Hello, and welcome to the Ashtead Group plc Q1 Results Analyst Call. I'll shortly be handing you over to Brendan Horgan and Alex Pease, who will take you through today's presentation. [Operator Instructions] For now, over to Brendan Horgan and Alex Pease of Ashtead Group plc. Please go ahead.

Great. Thank you, operator. Good morning. Thank you for joining, and welcome to the Ashtead Group Q1 Results Presentation. I'm speaking to you this morning from our support office in Fortville, South Carolina, where I'm joined by Alex Pease and Kevin Powers, with Will Shaw on the line from London. Given this is the first quarter, we'll keep this relatively brief. You'll see we've updated the presentation format a bit as we do from time to time. But as usual, I'll start with safety on Slide 4. To begin, I'd like to address our Sunbelt team members listening in, specifically recognizing their leadership and help and safety of our people, our customers and the members of the communities we serve. In particular, I'd like to acknowledge our professional drivers, who are on the road every day and lead from the front in our obsession with Engage for Life and our obsession with customers. They drive over 1 million miles while performing over 30,000 deliveries and pickups every single day. We know that the more we drive our exposure increases. I'd like to recognize this team for not only delivering on our promise to our customers, but also doing it safely. Just as we invest in our fleet, we also invest in the safety of our people and our communities and illustrated herein, you can see the significant improvement in rear-ending events. Our efforts are delivering results following the performance of the business, which we will discuss, but more importantly, on the safety of our people. So to our drivers, thank you. Thank you for all your efforts and your ongoing engage -- commitment to Engage for life. Turning now to Slide 5. Key messages you'll hear from Alex and me today are the following: First, this is a solid set…

Thanks, Brendan, and good morning to everyone. Starting with the first quarter results for the group on Slide 13. Group total revenue increased 2% and rental revenue increased 2.4%. The EBITDA margin and EBITA margin were 46% and 24%, respectively. The slight drop in margins reflects a number of factors, including the higher level of ancillary revenue, most notably EMV work in our power business, which is typically at a lower level margin. An increased level of internal repair costs, which we anticipated as we had roughly 13 percentage points less of our fleet on warranty coverage and an expected increased cost of repositioning the fleet to higher-growth markets, driving improved time utilization and ongoing rates. After an interest expense of $131 million, reflecting lower average debt levels, adjusted pretax profit was 4% lower than last year at $552 million. As explained previously, we're adjusting for nonrecurring items associated with the move of the group's primary listing to the U.S. These costs amounted to $12.7 million in the quarter. Adjusted earnings per share were $0.953 and ROI on a trailing 12-month basis was 14%. Slide 14 illustrates group revenue and EBITDA progression over the last 5 years and in the first quarter, highlighting the significant track record of growth over a range of economic conditions. Turning now to the individual segments and starting with General Tool. Slide 15 shows the performance for our North American General Tool. Rental revenue for the quarter grew by 1% to $1.5 billion, driven by improved volume, time utilization and stable rates. As I explained previously, margins were impacted in the period primarily by investments in repositioning the fleet for growth as well as higher internal repair costs largely related to warranty recoveries. EBITDA was $871 million at a strong 53% margin. Operating margins were…

Great. Thanks, Alex. Before summing up, I'll just touch on capital allocation. During the quarter, we made good progress on our Sunbelt 4.0 execution. As part of this, we've continued to invest in the business. So during the quarter, we invested $530 million in CapEx. We opened 10 greenfields in North America, of which 6 were General Tool and 4 Specialty with a clear line of sight to achieve 60 greenfields in the full year. We invested $20 million on 2 bolt-on acquisitions. The M&A pipeline, as Alex just referred to, remains robust, and we expect to acquire additional businesses as we progress through the year. We'll pay the final dividend of $0.72 per share on September 10, following its approval at yesterday's AGM. This amounts to $306 million. Finally, we returned a further $330 million through share buybacks and expect to complete our $1.5 billion program by the end of this fiscal year. All this is consistent with our long-held policy, and we'll continue to allocate capital on this basis throughout 4.0. Turning to Slide 22. And in summary, there are 2 primary takeaways one should gather from our update today. One, the quarter resulted in exactly what we expected in revenue growth, improving utilization, free cash flow and advancing our 4.0 plan, leading us to reiterate our revenue and CapEx guidance while increasing it for free cash flow; and two, we're experiencing positive leading indicators in our internal business activity levels and pipeline coupled with an encouraging indication of market demand statistics. And with that, we will open the call for Q&A. So back to you, operator.

