Ashtead Group PLC

LSE:AHT

Earnings Call Transcript 2023-Q4

[Brendan Horgan, CEO & Executive Director]

Okay. Good morning, everyone. Thank you for joining Michael, Will and I for the Ashtead Group Q4 and full year results presentation. Today's update is going to detail the strength of our performance in the year, both in terms of record revenues and profits as well as the demonstrable delivery within each actionable component of our strategic growth plan, which, of course, you all know, Sunbelt 3.0.

The results of which leave us poised to thrive as we enter the final year of 3.0. I'll cover our full year outlook and, of course, a detailed update on the most current views and forecast for our end markets which I'm sure most of you are very interested in this morning. However, before doing that, as I usually do, I'd like to first address our teammates of Sunbelt Rentals across all the geographies that we serve.

These team members are so engaged in our business, particularly when it relates to embedding our safety culture. This culture embodies an environment of buy-in, adoption and leadership, developing a -- delivering a highly functioning world-class safety program. A program of this caliber is not only our leading value, but it's a prerequisite for a thriving, growing and sustainable business.

The results we'll cover this morning are quite literally the making of an engaged team of professionals that put the safety of themselves, their colleagues, our customers and indeed the members of the communities that we serve as mission #1. So for this and all their hard work and dedication, I'm extremely grateful. So as I always say to them, and I'm saying it now, please continue to lead safely and positively out there.

Now let's begin with the full year highlights on Slide 3. We delivered a strong and record performance in the fourth quarter contributing to another set of record results for the full year. Demand remained very strong in our end markets and obvious signs of structural progression within the market and our industry persist. We continue to gain greater clarity from current demand levels present in the business, paired with the needs, backlogs and future project expectations we are gathering from our customers and the relevant end market forecasted strength, all of which continues to support our view of ongoing structural gains and a strong end market throughout 2023 and beyond.

As I've said consistently for some time now, these conditions are very favorable for our business. For the year, group rental revenues increased 22%, while U.S. increased 24%, profit before tax of $2.273 billion was a 26% increase and earnings per share grew 27%.

I'm encouraged to report strong EBITDA fall-through in the U.S. business of 50% for the year and 50% for quarter 4, demonstrating sequential improvement throughout the year and the real strength of this performance in what was a remarkably inflationary environment coupled with the significant pace of expansion by greenfield and bolt-on acquisition, which, of course, the two of these have an overall drag effect on fall-through. So those are extraordinary figures.

During the period, we continued to advance our Sunbelt 3.0 strategic growth plan, doing so by executing on all our capital allocation priorities, beginning with $3.8 billion in CapEx, which fueled our existing location and greenfield additions with new rental fleet and delivery vehicles. We expanded our North America footprint throughout the year by 165 locations with 77 through greenfield openings and a further 88 via bolt-on.

We invested a total of $1.1 billion on 50 bolt-on acquisitions. And finally, we returned $261 million to shareholders through share buybacks and announced today our intention to pay a final dividend of $0.85, making the full year dividend $1 per share, a 25% increase. Despite these levels of capital investment, acquisition and returns to shareholders, we remain near the bottom end of our net debt-to-EBITDA leverage range at 1.6x.

These activities demonstrate our confidence in the ongoing health of our end markets and the fundamental strength in our cash-generating growth model that we will illustrate over more slides throughout the morning. Let's move on to our outlook on Slide 4.

Our initial revenue, CapEx and free cash flow outlook set forth herein is derived by taking into account the current and anticipated demand environment as well as momentum in areas such as pricing, structural growth and mega project starts. These contributory elements will be covered throughout the operational update this morning. So consistent with our approach in recent years, the slide here frames our current estimate of year-on-year rental revenue growth by business unit as well as group level CapEx and free cash flow.

Beginning with rental revenue. We anticipate the U.S. to be in the 13% to 16% growth range, Canada to deliver growth of 15% to 20% and the U.K. to deliver growth of 10% to 13%. This combines for overall rental revenue growth guidance for the group of 13% to 16%. From a CapEx standpoint, we began the year with a range of $3.9 billion to $4.3 billion, of which $3.3 billion to $3.6 billion is new rental fleet. This is tweaked slightly from the initial guidance in March, due to timing of landings, which I will explain when we get to the CapEx slide.

These activities and anticipated business performance lead to expected free cash flow of $300 million in the year. And on that note, I'll hand it over to Michael to give some financial detail.

[Michael Pratt, CFO & Director]

Thanks, Brendan, and good morning to everyone. The group's results are set out for the year ended April '23 on Slide 6. Fourth quarter was a strong one, had a year of record performance across the business with good momentum throughout. This momentum drove strong U.S. and Canadian rental revenue growth while U.K. revenue -- rental revenue grew despite the Department of Health testing sites closing or being demobilized during the first quarter.

As a result, group rental revenue increased 22% on a constant currency basis. The growth was delivered with strong margins and EBITDA margin of 46% and an operating profit margin of 27%. And as a result, adjusted pretax profit increased 26% to $2.273 billion. Adjusted earnings per share were $3.88 and ROI was close to our peak at 19.2%.

Turning now to the businesses. Slide 7 shows the performance in the U.S. Rental revenue for the year was 24% higher than last year at $7.5 billion. This has been driven by a combination of volume in rate and rate in what continues to be a favorable demand and supply environment. The strong activity and favorable rate environment have enabled us to pass through the inflation that we've seen in our cost base, both in general as well as the direct costs related to ancillary revenues such as fuel, transportation and erection and dismantling.

In addition, we continue to open greenfields. We're adding 68 in the year, along with complementing our footprint through bolt-on acquisitions, which added a further 67 locations in the U.S.

Inherently, in the early phase of their development, greenfields and bolt-ons are lower margin than our more mature stores. That said, as expected, dropped through improved during the year such that with fourth quarter drop-through of 54%, giving us 50% for the year as a whole.

This contributed EBITDA margin of 48% which in further drove a 33% increase in operating profit to $2.465 billion at a 36% margin -- 30% margin with ROI improving to a record 27%.

Turning now to Canada on Slide 8. Rental revenue was 22% higher than a year ago at CAD 696 million. The original Canadian business goes from strength to strength, taking advantage of its increasing scale and breadth of product offering as we expand our specialty businesses and build out our clusters.

We've now clustered five of the top 10 markets in Canada and 13 in total. The level of bolt-on activity, particularly in , which have a higher proportion of lower margin sales revenue that exists in our business has been a drag on margins. This impact will reduce in the future as we reduce the level of outside sales in these businesses.

2022-'23 proved to be a challenging year for Lighting, Lens and Grip business. Performance was affected earlier in the year by the threat of strike action in Canada, while the latter part of the year was affected by the threat and subsequent occurrence of strike by the Writers Guild of America, which is affecting current trading as well.

