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Operator: Hello, and welcome to the Ashtead Group plc Q2 Results Analyst Call. I will shortly be handing you over to Brendan Horgan and Alex Pease, who will take you through today's presentation. [Operator Instructions] For now, over to Brendan Horgan at Ashtead Group plc.
Brendan Horgan: Thank you, operator, and good morning. Thank you for joining, everyone, and welcome to the Ashtead Group Half 1 and Q2 Results Presentation. I'm joined this morning by Alex Pease and Kevin Powers, with Will Shaw on the line from London. Let's get into it, beginning as usual with safety on Slide 4. I'll begin by addressing our Sunbelt team members to specifically recognize their leadership in the health and safety of our people, our customers and the members of the communities we serve. Our total recordable incident rate and lost time rates that you see here continue to be best-in-class. However, despite these results and momentum behind our Engage for Life program, there are incidents that remind us there is never a finish line in safety, rather improvement milestones, nor is there room for complacency. With this said, I'll share with our team members that in 2026, we'll be taking on a significant effort to conduct Engage for Life culture and compliance assessments at every one of our branches. These third-party reviews will address local health and safety compliance, leadership engagement, along with a deep dive into the systems and programs our locations have in place to manage tasks that could potentially lead to a serious event, if not controlled properly. The safety of our team will always be the top priority at Sunbelt, and this will be one of the most important initiatives that we have in calendar year '26. So thank you for your dedication and engagement thus far and, in advance, for welcoming these assessments in the months to come as we continue to pursue perpetual improvement in our safety culture. Turning now to Slide 5. The key messages you'll hear from Alex and me today are the following: First, this is a solid set of results, in line with our expectations with group rental revenue growth at 2% for the first half and 1% in the second quarter despite a nonexistent hurricane season compared to an active period in the second quarter last year. On an underlying basis, growth in the second quarter was 3%, a sequential improvement from the first quarter. Second, the strength of free cash flow after CapEx investment in fleet and business expansion demonstrates the through-the-cycle free cash flow power of this business at our scale and margin, generating $1.1 billion of free cash flow, which is a 164% growth on last year. Third, while our key construction end markets remain mixed, we're seeing signs that the local nonresidential market is now an equilibrium in terms of completions and starts as well as continued positive momentum in many of our internal and external leading indicators. Mega project activity continues to be strong, and we're winning share across our regional and national strategic customers. Fourth, our strong free cash flow generation has enabled us to return over $1 billion to shareholders in the half through dividend payments and share buybacks. And we've announced today a new share buyback program of up to $1.5 billion that we intend to commence on March 2, which will follow on from the completion of the existing program and will coincide with our expected relisting date on the New York Stock Exchange. And finally, we are confident in reaffirming full year guidance for rental revenue growth, CapEx and free cash flow. Moving on to the financial highlights of the first half on Slide 6. Despite the quiet hurricane season, group rental revenues were up 2% in the first half, consistent with the 0% to 4% guidance we gave in September. The leading indicators, both internal and external that we track, have continued to trend positively. And therefore, we remain cautiously optimistic that these trends in our business will continue and are early signs of the local nonresidential portion of our end markets recovering. As when they do, we will experience accelerated momentum and improved results. Group adjusted EBITDA was $2.7 billion at a 46% margin. As we explained in the Q1 results, these margins reflect the mix effect of higher ancillary revenue, the proactive repositioning of our fleet to drive utilization, and unlock pockets of growth and increased repair costs as a larger portion of the fleet comes out of warranty coverage. From a capital allocation standpoint and in line with our Sunbelt 4.0 priorities, we invested $1.3 billion in CapEx focused on a mix of replacement and growth. Free cash flow in the 6 months was just over $1.1 billion, which is a record, demonstrating the resilience of our business while we continue to invest in growth. The strong free cash flow is supporting the current $1.5 billion buyback program, which we are on track to complete by the end of February '26, before commencing the new $1.5 billion program that I've just referred to. Moving on to our segmental performance on Slide 7. As I've already mentioned, performance in the second quarter was impacted by a very quiet hurricane season compared to Q2 last year, when we reported that hurricanes had contributed $55 million to $60 million in incremental revenue. Rental revenue on a billings per day basis for General Tool grew 2% in the second quarter and 1% in the first half, reflecting positive volume momentum and resilient rates in end markets, which continue to be mixed. As expected, we continue to be in a moderated local nonres construction market through the first half, offset in part by the ongoing strength of the mega project landscape and the broader nonconstruction markets. Specialty growth is more impacted by lower hurricane activity with growth in the quarter flat. Adjusting for the hurricane impact, underlying growth in Specialty