Ashtead Group PLC

LSE:AHT

Earnings Call Analysis

Ashtead Group Reports Growth Amid Strategic U.S. Listing Plans

Ashtead Group experienced solid performance, with rental revenue increasing 6% and EBITDA growth of 4%, reaching $2,698 million. Despite a lower total revenue growth of 2%, strong demand in mega projects, particularly hurricane response efforts, supported results. The company announced plans to shift its primary listing to the U.S. over the next 12 to 18 months, aligning with its strategic focus. Guidance for U.S. rental revenue growth is now set at 2% to 4%, while Canada expects 15% to 19% growth. Additionally, a share buyback program of up to $1.5 billion over 18 months aims to optimize capital allocation.

Strong Half-Year Results Amidst Market Adjustments

In the recent earnings call, the company reported a 6% increase in group rental revenue and a 2% rise in total revenue for the first half of the fiscal year. This was primarily due to a 5% rental revenue growth in the U.S., driven by improvements in volume and rental rates in end markets that remained generally healthy, though tempered by a downturn in the local commercial construction market. Importantly, hurricane response efforts contributed approximately $55 million to $60 million in rental revenue as the company adapted to changes in demand dynamics.

Guidance Adjustment Reflects Market Realities

Following a detailed assessment of market conditions, the company adjusted its guidance for U.S. rental revenue growth to a range of 2% to 4% for the full fiscal year. This reduction reflects ongoing softness in local commercial construction due to elevated interest rates affecting local and regional developers. For Canada, the rental revenue growth remains robust at 15% to 19%, bolstered by a recovery in the Film & TV sector. The U.K. is projected to see a rental revenue growth of 3% to 6%, resulting in an anticipated group revenue growth of 3% to 5%.

Financial Health: Cash Flow and Debt Management

The company reported free cash flow of over $400 million in the first half, with expectations for around $1.4 billion for the entire year. Despite adjusting capital expenditures to the range of $2.5 billion to $2.7 billion, this is a decrease of $550 million from earlier projections, reflecting a tactical capital allocation strategy focusing on high-demand markets. The company also initiated a significant share buyback program of up to $1.5 billion over the next 18 months to enhance its capital structure and shareholder returns.

Competitiveness and Market Positioning

The organization's strategic emphasis on enhancing market share in the specialty rental sector led to a notable 15% growth, whereas the general tool segment witnessed a more modest 2% increase. The focus remains on leveraging operational efficiencies and capitalizing on mega projects in the pipeline, which are anticipated to provide a long-term growth trajectory despite the current regional weaknesses due to interest rates.

Future Outlook: Market Dynamics and Strategic Plans

Looking ahead, the company expresses optimism about its Sunbelt 4.0 plan, which is designed to build upon the progress achieved during previous strategic phases. Although local commercial construction faces challenges, macro trends such as infrastructure investments and mega projects provide a favorable backdrop for future growth. The leadership team remains committed to disciplined capital management and enhancing operational efficiencies to navigate through cyclical market fluctuations.

Earnings Call Transcript 2025-Q2

[Operator]

Hello, and welcome to the Ashtead Group plc interim results analyst call. I will shortly be handing you over to Brendan Horgan and Michael Pratt, who will take you through today's presentation. [Operator Instructions] For now, over to Brendan Horgan and Michael Pratt at Ashtead Group plc. Please go ahead.

[Brendan Horgan, executive]

Thank you, operator, and good morning, everyone, and welcome to the Ashtead Group Q2 results presentation. As usual, I'm joined this morning by Michael Pratt and Will Shaw. I'm also pleased to welcome Alex Pease to the group who is with us today. Alex joined last month as CFO designate, and has been active getting to know our people and business and will be joining us on our road show this week in London and in the U.S. in January.

As always, I'll begin this morning by addressing our Sunbelt team members listening in, specifically recognizing their leadership, on the health and safety of our people, our customers and the members of the communities we serve. In October, we hosted an Engage for Life summits with our leadership team throughout the business. These sessions were designed to give our frontline leaders the tools to discuss and communicate Engage for Life principles embedded within Sunbelt 4.0. Our efforts, processes and cultural adoption of Engage for Life continues to deliver improved metrics, notably another record low total recordable incident rate or TRIR now below 0.7 for the calendar year. So thank you. Thank you for your efforts in the half and your ongoing commitment to Engage for Life.

We have a full update this morning, including covering the strength of our half year performance and market forecast and dynamics, early 4.0 plan progression and second half guidance. However, before getting into these, I'll start by commenting on our announcement this morning, expressing our intentions to move our primary listing to the U.S. And to do that, I'll be referring to Slide 3.

With consideration of the group's strategy and aim to best benefit all our stakeholders, we've concluded that, in our view, the U.S. is the natural and best long-term listing venue for this business. This news is not going to come as a great surprise to most. As you are aware, this has been a topic of Board conversation for some time.

The center of gravity of the group has been moving west over a long period of time. And today, we are to all intents and purposes a U.S. company. We see this move as an exercise where we will be aligning the listing venue with where the vast majority of the operations, leadership, employees, revenues, profits, and future growth are based and derived.

So why now? There are a number of reasons, of which I'll cover a few to complement this morning's written announcement. From an operational perspective, the successful launch of our strategic growth plan, Sunbelt 4.0 is behind us. And the organization is fully focused on its execution. The advantages of a U.S. primary listing over other markets such as deeper capital markets, greater liquidity, inclusion into important U.S. indices, et cetera, have become more evident over the last few years.

Cultural benefits such as simplifying share ownership for our wider employee base, our headquarters, of course, and majority of our executive leadership team are based in the U.S. And we've had the time to assess the progress of other companies that have made this move before us. This is a reasonably likely process, which we expect to take 12 to 18 months, beginning with shareholder dialogue, which we will commence immediately. And following this engagement, we will put forward a formal resolution at a general meeting on a date to be announced. As things progress, we'll naturally keep you updated in conjunction with our quarterly reporting or as any need arises.

Let's now touch on the early progress we're making on Sunbelt 4.0 by reviewing our first half results, beginning with the highlights on Slide 4. Group rental revenue grew 6% in the first half with total revenue up 2%, and the U.S. rental revenue improved by 5% and total revenue by 1% with the delta largely reflecting lower used equipment sales. These rental revenues and strong flow-through delivered group EBITDA growth of 4% to $2,698 million, PBT of $1,255 million and EPS of $2.14. These are record first half revenues and EBITDA with margins of 47% at the group level and nearly 50% in the U.S. and before the impact of lower gains on asset sales record PBT as well.