These factors have resulted in a drag in margins and a degree of uncertainty about '23-'24 performance in that business, in that part of the business, which I'll come back to in a moment.

As a result, Canada delivered an EBITDA margin of 41% and generated an operating profit of CAD 167 million at a 20% margin, while ROI was 18%.

Return to the impact of the strike on the Canadian revenue guidance. Lighting, Grip and Lens accounted for just less than 25% of Canadian rental revenue last year. Our guidance for this year assumes that Lighting, Grip and Lens revenues are down somewhere between 5% and 20% based on the strike ending at some point during our Q2.

Turning now to Slide 9. U.K. rental revenue was 3% higher than a year ago at GBP 559 million. This growth is despite the significant reduction in the work for the Department of Health as we completed the demobilization of the testing sites during the first quarter. As a result, the Department of Health accounted for about 4% of total revenue this year compared with 30% a year ago.

The core business continues to perform well with rental revenue 26% higher than a year ago. However, the inflationary environment combined with the scale of the logistical challenge in not only completing the testing site demobilization within 3 months, but then getting that large amount of fleet back out on rent and the significant increase in demand that we saw over the summer, particularly in the returning events market, contributed to some operational inefficiencies, and this has all impacted margins negatively.

The principal driver of the decrease in the costs -- the operating cost is a reduction in the work for the Department of Health, partially offset by the costs that I've just referred to above. These factors contributed to an EBITDA margin of 28% and an operating profit margin of 9%. And as a result, U.K. operating profit was GBP 65 million and ROI was 9%.

Slide 10 sets out the group's cash flows for the year. This slide demonstrates a significant cash-generating capacity of this business. Free cash flow of $531 million is higher than 2019 or any year prior to that despite spending $3.5 billion on CapEx.

Slide 11 updates our debt and leverage position at the end of April. Our overall debt level increased in the year as we allocated capital in accordance with our policy, spending $1.1 billion on acquisitions and returning $358 million to shareholders through dividends and $277 million through buybacks.

As a result, leverage was 1.6x, excluding IFRS 16, was towards the lower end of our target range. Our expectation continues to be that we will operate in our 1.5x to 2x net debt-to-EBITDA range, but more likely in the lower half of that range as we continue to deploy capital in accordance with our policy.

One of the actionable components of Sunbelt 3.0 is dynamic capital allocation. An integral part of that is a strong balance sheet, which gives us the competitive advantage, positions us well to take advantage of the structural growth opportunities available in our markets. We accessed the debt markets in August last year and again in January this year in order to strengthen our balance sheet position further and ensure that we've got the appropriate financial flexibility to take advantage of these opportunities.

We issued two lots of $750 million notes, 10-year investment-grade notes at around 5.5%. And following those notes issues, our debt facilities are committed for an average of 6 years at a weighted average cost of 5%. And with that, I'll hand back to Brendan.

[Brendan Horgan, CEO & Executive Director]

Thank you, Michael. We'll now go on to some operational and market detail, beginning with the U.S. on Slide 13. As you'll see, U.S. growth remained very strong through the fourth quarter with General Tool growing 19% and 20% for the full year. Specialty delivered 22% growth in the quarter and 30% for the full year. The strength of this performance once again broad, extending through every single geographical region and specialty business line.

Consistent with recent updates, the supply and demand equation remains favorable. These trends are driving increased rental penetration. For those benefiting most are the larger, more experienced, more capable rental companies who can position themselves to be there for this increasing customer base and therefore, realizing a larger share of, what is without question, a larger and growing market.

Importantly, we continued to progress rental rates in the quarter, and it is our intent and actually expectation that there will be ongoing positive rate gains in our business throughout 2023 and 2024.

Our rental rate improvement determination seems to coincide with all indications pointing to further and ongoing efforts to advance rental rates within the industry as well at large.

Let's take a closer look at our Specialty business performance on the next slide. The year-on-year rental revenue movement illustrated herein demonstrates the ongoing and compounding growth across all specialty business lines. U.S. specialty rental revenues increased a remarkable 30% on top of last year's 24% growth. To add context, our Specialty business in North America is now double the size it was just 3 years ago, and it's 70% larger than it was 2 years ago.

This growth continues to tangibly demonstrate the structural shift our customers are making from ownership to rental as we provide a more trusted and a more reliable alternative to ownership. You'll notice the year-on-year impact our temporary structure business has on the specialty growth rate, particularly in the fourth quarter.

I'll remind you, there was a very large one-off temporary structure project related to the Afghan refugee circumstance underway when we acquired Mahaffey in December of 2021, that generated roughly $75 million in revenue, just over a 5-month period. therefore, explaining the impact that you'll see.

Finally, remember our specialty business lines, principally service nonconstruction end markets, and therefore, act as a good proxy for the strength of this incredibly large market, which makes up almost 60% of our revenue.

To take a closer look, we'll move to Slide 15. As our Specialty and General Tool businesses service the heightened demand in our nonconstruction markets where there continues to be huge opportunities to drive rental penetration from a low base, an increase into what is a very large addressable market. We commonly refer to an incredibly large component of this nonconstruction end market as MRO.

The maintenance, repair and operations in the geographic markets in which we serve, such as facility maintenance, which is clearly defined as a market in which hundreds of billions of dollars are spent annually running and maintaining facilities from cleaning to painting to decorating, to planting, to temporarily powering, to cooling to repairing and I could go on.

Of the many, many types of facilities that make up the 100 billion square feet under roof of commercial space in the U.S. alone. The scale and growing revenue opportunities for our business within this space are immense. The rental of our broad range of Specialty and General Tool products will increase in what is a very much structural growth arena in the very early stages of a long runway for growth.

With other nonconstruction examples being live events, emergency response and municipal spend, these incredibly large addressable markets make up the majority of our collective Specialty business revenues; however, increasingly benefit our General Tool business as we continue to advance our prowess of cross-selling throughout the organization.

Now that we've touched on specialty and nonconstruction markets, let's turn to Slide 16 and cover the latest construction market trends and forecast. Despite macroeconomic concerns and the pressures that will -- that come with inflationary and interest rate realities, you'll see construction levels have proven to be incredibly resilient.

In fact, historically strong in the most recent year and it's forecasted to continue as such. I'm going to spend a bit of time on the current and next few slides and intent to put into context the construction landscape, what its drivers are and how our business is poised to be a material benefactor.

Starting on the top left with Dodge construction starts. This clearly indicates the strength of recent starts and the forecasted growth all the way through 2027. These starts figures are indexed to the year 2000, and so what you won't see, but you'll have to take my word on, is that U.S. construction starts eclipsed $1 trillion for the first time ever in 2022, of which $694 billion was non-res and nonbuilding, which is also another high.

These recent construction starts are an early wave of new projects derived from a combination of private investment and legislative project funding and incentives. On the top right of the slide, the starts are translated into a duration of project format known as put in place. This all makes clear that the nonresidential cycle has been considerably delinked from the residential cycle.