was 5%. The strength in Specialty segments was broad-based, led by Power & HVAC, Temporary Fencing, Structures & Walls, and Trench Safety, all delivering strong growth in the half. On a constant currency basis, U.K. rental revenue was down 2% in the quarter, reflecting the ongoing challenges in the U.K. end markets. As a response to this and consistent with our 4.0 strategy, we're undertaking a series of onetime restructuring actions, including location consolidation, people transitions, exiting noncore lines, and G&A reductions. These actions will enable better service to our customers, unlock value, deliver sustainable double-digit return on investment, and produce consistent free cash flow, while continuing to lead as the premier rental platform in the U.K. Alex will cover the financial implications of these actions shortly. Slide 8 shows fleet on rent for North America over the last 4 years. You can clearly see that our efforts to drive growth with existing fleet has resulted in improved time utilization. This supports a more constructive rate environment and contributes to our strong ROI. It also demonstrates our disciplined and flexible capital allocation approach. Over the next couple of slides, we'll cover the activities and outlook for the North American construction end market. On Slide 9, we set out the main leading indicators for the construction sector, namely Dodge Starts, Dodge Momentum Index, the Architectural Billings Index and Fed Funds Rate. The outlook for construction growth continues to be underpinned by mega projects and infrastructure work, which remains strong, and in many cases, gaining further momentum. We made great progress in mega project wins in the first half with a growing funnel of future projects and advancing market share with our strategic customers, both regionally and nationally. Exercising the cross-selling power across the Specialty and General Tool businesses as well as the advantage of Sunbelt's significant breadth and depth of products, solutions and expertise is a strategic differentiator. Combine this with a technology suite that is second to none, creates a platform that can deliver world-class customer experience, efficiencies and value across a wide range of complex applications. As it relates to our local nonresidential end market, we remain in a moderated environment. However, as I flagged with the Q1 results, both our internal leading indicators such as quotations, reservations and continuing contract activity and key external indicators are encouraging. The Dodge Momentum Index, in particular, remains near record highs. Just to remind you, this index represents nonresidential projects, excluding manufacturing, that are below $500 million and entering the planning phase for the first time and is therefore representative of future velocity in what we refer to as the local nonresidential construction market. This clearly indicates ongoing strong planning activity across our nonres construction markets will lead to an increase in starts, likely within a period of 12 to 24 months. So while clearly positive leading indicators, it may take some time for this planning to translate into project starts. When it does, as we've said, we are poised to benefit. On Slide 10, you can see how these starts forecasts translate into the latest Dodge put in place forecast and the S&P forecast for the North American rental market. As we expected, Dodge's September report lowered their forecast for construction, excluding residential, by 2% for '25 and 3% for '26. Although we've not updated the mega project slide, which you can find in today's slides, Appendix #37, I can confirm that the outlook for ongoing growth in the mega project space is strong as new project plans are entering the funnel often. Further, the makeup of projects is broad in sector and geography. And finally, the team has done a great job year-to-date, winning more than our fair share and are very active in current RFPs. More details to come in this mega project landscape in March. Before I hand it over to Alex, I'll just touch on our Sunbelt 4.0 strategic plan on Slide 11. We're now 6 quarters into a 20-quarter plan. As I previously mentioned, our team has been laser-focused on advancing each of the 5 actionable components, which are customer, growth, performance, sustainability and investment. While I'm not going to give you a further detailed progress report today, I will say that our clarity and mission throughout the organization is certain and our momentum is building. We'll share more details as we progress through the year and, in particular, during our upcoming Investor Day this coming March. With that, I'll hand it over to Alex to cover the financials in more detail. Alex?
Alexander Pease: Thanks, Brendan, and good morning to everybody. Starting with the second quarter results for the group on Slide 13. Group total revenue and rental revenue both increased 1% in the quarter, reflecting the impact of the quiet hurricane season that Brendan has already mentioned. Adjusting for the impact of the hurricane, underlying rental revenue growth in the quarter was around 3%. The EBITDA margin and EBITA margin continued to be strong at 47% and 27%, respectively. In line with the Q1 performance, the slight drop in margins primarily reflects the fact that top line growth is being driven by higher activity levels in both the mega project space and large strategic accounts as opposed to the more transactional business as well as a planned repositioning of fleet to drive both growth and utilization. Margins have also been impacted by a higher level of ancillary revenue associated with the growth in the nonconstruction markets, an increased level of internal repair costs with a greater portion of our fleet out of warranty coverage just as we expected, and lower gains on disposals of used equipment. Adjusted for depreciation at $592 million was up 1%, matching rental revenue