Our markets

The US

Dodge Construction Starts show strength and growth. The non-residential and non-building components of the construction end market are proving to be incredibly strong and forecasts show that continuing. A non-residential slowdown in the pandemic was softened by strength in residential construction, but this has bounced back and we saw a strong uptick in starts in 2022/23. This is not a residential uptick as experienced in 2020/21, but the early wave of new project starts derived from a combination of private investment and legislative led federal project funding and incentives.

A large number of new projects have recently begun and many more are in planning. We believe the forecasts for the heart of our construction end market, specifically non-residential and non-building, combined with strength over the last several quarters and the recent spike in starts, together translate into consistent growth in activity levels for the next several years.

Market share in the US 

We continue to grow our market share in the US and even though we are the second largest equipment rental company, there remains plenty of room to grow. Our major competitors are United Rentals and Herc Rentals with 17% and 4% respectively. Home Depot, and H&E have shares of c. 2%. Most of the remainder of the market is made up of small local independent rental shops.

Much of our market share gain comes from these small independents when we set up new stores or acquire them. Ours is a capital-intensive industry where size matters. Scale brings cost benefits and sophistication in areas like technology and other services, and this leads ultimately to further consolidation. The proportion of the market enjoyed by the larger players continues to increase and we have clearly been a major beneficiary of this trend. While there will always be a place for strong local players, the market share enjoyed by the larger players is likely to continue to grow as the big get bigger.

This market share analysis is based on the traditional definition of the rental market focused on construction. However, a significant market for us is facility maintenance, repair and operation of the geographic markets we serve characterised by square footage under roof. In the US there are 100bn square feet under roof and we believe this represents a potential rental market of $7-10bn, with minimal rental penetration currently. We believe the size of the rental market is understated and hence our, and everyone else’s, market share is overstated. This only serves to increase the opportunities for growth.

We are confident that as the market grows, our share will also increase. We continue to set ambitious targets with our long-term market share target of 20%. The speed at which we increase our market share is in part a function of how quickly we can get new locations up and running. However, as noted above, our market share growth also comes from continuing to broaden both our end markets and the range of equipment we have available to rent in each location.

The combination of our business model, which you can read more about on page [●], the continued attractiveness of our markets and the long-term trend to rental, provides the perfect environment for us to achieve our goals. In addition, our market share gains accelerate as we make the most of our scale advantages.

As we increase our market share and grow our Specialty businesses, they become a greater proportion of the business mix across the cycle and accounted for c. 30% of revenue in 2022/23. The acquisitions we make are often to expand into a new specialty area or to develop an existing one and then we supplement them with greenfield openings.

The trend to rental 

Rental penetration continues to deepen and those benefitting from this increased rental penetration are the larger, more experienced, more capable rental companies who can position themselves to be there for this increasing customer base and capitalise on this larger market.

Rental still only makes up around 55% of the US market compared to around 75% in the UK. However, this is a broad average with penetration levels ranging from low single-digit percentages for, say, floor scrubbers to 90%+ for large aerial equipment. We like specialty products because they are at the low end of this range, which provides greater scope for growth. We see the potential market penetration for rental equipment to be well over 60% in the US.

The drivers of this evolution include significant cost inflation in recent years associated with the replacement of equipment, technical changes to equipment requirements and health, safety and environmental issues which make rental more economical and just easier. Environmental regulations have driven further rental penetration through the reduction in fleet size by those customers who previously may have chosen to own some if not all of their larger equipment needs. Customers and smaller competitors with older fleets are faced with heavier replacement spend causing them to replace less and rent or, in the case of smaller competitors, reduce their fleet size. Furthermore, the difficulties of getting to grips with new technology and maintenance requirements have also caused more operators to decide to rent. Maintaining optimally-serviced and therefore safe equipment can be a big outlay for a smaller operator. The diversity of our fleet helps us take advantage of this increasing trend to rental and we continue to expand the range of products we rent.