As a result of years of change in construction composition, reshoring and larger-than-ever seen before federal government spending acts, all contributing to the rise of an era of mega projects.

Let's dig in a bit further on Slide 17. The drivers behind the recent level of unprecedented starts fall into three main categories with many projects being driven by more than one. I think this is really of all the slides, one that really frames, if you will, how we view the end market shaping up. And of course, it says what these drivers are.

Firstly, a combination of geopolitical risk, supply chain challenges, environmental changes and the experience of the pandemic are all leading to a reversal of globalization and in particular, a reshoring of manufacturing and production in the United States.

This is being seen in many industries, but notably for semiconductors, LNG, automotive and their Tier 1 component part suppliers. Secondly, there is an ongoing growth in technology-related construction, contributing in part to a modernization of U.S.-based manufacturing. We experienced significant technology-related construction and indeed benefited for this or from this for many years, of which you'll all be familiar with, with projects such as data centers, warehousing and distribution. But now there are additional drivers in areas like artificial intelligence, electric vehicles, giga factories and utilities.

Finally, are the benefits coming from the three legislative acts, which amounts to over $2 trillion of direct or indirect funding of a broad range of projects. So each of the three of these onshoring; technology and manufacturing modernization; and legislative acts on their own would be significant. But when you combine them, One could well make the claim that we are in the early days of a modern era U.S. industrial revolution.

Let's look at the progress we're seeing from just one of these. That is the legislative acts on Slide 18. This is an update of a slide that we would have first shared with you in December. Beginning with the Infrastructure Investment and Jobs Act, the headline figure of $1.2 trillion may best be understood by compartmentalizing $650 billion as a renewing of the ordinary run rate, federal investment in roads, bridges, rails, utility, et cetera.

The key to this act, however, is not only reassuring the baseline investment, as I've just touched on, but is delivering an incremental $550 billion of new project spending throughout the U.S. We've now seen 32,000 specific projects announced, which will mostly start in '23, '24 and '25, you'll see that on the slide. And for a matter of reference, when we first put this out in December, there were only 10,000 identified projects.

So you can see in a relatively short period, 22,000 more projects have been named. 80% of these are new funds or 80% of the new funds applied to these five segments that are on the slide, all of which are segments where we have a strong product offering; therefore, will benefit from.

Secondly, with the CHIPS and Science Act, which puts in motion a revitalization of domestic semiconductor manufacturing, whereas for decades, the U.S. experienced a decline from 40% of the world's semiconductor production to only 12%. Also worth noting, the U.S. consumes 46% and of the world's production, but again, only produces today 12%.

The overall act will invest $250 billion to progress American semiconductor research, development and manufacturing. The act is designed to support, directly or through tax credits, nearly $140 billion in new semiconductor manufacturing projects. For semiconductor plants or fabs as they call them, have just recently started worth about $30 billion with more on the way, as you'll see.

And finally, the Inflation Reduction Act. $370 billion of this bill will fund directly or again by way of tax credits, a broad basket of renewable energy, production and manufacturing, ranging from solar fueled construction which will triple the current U.S. capacity by 2030 to battery factories, to wind farms, to electric vehicle production. The details of which are illustrated on the slide.

So what we have here is a trifecta of government investment equaling nearly $2 trillion in investment that will indeed create thousands and thousands of projects which Sunbelt is well poised to be a benefactor of.

Let's now look into detail what are the outputs of all of these drivers I've now mentioned that is mega projects on Slide 19. Here, we attempt to summarize how these drivers are translating into the overall mega project landscape. Just to remind you, we define internally a mega project of one that has an overall cost of $400 million or more. In the fiscal year just ended, 175 new projects broke ground with a total value of $300 billion at an average value per project of $1.7 billion. In the fiscal year, we've just begun, we're expecting over 250 mega projects to break ground worth almost $350 billion. And then in the 2 years after a further 180 projects are already identified with planned start dates totaling $350 billion.

In anticipation of a question that you may ask looking at this slide, the 180 projects slated for fiscal years '25 and '26 is not an indication of a slowing pace rather, that's what has been planned thus far. We would expect this number to grow. They just have to get to it. But as you can appreciate, there is a lot of work going on.

On the right of the slide, I've listed just a selection of top projects, which broke ground in the fiscal year just ending. You can see these include a very wide range of project type from semiconductor to energy, to health care, to public transport.

Projects of this scale and sophistication are often ideal for resident, on-site solutions. Meaning, we, Sunbelt, are often have dedicated storage and working space on the actual project, housing a large and broad offering of our products and the associated services, ranging from on-site maintenance and repair technicians, telematic equipped products, producing efficiency gaining benefits to our on-site and remote teams and, of course, to our customers.

Coming through for their mandates in areas such as reduced carbon emissions and, of course, living up to our mantra of availability, reliability and needs. All of these things, it's important to understand we are realizing more and more every day, we and what we do is absolutely essential for the success of these mega projects.

So the solutions that I've just outlined require a rental company with the scale, experience, technology, expertise, breadth of product and, of course, financial capacity. I hope you understand that this is a material contributor to structural change in our industry, which, again, we are certain to be benefactors of.

Let's now turn to our business units outside of the U.S., and we'll begin with Sunbelt Canada on Slide 20. Our business in Canada continues to expand and perform well as the power of our brand strengthens and customers recognize evermore the growing breadth of products and services that we offer. This growth is coming from existing General Tool and Specialty businesses, complemented by well-placed additions of greenfield openings and bolt-on acquisitions.

These conditions are not dissimilar to the U.S. in terms of activity, demand and the supply environment. And thus, we're experiencing equally strong performance as it relates to time utilization and rental rate improvement. Michael touched on the impact of the Writers Guild of America strike impacting our film and TV business. The strike has been in effect, again, as Michael said, since the 2 May, and there is no clear timeline.

However, there is some general thought that we could see an end to it in late summer or perhaps early in the fall. Either way, we're pulling the levers that you might expect as it relates to cost. However, let's be clear. We're in the business, this business, for the long term and fully expect a post-COVID style boon shortly after the strike, and we will be the company that is most prepared to benefit past this inevitable and to an unfortunate short-term circumstance.

On a very positive note, we very recently, June 1, recently acquired Loue Froid, a leading provider of power and HVAC rental solutions with four locations across Canada, based in Montreal. This adds to our largest North American specialty business line and is a material step change to our capabilities offering throughout Canada. Further, this gives us critical infrastructure in French-speaking Quebec, requisite for building out that market with our broader product and service offering.

Turning now to Slide 21 to cover the U.K. The business did a great job this year redeploying the large quantity of fleet from the COVID test sites, which were demobilized at the start of the year and indeed increased rental revenue year-over-year, which indicates a combination of share gains and a reassuring level of end market activity. There's real momentum in the U.K. business as it relates to increasing progress in markets such as facility maintenance and further develop specialty offerings in areas like power and the Lighting and Grip business, all emphasizing the unique cross-selling capabilities in the U.K. throughout our unmatched products and services portfolio, all now, of course, under the brand umbrella of Sunbelt Rentals.