growth as the challenges associated with the slight over-fleeting of the industry has abated. After interest expense of $133 million, reflecting lower average debt levels, adjusted pretax profit was 4% lower than last year at $656 million. As explained previously, we are adjusting for nonrecurring items associated with the move of the group's primary listing to the U.S. These costs amounted to $19 million in the quarter and $32 million in the first half. In addition, we've taken a onetime exceptional charge of $37 million in the quarter relating to the restructuring of the U.K. business that Brendan has already mentioned. The bulk of this charge is noncash in nature and the full scope of the actions taken in the year are expected to be cash accretive. Adjusted earnings per share were up at $1.168, reflecting the benefits of the ongoing share buyback program, and ROI on a trailing 12-month basis was a strong 14%. Slide 14 shows the first half results in a similar format. Rental revenue growth in the half was up 2%, and up 3% on an underlying basis, adjusting for the lack of hurricanes. The EBITDA margin and EBITA margin remained strong at 46% and 26%, respectively. Adjusted PBT was down 4% and adjusted EPS down 1% for the half. Slide 15 illustrates group revenue and EBITDA progression over the last 5 years and in the first half, highlighting significant track record of growth and margin strength over a range of economic conditions. Turning now to the individual segments. Slide 16 shows the performance for North American General Tool. Rental revenue for the first half grew by 1% to $3.2 billion, driven by improved volume, time utilization and stable rates. Excluding the hurricane-related impacts, rental revenue increased about 3% in the first half. As I explained previously, margins were impacted in the half, primarily by growth being driven by higher activity levels. EBITDA was $1.8 billion at a strong 54% margin. Operating margins were 33% and ROI was 20%. Turning now to North American Specialty on Slide 17. Rental revenue was 2% higher than the first half of last year at $1.8 billion as the nonconstruction market continues to be strong, particularly in Power & HVAC, Climate Control and Flooring Solutions. On an underlying basis, adjusting for hurricanes, rental revenues were up around 5% in the half. Margins in Specialty were broadly flat with EBITDA margin of 48% and an operating margin of 33%. ROI was 31%, again, clearly illustrating the higher returns achievable in the Specialty businesses. Turning now to the U.K. on Slide 18, and please note, all of these numbers are in U.S. dollars. U.K. rental revenue was 3% higher than a year ago at $422 million, benefiting from favorable FX movements. The U.K. business delivered an EBITDA margin of 26% and generated an operating profit of $35 million at a 7% margin. ROI was 5%. As Brendan has already mentioned, during the quarter, we commenced a restructuring of the U.K. business, better positioning it for the future and aimed at delivering improved margins and returns at a sustainable level, while positively impacting the customer experience. This involves aligning the network of locations to current business needs, rightsizing the staff and disposing of noncore fleet and business lines, including the sale of the U.K. hoist business in October for $16 million. Slide 19 illustrates the flexibility, resilience and agility of our capital allocation model. When markets are experiencing transitory headwinds we have experienced over the last few quarters, we remain disciplined in our deployment of capital to support strong utilization and rate discipline. When markets are growing more rapidly, we accelerate capital spending to capture opportunities and market share. In all cases, we generate significant free cash flow in excess of our investments, which we return to shareholders in the form of dividends, debt repayment and share buybacks. You see this clearly in the fiscal years 2021 and 2025, and we have started this year strongly with $1.1 billion generated in the first half, a record and significantly ahead of the comparable period of last year. We are well on track to deliver record free cash flow generation for the full year. Slide 20 updates our debt and leverage position at the end of October. This again clearly demonstrates the strong cash-generative characteristic of the business as we have lowered net borrowings by over $500 million in the last year to $7.6 million (sic) [ billion ]. This is despite the fact that we returned over $1 billion to shareholders in the half through share buybacks and dividends, invested $1.3 billion in CapEx, and invested $143 million on 7 bolt-on acquisitions. In addition to that, we opened 22 greenfields in North America, of which 12 were in General Tool and 10 were in Specialty, with a clear line of sight to achieving around 60 greenfields in the full year. As a result, excluding lease liabilities, leverage was 1.6x net debt-to-EBITDA, well within our stated range of between 1x to 2x net debt-to-EBITDA. We expect to be in the 1.5x to 1.6x range at the end of April, including the impact from the share buyback activity, but not including any potential impact of additional M&A activity. On the M&A front, we have a robust pipeline, which we continue to develop and pursue opportunistically as long as it is accretive to growth and generates margins and returns in line with our capital allocation expectations. Turning now to Slide 21 and our latest guidance for revenue, capital expenditure and free cash flow for fiscal year 2026. We're pleased to reaffirm the guidance that we gave in September. Our guidance for group rental revenue growth is between flat and plus 4%. The plan for growth capital expenditure is in the range of $1.8 billion to $2.2 billion. And finally, we expect free cash flow to be between $2.2 billion and $2.5 billion. And with that, I'll turn it back to Brendan to close this out.