[Operator Instructions] Our first question today is coming from Annelies Vermeulen of Morgan Stanley.

I get 2 questions, please. So just on your margin expectations for the rest of the year, I think your margins improved in Q4, thanks to some of those cost controls you spoke about previously. But clearly, we're a little bit under pressure this quarter due to the factors you mentioned on ancillaries, fleet repositioning, repairs, et cetera. So should that continue through the remaining quarters? Or was Q1 a bit of a one-off in that regard? And do you have further plans offsetting cost control factors for the remaining 3 quarters? And then secondly, on your free cash guide upgrade, just wondering if you had any plans at this stage for that cash, either in terms of deleveraging more buyback. You mentioned that you plan to acquire additional businesses through the year. So within that, could you perhaps comment on the M&A environment in terms of valuations, willingness to sell, et cetera?

Sure, Annelies, thanks so much for the question. And I'll sort of kick us off and then hand it over to Brendan, particularly on the M&A point. So first, I would not characterize our margins as being under pressure. I think they were extremely strong in a fairly moderate growth environment. And so as I mentioned in the prepared remarks, they were impacted by a number of things that we're very deliberate in terms of how we run the business. And the first was that higher internal repair cost that I mentioned. And this is driven -- if you look back 2 and 3 years ago, you'll see that we spent in the order of $4 billion of CapEx in those years. And in the last -- last year, we did about $2.5 billion. This year, we'll do about $2 billion. And so as you see those big slugs of capital aged, you'll see the warranty just as expected roll off because warranties typically cover for about 2 years. We knew that was going to happen and that's just function on the timing of our capital investment. The second issue that impacted margins was this higher repositioning of fleet. And again, that's very, very deliberate. We are repositioning fleet to really increased time utilization that has a positive impact on rate that allows us to capture growth without investing more in CapEx. And so again, that was a very deliberate and positive move that will pay dividends as we get into the back half of the year. And then the last issue was really around mix. And so we pointed to higher ancillary revenue, particularly in our Power & HVAC business, where there's high E&D expense at positive margin, but lower margin than sort of the core true rental business.…

Great. Yes, the business development team has been busy. As we mentioned several times, there's a strong pipeline and that remains the case. We have a few businesses under LOI that will complete in the quarter for a little bit over $100 million, and I expect that to actually gain as we progress through the year. To your point or question on what -- from a multiple standpoint in terms of what expectations are I'd say that, that pressure, if you will, is abating. There are actually a lot of buyers out there at the moment for I think all the reasons everyone understands. So we're positioned quite well. But really, in the end, this is not a race for M&A rather buying businesses that just fit. They fit our strategic rationale. They fit in our Sunbelt 4.0 plans between Specialty and General Tool. But certainly, that pipeline is strong.

Just to double check on the margins, those fleet repositioning costs and so on. Is that something that will continue in Q2? Or have you done the bulk of that kind of in Q1?

Look, we always are repositioning our fleet. And as mega-project activity increases, we'll be positioning fleet to take advantage of those opportunities as projects ramp down, we obviously take the fleet off of those projects and repositions. So this is just part of our business. And one of the things that makes our business such as -- such an interesting environment to operate in, and we can take advantage of our scale because we do have that nationwide footprint. So we'll always be repositioning our fleet with a little bit anomalous about this quarter is that we are really focused on the time utilization and making sure we're unlocking these pockets of growth in the markets where it exists. So look, as the market recovers, will that subside somewhat? Of course, yes, it will. Will we ever stop repositioning our fleet proactively? Probably not.