From a capital allocation standpoint, in accordance with our priorities, we invested $1.7 billion in CapEx, which fueled existing location fleet needs and the greenfield openings. We expanded our North American footprint by 47 locations in the half via 36 greenfield openings and a further 11 through 2 bolt-on acquisitions. Despite these levels of investment, we delivered free cash flow of over $400 million in the half and finished the period at 1.7x net debt to EBITDA, comfortably within our long-term range of 1 to 2x.

Throughout the half, we experienced ongoing dynamics in our construction end markets, with mega project activities and pipeline levels continuing to expand, while on the other hand, local nonresidential construction activity is softened as prolonged higher interest rates have weighed on local and regional developers. This local market softening was more than offset by mega projects and response activities related to Hurricanes Helene and Milton in the period. However, we think it would be just too fast to expect the local construction market to rebound in the second half of our fiscal year.

As a result of these conditions, we're adjusting downwards our guidance for rental revenue growth and our CapEx for the full year. An output of this is an increase in our free cash flow expectations for the year and in line with our capital allocation priorities, we commenced a share buyback program today of up to $1.5 billion over the next 18 months, designed over time to put us in the middle of our leverage range.

Importantly, this highlights the capital allocation optionality inherent in our business and indeed in our 4.0 plan, powered by the strength of our business and the disciplined CapEx and pricing we've demonstrated and has been seen across the industry, further enhancing our cash generation during periods of more moderate growth levels.

Our outlook is positive and our confidence in executing and delivering on our Sunbelt 4.0 plan is high. As such, we look to the future with confidence.

And with that, I'll hand it over to Michael to cover the financials and the outlook.

[Michael Pratt, executive]

Thanks, Brendan, and good morning. The group's results for the 6 months are shown on Slide 6. Group rental revenue increased 6%, while total revenue increased 2%. This lower rate of total rental -- total revenue growth reflects a lower level of used equipment sales planned for this year. Our growth was delivered with strong margins and EBITDA margin of 47% and an operating profit margin of 27%.

As expected, the lower level of used equipment sales resulted in lower gains on sale of $35 million compared with $130 million a year ago, which affects the absolute level of EBITDA and operating profit. After an interest expense of $287 million, which increased 14% compared with this time last year, reflecting principally higher absolute debt levels, adjusted pretax profit was $57 million or 4% lower than last year at $1,255 million. Adjusted earnings per share were $2.14 for the 6 months. We've announced an interim dividend of $0.36 per share, reflecting the move to a more typical interim/final split that we announced in Atlanta.

Turning now to the businesses. Slide 7 shows the performance in the U.S. Rental revenue for the 6 months grew by 5% over last year, which in turn was up 14% on the prior year. This has been driven by a combination of volume and rate improvement in overall healthy end markets. As Brendan will discuss later, strength in mega projects and our hurricane response efforts have mitigated weakness in the local commercial construction market. We estimate that hurricane response efforts contributed $55 million to $60 million to rental revenue in the period. The total revenue increase of 1% reflects lower levels of used equipment sales than last year when we took advantage of improving fleet deliveries and strong secondhand markets to catch up on deferred disposals.

The third actual components of Sunbelt 4.0 is performance as we look to leverage the infrastructure and scale we developed during 3.0 and improved margins. This, combined with our focus on the cost base, and lower scaffold erection and dismantling revenue following a major customer's Chapter 11 filing, contributed to drop-through for the 6 months of 64% and an EBITDA margin of 50%.

Reflecting the impact of gains $68 million lower than last year due to lower used equipment sales combined with weaker secondhand values and the higher depreciation charge on a larger fleet, operating profit was $1,432 million at a 30% margin and ROI was a healthy 21%.

Turning now to Canada on Slide 8. Rental revenue was 20% higher than a year ago at $459 million, aided by the recovery of the Film & TV business. The major part of our Canadian business, so excluding Film & TV business, is performing well with rental revenue up 15%, driven by volume and rate improvement as it takes advantage of its increasing scale and breadth of product offerings.

Following settlement of the strikes in the North American film and TV industry, activity levels in our Film & TV business have recovered, although they are below pre-strike levels, which is likely to be the new normal. This contributed to an EBITDA margin of 46% and operating profit of $111 million at a 22% margin, while ROI is 12%.

Turning now to Slide 9. U.K. rental revenue was 6% higher than a year ago at GBP 319 million. In line with the 4.0 strategy, the focus in the U.K. remains on delivering operational efficiency and long-term sustainable returns in the business. While we continue to make progress on rental rates, these need to progress further.

As a result, the U.K. business delivered an EBITDA margin of 29% and generated an operating profit of GBP 36 million at a 10% margin and ROI was 7%.

Slide 10 sets out the group's cash flows for the 6 months and the last 12 months. This emphasizes the strong cash generation capability of the business in any conditions. We maintain a strong focus on working capital management, particularly the collection of receivables, which has resulted in cash flow from operations of $2.5 billion in 6 months.

A key feature of our business model is our ability to flex capital expenditure and of course, with the environment, increasing it in a higher growth environment and reducing it in a lower growth environment. In this lower growth environment, we spent $1.8 billion compared with $2.5 billion last year, funding principally fleet replacement and growth and generated free cash flow for the 6 months of $420 million and $1 billion over last 12 months. The only time in which cash generation was higher in the first half of the year was in our 2021 financial year, which, of course, was the year of the pandemic when we spent only $276 million on capital expenditure.

While we reduced our capital expenditure this year, this has not been at the expense of the future. We've executed on our fleet disposal plan as intended. But with lower demand overall, we're not replacing assets in markets where the demand is not there, rather spending it on growth in markets where demand is higher, particularly within our Specialty businesses. This is where we get the phrase growth disguises replacement when talking about capital expenditure.

Slide 11 updates our debt and leverage position at the end of October. The increase in debt in the period reflects -- relates to lease liabilities with external borrowings will be flat. In addition to the capital expenditure, we returned $387 million to shareholders through our final dividend. As a result, excluding lease liabilities, leverage was 1.7x net debt to EBITDA. Our expectation continues to be that we'll operate within our new target leverage range of 1 to 2x net debt to EBITDA, but most likely towards the middle of that range. We expect to be in the 1.5 to 1.6x range at the end of April, including the impact from the share buyback program announced today.

The structure of our debt is shown on Slide 12. We've said previously that a strong balance sheet gives us a competitive advantage and positions us well for the medium term. In November, we amended and extended our senior credit facilities so that we now have $4.75 billion committed until November 2029. Pricing has been adjusted down slightly and is now based on the applicable interest rate plus a margin of [ 125 bps to 138 bps ]. Other principal terms and conditions remain unchanged.

A key feature of our debt is the profile. We have no imminent maturities and the extended profile is smooth with no large individual refinancing needs. Our debt serves are committed for an average of 6 years at a weighted average cost of 5%.

Turning now to Slide 13 and our guidance on revenue, capital expenditure and free cash flow for this year. This updated guidance reflects the dynamic nature of our business model and illustrates the levers we can pull to drive shareholder value, depending on market conditions.

