenge in completing the testing site demobilization over three months and the significant increase in demand over that period, particularly in the returning events market, contributed to some operational inefficiencies. The principal driver of the reduction in operating costs is the reduction in the work for the Department of Health. These factors resulted in EBITDA margin of 31% and an operating profit margin of 14%. As a result, UK operating profit was GBP 26 million for the quarter, and ROI was 12%. Slide 10 updates our debt and leverage position at the end of July. As expected, debt and leverage increased in the quarter as we actioned all components of our capital allocation policy, resulting in leverage of 1.6x net debt to EBITDA, excluding the impact of IFRS 16. Our expectation continues to be that we will operate within our target leverage range of 1.5-2 times net debt to EBITDA, but most likely in the lower half of that range. As we've said on many occasions, a strong balance sheet gives us a competitive advantage and positions us well to optimize the structural growth opportunities available in our markets. Therefore, as shown on slide 11, we recently accessed the debt markets in order to strengthen our balance sheet position further and ensure we have appropriate financial flexibility to take advantage of these opportunities. We issued $750 million of 10-year investment-grade debt at 5.5%. Following the notes issue, our debt facilities are committed for an average of 6 years at a weighted average cost of 4%. With that, I'll hand back to Brendan. Thanks, Michael. We'll now move on to some operational and end market detail on slide 13. Beginning with the US business, our revenue gains continued. General tool improved upon last year's strength with 23% growth in the quarter. Specialty continued its remarkable performance, growing 39% in Q1 on top of last year's 22% in the same quarter. The strength of this performance was broad, extending through all geographic regions and specialty business lines. One year ago, when presenting our Q1s, I stated that the then-current supply and demand equation was as tight as I had experienced in my 25-year career, an effect that was contributing to market share gains and record levels of time utilization throughout the business. Well, here we are in my 26th year, and it's even more pronounced than one year ago. Becoming clear in this environment is the step change in structural change, driving deeper rental penetration and favoring larger, more capable rental companies as it relates to share of what is becoming an ever larger pie. Further, as has been the case, our industry, like any other, is experiencing inflation ranging from equipment to goods to services to wages. As I've said consistently for more than a year now, when you combine these supply and demand circumstances, inflation realities, and a relentless focus on customers, you should be able to increase rental rates. We continue to do just that. Our sequential and year-on-year rate improvement has been very good, once again outpacing our ambitious internal targets. Let's take a closer look at our specialty business performance on slide 14. The year-on-year rental revenue movement illustrated herein demonstrates the ongoing and compounding growth across all the specialty business lines. Total U.S. specialty rental revenues increased 39% in the quarter. Consistent with statements made in previous results, this ongoing progress highlights a few items. First, this lineup of complementary products and services creates powerful cross-selling opportunities, which customers increasingly subscribe to. Second, we're in the very early stages of rental penetration, which is being accelerated by today's market dynamics, our scale, and expertise, producing a reliable and often better alternative to ownership. Finally, this level of activity in our specialty business serves as a proxy for the strength of our non-construction end markets, which generates the lion's share of our specialty revenues and is an important part of our general tool business. Let's move on to the US construction outlook on slide 15. Consistent with what we've shared for some time now, this slide summarizes a collection of relevant construction and rental industry forecasts. We are continuously on the lookout for any changes in current or forecasted construction activity levels or customer behavior. Thus far, the macroeconomic circumstances have led Dodge to only downgrade their forecast for residential starts and, by extension, the corresponding residential put in place construction values. The most notable movement adjusted down single-family home starts to near pre-pandemic levels. However, the best available information is still not pointing to a lowering of non-residential construction. Rather, as indicated by the graph on the top left of the slide, we continue to see robust starts as shown within the bottom left, ongoing momentum indicating its highest levels since 2008. These activities are validated every day within our business as customers continue to work on existing sites and begin new projects. Further, recent legislative activities in Congress have funded the CHIPS and Inflation Reduction