Annelies, if I could just reinforce Alex mentioned the performance actionable component. That -- our expectations of progressing margins over the course of 4.0 very much remain intact. We have the playbook in order to do it. At the full year, we would have highlighted some of those actions around MLOs, as we call them market logistics, operations and market service operations, and we continue to progress that throughout the quarter. I'll just remind really everyone, it's not linear in terms of that progress from the starting point to the ending point, we made good progress in margin progression over the course of last fiscal year, and we will certainly return to that as we progress through 4.0.

We'll now move to Suhasini Varanasi of Goldman Sachs.

Just a couple for me, please. Your commentary on leading indicators and business momentum seems to suggest that maybe the August trading environment was a bit better than last year. Would you say that was true? And is it possible to give some color on how August trading was? And then second one, just to go back to the point on the margins that Annelies asked, sorry about that. Is it possible to quantify the impact of the repair cost, the ancillary revenues, the repositioning of fleet, just so we can understand if there was any lumpiness in that particular quarter, should we think about any of them unwinding in Q2?

Sure. August trading is in line with what we expected very similar to what we would have seen in Q1. And just on your point there, I think it's worth -- turning to Slide 9 for those of you that have the deck in front of you, and this references of course, the external indicators. We talked about the internal leading indicators of our business, which is really activity, activity in quoting, activity and reservation, daily contract transactional activity, which we're seeing this strength in that pipeline or indicators. And then when you look at that Dodge Momentum Index in the bottom left, just to reiterate what that actually interpret. So these are projects that Dodge accounts for that are entering the planning phase but these are projects under $500 million in total starts value and excluding manufacturing. So this really is a good barometer of that local non-res construction market that we've been talking to for a period of time now. So these are positive signs not to be confused with. We're still in moderated non-res construction environment. That shifts, if you will, for what was moderating to be in a position where we are, the positivity in all that is these good signs, but also when you look back to, say, 2022, 2023, those years where we saw far more robust starts activity, and this funnel is shaping up to demonstrate the beginnings of that. But again, a reminder, as 12 to 24 months on average before you actually see these planned projects progress to starts.

Yes. And so I'll take the margin question just because I seem to be on a roll. So on the IRR cost, it was -- year-over-year, it was about $30 million higher. And if you think about the warranty coverage of that big slug of fleet that I mentioned, if you were to look last year, about 39% of the fleet was under warranty coverage. If you were to look same quarter this year, about 26% of the fleet was on warranty coverage. So that's the 13 percentage points that I mentioned. And again, if you look on Slide 30 of the results presentation in the appendix, you'll see quite clearly in years 2023 and 2024, those are the 2 big slugs of capital years that we're referring to. And it will make sense to you when you understand that these warranties typically last around 2 years. And generally speaking, about 1% of our fleet -- 1% of our total OEC is -- comes back to us in terms of the warranty coverage. So that's at the total number, if you want to put the quantum around it, is about $30 million year-over-year. That change in warranty expense is about $18 million of the $30 million. So it explains about half or just over half of the higher IRR. If you look at the fleet repositioning cost that's higher year-over-year by about $5 million or so. And again, that will mitigate as the overall nonresidential construction market begins to improve. But again, that's positioning ourselves for improved margins in the future. And then the last point that I think should be obvious, but as you all work through your expectations for the balance of the year and into next year, it's normal in any business to give merit improvements around…

And Brendan, just 2 quick follow-up, please. Was there any comment that you would like to make on current trade in August, please?

The comment I made was -- it's very similar to Q1.

Next question will be coming from Will Kirkness of Bernstein.

So first question, just on utilization. I wondered if you could give us some help on how much headroom you have there before you might need to start looking at when to switch on the CapEx a bit more? And then linked to that, I suppose, rates. Should we think of rental rates as flat here or maybe a touch higher?