In terms of revenue, we now expect U.S. rental revenue growth to be in the range of 2% to 4%. The change reflects principally the impact of local commercial construction market dynamics. Our guidance for Canada and the U.K. is unchanged, with 15% to 19% rental revenue growth in Canada aided by the recovery of the Film & TV business and 3% to 6% rental revenue growth in the U.K. As a result, we're guiding to group rental revenue growth of 3% to 5%.

From a capital expenditure standpoint, we've reduced our CapEx expenditure plans to reflect these market dynamics and now expect capital expenditure for the year to be in the range of $2.5 billion to $2.7 billion. This is a reduction of $550 million at the midpoint of the range and relates principally to lower U.S. rental fleet expenditure. In addition, you will see we have reduced expected disposal proceeds by $50 million, reflecting weaker secondhand prices, which will reduce gains on disposal by a similar amount. The usual detail on this is included in the appendix on Slide 27.

Based on this guidance, we now expect free cash flow for the year of around $1.4 billion, the main variable being where we land on capital expenditure and the timing thereof.

And with that, I'll hand back to Brendan.

[Brendan Horgan, executive]

Thanks, Michael. We'll now move on to some operational detail, beginning with the U.S. on Slide 15. The U.S. business delivered good rental only revenue growth in the half of 6%. Specialty performed strongly with growth of 15% in the half with General Tool, up 2%. Importantly, rental rates have continued to progress year-on-year. Doing so, despite industry utilization levels still lagging highs reached in previous years. This is again affirmation of the ongoing good rate discipline in the industry as a result of the ever clear structural progression we've experienced over the years.

Moving on to Slide 16, we'll cover the outlook for our largest single end market, construction. Consistent with our usual reporting of construction activity and forecast, the slide leaves out the latest Dodge figures in starts, momentum and put in place. As I previously covered and others whose end markets include construction of noted, we continue to see cross currents in our end markets. Overall outlook for construction growth continues to be underpinned by mega projects and infrastructure work, which continued to gain momentum, albeit slowly, which I'll detail in just a moment.

At the same time, there's an ongoing softening within the local commercial construction space as the prolonged higher interest rate environment has weighed on local and regional developers. This, of course, impacts some of the small, mid and regional size contractors. While some things have started to move in the right direction, e.g., beginning of interest rate cuts, some clarity following the U.S. election, and we're seeing increased planning activity, so this will rebound, and I think quite strongly, but it will take some time for this segment of the construction market to see a meaningful uptick in projects actually breaking ground. And in reality, we're all likely to see this before the back half of calendar year 2025.

Just touching briefly on mega projects on Slide 17. This is a slide you should now be familiar with, delineating mega project starts in count and value over the previous 3 years as well as the next 3. What you should draw from this update, particularly when compared to our April CMD figures is, one, some have been pushed a bit right, showing projects of this scale and sophistication takes some time to get started, not to be confused with being canceled. And two, the funnel keeps getting added to as mega project landscape continues to expand and strengthen. This is driven by deglobalization, manufacturing modernization, technology and infrastructure. Combined, over the 2 periods, this represents a 12% increase in project value from what our figures were in April. We continue to experience a very strong win rate in this arena and are highly engaged in project planning and solutions with customers and project owners associated with these projects.

Moving on to our end markets beyond construction on Slide 18. Let's not forget that over half of our business is outside of commercial construction. As we've detailed over the years, and perhaps showcased most clearly during the Anytown exhibit as part of our April CMD, these markets are both large and expansive. So many of our product categories have remarkably universal applications, which presents a vast opportunity to progress rental penetration ever more broadly.

Whether planned or unplanned, there are abundant activities throughout these non-construction markets where our products and services deliver solutions. We made great progress across these segments over the years, and we will continue to do so throughout 4.0. So these are big, big end markets with equally big opportunity.

Moving on to Canada on Slide 19. Our business in Canada continues to deliver good results, with rental revenue growth in the half of 20% coming from existing General Tool and Specialty locations as well as greenfields and bolt-ons. And as is the case with the U.S., rental rates continued to progress in the half, which we expect to continue to be the case moving forward. Our focus in Canada, embedded in our 4.0 plan is continue to increase our addressable markets beyond construction as we've done so well over the years in the U.S. The runway for growth, improved density, market diversification and margin remain significant.

Turning to the U.K. on Slide 20. U.K. delivered rental revenue growth of 6%, driven by market share gains in the end market, which continues to favor our unique positioning through the industry's broadest offering of General Tool and Specialty products, which is unmatched. The Sunbelt 4.0 plan for the U.K. will lead to an ever more diverse customer base and increased TAM, while bringing greater focus and discipline on the necessary levers and actions to deliver acceptable and sustainable levels of ROI and free cash flow. This business is transformed in recent years. And as I've said previously, Sunbelt 4.0 is designed to have the final piece to this transformation.

Turning capital allocation on Slide 21. Michael and I have covered most of the capital allocation elements throughout this morning's presentation. However, I'll highlight again our launching of a new buyback program today of up to $1.5 billion over the next 18 months. This program takes into account our latest CapEx plans for the year and demonstrates the optionality and confidence, which comes from the fundamental strength of our cash-generative growth model. With this buyback in place, we expect to maintain leverage broadly in the middle of our target range of 1 to 2x.

And of course, there is a robust bolt-on M&A landscape, which we've so often exercised. Our business development team continues to work our pipeline to find opportunities that align with our strategy, which will surely result in future additions. All of this is incredibly consistent with our long-held policy, and we'll continue to allocate capital on this basis throughout 4.0.

Moving on to Slide 21 (sic) [ Slide 22 ] and speaking of 4.0. We've made a promising start to this plan in each of our operating geographies, and although only 2 quarters into a 5-year plan, I'm pleased to demonstrate progress across all 5 actionable components. Illustrated here, you'll pick up some of the specifics related to each. We'll keep the scorecard updated throughout 4.0 and periodically highlight an area, and we'll begin with our Connect360 technology platform rollout, which we'll cover with our Q3 results.

To conclude, let's turn to Slide 23. Our performance has been strong, and we are very well positioned in healthy end markets. Our map is clear, and the organization is laser-focused on 4.0 execution. We've announced our intentions to move our primary listing to the U.S.

And finally, I'll highlight a few key takeaways from today's update. The strength and optionality of our business model, clear demonstration of outputs of structural progression in our business and our industry, specifically disciplined capital expenditure and pricing environment. These factors, combined with our strong margins and cash flow through the cycle, provides us with the ability to exercise this optionality through today's buyback of up to $1.5 billion. Our outlook is positive and our confidence in executing and delivering our Sunbelt 4.0 plan is high. And as such, we look to the future with confidence.