Our development and use of technology is also driving rental penetration. Our highly sophisticated proprietary customer management, inventory and delivery tracking systems all contribute to this trend.

Canada

Canada remains a relatively new and growing market for us. The overall rental market is less than a tenth of the size of the US. But in the same way that the US has experienced structural growth as more and more types of equipment are rented for different applications, we expect similar trends in Canada. Our share of the Canadian rental market is around 9%. There is plenty of scope to develop this in the same way as in the US and we are growing rapidly. We are seeing continued market growth in 2023 and S&P Global Market Intelligence predicts Canadian rental revenue to grow 3% in 2023, 4% in 2024 and 6% 2025. We anticipate growing more rapidly as we take market share and broaden our offering.

Our 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 early last year of strike action in the Vancouver market resulting in productions being delayed or transferred elsewhere. It is now navigating the impact from the Writers Guild of America strike.

We have grown to 119 locations across Canada. Key of course to delivering on our mantra of Availability, Reliability and Ease is convenience, proximity and diversity in our offering. We have a significant presence in Ontario and have expanded in Edmonton, Calgary, Winnipeg and, with the Modu-Loc acquisition, we entered Quebec. Beginning with a complement of General Tool businesses and adding Specialty into the mix to introduce cross selling, our runway for growth in Canada remains long.

The rental market has, historically, been construction focused, but we continue to develop new markets such as the film industry in Vancouver and Toronto through our lighting, grip and lens business, William F White (WFW). The WFW business also provides a platform to expand our lighting, grip and lens Specialty into the US and UK markets. In addition, we have continued to expand our power and flooring solutions Specialty businesses in Canada. Customers who traditionally rented mainly mobile elevating work platforms (‘MEWPs’) are now renting smaller equipment as well. They are seeing increasingly the benefits of working with us to fulfil the full range of their equipment needs. Our cluster approach also means we are able to be closer to our customers than has previously been the case.

Across the country there are variances in the mix of fleet we have on rent. In Western Canada we see more customer demand for MEWPs especially through our work servicing the film and television industry. We see great opportunities for expanding our Specialty and MEWP businesses, especially in Ontario, aided by the growth of our lighting, grip and lens business. As we expand in other provinces we expect to generate more business from Canada’s resources industry.

Over time we would expect our Canadian market share to be similar to that in the US.

The UK

Our UK business continues to grow despite the lost rental revenue associated with the Department of Health testing sites that was a substantial part of our revenues in the previous two years. This is no small accomplishment, signalling a combination of market share gains and a reassuring level of end market activity, particularly in infrastructure and industrial projects as well as increasing progress into areas such as facility maintenance being brought about by our unique cross-selling capabilities across our unmatched product and services portfolio.

Live events have been an ongoing contributor in this post pandemic period which were, of course, virtually non-existent throughout 2020 and 2021. The team was incredibly proud to provide our products and services to assist with Queen Elizabeth II’s platinum jubilee and state funeral.

A consistent area of focus to improve our UK business has been on advancing rental rates and the associated fees we charge to provide services to our customers. Although progress has been made, there is still work to be done in this area. This is something the UK rental industry falls behind in and our position will be steadfast in making a demonstrable change in the face of the notable inflation our business and the industry as a whole has absorbed.

We continue to see significant opportunities in both construction and non-construction markets in the UK as in the US and Canada. We will continue to invest responsibly in the UK market as we seek to increase market share and enhance returns.

Market share in the UK

We continue to be the largest equipment rental company in the UK. There are a greater number of major players in the UK market and, as the largest, we have a 13% market share.

We believe we continue to be well-positioned in the market with our strong customer service, broad based fleet and strong balance sheet. We have enhanced this market position through simplifying our go-to-market message and leveraging the cross-selling opportunities provided by our broad product offering and Specialty businesses, a key element of our strategic plan, Sunbelt 3.0.