Brendan Horgan: Thanks, Alex. Turning to Slide 22. I think you'll agree, Alex and I have covered all of these capital allocation elements as part of the presentation this morning. All of this is consistent with our long-held policy, and we will continue to allocate capital on this basis throughout 4.0. To conclude, let's turn to Slide 23. In summary, I'll leave you with a few takeaways one should gather from our update today. One, recognizing the impact of hurricanes, the half resulted in exactly what we expected in revenue growth, improving utilization, free cash flow and advancing our 4.0 strategic plan, leading us to reiterate our guidance for revenue, CapEx and free cash flow. Two, we're continuing to see positive leading indicators in our business activity levels and in our pipeline, coupled with an encouraging indication of market demand statistics. And three, when you piece this all together, you should clearly see the secular progression in our business and in our industry. This demonstrates ever so clearly, in particular, during this modest growth environment, we continue to maintain discipline in pricing, investment and strategic focus, all while delivering record free cash flows, which we've used across all our allocation priorities. This business and balance sheet is stronger than ever and puts us in an incredibly powerful position, giving us great flexibility and optionality as opportunities unfold. And finally, just a comment, you should have received a save the date for our March 26 Investor Day in New York City, where we'll update you not only on our 4.0 progress, but showcases our ever-growing capabilities, and we certainly hope to see all of you there. And with that, operator, we will turn the call over to Q&A.
Operator: [Operator Instructions] Our first question is from Lush Mahendrarajah from JPMorgan.
Lushanthan Mahendrarajah: I've got 2. The first is just on rental rates and how we think about the combination of that and margins as we go through the second half. Clearly, some of those things are mix related, et cetera, and repositioning related. I mean, is that something that you want to start to offset and push rental rates a bit more? Or are you sort of happy with the status quo and sort of those things will sort of iron themselves out over time? So that's the first question. And the second is just on local and you've indicated, I think, there on the document sort of the 12- to 24-month lead time, but also interesting to hear, I think you said quotations and reservations for yourselves is trending upwards. I mean is it typical to see a lead time of 12, 24 months for those as well? I'd imagine those are short, just to get an idea of exactly what you're seeing there and what that actually means labeling into revenue?
Brendan Horgan: Sure. Thanks, Lush. Rental rates, as we've said, so much so, in particular during this moderated level of growth that we've talked about, the resilience of. Our rates are strong, make no mistake. Your question specifically talks about what is our anticipation of where rates go in the second half. I can probably obviously always say to you that we prefer rates to be a bit higher as we move. I feel good about. We feel good about the momentum that we have. We have a number of initiatives underway to further progress the mechanized progress, if you will, of pricing. So we'll certainly be talking about that a bit in the Investor Day. I think the key thing is this when it comes to pricing. We believe at this stage that we've reached a good fleet balance in the industry. It's well known that for a period of time, the industry was a bit over-fleeted. We think that, that has largely corrected itself. And therefore, that leads to even more momentum and really expectation around pricing. But there are also a number of moving parts between some of that local nonres we've talked about and also our national and strategic customers that we're growing so significantly. But overall, our expectations on rates are positive, and we do expect rate progression to be a feature of our growth for the years to come. Second question around the momentum that we're seeing, particularly in the internal indicators and, of course, in areas like that Dodge Momentum Index. Yes, internally, what we're seeing really now as compared to what we would have seen a year ago, we're seeing more normal rhythms in the business. And by that, I mean rhythms as it relates to seasonality where we had actually seen a decoupling of that at prior points. And in that, that's supportive of what we would have said in our prepared remarks. We feel as though both in terms of the actual data and then just a feel on the ground that when you look at completions versus starts, we've reached equilibrium. And if you think about that local nonres market, really for about 2 years' time, completions, in essence, were outpacing starts. We feel as though we've reached neutrality in that, and that gives us even more confidence in what we're seeing in some of these forecasts. That being said, and you sort of answered it in your question, Lush, that lead time from planning to actually progressing to start is 12 to 24 months, depending on what it may be. Some of your smaller retail might be 12 months, offices and lodging might be 18 months, larger projects beneath that $500 million may be more like the 24 months. So when that comes? Time will tell. We're seeing positive signs for that. And as we've said so many times, we are positioned well to take advantage of that when not if that returns.
Operator: The next question is from Annelies Vermeulen from Morgan Stanley.
Annelies Vermeulen: Two questions, please. So just on the U.K. restructuring charges. So you've mentioned closing branches and some headcount. So do you expect that, that business will be materially smaller going forward? And if you could talk a little bit about what has prompted that? And as part of that, you mentioned double-digit returns on those investments. So over what kind of time frame could we see that come through? And then secondly, just coming back to some of those green shoots on leading indicators. Is there anything incrementally different relative to the last time we spoke in September with regards to the type of customers or projects that you're seeing that across, or any particular drivers you're hearing in your conversations with customers such as rates, et cetera? Any color there?
Alexander Pease: Great. Thanks for question, Annelies. I'll take the first part, and then I'll turn it over to Brendan to talk a little bit more about the green shoots that you mentioned. So the U.K. structuring, this is activity that we're undertaking to really sort of improve the performance of that business. We mentioned $37 million of nonrecurring charges. That's a onetime charge, mostly noncash in the quarter. Important to say that all of that will be cash accretive in the year. We pointed to the sale of the Hoist business for about $16 million. There's a little bit of severance in there, but it will all be cash accretive for the year. And largely, those actions are already behind us. So there's really not a whole lot more to be done. In terms of your question, will that be a materially smaller business? No. This is really about sort of optimizing the footprint, divesting some of the businesses where we weren't really competitively advantaged, closing locations where we didn't have scale. So it's really, I would say, just basic hygiene about how we drive improved performance in that business. In terms of what's our trajectory to more sustainable returns, obviously, it's a bit of a tricky question to answer, because it depends on how top line performance evolves as the market recovers. But we would expect all of these actions, like I say, to be accretive in the year and to be delivering positive returns as we look out into the next fiscal year. And so with that, I'll turn it over to Brendan to talk more about the green shoots that we're seeing in the marketplace.