Acts. Together, these bills will fund new projects that will cost hundreds of billions, ranging from new semiconductor factories to solar, to EV, to battery plants. This funding, which, to be clear, has not been included in the starts or put in place forecast on this slide, will surely and considerably add to the mega project landscape, which we detailed in June. For further clarity, these new acts are in addition to the federal infrastructure package signed into law last year. Let's put all this together. As these forecasts stand, it is simply the case that with the ongoing strength in starts, current activity levels, presence of mega projects, and if these forecasts are directionally correct, it will result in a strong demand market for years to come, which we are incredibly well-positioned to benefit from. However, as we've said consistently, we would be foolish in this macroeconomic climate to take these forecasts as absolute. As we've always done and gotten far better at over time, we're keeping a watchful eye on any movement in these forecasts. As things update in the months and quarters to come, we will continue to share with you the best available information as we use it to calibrate our own investment plans. Turning now to our business units outside of the US, we'll begin with Sunbelt Canada on slide 16. Our business continues to expand and perform well in Canada as our brand increases and customers recognize the growing breadth of products and services offered. As the conditions are not dissimilar to the U.S. in activity, demand, and supply environment, we're experiencing equally strong performance from a utilization and rate improvement standpoint. This growth and performance continue to deliver strong year-on-year revenue gains and margin improvement within the legacy Canadian business. As Michael explained, the Canada margins are temporarily muted as a result of the lighting, grip and lens business's market in Vancouver being impacted by labor union challenges. We're well underway executing on our Sunbelt 3.0 plans in Canada, and our runway for growth remains long. Turning to Sunbelt UK on slide 17. As we covered in June and Michael updated today, this year is a transitionary one as the business finalizes the demobilization of the Department of Health testing sites. Thus far, we've seen the business perform well by completing the demob ahead of schedule and importantly, redeploying the fleet in a rapid manner to other parts of the business. Much of the fleet utilized by the testing sites was power, accommodation units, lighting, and barriers. As the graph on the top right of the slide indicates, our fleet on rent is higher than a year ago, despite the absence of the testing sites. This is an incredibly successful transition. These results demonstrate the underlying performance of the business as current end market demands remain strong. Further, it should provide evidence to the fact that Sunbelt is increasing its market share by better leveraging our unique range of general and specialty products and services through our best yet cross-selling efforts. Also worth noting is our ongoing rental rate progress. Although we've not delivered increases consistent with what we are achieving in North America, we've demonstrated the ability to advance rental rates. This is something that has long been absent in the U.K. rental industry, and we're happy to be leading this effort. Our plan is not to relent in this important area. Turning now to slide 18. As we've done with every set of results since the launch of our Sunbelt 3.0 strategic growth plan, I'm pleased to update you again on the progress across all actionable components. Illustrated herein, you'll pick up some of the specifics related to each. To highlight a couple, first is the addition of 33 locations in the quarter through a combination of 20 greenfields and 13 locations by way of acquisition. Second, these additions contribute to achieving cluster status in 43 of the top 100 U.S. markets. I'll remind you, our 3.0 plan was designed to grow our top 100 market cluster achievement from 31 to 49. We are well ahead of our plan pace. The other actionable components of technology, ESG, and capital allocation are all active in delivering according to plan, and we'll give a more comprehensive update on one of the actionable components in conjunction with our half-year results in December. Moving on to slide 19. Our CapEx guidance is identical to what we presented in June. The supply constraint environment is still very present. However, we are working well with our primary equipment manufacturers and the landings throughout the quarter and into August have been strong. We continue to balance new fleet landings with disposals based on demand and actual timings of deliveries. This gives us a degree of flex capacity, which in today's environment is a very powerful lever. We anticipate rental fleet CapEx in the US to be between $2.4 billion and $2.6 billion. And after our non-rental CapEx across the group and ongoing rental fleet investment in Canada and the UK, we guide to $3.3-$3.6 billion for the group in the full year. We maintain flexibility in these CapEx levels, particularly in the roughly $1 billion