You'll see on the right -- top right of the slide, there's a good mix of large projects in the U.K. as well, which we are, without question, best positioned to serve.

As I flagged for several quarters now, and we'll continue to do so, an ongoing area of focus for the U.K. business is to advance rental rates and the associated fees that we charge to provide our market-leading services. We bring great value to our customers. And in the inflationary period, we've experienced increasing our rates is a must do. We did gain some rental rate improvement focus material -- and some material momentum in the back half of the year just reported, and I fully expect that this trend will continue in the business.

Turning now to Slide 22. You'll see our normal Sunbelt 3.0 scorecard. I've covered the main points within the highlight slide, so I won't dwell on this other than to quantify the early effect of our expansion efforts. In just 2 years, we've added 288 locations in North America via greenfield openings and bolt-on acquisitions. These locations alone generated nearly $900 million in revenue in the fiscal year just ended.

Stand-alone, this would be a top 10 North American rental company which we've created in the last 2 years. Importantly, we're well underway in the development of the next phase to our growth strategy should come as no surprise, we'll call it Sunbelt 4.0, which we will be launching in the Capital Markets event in Atlanta, Georgia, in 2024.

We're particularly excited about this because it will coincide with our internal power of Sunbelt event, where we will launch 4.0 to thousands of our team members, and that will give the capital markets community the opportunity to interact and gain a tangible appreciation for our culture, something that slides and figures alone don't really do justice for at least when it comes to Sunbelt. We'll circulate the appropriate invites with further details in the coming weeks.

Turning now to Slide 23. CapEx for the full year ended up around $100 million above the top end of the guidance range that we gave in March. This was purely down to timing of landings with around $100 million of rental equipment in the U.S. we expected to land in May coming in before the end of April. Consequently, we've reduced our initial guidance for '23-'24 by the same amount to reflect this early landing.

We, therefore, now anticipate rental fleet CapEx in the U.S. to be between $2.9 billion and $3.2 billion. And after our nonrental CapEx across the group and ongoing rental fleet investment in Canada and the U.K., we guide to a total of $3.9 billion to $4.3 billion for the group in the full year.

This investment will fuel our ongoing ambitious growth plans incumbent in Sunbelt 3.0 and demonstrates our confidence in the current and forecasted demand environment, competitive positioning, the strong relationship we have with our key suppliers and our business model in general. However, as always, these plans can be flexed as we progress through the year to reflect our latest views on future market conditions.

This leads on to capital allocation on Slide 24. Michael or I have covered most every capital allocation element as part of the highlights or financial slides, all incredibly consistent with our long-held policy.

Worth noting, however, is our new buyback program of up to $500 million over the new fiscal year, which we would have put in place in May. And as indicated with the launch of that buyback program, we've commenced this at a relatively low level, reflecting the significant opportunities to deploy capital for growth that we've already covered, including what is still an attractive acquisition pipeline.

So to conclude, let's turn to 25. This has been another great year of profitable growth, location expansion and clear momentum in our business. Furthermore, there is improved clarity to the strength of our end markets in 2023, 2024 and beyond, driven by the recent realities of onshoring technology and manufacturing modernization and federal legislative acts. These actualities add to what was already a plentiful level of market activity, flush with day-to-day MRO, small to midsize projects and the very present and growing mega project landscape, which we've covered this morning.

Also clear is the increased pace of rental penetration and considerable market share gains for select businesses in our industry who possess the scale, experience, equipment purchasing influence and financial strength. Our business is positioned to win in the near, medium and long term. This update should demonstrate once again the strength of our financial performance and the execution of our strategy Sunbelt 3.0.

So for these reasons and coming from a position of ongoing strength and positive outlook, we look to the future with confidence in executing on our well-known and understood strategic growth plan, which will strengthen our business for years to come.

So before getting into questions, I'd like to actually thank the Numis team for allowing us to use this really great venue. And with that, when we do open it to questions, it's only fitting that we give the microphone to Steve first if you have one, Steve.

[Steven Woolf, Numis Securities Limited]

You've mentioned so much about, obviously, the strong demand you've got out there and the opportunities. I was wondering whether we could touch on the supply side of the equipment into that. One of your competitors recently mentioned that they expect supply chains to ease a little towards the back end of the year. So I wanted to get your thoughts on that and potential fleet into the market that might be coming?

Secondly, equipment disposal levels, which I know most of the industry has held off of until sort of now this year to even think out. So I was wondering whether you could sort of touch on disposal pricing, potential margins that you're seeing out there?

And then thirdly, with all the new equipment that's landing, is there a noticeable premium to pricing that you're getting out there or any of this kit or is it sort of just flooding in as part of the attraction?

[Brendan Horgan, CEO & Executive Director]

I'll start backwards there. So yes, new shiny fleet, green in particular, matters. So you've got to make sure that your fleet ages of positions you to have one of, if not, the most modern fleet in the industry, and that certainly helps as we are progressing rental rates. What we don't see is a delineation between our newest fleet and specifically what we charge for it when compared to our middle or our oldest, which is actually important.

In times past, frankly, coming out of the GFC, we would have seen that, which was different, the new fleet got more, and that which was long in the tooth didn't get quite as much more, so to speak. So it's important characterization.

In terms of dispositions, what's the total, Michael, for the fiscal year in disposals, ballpark, $1.3 billion, $1.4 billion overall. The short answer is this, pricing remains historically strong. We're a bit off of the toppest levels that we would have experienced. But I think the key to understand there is what has proven the case throughout all of this is, is so extraordinarily liquid.

So for the business to actually go through the various paths that we do for disposal, it is perfectly liquid. And I think one thing, I think a lot of people are expecting in the capital markets community that we'll see significant degradation in secondhand values. I just don't think that's going to be the case. I mean, really, the biggest underpinning, so to speak, of what second-hand values are is what new equipment cost?

And let's face it, the industry -- the equipment world in general, has experienced great inflation, so that should act as a booing effect overall. And then to your first question, we actually updated this slide, you'll see 33, which is in the appendix.

We used this slide for quite a bit -- quite a few times over the last couple of years, just really flagging these three market dynamics were rather unique, not to mention happening at the same time and the one that you're talking about specifically is supply constraints. Our view would be this, we're in the new normal period for what we think could be 1, 2, maybe even 3 years, and that is this.