And with that, operator, we will open the call to questions.

[Operator]

[Operator Instructions] Our first question today will come from Will Kirkness of Bernstein.

[William Kirkness, analyst]

Two questions, please. Firstly, just kind of thinking about end markets, and peer data has, I guess, been a bit mixed. The industry data sort of looks okay. I'm just wondering if there's something sort of specifically beyond the local market you're not happy with, whether there's any particular regions or particular end markets that aren't where you'd hope they'd be?

And secondly, just on CapEx, just looking at U.S. CapEx. So the guidance for the second half would seem to suggest that we'll be about half the level that we saw in the first half. I'm just wondering about sort of implications for growth versus replacement. There's a comment about growth CapEx potentially being overstated given inflation. So I just wondered if you can maybe quantify how out that might be and then how we would think about CapEx rolling into FY '26.

[Brendan Horgan, executive]

Yes. Thanks, Will. You were a little broken up there. So we'll do our best. The first one in terms of end markets, what we'll point out clearly is this local construction environment. But nothing beyond that, that we see. We see really strength from a growth standpoint across our geographies, Northeast, Southeast, Central. West is the only one that's kind of been flat for the half year, but actually is gaining some momentum as we make the turn into the second half.

It's important to understanding that local construction that we're talking about. The real engine behind that in the U.S., it's really your local and regional developers. And as we've talked about, and as we've seen in some of the starts trends as of late, they're just waiting to find what the resting place, let's call it, is from an interest rate environment. And I think that we would all agree that there's underlying demand there, and we'll see that recover, and we'll be keeping a very watchful eye on that and be ready to take that opportunity as it arises.

I'll turn that CapEx question about the back half to Michael, but I want to point out one thing about that, and that is, sure, there are the headline CapEx figures, which look, no one like to do a downgrade as we've done today, chief among them is me, I can tell you that. But what you do in this business is when you do notice some changing or some transitory position in one of your end markets, you adjust your CapEx. That's what you do.

And then, of course, when you see that recover, you take advantage of it. But the first way we'll do that is actually with some capacity in the investment we've already made. We made a significant investment from a capacity standpoint and certainly from a structural standpoint and infrastructure standpoint throughout 3.0 and we have room for that to deliver extra growth. So it's not just the headline CapEx figure, instead it's understanding that capacity. But anything further, Michael, in terms of first half -- or second half?

[Michael Pratt, executive]

No. Yes. I suspect in the second half, our disposals may be slightly lower compared to the first half. But it's as much as I say, where utilization is we've all said that we would like utilization levels to be a little bit higher. There's a little bit more fleet around than is needed at the moment. So you flex for two, and it's one of the levers you pull.

So no, there's no holding back. And again, the flexibility we have is if the demand is there, then you increase the CapEx accordingly. So we're basing on what we see at the moment.

[Brendan Horgan, executive]

It's also worth pointing out before we go to the next question on the line. Obviously, we came out of a period where we had significant constraints in the supply chain, and therefore, from a capital planning and ordering perspective, you were a bit on the come, so to speak, and there was a bit less flexibility or dialing in that. We're back in a position today where we can dial up or down CapEx really quite quickly which in addition to the capacity we have in the business from a utilization standpoint, we also have that capacity with our OEMs. Anything else, Will?

[William Kirkness, analyst]

No, that's great.

[Operator]

We'll now move to Rory McKenzie of UBS.

[Rory Mckenzie, analyst]

Two questions, please. Firstly, can you just quantify what the rate increases contributed within the 4% U.S. rental revenue growth and perhaps outside the hurricane response work, if possible? And can you talk about the spread of performance across your different markets. Are there any geographies that are stronger or weaker for rates depending on the degree of local market overcapacity, for example?

And then secondly, on growth, as you said, not realistic now to expect local markets to rebound in the second half of your fiscal year. Can you talk about what you think demand pickup might look like over the whole next calendar year? I saw your headcount came down another 1% in this quarter. I think, now down about 7% compared to last year. So it does look like you're bracing for maybe a slightly longer period of weaker markets.

[Brendan Horgan, executive]

Yes. Sure, Rory. We don't report exactly from a pricing standpoint. You heard, you were in the audience in Atlanta, we spoke to what our internal targets were, not to be confused with what our budgets were, but we see rental rates progressing year-on-year a couple of percent. There's not the geographic disparity you might think, which really demonstrates I think the progression of it all, just in terms of how the markets behave and how we retain our discipline.

You'll know that one of the technology advancements we made over the course of 3.0 was our dynamic pricing system, which we continue to extract benefits from, and we will do going forward.

From a local construction standpoint, what we'll know is this, when we see what has been increased planning, which we're seeing, progress to permits, we'll know then that we'll begin to see those progress to starts, and we'll see that. I wouldn't expect, as I said in the prepared remarks, for that to happen. Look, it takes kind of 4 to 6 quarters. We're a bit into it now. So I think one could logically come to an opinion that, again, if we see interest rates moderate and there's some foreseeable stability in that, you can see those local and regional developers, I mentioned, begin to rev their engines up and you might get some of that back half of next calendar year and then really, you would think that could really rev up into calendar 2026.

Furthermore, I'll point out, we've talked about this a lot over the years, when you see resi go as well. If you look at some of the resi forecasts that are out there, I think, largely believed in from a demand standpoint, you'll see a single-family eclipse or reach 1 million homes again in '25, '26 before they recover to 1.2 million, 1.3 million. And again, Rory, you've been around for this, and you know that you'll have a bit more of that local construction that will follow that as well that will be healthy.

On your headcount point, I don't want anyone to draw into that or read into it any more than they should. So half year to half year, we have about 1,400 fewer heads. I'll remind you of the scaffold E and D project. So there's a bit more than half, so about 750 of that delta year-on-year is literally not having those scaffold builders that were on that project. And I'll also remind you that the quarter that we've just left and the quarter that we're now in, we're the most difficult comps. Frankly, they go all the way through April when it comes to that.

But don't forget the central thread of Sunbelt 4.0, meaning the third actionable component of performance, and us working to leverage the increased density that we built over the years and in particular, in 3.0, and one would expect a combination of the density and also more of the work in these mega projects where you can leverage overall your output per person. So this isn't preparing for a rainy day, as you might have suggested, rather just running the business and running this 4.0 plan.

[Operator]

We will now go to Suhasini Varanasi of Goldman Sachs.

[Suhasini Varanasi, analyst]

I have a few, please. Can you please remind us what the exit rate in November was? And did you see any benefits from hurricane activity in this month?

Secondly, given your expectation of the local commercial construction activity rebounding in the back half of calendar '25, is it fair to assume that the growth rate for fiscal '25 will be more similar to fiscal -- 2026 maybe similar to fiscal '25?