scheduled to land between January and April of 2023. However, at this stage, we find it unlikely we would elect to make any deferrals or cancellations. This leads to capital allocation on slide 20. In the quarter, we invested $699 million in existing locations and greenfield fleet additions and a further $337 million in bolt-ons. It's also worth noting that since the period end, we've invested a further $183 million on 7 bolt-ons and have a healthy pipeline going forward. We completed $116 million of share buybacks in the quarter. Despite these ongoing investment activities and returns to shareholders, we are at 1.6x net debt to EBITDA, again, near the bottom of our leverage range. To conclude, let's turn to slide 21. This has been another good quarter of growth and ongoing momentum. Our end markets remain strong and the forecasts support a continuation of strength well into the future. The non-residential construction outlook has been enhanced by the recent legislative passing of the CHIPS and Inflation Reduction Acts. These additions, in conjunction with the already flush current and forecasted mega project landscape, point to strength and demand for years to come. This trifecta of market dynamics, supply constraints, inflation, and skilled trade scarcity remain very real. The ongoing presence of these come with operational challenges, however, are outweighed by the secular benefits to our business, resulting in increased rental penetration rates and considerable market share gains for businesses in our industry who possess the scale, experience, equipment purchasing influence, and financial strength. Rest assured that our business is positioned to win in this reality. This update should demonstrate again the strength of our financial performance as well as execution of our strategic growth plan, Sunbelt 3.0. Our greenfield plan for the year will deliver in excess of 100 openings, and the bolt-on pipeline remains very active with potential, giving us great optionality to further supplement our organic growth. For these reasons, and coming from a position of ongoing strength, improved trading and positive outlook, we look to the future with confidence in executing on our well-known and understood strategic growth plan, which will strengthen our business for years to come. With that, we'll be happy to take any questions. Operator, back over to you for instructions. Thank you, sir. Dear participant, if you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Neil Tyler, Redburn. Your line is open. Please go ahead. Good morning. Thanks very much. I'd like to ask two questions, please. The first, on rate. In your upgraded revenue outlook, I think part of that is an increased expectation for the average rate increase. Can you please sort of split out how much of that rate increase will stem from a catch-up in pricing across the national contracts and accounts current commercial terms? Then perhaps if you were able to split out what the figure includes for any assumptions around sequential momentum in rate from the current levels in spot or local markets. That's the first question. Then secondly, more broadly and conceptually, as you think about the U.S. rental industry fleet, compared to 2019, if I think about it in broad supply demand terms, if we use 2019 as a starting point, can you give us your perspective of where the industry stands in perhaps the percentage point terms on the supply demand balance versus 2019? If you know, December 2019 is say 100, are you above or below that level in terms of supply demand? Thank you. Sure, Neil. Let's start with your rate question. When we look at rate between national strategic key, whatever one may refer to, and let's just put all the rest in sort of that transactional bucket, we've seen incredibly similar progress in both. Our larger strategic customers, we've been successful in passing through rate increases, not terribly different than transactional. Of course, when it comes to sequential, which is that second part of your question, you have to wait for certain windows. As you would expect, we have some you know, more excuse me, clustered endings to pricing agreements around the calendar year end, and then also, interestingly enough at the fiscal year end. We've already had that latter piece, but the majority of that will be, or the largest tranche will be at the end of the calendar year. In terms of what you've seen from our increased guidance from a revenue standpoint, if you just take the US, that midpoint of 4%, two percent of that is coming from rate. We would have anticipated in our plan or budget, if you will, a 5% rate. Now we expect 7% for the year. If we just go ahead and finish out, because this could be a question from someone else, the rest of that 4% would be made up just under 1.5% by way of bolt-on and just a bit more than 0.5% from underlying activity around utilization. Your second question around fleet, which is a really good one. I think part of what you're asking, and you can correct me if I'm wrong here, is you know, are we at an imbalance or is there any risk of imbalance of over-fleeting the industry? Let's remember the supply constraint environment that we've been in throughout this entire