Rest assured, supply constraints are still reality. Those are one of the primary drivers of bringing U.S. manufacturing and the component part manufacturing aspect to the U.S. What's changed is this, OEMs are getting better at meeting their commitments. So if they give us certain commitments over the course of the year, look, they delivered $100 million early last year between April and May. But what has not demonstrably improved are lead times. So lead times still remain significantly longer than what they were pre-pandemic, and we think that's just the reality, particularly when you have ourselves and one or two others who are ordering larger, they're getting a larger overall share of a production capacity that's not much more than what it was. And we're all sort of going further out in those orders or build slots, this is something that we think we'll carry on.

[Annelies Vermeulen, Morgan Stanley]

Annelies Vermeulen from Morgan Stanley. I have a couple as well. I'll take them one by one on mega projects, unsurprisingly. So first of all, you've talked in the past about your market share on mega projects being at least double of your typical market share for the industry. If you looked at some of these projects that you've outlined and the pipeline that you've identified, can you give any color on that market share number, appreciate you might not say we won this business, but any kind of color on how much you're winning and who you're -- I'm guessing, there's any couple of you that can bid on these projects? And then equally, if you look at some of these really big projects, would you typically do 100% of the equipment supply or would you share that with other operators?

[Brendan Horgan, CEO & Executive Director]

Sure. I'd tend to overshare a bit. So there are projects on this very slide that we would have been given that preferred vendor status, which means that we're actually resident and on site. I'm actually quite happy to say there are some projects where it's actually more than one of us who are giving on-site access to these projects, just given the enormity.

I mean some of these projects, I mean, you walk one of these just massive semiconductor sites that -- just to put in perspective, a big fab like you see listed there, 13,000 trades people will badge in and out of that project every single day. So when you think about the scale of that and the requirements in order to service it, it just goes back to what I said is sort of big and sophisticated.

Our team who is focused on this, you all know John Washburn, but we have someone in particular, her name is Janel Strawbridge. And Janel, with her team that is in place throughout the country, if you will, literally tracks every single one of these mega projects in terms of when it's coming up for bid, who the general contractor might be, where geographically it is, where it fits a bit better, where perhaps it fits a bit less, who the general contractor might be, who we have a bit better relationship, who we have a bit less relationship with.

And literally, that team has taken all these projects you see and designated them into tranches, like we must win this; we'd really like to win this; we'd take this, but we probably don't align the best; and this, we're probably just not going to get.

That team's mandate, self-imposed, is to win 1/3 of these. And I'll just say our track record is strong. And that -- as you suggested in your question, that sort of proportion remains the same. We think we have about double market share. And some of those that we are sold were kind of 90-plus, but I would go so far as to say there's not a single project on this slide, started or otherwise that we won't have something at some stage of these projects. Also worth noting again, these projects last on average 3 years and then you have to think about all the consequence of those after, when the suppliers come in, et cetera. But anyway, does that answer your question?

[Annelies Vermeulen, Morgan Stanley]

Absolutely. And then secondly, thinking about all the greenfields that you've added and also the bolt-ons, if you look at some of these mega projects and where they're located, there seems to be a skew towards certain states where you are seeing more of these bigger projects go up. And I think you have a good footprint in a lot of those states. But if you think about the pipeline of these projects and the length of time and touching to your point about location, is that impacting how you're thinking about where to open greenfields over the next 5 years?

[Brendan Horgan, CEO & Executive Director]

Location matters probably more just when it comes to the required relationships with whoever may win. One thing that you have to be careful with when you're in our sort of role and when we're going after these many projects, there is a whole slew of other projects out there. I know we're spending particular time on these because they're just big headlines grabbing, but I'm actually going to refer to a sheet here and read off to put things in perspective.

In the fiscal year just beginning, there are 1,150 projects that are between $100 million and $400 million in cost. So the reason why I say that is twofold. A branch that is in an area or a cluster of branches that are in an area, their day job, their long-term necessity is to deepen their penetration in that market, not to be distracted by a mega project, which is why Janel and her team, along with the operational leadership, are really focused on those.

We could really care less whether the project, in most circumstances, is in Bangor, Maine, or it happens to be just west of Scottsdale, Arizona. In general, because we're actually deploying fleet, and in many instances, people in accordance with that project. I think the sort of where tends to be what type of project. We've become incredibly well versed in certain types of projects and maybe a bit less so in others. So those are the things that really, I think, add to it more than anything else.

[Annelies Vermeulen, Morgan Stanley]

And then just one last one on the CapEx guide you were talking about. When you think about that sort of fleet that you're adding for the next year, particularly on the growth side, is that -- is there an expectation of future wins baked into that? And in terms of that moving up, would -- is it still availability constraints that prevent that, as you said, the lead times and availability of equipment or are you actually know we've got everything we need to service these projects?

[Brendan Horgan, CEO & Executive Director]

We do have a considerable dial up of the overall fleet growth that is allocated for projects that we have line of sight, and there is a degree of confidence, if you will, that we end up in a good position that will contribute to that. But again, it's important. It doesn't take away from the growth CapEx for the business we have. Our our existing branches.

In terms of your question, can you flex that much? There's not much up-flex. I mean in the past, you would a few projects, you get an extra $0.5 billion in fleet, I know it sounds like it's -- well, it was easy. The hardest part was really just convincing Michael, that it was financially prudent. But once we did that bit, it was pretty easy. Today, we couldn't call even our top suppliers and change this guidance we've given by $0.75 billion or $1 billion. It's just not going to happen.

[Allen Wells, Jefferies]

It's Allen Wells from Jefferies. Three for me, please. I'll take one at a time. Maybe just following on the kind of the mega project theme anyway. Obviously, some very big numbers there. Can you talk a little bit about how you see the revenue shift at Ashtead with the U.S. business anyway? In terms of less than 45% is obviously construction exposed. How much of that is now, over the last 12 months, was this kind of mega project infrastructure theme? And then you look out over this year and next year, where do you see that shift going to? When does it become uncomfortable you're overexposed to those markets? Just would like to get a feeling of where you could see the mix...

[Brendan Horgan, CEO & Executive Director]

Yes. Well, I mean, again, -- based on the forecast, which coincidentally on our Slide 16, which shows the put in place figures, wouldn't you know last night, Dodge came out with a brand new printing. So we -- it was a bit too late. Press release was out, et cetera. So we left it as is. I'll give you the comfort in the fact that in total, the nonresi and nonbuilding actually moderately grew every year from 2023 through 2027. And we saw resi go down a bit in 2023 and then grow again from '24 and beyond.

The reason why I say that is, as it stands today, those other projects I mentioned that aren't these mega projects, that's still a robust end market. So it's not so much would we all of a sudden find ourselves over positioned here because that's a choice. Our identification of the projects in that must-win, et cetera, what aligns with us, we are always taking into account balancing the combination of squeezing every drop out of the sponge now.

But really, in the end, what we're all looking for is a long-term vibrant thriving business that will be around for a long, long time, hence, sustainability. But overall, when you look at these projects, I think there's a few things to just consider. Because one question like I got, for instance, while we were outside waiting. What's the risk of these not going through, these projects, right?