Yes. Will, on utilization, it's very much by category. There's a bit of headroom in certain product categories. But we're also quite happy, if you will, and some others as we're constantly working to maximize the fleet that we have invested in and the fleet positioning, not only the repositioning, which Alex has talked about in so much detail, of existing fleet, but also just managing the landings that were planned throughout the year. So what was planned to go into a certain metro area is very agile, so to speak, and can go to the next metro area that is experiencing ever more demand. So we've got a bit of headroom there compared to our almost, if you will, anomalous levels of high time utilization, we had such significant supply constraint in terms of when we will increase the dial as it relates to increasing CapEx, well, that just comes down to what demand is. So when we look -- we're doing it as we go through the year, whether it's a mega project win or it is a market that is exceeding our thresholds for time utilization, which allows for ongoing order capture we move that, and we'll see what things look like at the half year as it relates to CapEx, and we'll give you an update at that point in time. I think your assessment of rates is a good one. They are strong, the strength in terms of resilience. We continue to see discipline across the industry, particularly when it comes to CapEx levels and fleet landings as well as dispositions. That's all remarkably healthy. We progressed sort of steady as it goes in the Specialty business. And in the General Tool business, I'll describe that as you have, which is flat, but also very resilient. As we continue to sort of inch up time utilization, I think we will see that return and be a real characteristic of growth of ours akin to what we would have put out there with Sunbelt 4.0 in terms of our strategy on pricing. I hope that answers your questions, Will?

Yes.

Next question is coming from Rob Wertheimer of Melius Research.

Two, if I could. The first is just -- I wonder if you could talk about your ongoing experience in mega projects with the color around market share, capture rates and then profitability on those projects. And then second, I'll just ask it now. I think Alex mentioned kind of market service areas. I wonder if you could kind of just expand on what that is, what kept you from doing it before? And how much potential it holds?

Thanks, Rob. I'm going to start with your second around the question is why didn't we do that earlier. You'll remember, of course, the sort of chronology of strategic growth plans we have. We had Project 2021, we had Project 3.0, all very much pointed to increasing our density and creating what we define as these clustered markets. And it's really at that point when you have the ability to not only form the scale but also for that level of density in the marketplace where it makes sense. But long, long ago, we would have done market field service that we would have put in place in all of these areas. And now a combination of that density, but also the technology that's in place. If you take, for instance, our VDOS system, which is sort of VDOS 3.0, which was a total remake over that period of time, which builds automatically the manifest for dispatch, et cetera, and allows us to do it at the market level. Alex also touched on this market service operations, which is the next step from a market field service overall, whereas we are allocated, if you will, repairs based on shop and technician availability, aligning of larger repairs with technicians, Level 3, et cetera. So that's making great progress. All of you would know and would have seen over the years, Brad Ball present, so Brad and the OpEx team are leading that charge. And as we've stated very clearly, we'll have over 30 of those in full play by year-end. So not only are we working on there, the overall efficiency in the business, but we're also bringing better service to our customers overall. As it relates to mega projects, we can quite comfortably characterize our ongoing momentum last year. So in the quarter, as a -- for instance, we would have been awarded 9 mega projects. And our batting rate on that, so to speak, is really high. It's the typical task of larger, more sophisticated, more capable with good resumes, so to speak, and having completed and participated in the projects at scale and complexity. So we continue to feel remarkably good about our overall share there. We've stated that it's at least 2x our overall market share, and that is -- that comfortably remains the case. So not only a good quarter in wins, but also a continuing good environment in terms of adds to the overall pipeline. And I'd also add a lot of diversity in these mega projects. Lots of headlines around data centers and sure, there are lots of data centers that are entering planning or entering that funnel or even beginning new, but there's a lot else out there, whether it be fabs, if be LNG or it be in sporting arenas or stadiums, it is a flush market of mega projects.

Rob, maybe a couple of additive points I'd just make, first on the whole MSA MLO. I just think, as Brendan described, this is the demonstration of the progression of the business over time to -- from more of a sort of industrial commodity, if you will, to a true service business. And it demonstrates the scale of Sunbelt that just can't be replicated. And it's on the back of the technology investments, on the back of the Sunbelt 3.0 strategy, and it's really implementing everything that we described back in Powerhouse. So I really just think it's the continued transformation of the company to this business service orientation, which is delivering distinctive and differentiated value to our customers. Second, on the mega projects, just to sort of dimensionalize it because I think a lot of times in these sessions, people tend to think of mega projects and data centers. And so I'm just looking at our funnel here. Of the 832 projects that we're involved in, 64 are data centers. So it's a very broad and diverse pipeline, around 400 of those are listed in the other category. Around 200 of those are in the infrastructure domain. So it's just a very, very diverse funnel as we sit here today, that total project counts around 830. If I look out into 2026 and 2028, that project count grows from 830 to 1,053 representing a $1.4 trillion in potential project value. So it just really is a dynamic growing and diverse landscape of projects, which are a huge tailwind for growth as we look forward.