pandemic, and this continues to be the case. Certainly our view would be, most rental companies would take considerably more fleet than they've been landing, and therefore the fleet balance would be less than that 2019 baseline. If 2019 was 100, I would say this is. This is me grabbing numbers from the air here. It's 90 today. I would have preferred to have landed an extra $1 billion in fleet through August, and I have every confidence that that $1 billion in fleet would be on rent servicing customers, at a rate higher than it was a year ago. I think it's a good position to be in as an industry where, even if one would want to, it would be very difficult to over-fleet right now. I hope that answered your questions there, Neil. That's very helpful. Thank you, Brendan. Thanks. We'll take our next question from Rob Wertheimer from Melius. Your line is open. Please go ahead. Yes. Hi. Good morning, everybody. Hey, Rob. I have two, if I may. The first is just your characterization or could you please characterize the bolt-on market? Your activity remains very high there. I don't know whether the desire to own or to manage the inflationary pressures has kicked up the opportunities in bolt-on. That's my first. The second is just your impression of inflation, whether you're reaching a cresting point in labor or other things, or whether this is a, you know, something that's not yet crested and, you know, visible into the future so far. Thank you. Sure. From bolt-ons, you know, as you've seen now for, you know, all through last year and thus far through, you know, we just closed our last deal the first of September, you know, it remains strong. I've sat across from many business owners, and there are a variety of different reasons and rationale that they go through. Certainly the pressures of today, you know, inflation in general. Some struggling to understand perhaps or decide what to do when it comes to things like wages, you know, is certainly part of that. The other is just getting that skilled trade as the skilled trade in our world, i.e., professionally, commercially licensed drivers, trained mechanics, et cetera, are rare and seem to be going to companies like Sunbelt. Certainly one element is fleet. I'm literally thinking of one specific owner for a business that will close before the end of the month. Not a big deal, but you know, like so many of these, if you look at the average size of these deals, it's just under $30 million that we're doing. They simply just cannot get the fleet. This owner just cannot get the fleet. You know, he's been told by many manufacturers, "Hey, literally, you'll get it after Sunbelt gets theirs." Those are challenges. I think when you look at, keep in mind too, as you may know, Rob, you know, the majority of the deals we do are not in a process engaged with a broker. Something like two-thirds, even a bit higher of our deals are shoulder tap deals that we've built relationships with over the years. Part of them come on because they know our expansion plans. You know, we're gonna open a greenfield in, you know, any town North America, if you will. When we do, they kinda have to decide, are they gonna stick in and compete or are they going to take that as an opportunity to sell? I hope that answered that piece for you. Inflation, boy, if I had a crystal ball and could look at that one, you know, we would all be in a different position, so to speak. You know, I think when it comes to wages, let's begin there with, you know, your more, shall I say, kinda white collar positions. It seems as though I think we could expect that to ease a bit year-over-year. When it comes to skilled trade, I think the question's still out there, just given some of the cost of living. As we see things like fuel pricing come down as it's done now for, you know, many days in a row, I think we might see that abate a bit. I think I feel, you know, a bit less pressure, so to speak, when it comes to that step change year-over-year, as we go into that season ahead of us. Certainly much of the inflation that we've seen in the business, it's not gonna step change the way that it had, you know, in previous periods. Broadly, that's the way I would view that. Great. Thank you. If you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll take our next question from James Ross, Barclays. Your line is open. Please go ahead. Hi there. Morning. I've got three if I may. Hey, James. Yeah. Sure. First is on drop-through in the US. Could you talk us through how that drop-through moves higher in the second half? What are the main moving parts that underpin that? Secondly, could you talk through organic growth by customer size? Lots of headlines about, you know, big mega projects coming through and going on. Is the environment in the smaller, you know, SME, more transactional client base still strong and the outlook looking resilient there? Lastly, on cash flow, I'd note the sort of elevated receivables balance this year. Anything to point out in terms of elevated credit risk or anything we should think of in terms of free cash flow for the full year there? Thank you. Sure, James. I'll take Michael. Michael will do AR. Michael, do you wanna take a stab at fall through? On