Maintaining financial and operational flexibility enables us to flex our business and operational models through the economic cycle. This enables us to react quickly to both negative changes in the market and opportunities. The more growth we experience and plan for, the more financial and operational flexibility we need. A key element of our strategy is ensuring we have the financial strength to enable growth when appropriate and make our returns sustainable. Having a strong balance sheet is fundamental to our success at all stages in the cycle.

A core element of our financial stability comes from our strategy of ensuring that, averaged across the economic cycle, we always deliver RoI well ahead of our cost of capital. RoI through the cycle is the key measure for any rental company and the best medium-term indicator of the strength of the business. We do this in a variety of ways at different stages of the cycle, all focused on the effective management of invested capital and financial discipline.

The maturity of our stores has a big impact on RoI. As stores mature and increase the size and broaden the range of fleet, there is natural margin and returns progression. Stores that were greenfield sites only two years ago are now already adding same-store growth. We are always focused on moving new and young stores up the maturity curve as there is scope for higher returns as they progress. This also means that we are now at a very different stage in our evolution in the current economic cycle relative to where we were in the last cycle. We have more stores and they are larger and more mature than at the peak of the last cycle, so we are much better placed to weather any downturn.

We have, over recent years, been consistent in our commitment to both low leverage and a well invested fleet and we benefit from the options this strategy has provided. The length and gradual nature of this cyclical upturn has enabled us to establish a smooth, well distributed fleet profile across the age bands which provides significant flexibility across the economic cycle. Traditionally, rental companies have only generated cash in a downturn when they reduce capital expenditure and age their fleet. In the upturn, they consume cash as they replace their fleets and then seek to grow. We have changed this dynamic through this cycle with our scale and strong margins. We have been in a phase where we continued to grow the business in a cyclical upturn and were highly cash generative. As a consequence, during 2019/20, we maintained our leverage within our target range of 1.5 to 2.0 times net debt to EBITDA (excluding IFRS 16) which provides the Group with significant flexibility and security.

From this position of strength in the up-cycle, we are well positioned to manage the business through the uncertain economic environment as a result of the COVID-19 pandemic, taking decisions for the long-term health of the business, rather than out of short-term necessity.

Our financial strength provides us with the operational flexibility to ensure the business is well positioned to take advantage of the next ‘step-change’ in the market and capitalise on growth opportunities in the early stages of the recovery. While we are reducing our capital expenditure in the short-term to reflect market conditions, we are committed to our long-term structural growth. We are very conscious that we have to know both when to spend; when not to spend; and be in a strong position to act appropriately.