Brendan Horgan: Great. Thanks, Alex. And Annelies, your question really was, is there anything different really from Q1 when we first talked about what we're seeing internally and some of the forecast externally. And I think the biggest is, we've had 3 prints now of DMI that have maintained really high levels. And the key to that is, it is indicating the demand in the marketplace. And as we see that maintain that quite wholesome level, we have increased confidence that we will see those progress to starts. And that actually, that question, brings up a good point I think I'll make to perhaps reiterate our conviction there. When you study over time, the correlation between DMI and starts, it is a remarkably strong correlation, about as strong as you can get, which one would expect. You have someone who has literally entered the planning phase and the correlation from entering planning to, therefore, actually becoming a start is remarkably high. So that gives us extra confidence. And again, what we're seeing there is it's just the demand. And that demand, just to emphasize, remember, that is specifically DMI pointed to projects that are below $500 million, nonmanufacturing. So it really gets to the core of that local nonres.
Operator: Our next question is from Neil Tyler from Rothschild & Co Redburn.
Neil Tyler: Two for me, please. You've increased the amount of M&A slightly. You mentioned a robust pipeline. Does this reflect a more attractive M&A landscape more broadly? Is that maybe tying into your comments about some of the industry being a little bit over-fleeted? Are there assets available that have got increased headroom to improve sort of utilization compared to, say, a year or 2 back? That's the first question. And then a similar topic, but on your own fleet utilization, how are you thinking about utilization rates as you shape up for the 2026 season? How much growth headroom in terms of utilization rates do you think exists in your current fleet before CapEx will need to kind of raise to move the fleet in sort of lockstep with demand growth? Does that make sense?
Brendan Horgan: Yes. Sure, Neil. The first in terms of M&A, well, look, we did 2 in Q1, we did 5 in Q2, nice little bolt-ons mix between Specialty and General Tool. So really, it's a combination of density and a bit of expansion into some markets where we didn't have quite the presence that we would have wanted, all part and parcel of our 4.0 expansion plan. Nice little specialty businesses in the first half that we added, one around perimeters that really supports our events business, everyday events, and then, of course, magnify with events like LA28. From a pipeline standpoint, it's remarkably strong, and it's remarkably strong, particularly in the specialty space. So there are a handful of opportunities that are out there that both complement existing lines that we offer today, but also some nice adjacent lines. Your question about do we see this ability to extract, in essence, higher utilization because of the industry's fleet levels? I think, frankly, it's not so much that. We get that in almost every circumstance. So we buy a business in any town, North America, for instance, and they may be running at a utilization level of 60, let's just say, for conversation's sake. And as we fold that into our overall system, our overall apparatus, we can comfortably run that business at a higher level of time utilization, if for no other reason, then we have a deeper offering of whatever products we tend to bring in. So certainly, that's one of our overall hallmarks of this bolt-on M&A strategy that we have. And we take those customers that we acquire by way of the acquisition, and we offer them a far broader set of solutions. So it's really no different than what it has been. As we've said in all of our updates, the pipeline has remained robust. We're just in a really good position right now. And frankly, we would expect the momentum in terms of our allocating capital investment in this regard to strengthen over the course of the quarters to come. In terms of our own time utilization, to your second question, and what sort of headroom, I mentioned that similar to the end market from a local nonres standpoint, I think we're kind of at equilibrium now. When you look at our business today, as you've seen and you would have heard from Alex's remarks, Specialty is becoming a larger part of our overall business. So time utilization isn't quite what it was before. Take, for instance, as we grow our climate business or we grow our load banks business to the degree in which we are, you have different seasonality as it relates to time utilization. So really, the answer to your question is the devil is in the details. We have certain product categories that we do have a bit of headroom, but we also have, and I would put it this way, equally have product categories that are at quite high levels of time utilization and, therefore, that's where you'll see our growth CapEx invested not only in the second half, but as we complete our planning from a CapEx standpoint for next year, which we're right in the middle or right in the throes of our growth plans for next fiscal year. I hope that answers your questions, Neil.
Neil Tyler: Yes, that you did. That's very helpful.
Operator: Our next question is from Arnaud Lehmann from Bank of America.