flow-through, you know, we expect it to progress as we go through the year. A big part of everything about what we said last year, we were investing in the infrastructure of the business. If you think of that investment, the run rate of that cost was higher by the time you got to Q4 than it was as you got to Q1. You sort of got that headwind. Once you level out effectively, that headwind gradually decreases quarter-over-quarter. It'll also get influenced by bolt-ons, as we've talked about. You know, bolt-ons, very rarely do we buy businesses that have margins the same as our own. They're usually much lower. That will have an impact as well. It's really a comparative period more than the current period that will influence how drop-through improves as we go through the year. On receivables, you know, it's a couple of things. It's increased. It's a level of ramp up in the volume that we've done. Our agings are certainly our older debts. It's still, you know, not dissimilar to what it was a year ago, and that's clean at the April 2021 year end. So there's nothing really to call out. It's really just a function of the business. You know, we'd expect the receivable days to sort of decline as we go through towards the end of the year end. There's nothing that causes concern in those figures. James, in terms of your question, between your, you know, small- to mid-size SMEs, if you will, versus the larger strategic customers. The answer is not dissimilar to what I would have mentioned when it came to rental rates. You know, certainly there is an abundance of very large projects and, you know, we're seeing growth in those accounts, both new and existing, mostly the latter, 'cause on those big mega projects, you know, there are only so many contractors out in the marketplace that can handle those larger, more sophisticated projects. But we're seeing great growth in those, and we're also seeing on those sort of projects longer duration, so the term gets even longer. When it comes to the SMEs, they're really just about keeping up. They're not growing quite as fast. When we look at our pie, our vernacular, we call those strategic customers. That would be others would call national key, et cetera. Our strategic customers are taking up a bit more of the pie. But you're talking about, you know, 35%-37% sort of variety, which tells you that those SMEs, albeit not growing quite as fast, are still growing rather robustly. Great. Thanks for the color. Thanks, James. We'll take our next question from Rory McKenzie, UBS. Your line is open. Please go ahead. Yeah. Morning, all. It's Rory here. Three, please. Hey, Rory. Hey, Rory. Morning. Firstly, just to unpick the assumptions in that 17%-20% US rental rate, rental revenue growth outlook. So you said 7% comes from rising rental rates. Can we assume 6%-ish from bolt-ons this year? Does that therefore leave 4%-7% organic volume growth? Then secondly, just to follow up on that. The $200 million-$400 million of new rental revenue that comes from the new organically adding new fleet. That's only about a 10%-15% incremental dollar utilization on the $2.5 billion of US fleet CapEx you plan for this year. I appreciate there's always timing differences, but the same math in previous years gets to more like a kind of 40%-60% incremental dollar utilization. Just wondering, given your comments on how busy the industry is. Does this say that the cost of fleet you're acquiring has gone up hugely over the past year or so? Or is there something else that maybe I'm missing in that? Maybe just those two first, please. Well, I'll take the latter of that. I think the fleet one. I'm not sure I quite follow. I think the piece you're missing is that $1.3-$1.4 billion of that will be replacement CapEx. So although we're spending $2.6 billion, or the budget for the upper end of guidance for the U.S. market is $2.6 billion, about half of that goes on replacement fleet. So I haven't then backed that through the workings, but that sounds to me like what, in terms of the math you were doing, that would be a key factor in it. And then the rate piece, yeah, bolt on to that sort of order. You know, without breaking it down, certainly if you, as we've said in our growth in Q1, about 6% of that was bolt-ons. Now clearly it will be at a similar sort of level as we go through the year. Obviously, you're lapping increasing contribution from prior year bolt-ons. I suppose it dribbles down a bit if you think about it, because we don't forecast bolt-ons. If I'm just thinking mathematically, if I'm comparing, you know, Q1 this year with Q1 last year and 6% comes from bolt-ons, the fact we added more bolt-ons in the last nine months of last year, we're not repeating them this year in our forecast. As a percentage, I would expect the contribution probably to moderate a little bit, is of that order. That's very helpful. Thank you. I think you're right on the replacement point. Just lastly, Brendan, on your comments on the deepening rental penetration. Do you think any of that might prove a bit kind of artificial or short-term, given your customers, I presume, are also really struggling to buy in any fleet they would otherwise have purchased outright? I know that rental penetration