And now that you're moving to the U.S. listing and going through the process, should we expect a change to a GAAP accounting reporting anytime in the next 6, 12 months?

[Brendan Horgan, executive]

Michael, you want to touch on hurricane activity? I think that was the first question.

[Michael Pratt, executive]

[indiscernible] but it wasn't in terms of what was the exit rate for November. So our exit rate in November -- our rental revenues were up 2.5%, 3% on a billings per day basis in November. And there would have been a little bit of hurricane stuff in there, but not a significant amount.

[Brendan Horgan, executive]

And in terms of -- we've said what we've said about what we would logically look forward to when it comes to local construction in calendar 2025. We are absolutely not in a position to sort of give revenue guidance at this stage. We'll give revenue guidance as we get into the new year. By which time, we'll have a much clearer focus and we'll have a much clearer look on what that may look like.

But again, just to reiterate, our confidence in delivering on what we set out to do from a 4.0 standpoint, this is a 5-year strategic growth plan that we are confident in executing. There was a question about the...

[Michael Pratt, executive]

Prime listing in the U.S. Yes, we would be reporting on the U.S. GAAP on that basis. So that's one of the work streams we've talked about taking sort of 12 to 18 months, and that's one work stream that's ongoing to work out what that means for our -- and we will end up presenting those as, I guess, probably it's a small CMD at some point to explain the differences between how we report under IFRS and how we're reporting the U.S. GAAP.

[Operator]

Our next question will be coming from Katie Fleischer of KeyBanc.

[Katie Fleischer, analyst]

I was wondering how you're thinking about mega projects now that we're in the new administration in the U.S. Just wondering if there's any risk to certain types of projects or if you're expecting to see that mix shift maybe from some more renewables to maybe oil and gas or LNG.

[Brendan Horgan, executive]

Yes, it's a good question. First of all, I think it's worth saying, we don't build a strategic growth plan nor our business model based on an administration or Congress. That being said, I think if you really look at why we are in this mega project era, what are the real drivers behind that? And I would order those in this order, deglobalization, manufacturing modernization, the advancement of technology, which we're seeing so clearly. And certainly, there was some impact when it came to infrastructure as was CHIPS and Science and as was IRA.

So I think the headline is this and the real tailwind is there is no turning around the very core to it all, which is deglobalization. One could argue, if anything, the tailwind there will be enhanced with some of the proposals that are out there.

Will you have some puts and takes between renewables and fossil fuel? So in other words, we have maybe a bit less in terms of solar farms and a bit more in terms of LNG, time will tell. This has nothing to do with my personal preferences, but when it comes to running the business, I could really care less which one it is.

Our equipment, as I would have said in the prepared remarks, is remarkably suitable to many different applications. But if you reference what is Slide 17 in the results, it's worth just looking at that in a really short period of time. What we see now over the current fiscal year and the next 2, there are almost 690 identified projects that plan to start during that period of time for almost $1 trillion.

So when you combine, even taking into account that, which moved right a bit from what was the prior 3 years, overall, that's an increase of 12%, that is there are no signs whatsoever nor would I draw any conclusions about an election that would slow down this mega project era that we're in.

[Katie Fleischer, analyst]

Got it. That's helpful. And then my last question is just on dollar utilization. How are you thinking about that for the U.S. in the back half of this fiscal year? Is there an opportunity for that to improve? Or should it still be pressured a little bit as you're shifting more to these mega projects versus the local accounts?

[Brendan Horgan, executive]

Well, I think it's going to be pressure. It's just really a matter of when do we see the inflection point from a time utilization standpoint and how will we keep progressing rental rates. There is -- as is well documented, there's been inflation in the new equipment. We've seen that abate. So when we look at it sequentially year-to-year, we've seen that abate. But the natural replacement or life cycle inflation is significant, which again points to what we're seeing in the industry from a discipline standpoint. That's a big picture point here to take away in terms of discipline from a CapEx standpoint, which I think we've seen throughout the industry.

And what you may not see quite as well is what all the independents are doing, and we've certainly seen that thus far. And you'll see the same thing, trust me, when it comes to the American Rental Association in the early part of next calendar year. You'll see that, that buying is going to be a bit suppressed, reflecting all that we've talked about, but also, of course, balancing again that ability to continue to progress rates in this business services company that we're in.

[Operator]

Our next question will be coming from Lush Mahendrarajah of JPMorgan.

[Operator Instructions] And now we will move to Arnaud Lehmann of Bank America.

[Arnaud Lehmann, analyst]

The first one, sorry to come back on your U.S. rental revenue growth. I think Q2 was about 4% and in the first half about 5% growth. If I take the midpoint of your guidance, that would imply about 1% in fiscal H2. And I think you mentioned November being up 2.5%, 3%. So are you being just a little bit conservative just in case? Or are you actually -- do you actually believe things could slow down a little bit further relative to November? That's my first question.

My second question, if I may, on the CapEx. Big CapEx in fiscal '23, '24. Not quite a large cut for '25. Could you maybe give us a medium-term update on what we expect in terms of CapEx spending to achieve your Sunbelt 4.0 plans? Is it somewhere in the middle between the '25 spending and the '24 spending? Or any sort of guidance would be helpful.

And the last one, if I may, on the buyback. Is it related at all to the U.S. relisting? So are you trying to anticipate maybe some initial outflows from the European and U.K. indexes and therefore, will be more back-end loaded? Or do you think it's going to be spread broadly evenly across the 18 months period?

[Michael Pratt, executive]

Yes. If we take the rental rate to start with, then I guess it's how we see it at the moment. Where we see the softness is in the local commercial construction market, which is just very transactional. And certainly, as you're going through December, January, February time frame, there's a degree of uncertainty with that. So we pitched it where we think it would be, whether I'm not going to use that to say it's conservative or optimistic as it were. I think it's pitch just how we see it at the moment. Could it be different? Yes, it could, but it's how we see that.

In terms of CapEx, it's -- again, it's not -- we can spend CapEx as much as we like. But it's -- the market is not out on rent, all happens is utilization depresses and all your metrics depress. What we are doing is exercising the levers that we can see or levers we have in the business based on what we see in the market out there. So to match the revenue growth, and we've talked we've got the opportunity to increase utilization, et cetera, we've pitched our CapEx at that level.

As we see stronger end market and the demand there, we will spend more on CapEx. You've got -- if we go back to the 4.0, that trajectory we have at the back end of that, we had to deliver the 6% to 9% and sort of the middle of that, we had circa $20 billion of CapEx to deliver that. And that would be -- that sort of commensurate, and the levers that you can pull or what you do on utilization, if we think of the operational improvements that we're trying to make through technology, et cetera, then that could influence that sort of number.