Next question come from James Rose of Barclays.

I've got 2, please. Firstly, can you update us on how tariffs are impacting the business? And then secondly, I see you've won the contract for the Olympics. Any color you can provide on that bid would be much appreciated, and congratulations.

Yes. Thanks, James. First, on the tariff piece, and Alex will add some color here as well. The key point for where we are today, our agreements with our OEMs are intact and the current year spending, therefore, from a CapEx standpoint is protected. I think if you set aside tariffs, our starting point for our negotiations for next year for those that aren't multiyear agreements would actually be flat to down, and we will deal with tariffs as they come. These are obviously a moving target. It seems from week to week. But overall, there are some other puts and takes around tariffs.

Yes. Look, I'll just -- and obviously, Brendan will talk about the Olympics, which is hugely exciting. And again, another demonstration of the power of Sunbelt and something that only we can provide to this market. But back on tariffs, look, this year, as Brendan mentioned, it won't have any impact. All of our agreements are in place, and so it's not a headwind for this year at all. As we look forward, we'll work with our OEM suppliers to mitigate the impact. We're an importer of record on only about 20% of our fleet. So relative to others, we are much more highly domestically oriented, which mitigates this impact right out of the gate. So you have opportunities to work with suppliers to help manage their cost structure, but it doesn't have a direct impact on us. if I were to dimensionalize it, we put it in the range of, call it, between $50 million and $58 million of potential headwind at the low end to $200 million at the high end obviously, as Brendan mentioned, that changes almost daily, certainly weekly. Last point I'll mention is we do have about $17 billion of OEC here domestically in this market. We have massive flexibility in terms of what we can do with that, whether it becomes looking to remanufacturing as options for how we mitigate the impact of tariffs, extending the life of that fleet to get through current trends or any sort of transitory headwinds. So we have huge amounts of flexibility. And as tariffs impact market, that pushes more people towards rental because they can't have the advantages of scale with suppliers the way we do. And so I wouldn't say we're happy about the tariff environment, but we're certainly a net beneficiary relative to others in the market. So Brendan, why don't you comment on the Olympics?

So James, for the rest of the audience listening, James is picking up clearly on a press release that we would have put out yesterday about 4 p.m. Eastern time in conjunction with the LA '28 Committee, but yes. Los Angeles 2028 Olympic summer games. It's a great win for the team. They've been working on this for 2 years or longer. We didn't speak to it in our prepared remarks as we're still nearly 3 years out. But we'll get to scale, revenue, capital, execution, et cetera, in due course. The big picture really is since this was asked, our selection or win here represents the breadth, depth, scale of solutions and the supporting technology in terms of what the team presented to the body that was making this decision. Just to be clear, we are the official rental equipment solutions partner. And that's actually across our General Tool equipment, Power & HVAC, ground protection, fencing, and I'm sure I'm missing something there. But to be awarded something as significant as this, you have to have a clear track record of thinking back to a previous question around mega project success. And so much of it comes down to your resume and our ability to demonstrate our delivery of solutions on complex and large-scale events and projects while doing it safely is really what led to this overall result. And it was a pleasure working with that LA 2028 Committee who is laser-focused on delivering a great, great, great game. So yes, we're pleased to have had that win. And I'm sure that we'll cover a bit more of that when it comes to our Investor Day in March.

We'll now move to Katie Fleischer of KeyBanc Capital Markets.

Sorry to beat the dead horse here on the margins. But just any detail that you can give on progression within Specialty and General Tool through the remainder of the year? And if we should expect any significant changes from this quarter's levels? And then turning to the local accounts. When you think about the green shoots that you've seen there so far. Do you think that's mainly driven by the clarity on tariffs, interest rates? Just any color there on what you think is making those customers a bit more confident and what you think they need to see in the future to really start that recovery?