tends to be quite sticky, but what's the risk around behavior reversing should, well, if ever supply chains normalize? Yeah. You know, well, look, I think it would be, your point about sticky. Our experience is when you get these step changes, they tend to stay. This is a dramatic step change, I would say. All you have to really do is study the OEM dealer network. So whether you're talking about, let's just say, yellow iron manufacturers, or you're talking about, you know, the Bobcats of the world. Plain and simply, their dealers don't have new stock. So of course, customers are turning more and more to rental. What we've experienced in the past, and I anticipate we will continue to do so, as customers recognize how reliable, rental is as that alternative to ownership, they will, fractionally make a step change themselves. If they would have owned 6 and rented 4 in the past of certain products, they may only have 3 of those 6 that they own left, and therefore are renting the rest. You know, and do they settle out the other way, 4 and 6, 4 owned, 6 rented? I think that's the more likely bet. There's so many other things involved. You've got inflation of new equipment, which certainly we're experiencing some of and we will continue to do. But nowhere near the from a comparison standpoint of what an owner of a product, let's just say that's 8, 9, 10 years old, and they're going to attempt to buy a new one today. First things first, they have to wait 12-18 months to get it. Secondly, it's gonna be significantly more expensive than that 10-year-old asset in which they're replacing. Then when you get into things, we saw this, Rory, you'll remember when we went through the engine tiering change. When we went to Tier 4 engine, that was much more rental leaning than was the predecessor engines because of the complexity of working on them. Now you introduce things like electric or things that are hybrid in our environment, and again, it adds to that complexity. It's a fair point you raise, and at some point it will level out, so to speak, but I think it's more a leveling out rather than a tide going out. Yeah. Yeah, that makes sense. Thank you. Thank you very much. Thanks, Rory. We'll take our next question from Allen Wells. Jefferies, your line is open. Please go ahead. Hey, good morning, gentlemen. Three from me if it's okay as well. Firstly, just a quick follow-up on the drop-through comments. Can I just say, I think we've talked about kind of 50% drop-through was averaging for the year as achievable. I think you talked about that at the full year results. Do you still see that level as achievable for the full year given what you've delivered in Q1 and the inflationary environment? Maybe just any comments on like the key variables around that. Second question, just on the interest cost charge change that impacts guidance today. Obviously it feels like a pretty sizable move given we only spoke about this, I guess, back in June. You know, $340 million of interest on a 4% average yield implies about $8.5 billion of average net debt versus the $7.7 billion now. Could you maybe just talk about the assumptions that have exactly changed from June till now? Is it just really around that 5.5% note that you issued in August? Just keen to see assumptions. The very final point, you know, obviously post quarter close, just any general trends around kind of rate environment utilization accelerating further, obviously as we move through that kind of summer busy period, any post quarter comments would be really appreciated. Thank you. Sure, Allen. First, let me take the drop through. We are sticking with, you know, our target of 50%, and we think it will be circa 50% as we move through the year and as we get into our half year results in December. If we think otherwise, you know, we'll let you know then. It's just very important to understand the mechanics and the levers behind it. If we take, for instance, we talked about bolt-ons, which should be blatantly obvious, and that's been the case forever as we've deployed this bolt-on strategy. Furthermore, of course, there's the greenfield program as we've made this step change, but that part was part of the plan. Bolt-ons, as you know, we don't budget for those. If you look at what's happening from an ancillary revenue standpoint, where we are absolutely passing on the cost to our customers and therefore generating growth and profits surrounding that. Let's take the quarter and let's just speak to the US. Pure rental revenue is up circa 26%. The pure rental, if we rent a skid loader, we rented for X, and that was up 26%. When you look at things that have these commodity cost increases with them on the ancillary lines, trans, fuel, E&D. As for instance, transportation was up 40% in the quarter. Revenue, fuel was up 52% for the quarter. Revenue, 37% increase in revenue in E&D. All of those we made more absolute profit with, however, they just are at a lower margin. That's always been the case in our business, and we have had ebbs and flows in the past. However, in prior periods when we went through this, our margins were just much lower overall, and therefore just that incremental gain sort of hid that. What's gonna happen a couple