And I would characterize it this way, and there's three very important things to understand about these mega projects. Number one, when they start, they will finish. So the 175 that began last year in conjunction with you remember the 200 that were going on in December. Those projects will finish. Those of the 256, which have already begun, will indeed finish.

Secondly, the calculus, the very decision to invest in these projects has nothing to do with macroeconomic environment, concerns, et cetera, over the next couple of years, the calculus on returns for projects like this are, in some cases, survival, and in some cases, derived over the course of 50 years.

And then the third piece would be think about what happens to other sort of construction that you're asking about after these are done. Not only the Tier 1 suppliers coming in, but you get everything else. People work in these when they're done or these big projects. And then you have housing and those sort of things. I think there's actually a great phrase here. I'm going to Michael give, Michael all credit to this because we were always asked the question.

There are one or two out there that think that still as resi goes, nonresi will follow. We think they're unequivocally wrong. Michael has got it right now, which is as nonres goes, resi follows. That's the future of the U.S. as things go. So we think that, that is the construction yield curve inverted. Anyway, your second question?

[Allen Wells, Jefferies]

Yes. Maybe just some shorter-term ones. First of all, on that 13% to 16% U.S. rental growth guidance for the year, could you maybe just talk a little bit about what your assumptions are on rate and utilization there? You've talked for the last 6 months around kind of 6%, 7-plus percent on the rate side. Do you see that moderating a little bit? And obviously, utilization, you've alluded to the fact you wanted it to come down a little bit because it was uncomfortable. Maybe what assumptions are around that 13% to 16%?

[Brendan Horgan, CEO & Executive Director]

That's a rate and then give Mike actually, you talk a bit about volume, et cetera. I'm going to talk about this year that just ended, 9% run rate improvement year-on-year. So that demonstrates that ongoing momentum. And I also mentioned clearly seems to be the focus in the industry in general because it's necessary. But do you want to deconstruct, Michael, the forecast?

[Michael Pratt, CFO & Director]

Yes. I think the easiest way to look at that is within that range, just take it 2/3, 1/3. So about 2/3 of it will be volume, 1/3 of would be rate. Don't get too hung upon utilization. We talk about, yes, we'd like it to be a little bit lower, so we can say yes more often, but utilization is a function of the fleet size. So that's just not get hung up on utilization. We'd like to be a little bit lower, and we can then take on more work, but 2/3, 1/3 is a good split.

[Allen Wells, Jefferies]

And then very final question, just 18% growth in the fourth quarter in the U.S. Can you maybe just comment on exit rates side, probably what growth looked like in the last couple of months?

[Brendan Horgan, CEO & Executive Director]

We had May was 15% on billings per day. So kind of right in the middle of our guidance. Can you just pass along there?

[Suhasini Varanasi, Goldman Sachs Group]

Suhasini from Goldman Sachs. Just a few from me, please. I think there was a lot of concern after the regional banking crisis in the U.S. that maybe some of the activity would slow down. in the construction side. Could you maybe comment on what you're seeing from your clients' perspective?

[Brendan Horgan, CEO & Executive Director]

Yes. I think let's face it. It's interesting when we are in the U.K. speaking to a U.K. audience, regional banking comes up more, believe it or not, then it comes up in the U.S. And I think it's because in the U.S., everyone's sort of thinking, well, that was like 90 days ago and we're off to greener pastures.

But in reality, the short answer is, of course, it's going to have some effect. Also, part of the short answer is that effect is actually in these forecasts already from overall construction. But the way I boil it down, having talked to many customers about this and those actually in the lending business, these regional banks included. One in particular told me, remember, as a regional bank, we must lend. So it all comes down to really reducing the risk in lending.

So it comes down to that, the company or business, et cetera, that they will be investing in or to and the type of construction they will be building. And you can already see the consequences of that happening. Now some of them are structural, and they're just accelerated through this. and others are just the obvious. And if you think about the overall construction landscape, let me put it in perspective when I say structural, but also amplified because of regional banking.

If you look at an area like retail or stores as it's sort of in Dodge, to put in perspective, between the year 2000 and 2007, expressed in millions of square feet, retail was 300 million square feet of construction consistently for turn of the century through leading up to the GFC. Today, it's about 60 million. It was a bit higher than that, and then you have the banking crisis because I mean are you going to lend as a bank to a restaurant right now? Probably not.

So office space is another one that you can definitely see. If you look at offices, and again, it's a bit odd, you have to really understand all these pieces, which, of course, we study. But if you look at offices, there's four buckets for offices. And we all would agree in this environment where we're not quite sure when or if or how many people will actually come back to a proper office, I would not want to be in the office REIT business, not right now, personally, I like rental. But if you think about it, you've got four pieces of office. You have office which is spec; office which is build-to-suit; office which is remodel and then you have data centers that are in office.

So office that is spec, I would just go ahead and say it's dead, like I wouldn't expect an office to be built in spec that has not already started, I don't know for how long, but let's just say 5 years. I'd say most all of that's in the numbers, but probably not all of that. Oddly enough, when you look at purpose-built or build-to-suit, it's actually quite strong. You still have some tech companies building some offices, you have a bank or two that's building 1.5 billion beautiful buildings in downtown Manhattan. And as they start, they will finish.

Remodeling is actually reasonably healthy, but data centers, this might surprise some of you, so I'm glad you asked this question. Data centers will have their largest ever in the history starts here in 2023. In the U.S., there will be $17 billion worth of data centers that are started. Now these are seeming like small projects compared to the stuff I've just covered because the data center building is about $450 million, $425 million, but nonetheless, $17 billion worth that will start. And from a forecast standpoint between 2023 and 2027, it averages $13.6 billion.

So quite robust, but here's what may surprise you more than anything. The average pre-GFC from '14 to '19, $6.5 billion. So these are all -- what I mentioned on the slide, there's three big drivers of these unprecedented levels of starts, that's advancing technology. Everyone talks about AI, what does AI need? It's all a matter of servers, speed, data. You need data centers for that. So the regional bank, we keep an eye on it, but we think the at-risk piece, it's not a single one of these.

[Charlie Campbell, Liberum Capital Limited]

Charlie Campbell at Liberum. I got a couple. Just to go into the sort of U.S. outlook and just to ask the question around rates really. So I suppose a big number, half of the business, nonresi -- nonconstruction rather. There are clearly kind of risks out there of recession, slowdown in that part. Also bits of office, whatever you want to call it, bits of residential. Is there a risk that there's too much capacity in those markets and the people who own that fleet and those parts are depressing rates against the rest of the industry? Just wondering what happens on rates on that side?

And then secondly, a bit more of a detailed question. Just on bad debts and how you manage bad debts in '23 and '24. Obviously, a lot of the contractors have got the wrong side of inflation, having they taken up fixed loss contracts and stuff. So how you manage that?