Yes. So I'll hit the margin point and then Brendan will obviously talk about market conditions. So on margin, I think the real driver of margin progression over the balance of the year will likely be the progression of rate as well as utilization. And so we mentioned a lot, we're really driving improved time utilization and that will support rate progression over time. I think as you think about modeling out the balance of the year, we would not want to take our PBT of $550 million and multiply it by 4. That wouldn't be appropriate. For a number of reasons, obviously, there's seasonality in there. But don't forget, we did have $100 million of hurricane-related revenue last year. And so far, we've not seen a single hurricane this year. So if you think about how that unfolded Q2 versus Q3, that was $60 million in Q2 and about $40 million in Q3. So as we look out at the balance of the year, I think it's reasonable to expect that margins will continue to look similar to how they look this quarter. And as the market conditions recover, obviously, we'll see the benefits of that scale and leverage on the fixed cost. So Brendan, why don't you hit on the market conditions?

Katie, I think in many ways, you answered your question. The key really is and this is -- this has not been a demand issue as it relates to local non-res. It really has been uncertainty. And the way we view it is there's 3 legs to it. First, there was the interest rate environment or the cost of borrowing, and we've gone from where we were to clearly being in a period of easing what the velocity of that will be. I'm sure we'll be in tune September 17. What we hear from the Fed. However, I think it's clear out there that we're in this ease environment, and we'll see how that progresses. The second, which was quite important was actually the tax legislation or the so-called Big Beautiful Bill. Now we have clarity with tax rates extended, both business and personal and very importantly, the bonus depreciation element. And then the third leg, I think, to it all is the tariff environment. And up until this point, certainly, I think most would say the damage so to speak, is not as bad as what has been feared. So as we see those easing, and I think you see that translate into that Dodge Momentum Index, it's quite different between where it is today and where it was at the end of last calendar year. So from December of 2024 to where we are today, it is 36% more in terms of what's in that momentum index. And if you exclude the small fractions of data centers that are in that below $500 million range, you're still plus 26%. So that just underpins the level of demand that's out there and we look forward to seeing those projects and the planning progress to starts.

Next question will be coming from Rory McKenzie of UBS.

It's Rory here. Two questions on margins. No, I'm kidding, they're about rental rates, the other topic. Within the group average rates being stable, are there any regions or products that you saw achieved good increases or any that came under pressure? And then secondly, within Sunbelt 4.0, I know you were budgeting for kind of annual rate increases over the planned cycle. Can you talk about if you think that's still feasible? Especially, Brendan, I think you just commented, you were looking to OEMs for fleet cost to be flat to down. So maybe can you talk about how we think about pricing power into any recovery, your customers' affordability of cost increases and maybe some of those points to discuss, please.

First on rates, there's -- look, as I said, specialty is steady as it goes. So in our Specialty business where it is so clear we're providing overall solutions. And as we see this business continue to reflect more and more the hallmarks of a business services company, we'll do the same, General Tool, there are no particular geographies to speak to or even product categories. It's just been a bit more benign. In no way, shape or form are we suggesting that we won't regain momentum as it relates to rates. And again, let me just make the point, the rate environment is strong. And if you contract how rates have performed in the business over the last 18 or 24 months, when there was lower time utilization in the overall industry, it is in stark contrast to what we would have experienced in other cycles. So nothing to call out as it relates to product specifically or regions and very much what we would have laid out as our internal working plan as it relates to our ability to pass on inflationary pressures after we actually drive the efficiencies as best we can through the organization to our customers, ultimately, with some small margin is very much a focus, and we have all the confidence that we will achieve that.

We'll now move to Allen Wells of Jefferies.

Just a couple for me. One, just a clarifying comment just about rates and repair costs and how these trend, so my understanding is that because of the repositioning you saw a bit of an improvement in time utilization this quarter sequentially. But obviously, if I look at the General Tool rate environment, it's stable now versus improving, which you said in quarter 3, so it looks like a deterioration. So rates haven't followed utilization up at least this quarter. Can you just confirm that? And then on the repair costs, this looks like it should be a multiyear event, multiyear headwind, right, because your CapEx stepped up again in '24 versus '23. So obviously, there's a need for [indiscernible] to offset that. So that's just to understand those dynamics is the first question. And then secondly, just on Specialty, is it possible you can provide the specialty growth if you adjust out the oil and gas and the film business? And as I look at the kind of the direct comparison there, Power & HVAC and Climate saw double-digit growth. I mean my understanding that makes up the biggest portion of your Specialty business. So what are the areas of real weakness outside oil and gas, film that are dragging that specialty growth, from double...