quarters from now, those are gonna be lower than pure rental revenue growth, and it's gonna make our fall through look better. No one will ask a question about why fall through is better, and we probably won't say anything. My point is, that's what the material drivers are in that you just have to understand. Nothing's changed about the business other than that environment overall. Michael will answer, too, but before, I'll just touch on our post-quarter ending. August was an incredibly strong month. You know, plus 25% and a bit, pure rental on a billings per day basis. You know, obviously, when we get sequentially through the year, those comps get harder as they did in August. That just demonstrates the strength, and the same would be said for the time utilization that drove that and rental rate. We had rental rate progress 1% sequentially from July into August. Things remain robust. Michael, do you want to take the interest question? Yeah. On the interest, you know, it's a couple of things, one of which is obviously since the bolt-on M&A that we've done, so we will have higher average debt than we first thought of when we were guiding last time. Also, if you go back to when we were sort of in that, you know, early June time period is when rates were really starting to move. Actually, we think, you know, our assumption is based on US LIBOR rates getting into the high threes by the end of our financial year. Now, that's an assumption and, you know, people have their own views on it. I'm not an expert in where rates will end up. The consequence of that is that we're assuming on that floating rate piece of the debt, then our average interest rates are about, you know, probably 1.5% more than we would have assumed in the first instance. You're right, we also then did a bond as well, which ensures we've got the financial capacity to go forward. In the current environment and whether it's a new norm or not, only time will tell. Obviously it was slightly more expensive than the debt we had when we were giving guidance back in June. Great. Thank you, guys. Very clear. Thank you. We'll take our next question from Maddie Job, Morgan Stanley. Your line is open. Please go ahead. Hi, thank you for taking my questions. I just have two, please. So firstly, fuel prices will obviously be a quite key driver of your drop through for the full year, but I was just wondering exactly how sensitive will your drop through be to fuel prices? How should we think about that going forward? And do you have any hedging for fuel prices in place currently? And then secondly, we've seen a lot of data points which have suggested, you know, continued strong and resilient demand within your non-resi markets, so things like data center and warehousing. But of course, given the supply constraints that you've highlighted yourselves, are you seeing any lag in that demand actually being converted into breaking ground and construction? Or have you seen any data points that suggest some delaying or postponement of any projects in this area? Thank you. Sure. Let me take that second one first. The, you know, large projects. You are right. I mean, you know, when we win these large projects, whether it be a data center, as you mentioned, or more recently, we will be involved in activity surrounding this CHIPS Act. I'm surprised there's been no questions about that. But these are two very large bills that have passed and will be lots of spending. If you take these semiconductors, to put in perspective, a three-building data center is about $1.5 billion in cost to construct, and we would get our flow through of that as it relates to rental, and those are big projects. A semiconductor plant, those are gonna range from about $5 billion-$10 billion, more of them being $10 billion. $10 billion for one project. We anticipate or expect one of those projects would take somewhere in order of magnitude $90-$95 million worth of rental fleet, in the product ranges that we carry to accommodate a win of that magnitude. I'll use that to answer your question. What will we see happen? I think we will continue to see projects start as planned. They'll just simply take longer. It's gonna be working with companies like ourselves when we're working with our manufacturers, and that's just adding to our confidence in our order levels, not just in 2022, but in 2023 and beyond. We're using that as part of our construct. I think what you'll see happen is we will perpetuate the supply constraint challenges that the rest of the rental market is experiencing, as well as businesses that were owners previously. As we and a couple of others that are out there have that foresight, are placing orders to accommodate these big projects, that's what's gonna happen. We have seen definitely some projects start just a bit later than planned, and it's not just all around equipment. It could be steel, it could be any number of things. But more often than not, they just take longer to finish than they would have prior. When it comes to your question on fuel, and just let me know if that was answered clear enough for you. You know, if we look at our just fuel sales, so what we sell for fuel to fill up a piece of equipment as it's returned, you know, you're