Arnaud Lehmann: Two questions from my side. Firstly, on margin trends, you highlighted, again, a little bit of margin erosion year-on-year, highlighting the repairs and repositioning of the rental fleet. Do you expect that to continue into the second half of the fiscal year, or the repositioning is largely done? Maybe something remains on the repair side. My second question is just a few follow-ups on the U.S. relisting. When are you expecting to transition to U.S. GAAP? Are you going to move to a December year-end for reporting? And what sort of incremental U.S. relisting costs should we expect into Q3 and Q4, please?
Alexander Pease: Okay. So I'll take both of these. On the margin point, a couple of points that I think are really important to understand. First of all, this is largely driven by mix. And the mix is coming from a couple of things. First, we have a disproportionate growth in Specialty relative to General Tool. And remember, Specialty is a little bit narrower margin, although it's higher return, because it's less capital intense. So that should be somewhat intuitive from the numbers. Secondly, the growth, as Brendan would have mentioned in his results, the growth broadly is coming from mega projects and the large strategic accounts as opposed to that local nonres more transactional business. And so again, I think it should be intuitive that, that type of business mix would carry with it a bit more of a lower margin profile. And then lastly, we're really optimizing the fleet positioning to unlock these pockets of growth. And that higher level of activity, comes with it higher cost. So as Brendan says frequently, we're really just running the business as you would want. There's nothing sort of structurally changing in the underlying economics. In terms of as it looks towards the second half, I think we would continue to expect Specialty to have relatively stronger growth than General Tool. I think the other issue that we pointed to was the higher internal repair costs as a portion of the fleet comes off warranty. You would expect that to continue through the balance of the year. So I think largely, you should expect the second half to look and feel similar to what the first half looked like. As it relates to the U.S. relisting, we're on track for that to be delivered March 2. We've submitted the first round of comments to the SEC -- or first round of response to the SEC's comments. We expect to get a second round back here in the course of the next week or so. And so everything is going exactly as we would have hoped despite the government closure throwing a bit of a speed bump in it. In terms of your question as it relates to the December year-end, we will likely make that decision at some point in the future. That is not something that we would undertake sort of imminently as we need to get through this process first, but we would likely take that decision at some point in the future. And we will continue to see some incremental cost as we get through the balance. I think we're kind of targeting a total budget of around $90 million or so by the time this is all said and done, the majority of which will happen as we get into sort of the second half of the year, but there will be some residual cost as we get into next year, which will all be adjusted out of the adjusted GAAP numbers. And then obviously, once we start reporting on the SEC regime, we'll be reporting U.S. GAAP numbers, and we'll bridge that very clearly for you in the Investor Day.
Operator: Our next question is from Rob Wertheimer from Melius.
Robert Wertheimer: A question on just profitability and ROIC on the mega projects versus the rest. We've seen the fleet positioning cost. I wonder -- I'm not sure if I understood the last answer to indicate that the repositioning is a kind of phase or, I don't know, whether it continues with each mega project as they sort of bounce around the country, whether that's just a new cost of doing business. But does the profitability kind of curve up to average? Or is it lower given competition? And -- well, anyway, I'll stop there for now.
Brendan Horgan: Rob, thanks for that. You heard Alex allude to that margin impact. And I just want to clarify that, and I think this will answer your question. That's in the early phases of those wins and of those build-ups. So as we've said many times in the past, not only does history tell us, but our expectations are, as you reach that sort of crest, which is quite long on these mega projects, we would say, at a minimum, those are parity to the margins for the overall business. And the same thing goes really with our national strategics. I mean when you think about these not just mega projects, but these national contractors, and you put all that together, these are more experienced operators. The conditions on these sites are better governed. The products themselves, in so many instances, move in many ways a bit less than they do on other projects, and the repair and maintenance, when it comes to upkeeping with those, you have this great opportunity to have field service technicians deployed that are on site and they spend most every single day on those projects, maintaining this equipment. So over time, we would expect for that to be at a minimum parity to the rest of the business.
Robert Wertheimer: Perfect. That does answer. And then just out of curiosity, I guess, just as you slowed expansion appropriately with the industry, then the repair cost comes up as more of the fleets off warranty, I get that. Is that a 1-year effect and you kind of rebase, or if you didn't expand faster again, would that continue to be a margin headwind over the next year? I'll stop there.
Brendan Horgan: Yes. I mean, it's really -- if you look at the fleet profile slide that we have in the appendix, you'll see 2 extraordinary years of growth where we extracted significant share gains and expanded our business. So it's really those 2 rather large tranches. So unless we were to go to those levels of CapEx, say, next year, I think we have another year of that sort of headwind and then we balance out as we ordinarily would. And then, of course, look, there'll be these periods where you have significantly low replacement CapEx for tranches 7, 8 years ago that were lower. But I would expect that same sort of headwind for another 6 quarters or so.
Operator: Our next question is from Suhasini Varanasi from Goldman Sachs.
Suhasini Varanasi: Just one final follow-up from me, please. The U.K. restructuring program of $37 million, you mentioned it was cash positive, but can you maybe give us some color on what's the benefit on annualized SG&A costs for that region and, therefore, the benefit to margins on an annualized basis?