There's no areas of real weakness -- yes, there's no areas of real weakness in Specialty. There are -- when you look across it, you have double-digit growth as I think in the prepared remarks, we would have talked about Power & HVAC. We also have strength in fencing, temporary structure, ground protection. There's a significant drag effect when it comes to Film & TV and oil and gas. And the upstream oil and gas, but also industrial heating, which is very much tied to that piece of the market. So that's really all that it is from a headwind standpoint. We don't have the statistics exactly on us in terms of what that would be absent the previously mentioned aspects. On the rate piece that you talked about, your characterization is fine. Look, rates are not digressing in the General Tool business, as you progress time utilization as we have done throughout the quarter, we've just -- we've hit that point. Part of that will come down to mix whereas we have a larger portion of our revenue today coming from these mega projects and larger strategic customers. Not to be confused with those rates themselves not progressing because those rates indeed will progress year-on-year, they just make up a larger piece of it. So it is a quarter that we've gone through while maintaining rates and also seeing some sequential movements later in the quarter in General Tool, which is positive. So again, we just reiterate our confidence in our ability to progress rates over time.

And Allen, I'll hit the maintenance cost point. So your observation is correct that we do have those 2 big years of around $4 billion of CapEx that we'll continue to have this trend. But let's come back to again that third actionable component of Sunbelt 4.0 and the implementation of the MSOs, which we talked about in leveraging our clustered economics. So that will mitigate the impact of this phenomenon of increased IRR. And I think Brendan talked at length about that in answering the prior question, that also leverages the scarcity of skilled labor as we can leverage those Tier 3 technicians more effectively. So there's just a lot of goodness that comes out of the overall 4.0 strategy, that third actionable component and then the scale that we have relative to others as we leverage those clustered economics. So you should see that mitigate over time. But you're right, the phenomena of having less fleet on warranty will continue as we age those big slug years.

Ladies and gentlemen, we have time for one last question. And the last question today will be coming from Carl Raynsford of Berenberg.

Two from me, please, if I may. The first, going back to both on rates really. Would you be able to quantify the sort of general time lag roughly between time utilization improvements and the pricing improvement if that has sort of happened in the past, a similar dynamic? This is the first one. . And the second one, just on mega projects. Could you briefly explain the contract dynamics when those projects are multiyear. So for instance, do you get a fixed rate step up year-on-year? Or is it more sort of dynamic than that?

So the first, really, what we have experienced, as you would have heard over the last couple of years is a decoupling in many ways between time utilization and rental rates. It was well covered throughout the industry of industry level time utilization down over the couple of years, and we've seen a resurgence in that more recently. And over that couple of years, we progressed rates well over that period of time. I'll remind you of the 3 years of 8% and 6% rate improvement that we would have spoken to and then 2 and a bit or 3% last year. So during the time of that abatement really just demonstrates that decoupling between time utilization and rate. Look, time utilization, generally speaking, does help, but it's really more just the solutions that we're bringing to customers. From a mega project or a large strategic customer, the short answer is it varies. From time to time, we'll have a multiyear agreement, and we'll have pricing that will be based on certain cost indexes. And from a mega project standpoint, similarly, most often there's an annual allowance for a price increase. over the course of a project. So generally speaking, those have that, which is why I made the point earlier there is this mix impact overall from a pricing standpoint, not to be confused that there's individual customers. Don't have -- or we don't have the allowance within those agreements to increase rates as we go year in and year out.

As we have no further questions, I'd like to turn the call back over to your hosts for any additional or closing remarks. Thank you.

Great. Well, again, thank you all for joining this morning, and we look forward to speaking again at the half year. Have a great day.

Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may now disconnect.