only talking, it's about 3 or 3.5% of our revenue. That piece of it, you know, as fuel prices come down, as we said before, it becomes less of a margin drag to the total rental. Fuel, more than anything, it's got to do with the fuel that, of course, we're burning in our own vehicles to conduct our operations. If you think about that from a delivery cost recovery standpoint, if we were to look at, you know, that DCR that we always measure in the U.S., again, to make the point on fall through, our numerator in that regard is up 40% year-on-year, and the denominator is up 30%. Again, we're covering it, but DCR by default is actually a sort of loss leader, so to speak. Our DCR now, our recovery is up to 84%, which is 7.5% better than a year ago. As fuel does come down, that will get better. We do not, we never have deployed any hedging of fuel. Great. Thank you. Ladies and gentlemen, please press star one if you have any question. We'll pause for just a quick moment to allow everyone the opportunity to signal for question. We'll take our next question from Karl Green, RBC. Your line is open. Please go ahead. Yeah, thank you very much. Just a couple of follow-up questions from me. Firstly, just in terms of the major packages which are being pushed through infrastructure CHIPS Act and the Inflation Reduction Act, some of that spending is gonna be federal, some of it's gonna be effectively public-private partnership type work. Would you expect to see any kind of improvements over the medium term on returns on invested capital as a result of the skews towards those kind of projects? That's my first question. The second question, a little bit more dryly, just in terms of the logic for the issuance of those 10-year notes at a 5.5% coupon. Just wondered if you could sort of present the compare and contrast versus how that stacks up versus the effective rate on your variable senior secured bank debt at the moment. Just sort of wondering aloud whether there could be an element of issuer's regret as when the Fed pivots down the line. Thank you. Sure. If we look at these acts, let me just be clear because it seems as though they're not understood, maybe followed quite as closely abroad as they are here. But if you look at this CHIPS and Science Act, it's called, this is basically incentivizing modern semiconductor plant capacity to be built in the U.S. You know, it was something like 40% of the global production back in 1990, and today it's 12% as a for instance. What that act has done is that, you know, it's several hundred billion dollars overall, but one very specific line is $52 billion in direct tax credit subsidies at 25% of the cost of construction. This is going to equal no less than $200 billion in semiconductor work. Now, that, yes, that is federally funded, so to speak, by way of tax credits, but it's very much going to be the private sector deploying that capital. When it comes to Inflation Reduction Act, this is another act. It's almost $500 billion total, bill, if you will, or act, but $370 billion of that is pointed to energy production and manufacturing. Funding things like wind, solar, EV, batteries, et cetera. Again, that's gonna be really largely deployed through the private sector, based on various channels in which they will pursue. That will amount to a lot of opportunity, from a rental revenue standpoint. You know, your question about, okay, what does that all mean for ROI? We get bigger, our cost base isn't as big, proportionally speaking, and you know, we grow our revenues and our ROI, you know, will nudge forward, as is customary. These projects will be incredibly profitable when one is on-site and has a large amount of fleet deployed, with a relatively low sort of cost of operations there. Great. Thank you. Piggybacking on the interest rate point. At the moment, well, our ABL facility is, you know, priced at LIBOR plus, at the moment, paying 150 basis points as a margin. All in all, it's round about 4% at the moment. As I sort of indicated earlier, the expectation will be that interest rates will continue to rise. You know, is fixed rate long-term debt are slightly more expensive? Yes. I think it's more a question of having financial flexibility for the business. We have a trade-off in a way, because clearly we wouldn't have needed that debt if we weren't growing at the rate we were growing and looking to do bolt-ons, et cetera. When you sort of have a choice in a way, you can do bolt-ons and get an ROI in the teens, which you then look to improve, and you can pay 5.5% to be able to fund that. I think either way, it is a positive delta and you know, you end up accessing debt markets when you believe it's appropriate. No, I don't think there's any regret about it at all. I think it was the right thing to do for the business at the time, and it puts us in a good position to take advantage of what's coming ahead of us. Okay. Thank you. Thanks, Karl. There are no further questions on the line. Speaker, please proceed. Great. Well, thank you for taking the time this morning to join us, and we will look forward to catching up at our half-year results in December. This concludes today's call. Thank you for your participation. You may now disconnect.