But you can't pick a number for a year or two out. It's basically what do the end markets look like. The important thing in a way is what Brendan just said on the previous answer was we move back more into a time frame where CapEx is a dial rather than having to look at too far. So to the extent that demand is higher or lower, then we can flex CapEx relatively quickly to adjust to that situation. Now Brendan is free to answer and I can't remember the third.

[Brendan Horgan, executive]

On the share buyback, look, we put out a $1.5 billion buyback. And as we sit here today, we would expect over the course -- between now and April of 2026 to execute on $1.5 billion of buybacks. So obviously, we are -- we won't commence it until just now. So we're kind of halfway through the quarter. So you wouldn't get a full 6 months of buyback opportunity in the balance of this year. So that's our intention.

But we remain flexible. We remain flexible based on CapEx levels in the business, based on bolt-on opportunities. But just to be clear, it's not a one or the other necessarily. We have a lot of range. One of the reasons why, of course, in April, we changed our range from 1.5 to 2x to 1 to 2x was to increase our optionality and that's exactly what we're doing, but the buyback is not about relisting. Look, relisting is still a bit off. This buyback is about running the business right now and deploying our long-held capital allocation strategy.

[Operator]

We'll now go back to Lush Mahendrarajah of JPMorgan.

[Lushanthan Mahendrarajah, analyst]

Apologies if I'm repeating any questions, but the first is on just trying to sort of understand in terms of -- if you look at the slide, when we talk about construction put in place, I think the number for this year has gone down versus the last time reported, and it's gone up to 2025, so plus 10% -- sorry, plus 9% versus plus 5%. You look at the mega project outlook, clearly shifted to the right a bit, but obviously makes the outlook look better than it improved year-on-year, I guess. But obviously, that sort of mismatches with what you're saying. And I appreciate that's the local side getting tougher and the different mixes in mega project versus local versus for the industry and for yourselves. But, yes, I'm just trying to square that really in terms of, yes, why is your outlook seemingly more increasingly negative versus the last time reported when sort of everything else looks maybe a bit more positive?

[Brendan Horgan, executive]

Yes. Well, I mean, Lush, as we said, the construction market overall, there are a number of areas of strength. And what you're seeing in the forecast changed from what the print was before to this print that we now have on Slide 16, which was, of course, the December 2024, you'll see there that some of that non-res will have gone down and the same would have been the case for 2025. While obviously, what we've seen is a growth in the anticipation of what those mega projects are. And when you read all of the detail behind Dodge that's exactly what you're seeing.

So we are seeing that it's just -- it's the, I guess, the [ lull ] of dropping big numbers into either the starts or spreading those over the put in place. It's going to be interesting as there's more experience in actually building the models from a Dodge standpoint on the mega projects in terms of how far they spread them. Because what we have seen is we've seen they take a bit to really get going and then they tend to take longer to complete.

But we're comfortable when we look into the real nooks and crannies where we see the evidence so pronounced is when you start looking at projects that are under $100 million, between $100 million and $200 million and then finally, below $400 million. When we look at the starts for those buckets of projects going from calendar year 2022, 2023 and then 2024, we've seen that step change down on the lower 2 buckets in particular.

[Lushanthan Mahendrarajah, analyst]

Okay. And the second question is just on Trump, and I guess you've already sort of touched on the onshoring side and sort of deglobalization. But from a sort of tariff perspective, and I guess, learnings from last time, appreciate most of the kit you buy will be U.S. domestic. But is there any sort of components within that or a significant amount that you know of, which could drive inflation? And I guess the last time this happened, was that quite supportive of rental rates? And also any disruption in supply chain maybe help rental penetration in that time? Is there sort of any learnings from the last time you can draw on?

[Brendan Horgan, executive]

I would just point to the obvious. I'm not going to pontificate on the overall impacts of policy like tariffs. I think to your -- more importantly, when it comes to disruption in supply chain, he or she who has a $16 billion fleet with some latent capacity from a utilization standpoint and supply chains tighten, you're in a really good position.

When you have the surety that we do have, you pointed out in your question, but I'll give the answer for those that might be wondering, virtually all of our new rental products are manufactured in the U.S. So therefore, there's no impact in terms of our access to supply. But one could take the position that for some OEMs, say, Chinese OEMs, et cetera, could have a bit more difficult time competing in North America.

You saw what happened during an inflationary period when it does open up or give you an even higher ability from a pricing standpoint to step change that more so than less inflationary times. So I think it's -- you've seen the playbook that we employ and we'll do the same.

[Lushanthan Mahendrarajah, analyst]

Okay. And just the last one is just on sort of capital allocation. Obviously, with the buyback announcement, I appreciate it's up to $1.5 billion and so flexible, but I guess sort of bolt-on activity has been a bit quieter in the first half. Is that sort of a message that maybe there isn't much out there at the moment or is it multiple? Or just, I guess, what's happening there, I guess, in terms of that sort of bolt-on landscape?

[Brendan Horgan, executive]

No, there is a big pipeline. There's a flush M&A, bolt-on M&A landscape out there. As I would have said in the prepared remarks, our business development team is highly engaged. We've made it no secret over the last few quarters that we've been very disciplined when it comes to multiple. But the important part there is, they're not going away.

We have made our point and we have our metrics. I mean, long before the purchase price, we have the fit, the geography, the line of business and the culture of the business. But when it comes to our math in terms of an ROI that we want to get, we balance those so often with our greenfields, which we're seeing progress really well. So -- but rest assured that we will have -- there will be no absence of bolt-on M&A in our future. We're just being mindful of what we pay.

[Operator]

We'll now move to Neil Tyler of Redburn Atlantic.

[Neil Tyler, analyst]

Three left from me, please. Firstly, I'm afraid I'm going to slightly labor the point on demand. The lower expectation in the U.S. rental revenue growth, if I think about the way you frame the business, construction is half of it and maybe the commercial component, half of that, then taking 2.5 percentage points off of your growth outlook seems to imply that, that market, that commercial component is sort of 10 percentage points worse than it was at the last time you assessed it. So is that the right way to think about it? And if not, why not? And if that is the right way, then it doesn't look like from the end market data that things have gotten that much worse. That's the first question.

Second one on rate. You've been very clear about the way you approach rate, but it feels as if you've kind of overrecovered life cycle inflation over the last 2 or 3 years in aggregate. So are you sort of comfortable with sort of approaching rate as if sort of on a through cycle basis? Or do you look at it from a sort of standing start each year?

And then finally, on time utilization, I know you don't give us the numbers specifically, but can you give us a sense of at what point that should inflect positively year-on-year based on sort of current CapEx and your existing demand outlook, please?