[Brendan Horgan, CEO & Executive Director]

Yes. So I'm sure Michael will take the second. But as it relates to rental rates, we just have to be really clear here. So despite a scenario that you just mapped out, rental -- our rental rates will not go down. So us lowering rental rates creates no demand and all of a sudden, building the next data center.

So we're not going to go to TSMC and say, "Tell you what, 15% off rental for the next 2 years on your $10 billion project." They're not going to build one as a result of doing that. We have all learned our lesson as it relates to that. The difference between those that are capable for the projects that in the scenario you described will remain, the standard has just changed whether that be ESG related, it'd be health and safety, it be telematically equipped equipment, it's just all different.

And the delta between those who have and those who don't is it is not a moat, it is an ocean. And when you really think about the makeup of the overall industry, frankly, it's the smallest rental players who really have to progress rate. So they've experienced inflation like no one else has, and they're just now getting around to replacing their fleet. I mean there are -- this may surprise some of you. You look at the pie chart in terms of how fragmented the industry is.

There are 3,274 independently owned and operated single branch rental companies in the United States alone. They're not going to all get together and say, "Tell you what, let's pick a fight with Sunbelt in terms of pricing." It just won't benefit them. So that's just -- that is the reality of where we are today. Michael, bad debts.

[Michael Pratt, CFO & Director]

As we've always seen so far is a little bit of a slowing of payments. So we just see no significant increase in bad debt at all. And what I mean by a slowing of payment, I'm talking about sort of like 30 to 60 days. If you actually take our most aged categories, they're not dissimilar to what they were prepandemic. So we've not seen any of that yet.

And what you have to remember is none of our debtors are significant. No customer is 1% of revenue. So all the receivables individually are very, very small. So you have to keep track of it, and there's a lot of work chasing it all, et cetera, but it's not a significant problem.

[Brendan Horgan, CEO & Executive Director]

It's also coming off of our best ever receivables, right? So it's not like degradation to historic norms. It's better, it's just...

[Michael Pratt, CFO & Director]

I should say if you say if you go back pre-pandemic and the age is not dissimilar, it's probably slightly better.

[Arnaud Lehmann, Bank of America Merrill Lynch]

Arnaud Lehmann, Bank of America. I have three brief ones. Firstly, just a follow-up on rental rates. You say 1/3 of the 13% to 16%. So mid-single digit, what is the rollover effect from last year increase? And what could be the incremental rate you expect to implement this year?

[Michael Pratt, CFO & Director]

Probably about half of it is rollover. So yes.

[Arnaud Lehmann, Bank of America Merrill Lynch]

Secondly, on the free cash flow guidance, so maybe another one for you. Your top line is going to increase and hopefully, your profits as well. Your CapEx is only slightly up. So why is your free cash flow guidance, let's say, stable or similar to last year when maybe it should be increasing a bit more. Are there any other factors to consider?

[Michael Pratt, CFO & Director]

No, it's all -- one of the challenges you have in certainly with free cash flow guidance. So if you go back, if you see where we were at Q3, we said $300 million and we delivered $531 million. When you're landing $300 million, $400 million of fleet every month, it doesn't take much of a slippage one way or the other to change your free cash flow guidance.

So one of the reasons why we're better than we guided to at Q3 is the fact that actually everything that landed, we haven't quite paid for it all. So some of that knocks on into next year. So yes, it's sort of around about the same, we're spending a little -- we're spending more on CapEx, et cetera. across the piece. So there's nothing unusual in there.

[Arnaud Lehmann, Bank of America Merrill Lynch]

And the last one is a follow-up to all of Brendan comments on mega project, et cetera. If we build, let's say, fewer offices and more factories and maybe more roads. How does that impact the, let's say, the rental intensity? I would have thought for a warehouse or factory, maybe the there's less construction for the structure and more stuff inside compared to an office, so is there -- is a rental intensity similar? And do you have the right equipment for these mega projects compared to can you just move all of the fleet from an office building to a factory building?

[Brendan Horgan, CEO & Executive Director]

Yes. Our fleet is very fungible from project to project. I mean, you pick offices, offices, frankly, are the best. If you think about rental flow through, there are some projects on the high end that might be 5% to 6% of their overall construction costs would flow through to rental. There are some projects that might be more -- in the mega project universe might be more like one or one in a bit. When you look at megas across the board, I think a healthy number is about 1.75 of the cost of construction, depending on, again, the makeup, data centers is going to be a bit higher.

And when you get into a semiconductor, frankly, we thought 0.75 at first, I think we've learned pretty quickly, it's more of that 1 and a bit, 1.25 for a semiconductor. It just depends on the type.

Offices, the more vertical you go, the less rental flow-through there is because obviously, when it comes to some of the platform, yes, you have little sizzlers on each floor perhaps. But the more vertical that you go, the less favorable, the more broad wide, so to speak, the project is the better. But in the end, we are fleeted well, both from an infrastructure standpoint and the other drivers of these mega projects.

[Mark Howson, Dowgate Capital]

Mark Howson from Dowgate Capital. Just a couple of questions, just background stuff. Most of the questions I want to know have been asked. Just where are we with regards to U.S. rental penetration and particularly if you include that repair and maintenance section, if you could flow that in where we are on that? And secondly, can you just remind us again where the market share is of the mom-and-pops relative to the majors these days?

[Brendan Horgan, CEO & Executive Director]

Yes. If you -- I'll take the first there last and just put this -- I haven't remembered -- remember all in the appendix slides just yet. Is the last one? Here you go. There you go. So when you look at those in the center there under 2023, that other -- that's going to be all of those outside of this RER 100. So it's going to be that $3,274 million, plus another $700 million or $800 million or so that make up what is that 37% share but that's updated to indicate our most recent views on market share overall.

As it relates to rental penetration. It's a very hard one to actually do the math on as you're progressing through a period, which we believe we are today of a step change in penetration. And the reason why I say that is if you look at areas, which I know you're all versed on this, but when you look at platform, which is almost fully rental penetrated as it relates to today and has been going into this period. But we are seeing what we believe to be anecdotally tangible gains, whether it be in products like skid-steer loaders, some other ground engaging product, even the larger end, hydraulic excavating, et cetera, which still is actually low, more in the 25% to 35% range when we do any sort of precision with the OEMs.

And of course, when it comes to the specialty product lineups. I mean if we look at our flooring business, which has grown fantastically since we've brought that on, we're still in low single digit. Maybe we're scratching 4% rental penetration or something like that with Flooring. That Capital Markets Day that I mentioned earlier in April, you're going to get an update on a broader view of rental penetration.

[Neil Tyler, Redburn]

Neil Tyler, Redburn. Back to supply. In the past, Brendan, you mentioned the physical OEM capacity not being any greater than it was, I think, in 2018 was the -- if you could give us an update on your sort of thoughts there and outlook. Several of those OEMs have pointed to very strong order backlogs for some time. But I've also heard opinions that some of those order backlogs might be duplicated. So if you can -- if you got a view on that, I'd be interested in it? And within that, in terms of pricing of ticket prices for equipment '24 versus '23, if you could help us with your thoughts there?