Alexander Pease: Sure. So the bulk -- as I would have mentioned, the bulk of the restructuring would have been in sort of fixed assets, sale of underperforming businesses, consolidation of locations and those sorts of actions. So really where it hit -- and it's noncash, by the way, so where it typically would hit is more on the ROIC and the depreciation line than the sort of SG&A side. I don't have the exact number in front of me. I think it would be reasonable to expect 150 to 200 basis points of SG&A improvement on leverage. But again, the bulk of it is really focused on the asset footprint, if that helps.
Operator: We'll now take our next question from Allen Wells from Jefferies.
Allen Wells: A couple for me, please. Firstly, just on the margins. Sequentially, slightly worse, I think, down 140 bps versus 120 bps in Q1. The incremental decline there, is that all related to hurricane activity? Or were any of the other headwinds stronger in the quarter? And then maybe linked to that, I think kind of follows on from Rob's question on the repair costs. We should expect that obviously to be a continued headwind over the next few quarters. But when you look at that CapEx profile, the step-up between '22 and 2024, should we be thinking that the headwind from higher repair costs actually steps up over the next few quarters as well? So that's just those on the margin? And then secondly, just on the rate environment following on from a question earlier. Beyond the broader market conditions being slightly muted, are there any other factors that you would call out that are impacting rates? I'm particularly thinking about are there any particular smaller or midsized competitors being a bit more aggressive than you would typically expect on pricing or anything like that? Or is it just a broader market issue?
Alexander Pease: Yes, I'll let Brendan take the rate question, but I'll hit the margin question quickly. So you sort of answered your own question. Yes, the hurricane activity -- the lack of hurricane activity, I should say, did have a dilutive impact on margins. You're also lapping a very strong period of margin expansion. So you sort of have a tougher comp that you're comparing against. So those are really the issues. As it relates to the higher repair costs, I think Brendan answered that. We do expect that to continue for the next, call it, 6 quarters as we're lapping those really 2 high CapEx years. So I think that would be more of a sustained headwind. And I'll let Brendan comment on the rate environment.
Brendan Horgan: Yes. Allen, from a pricing standpoint, look, there will always be some competitor in some market somewhere who leads with price. That has been the realities of the business forever. The key to understanding pricing is, pricing in any business is dynamic. And the big takeaway would be, think about the structural change, the structural progression of this business and the secular outputs of that, and we're seeing those so clearly today. Secular outputs, particularly highlighted during this end market that we are working through today, that create larger TAMs, that create more resilience overall in the business, that deliver discipline when it comes to pricing. And largely speaking, that's exactly where we are. It's not different than most anywhere else. Pricing does have a momentum element. And at this particular juncture, it has proven to be remarkably resilient, and as we've said, pricing is still very much strong, and we look to take further advantage, if you will, of this structural output to progress pricing, as I've said, that we expect to be a feature of our growth for years to come.
Allen Wells: And sorry, just a quick clarification, Alex. I appreciate you kind of confirmed that there'd be a sustained headwind in the higher repair cost. But I guess my question was, when I look at the CapEx profile, '23 was more CapEx than '22, '24 was more than '23. So is there any reason why that headwind shouldn't actually increase given that CapEx profile?
Alexander Pease: Yes. I guess when we return to fueling larger growth capital investments, you would see that impact mitigate, because you'd be putting more capital on the balance sheet that's under warranty cost and the age of your fleet would come down slightly. So really, the higher warranty cost is entirely connected with the aging profile of the fleet. And Brendan is pulling up the slide in the appendix, which really shows the nature of how we've invested in the last couple of years. So you would expect that trend to continue as we lap those 2 years of $3 billion to $4 billion of investment. As those levels of CapEx get retired, you would expect it to come down to something a little bit more normal.
Brendan Horgan: Yes. I think, Allen, to just add, let us not over-index on. I appreciate we may have put ourselves in that position because we call out the impact of higher repair costs as assets come out of warranty. Think about Sunbelt 4.0 and the actionable component of performance. Make no mistake, we have opportunities which are being actioned to drive margin improvement in this business just as we set out to do with 4.0. So whether it be the over '25 market logistics operations that we have employed year-over-year, growing from last year's 10 or 12 to today's over 25, which is more than 500 of our locations. We'll have more than 30 of these rolled out by April of our top 50 markets. Part and parcel of that MLO is a consolidated market field service approach. Furthermore, as you will see in full color on March 26 during our Investor Day is the new service platform that we've implemented throughout the business. So all of these improvements not only deliver exceptional customer experience, but they also will deliver, over time, improved operational processes and therefore, improved margins. So this is just a moment in time when we're going through those 2 years of extraordinary growth investment, which we all look forward to returning to. But make no mistake, the business is actioning significantly an improvement in the way that we operate, and that will translate into margins. I'll just talk to MLOs a bit more. We have reduced days to pick up for our assets. That creates opportunity for higher time utilization of an existing fleet. We have circa 15% better truck utilization in these markets. We reduced outside hauler spend in many cases, by 50% or more. And this whole measure we've looked at for so long, delivery cost recovery improves by 4% or 5%. So it's not all about just the warranty of the fleet, it's about how we continue to get better at our operations, and you've met the Brad Laws and [ Chais ] of our business. And that's what they're focused on every single day, and we have great momentum behind that.