[Brendan Horgan, executive]

Neil, I think I'll try to get your first one here. I'll just explain the way that we would look at it. So if you look at our business, and we just -- let's just use even numbers, and say half non-construction, half construction. And then you look at our customer mix. And although it's not in the slide deck, I'll refer you to Slide 33, I think it was of our Capital Markets deck, where we deciled our customer base. And if you look at our business, we are 30%, 35% of our customers that we call strategic, AKA national customer base, and therefore, the balance, so whether it be 65% or 60% of our customers who are the SMEs that are out there on the construction side. So therefore, when you put it all together, you're talking about 30%, 35% of your addressable end market.

So it's that portion of your addressable end market where we're seeing the dampening from a local demand. So that's how we look at it. And I think that when you take into account what we've guided and Michael has covered, obviously, absent the hurricanes in October and a touch in November, the second quarter would have been different. So when you take that into account and then you extrapolate that through the year, that's where we come up with 2% to 4% from a U.S. rental revenue standpoint.

When it comes to rate, again, I'll bring you back to the Capital Markets Day, when we shared what our pricing strategy is. And we take into account various components of inflation in the end market, ranging -- in the business rather, ranging from rental assets from a life cycle replacement standpoint to wages and then all of the rest of -- or if any, other inflation in the business, and then proportionate to the cost, and that's what we set our sights on from a pricing standpoint year in, year out. Sometimes, it will come a bit easier, so to speak, and sometimes it will be a bit more challenging.

The important thing again that we've been pointing out here, and you think about it for some of you who have covered this industry for over a decade, it is pointing to the outputs of the structural progression that we have been part of creating and is clearly evident in our markets today. Despite having, as I mentioned, lower time utilization, certain spottiness in the end markets that we're talking about, that being local, we still have great -- we're seeing great results and discipline around pricing and fleet size.

And I think your final question was time utilization. Yes. I mean, we're modeling that our time utilization will get progressively better and close that gap and we don't report on time utilization. So you'll see when we get to giving guidance for next year on both CapEx and revenue, what our outtake on that will be -- or outlook on that would be.

[Operator]

We'll now move to James Rose of Barclays.

[James Rosenthal, analyst]

I've got two, please, and they're both somewhat related. Firstly, are you still confident that you're taking share in the local marketplace -- local construction marketplace?

And then secondly, on rental rates progressing, do you get the sense that this is a broad-based across the whole industry, i.e., is it primarily a focus of just the larger national or regional players? Or are the smaller competitors, are they progressing rates, too? And linked to that, are there any signs or are there any branch managers saying to you that putting rates up is costing you business in the marketplace?

[Brendan Horgan, executive]

Number one, yes, we're taking share in the local market. You can look at the half year results or if you want to work to figure it out, look at the calendar year results, in terms of our growth.

Let's face it, during a period of time particularly in that supply-constrained environment when the construction end market was better than most would have thought it was going to be following the pandemic, taking that share was a bit easier. It was a -- your competition from a local standpoint had 1 maybe 2 arms tied behind their back. They've had the opportunity to spend some from a replacement standpoint, very, very little actual growth in their fleet size. And hence, we are remarkably comfortable that in that local market we're gaining share.

From a rental rate standpoint, yes, we're seeing this across the industry. And certainly, it is one of discipline from the leaders in the industry. And as sure as we have analysts on the call this morning, I'm sure we have lots of local competitors from around the U.S. in particular, that are listening into our tone, et cetera. So this is something that we're seeing through in our data as rental rates progressing across the industry.

And your question about branch managers, I mean, look, we do have agility on a deal-by-deal basis that we take into account all the time, but our direction and our sort of plans and targets that are throughout the business are designed to drive rental progression. But this is not about losing share because of pricing. It's impossible to say that across 4,000 independents, there's not a transaction here or there where someone will give it a try. But as time goes on, they come back and we take great care of them, provide an incredible service with a breadth of products unmatched by certainly any local competitors.

[Operator]

Our next question will be coming from Allen Wells of Jefferies.

[Allen Wells, analyst]

A couple for me, please. Firstly, I just wanted to kind of follow up on the competitive landscape side. And your messaging, obviously, today seems like the guidance [ TIM ] is very much kind of market-driven on the local side. You're still suggesting you're taking share from smaller players. But if I look at the peer group or listed peer group commentary from the last month or so, I mean, yes, it was a bit mixed, but specifically thinking about your largest U.S. peer, they were guiding 4% earlier in the year, excluding the M&A, you were guiding 4% to 7%. You're now down at 2% to 4%. So obviously, it implies a bit of relative underperformance here, mindful of nonoverlapping year-end. But what do you think? Is there anything in the specific you think may be driving that relative underperformance? Is it end market exposure, et cetera? That's my first question.

Secondly, just maybe a clarification question. You talked on the emergency response, the hurricane work that you were still seeing a little bit in November. Obviously, we're in December now, but relative to that $55 million to $60 million that you called out in 2Q, are we going to see a bigger impact in the third quarter from emergency response than we have in what was essentially 3 weeks in 2Q?

And then final question, maybe just a follow-up on M&A and maybe the limited bolt-on work done in 2Q. Can you maybe just comment from a management team perspective, as the underlying growth environment is a bit weaker, particularly on the organic side, what's the appetite and the opportunity to maybe do some bigger deals within the U.S. market? Is there stuff out there that maybe interests you, obviously, without giving details? And how do you think about that as a business that typically hasn't done bigger deals in the past? Does it become more of an option moving forward?

[Brendan Horgan, executive]

Sure, Alex. Well, on competitive landscape, I think you can't just dismiss albeit different year-ends because they're quite different. I'm sure you can work through the math and look at the businesses that ourselves and our peers January through September or January through October. And I think you'll find that we're doing just fine. We will all give guidance to our new fiscal years as we get into them, and we'll see how things shake out.

I mean, look, as I referred to that Slide 33, we have a business that is built to service large nationals as well as SMEs, of course, across that broad spectrum of non-construction markets we talk about so often. When it comes to some of our competitors, their makeup is a bit different between nationals and SMEs. We like very much that local market. And that local market over time, it will go up, it will go down. And -- but it is one that is very large and very bountiful. But like anything else, it goes through cycles. But again, I would encourage you to look at what our growth is in our January through September or January through October period.

In terms of hurricane activity, there's not a bigger piece as we go into Q3. There's a bit of lingering that would have been in November. Let's not confuse that with the real infrastructure-like work that, of course, we'll see as a result of what would have happened as an example in the Western North Carolina area. That's not really the hurricane response efforts that you see early on. Those are rebuilding bridges and some of the infrastructure and that takes years to complete.

And then finally, on M&A, I'd answer it this way. First of all, the definition of bolt-on changes over time. We're a much, much larger business today than we were when we began this many, many years of bolt-ons. Look, we did $3.3 billion worth of bolt-on M&A over the course of 3.0, but the average deal size, because there were 100, and one of them was $32 million, $33 million. And there was a range inside of that. We will look at anything that we believe brings value to ultimately our shareholders. So we're quite capable. I don't want that to sound in any way shape or form like our strategy is changing. But we look at what's out there, and we consider lots of things. So I think, again, refer back to what you've seen through 3.0 and what our 3.0 plan is, and that's what we're going to be consistent with.