[Brendan Horgan, CEO & Executive Director]

Yes. I mean the -- what you're talking about, what we've shared specifically was for the manufacturers who sell into North America in many cases, manufacture there for aerial work platform and telehandlers specifically, which is about 50% or a bit more of the overall industry's fleet.

And those three product categories, scissors, booms and telehandlers are just now in 2023. In 2022, scissors would have gotten higher than where they were in 2018. Booms and telehandlers still at or below pre-pandemic levels. So they're just getting to the point of getting back to what their peak capacity was. The key is they've not added much production at all.

And of course, that takes time, and you weren't going to necessarily do that coming right out of the pandemic. That was a pretty -- that would be a pretty gutsy call overall. Now on some of the other suppliers, we are seeing their capabilities are improving, whether it be utilizing different manufacturing facilities to produce more in-demand products, et cetera.

But I do think, and it's important for us from a long-term standpoint, we will get bigger and bigger. And therefore, our needs from a product standpoint will be larger and larger. And we're seeing some -- actually, we're seeing some deglobalization in the manufacturing industry in and of itself with plans in the U.S., but also in Mexico and Canada. So overall, kind of in North America. But I'd say more than I think it's a bit of status quo.

In terms of inflation, I'm answering it this way because it's the number I know off hand. If we look at the life cycle inflation for the assets we will replace in the new fiscal year we've just begun, it's about 20%. So you're talking 2% to 3% per year depending on the product itself.

[James Rosenthal, Barclays Bank]

James Rose from Barclays. Two on margin, please. What are your drop-through expectations for FY '24? And then linking in mega projects as well, what margin would you expect on those? Could they be accretive to the group?

[Brendan Horgan, CEO & Executive Director]

Mega projects we would just say, I think we're best just saying parity. When it all comes out of the wash, it's kind of about the same. There is a sort of peak part of a project that might be a bit better than the rest, but you have to take into account the buildup and then the ramp down, so to speak.

In terms of expectations for fall through this year, I'd say it this way, I'm telling the business 55%, Michael's saying at least 50%. So we would say 50%. He's right. I'm just trying to set a goal rather than a budget. But when we look at the degree in which we are adding greenfields, which are planned for 120 this year, much better line of sight than what we had last year and last year, we had some very specific bolt-ons that replace what were planned greenfields.

And of course, that's going to vary based on how much bolt-on M&A that we do indeed do. But I think we should just stick with low 50s. Would you concur?

[Michael Pratt, CFO & Director]

I'll let you have that.

[Andrew Nussey, Peel Hunt]

Andrew Nussey from Peel Hunt. I'm curious, what are the specifiers saying at the moment in terms of environmentally friendly fleet that they want? Are you able to get all that you want? And through the life of that asset, would you still expect to get the same returns on an environmentally green piece of fleet as you would as opposed to a dirty version?

[Brendan Horgan, CEO & Executive Director]

Yes. Our expectations as it stands today is dollar utilization parity. And if we do achieve dollar utilization parity, we should achieve an overall better margin because we anticipate the cost of maintaining and repairing those assets will be a bit less. I would literally just be guessing if I told you what the value of an 8-year-old hydrogen-powered, electric powered or whatever else may come, what that will be 8 years down the line because we just don't know yet.

But I think there are some key things to -- you've got to take the -- it's hard to argue this view on. Rental penetration will steepen in those products. The life expectation of those products will be longer. I mean if you look at just electric, think about a motor versus an engine. Engines through rods and brake and need oil, et cetera. A motor is what's in your ceiling fan. When was the last time one of those broke? So you're going to get a longer life out of those sort of assets that you would have. I may have missed a question or two there, I'm sorry.

[Andrew Nussey, Peel Hunt]

It's more just what specifiers are saying. Are you seeing...

[Brendan Horgan, CEO & Executive Director]

You mean, the customer asking for it?

[Andrew Nussey, Peel Hunt]

Yes.

[Michael Pratt, CFO & Director]

I'll say, the element of that is you've got that fleet's got to exist yet. So until you actually get some of these battery-powered things where it's hydrogen, it just doesn't yet exist. So there are certain ways you can mitigate it and certain things from -- if you think about power, et cetera, then we can combine a generator with battery storage, et cetera, to reduce emissions, et cetera, but until the fleet exists and you get that, which is why we're working with a number of our suppliers to actually advance that process. But until it hits the market, then it's difficult for people to specify.

[Unidentified Analyst]

Michael Foster, Ocean Equity. Can you just talk about staff turnover? And are people leaving United Rentals to come to you and et cetera, in the sort of top 2 or 3 players?

[Brendan Horgan, CEO & Executive Director]

That's not what happens. It's impossible to say that someone didn't join the organization today from United or somehow person didn't join United from Sunbelt just given the number of you're talking 22,000 people and 26,000 people order of magnitude, it does happen. What we're finding is, certainly, when you think about this very slide, those that are skilled trade fill in the blank, commercially trained and licensed professional drivers, certified diesel mechanics, hydraulic mechanics, et cetera. They're looking for a career, less so than the job, and we're seeing that.

But also this skilled trade scarcity is not a thing of the past. I think that will be -- frankly, I think it will be the case for my entire career remaining. And I think I've got a long one, I hope I have a long one. So the reality is, I do think we're attracting them from some other tangential industries. But it's a bit different. When you bring a driver into our business who's used to backing up a truck to a loading dock and someone else unloading it, and then you're unloading a 22,000-pound asset on four wheels that lifts you 60 feet in the air, you've got to try it on for size.

So we're trying to significantly more promote that in the way in which the actual real-life job is that we do, that safety culture is paramount in doing so. But in terms of retention, I'll put it this way. We're the 12th or 13th largest commercial trucking company in North America, and most trucking companies would kill to have the level of retention that we have in our drivers. When it comes to those that are not on the skilled trade side, managers, sales force, senior leadership, our turnovers is anemic.

[Unidentified Analyst]

And just on the mega project front. Obviously, you're going to be heavily involved in the build-out of these things. What do you anticipate sort of being on site post the build with all the specialty stuff?

[Brendan Horgan, CEO & Executive Director]

It's a great question. That's facility maintenance. So that 100 billion square feet under roof is going to grow at a pretty significant clip. And the more industrial and manufacturing that is the more intense the MRO is. So -- we do it today. Of course, it's a meaningful part of our business, and it will be a growing part of our business that really requires virtually all of our specialty business lines and, of course .

[Brendan Horgan, CEO & Executive Director]

Any others? I think that's it. Well, good. Well, thank you for joining us this morning, and we look forward to seeing you in about 90 days' time. Have a great day.