Operator: Our next question is from Karl Green from RBC.
Karl Green: Just 2 questions. The first one, Brendan, given that we're seeing double-digit auction inventory builds in major equipment categories, I just wondered what gives you the confidence in the statement that the over-fleeting in the industry is being largely corrected? And then the second question, Alex, perhaps for you, just on depreciation. It looks like sequentially, adjusted depreciation went down between Q1 and Q2. So I just wanted to understand the moving parts of that. Was that partly due to accelerated write-offs in the U.K.? Or is there anything else going on there in terms of fleet mix that we should be aware of? And then just a final follow-up on that would be what would your expectation be for full year depreciation, please?
Brendan Horgan: Sure, Karl. On the first, look, I think when you look at 2 things really, your question is about how we feel comfortable that we're reaching this sort of balance from a fleet versus demand standpoint in the industry? You're right, we do see some, and I want to say that very clearly, some product categories that are creating a bit of a backlog in that auction environment. As you know, there's some activities going on in the industry where some are taking the decision to rebalance fleet in some way, shape or form, more so when it comes to composition than when it comes to absolute levels. And you'll see that from time to time. I think you'll see that work through quite quickly. And you can see that also when it comes to secondhand values, which it's important to understand when you think about this business over the years rather than just quarter-by-quarter, you'll see oscillation when it comes to secondhand values. If we sort of collar what we get assets at least through the auction channel, you'll see peaks in the 42% to 45% of original equipment cost range down to extraordinary times like '08, '09, where you saw 25% or so relative to OEC. And today, we're in the kind of 32%, 33% range. So that also indicates a relative level of health in that space. But I think when we look at -- look, many of our OEMs are publicly traded, and you can understand what their volumes look like year-on-year or really over the last 18 months. So all of those line up to and indeed, our own time utilization, giving us this confidence that we are in a pretty good position overall from a fleet makeup in the industry.
Alexander Pease: Yes. So a couple of points on depreciation. It would be the case that the majority of the decline would be tied to the U.K. Remember, that $37 million charge that I mentioned is largely accelerated depreciation. So that would be the case. If I look at rental depreciation in the quarter, it was for the first quarter that we had really in the last probably 6, rental depreciation was a good guide. So we've got back to a world where rental growth and depreciation are more in balance. You do have some other effects of depreciation going on with things like lease amortization, some of the greenfield investments before they come to scale, obviously, those would be headwinds to depreciation. But I think the headline number is the fact that this rental depreciation was more in line with rental growth, which is a good thing in the quarter. Does that help?
Karl Green: That's helpful. Thank you.
Operator: Our next question is from Neil Tyler from Rothschild.
Neil Tyler: Just wanted to follow up actually on the answer to the previous question about the used equipment recovery rates. You said for some time that you have been trying to optimize the channels that you use. Can you give us any sort of update on that, thoughts on the current split and how far through that sort of optimization process you are?
Brendan Horgan: Yes, Neil, I'm glad you asked that question because shame on me for not addressing that when I had the opportunity. Yes, I mean, we have, as you know, over the years of such significant growth and such organic investment in the business, we've relied primarily on 2 channels, one being trades to OEM, because when you're buying 3, 4 and even 5 to every 1 you're selling, it's a pretty optimal path. An asset lives a perfect life after its last day of rental. Once we deem it to be an asset to be replaced, it's sold nearly immediately, not taking any time away from the business or distraction to the business. And then secondarily was the path through auction. We have been working on standing up a strong retail and wholesale platform, which I would call 3 quarters through its build. And you will see in significance, beginning next year, more and more of our secondhand sales going into that retail and wholesale market. And of course, we think that overall will lead to better proceeds for our sales of used equipment.
Operator: It appears there are currently no further questions at this time. With this, I'd like to hand the call back over to Brendan for closing remarks. Thank you.
Brendan Horgan: Great. Thank you, operator, and indeed, everyone, for joining this morning. I think we have gotten across -- or hope certainly clearly that over the half and indeed year-over-year, we have invested in growth in this business. We have been working vigilantly to improve our craft, to improve the service throughout our actionable components of 4.0. We have generated significant free cash flow, which we have returned in record levels to our shareholders. We paid down debt, and we've done all of this within our leverage range presently at 1.6x. And I'll just reiterate what I would have said in my prepared remarks, which is this business is in a remarkably strong position, and we are poised to benefit as we see things recover and this great industry continues to grow. So with that, we look forward to seeing all of you on the 26th of March.
Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.