[Operator]

We'll now go to Karl Green of RBC CM.

[Karl Green, analyst]

Just two for me. Firstly, just on the Specialty rental revenue growth that slowed a touch in the second quarter from the first quarter. I had, I think, a 3% easier comp and also benefited, I'm assuming, from the majority of the hurricane response incremental revenue. So just wondered if you could talk about kind of what's going on underlying in Specialty. I know from quarter-to-quarter, it can be a little bit lumpier than GT. But just any kind of dynamics you're seeing there that talk to potential changes in MRO activity. That's question number one.

The second question just a much simpler one for Michael, just in terms of some of the mix shifts we're seeing in the core U.S. business. Are there any working capital implications from that, just thinking especially in terms of DSO changes and averages, please?

[Brendan Horgan, executive]

Karl, so Specialty, certainly, we would have had some benefit with Helene and Milton. Underlying, it would be 9%, 10% growth in the quarter. And really, the growth is broad throughout Specialty. Every single one of our Specialty business lines, which you would have seen that we've covered in our CMDs, absent one, temporary structures has grown over the course of the year, and we continue to see that long structural opportunity in that space.

Let's face it, that Specialty business doubled over the course of 3 years. And it would be wrong to expect that, that will grow at a 33% CAGR going forward. And hence, the reason why we guided to -- not guided, but how we illustrated Specialty as part of our 4.0 plan. I'm sorry, I mentioned temporary structures. I did mention scaffold. So scaffold as a result of the big E&D project would also be backward. But removing that, then the scaffold business continues to grow. Michael, the second question?

[Michael Pratt, executive]

Yes. I don't think there's anything particular to call out that our DSO is pretty consistent, and we have a pretty healthy record. So we're not seeing any particular changes in that at the moment.

[Operator]

We'll now take questions from Mark Howson of Dowgate Capital.

[Mark Howson, analyst]

Certainly, maybe I feel a bit old. Mentioned people following you for 10 years. I have been following you for 30, I think, including the acquisition of [indiscernible]

[Brendan Horgan, executive]

We have been seeing your name on it. I should have corrected myself. So I've got about 28 years and you have 30. So we'll take score...

[Mark Howson, analyst]

Yes, absolutely. Just two questions from an old lag. Just on the -- just a bit industry-specific, the U.S. industry has seen a lot of [ de-fleeting ] the last 12 months, particularly through those used equipment auction markets. Are you seeing any signs of stability now that that's kind of already taken place? Or is it still in a bit of a fall? And with that, are you still expecting just to reduce tangible fixed asset disposal profit? Or could it go into a small loss for the full year? That's the first question.

[Brendan Horgan, executive]

I don't know if you're going to ask your second question straight away, Mark, or not. So we have -- Michael mentioned, and you saw it in the guidance in terms of our -- lowering our proceeds by $50 million in the year. And that's not by lowering our planned disposals. So we're sticking to our disposal plan.

We've seen from a percentage of OEC last year, we were 41%, 42% throughout the year. This year, we're kind of 34%, 35%. I'm not going to, on the call today, call the bottom. Instead, what I'll tell you is this, what history will tell you and what the rhythms when it comes to secondhand equipment values will show is that the bottom is very short. In other words, it's more of a V, it's less of a bathtub. So once you get that supply and demand right, you get quite a healthy rebound. But I think really, what we've seen is we've seen, look, 35% isn't bad. If you look back to GFC, you're probably in the low to mid-20s as a percentage of OEC.

So I think we are seeing some things like the inherent inflation in new asset cost that will act as a [ buoyant ] figure when it comes to secondhand markets. Yes, there's been a reasonable amount that's been sold through auction, through retail, through wholesale, et cetera. But what we do see out there, there's still a bit of capacity in rental fleet. And I think, again, it's important that we pay close attention to what CapEx looks like throughout the industry in the coming year, and I've made some statements about that earlier on.

[Mark Howson, analyst]

Yes. So 35% of OEC should be still a small profit, I would guess, at that level.

[Michael Pratt, executive]

Yes. No, we're still making profit on...

[Mark Howson, analyst]

Just a second question. Just in terms of the U.K., I mean, obviously, there are some items of specialty equipment where the rental penetration is low. But in the majority, it's a much higher level of rental penetration than the U.S. For you, you've done well where the business has still got a low return on invested capital. If you look at cash flow paybacks on the same item in the U.K. versus the U.S., it's much better to put your [ JCP ] in the U.S. than it is in the U.K. I mean are you wedded to that business longer term? Or is that something that you could potentially consider selling?

[Brendan Horgan, executive]

Mark, I set out a communication to the U.K. business this morning, immediately following the announcement of our intentions to relist. That team was present in Atlanta when we launched Sunbelt 4.0. And we have a Sunbelt 4.0 strategic plan in place for our Sunbelt U.K. business, which we are using as our playbook and we have no intentions whatsoever of changing that.

More importantly, what we're focused on is really what's inherent in Sunbelt 4.0 for our U.K. business, which is getting to a level of margin and return that is both acceptable and sustainable and absolutely being that free cash flow generative sort of as a stand-alone business. We've gotten this beachhead here. And increasingly, in particular, over the last couple of years, we've had quite a few nice wins. We've had wins with customers who rely on what the power of Sunbelt has to offer in America, and they're also looking for the same here. And lots of these are non-construction customers, which is also key to our strategic growth plan in Sunbelt 4.0. So I don't think you'd expect us to say anything different on the call here today. Our plan is as it was in the U.K's. part.

[Operator]

Ladies and gentlemen, today's last question will be coming from Rory McKenzie of UBS.

[Rory Mckenzie, analyst]

Also just one follow-up. I wanted to ask about the time line about the U.S. listing and why now. Just really, are there any fundamental considerations within that? For example, is there anything within that about wanting to start the U.S. listing with positive EPS growth? Or is that 12 to 18 months purely the kind of mechanics to work through?

[Brendan Horgan, executive]

It is purely a process, Rory. It's not picking timing in terms of the landing as you have suggested there. It is purely a process. There are technical aspects to get through. And of course, it begins with our dialogue with shareholders, which is really what we're announcing today.

[Operator]

As we have no further questions at this time, I'll turn the call back over to Mr. Horgan for any additional or closing remarks. Thank you.

[Brendan Horgan, executive]

Great. Thanks, operator, and thank you all for joining this morning, and we look forward to speaking to you following our Q3. Have a great day.

[Operator]

Thank you. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect. We wish you a very good day and goodbye.