Ashtead Group PLC

LSE:AHT

Earnings Call Transcript 2020-Q3

[Operator]

Hello, everyone, and welcome to the Ashtead Group plc results for the third quarter call. Today, I am pleased to present Brendan Horgan, Chief Executive; and Michael Pratt, Finance Director. [Operator Instructions] And just to remind you, this conference call is being recorded. I will now hand you over to Brendan Horgan. Please go ahead.

[Brendan Horgan, CEO & Executive Director]

Great. Thank you, operator. Good morning, everyone, and welcome to the Ashtead Group results call. I'm joined by Michael Pratt, and together, we will cover the Q3 financial and operational performance. Before we get into the slides, I'd like to take this opportunity to thank our teams throughout the U.S., U.K. and Canada for their dedication and engagement, particularly around our leading value, which is the safety of our team members, our customers and members of the communities that we serve. Doing this requires that we sometimes utilize a different set of methods and incorporate new tools and technologies within our operations. I'd like to recognize the outstanding efforts by our operational teams. We're actively engaging in what we will transform the way that we do safety within our operations. We've called this engage for life. Engage for life incorporates thought and process of human performance into our day-to-day operations with the overall goal of making us an even safer organization. In the past 3 months, over 10,000 of our team members have engaged in training activities that help us understand how the brain works and risks associated with unconscious habits. We're confident that these exercises we are conducting around human performance will give us an even safer, more reliable outcome. This core value of safety is not a destination where you arrive and mark complete, but rather, a culture of continuous improvement. You'll certainly hear more about engage for life when we are together at our capital markets event in April in Washington, D.C. So let's now turn to the highlights, Slide 3. We delivered another strong quarter of growth in revenue and profit. These results are industry-leading revenue growth in total, but also and importantly, organic revenue growth, demonstrating the strength in our model and continued runway for growth. Our North American markets remained strong despite the moderating levels found in our construction end markets. This, again, is being demonstrated through the continued success of our greenfield rollout plan augmented by key bolt-on acquisitions. Once again, opportunities were realized for all of our capital allocation priorities, as we invested a combined GBP 1.7 billion in existing location CapEx, greenfield openings and bolt-on acquisitions and a further GBP 376 million in share buybacks. We accomplished all of this while remaining within our long-term leverage range, and doing so while delivering record levels of free cash flow. In conjunction with the strong set of results and market outlook, we continue to look to the medium term with confidence. Before I get into some of the operational detail, I'll hand it over to Michael to cover the financial results. Michael?

[Michael Richard Pratt]

Thanks, Brendan, and good morning. The group results for the 9 months is shown on Slide 5. And as Brendan said, it's been another good performance in the quarter. Once again, I set out our results on both a pre- and post-IFRS 16 basis, and I'm only going to comment on the pre-IFRS 16 figures given that it is these that are consistent with the prior year. The group's rental revenue increased 12% on a constant currency basis. The EBITDA margin remained strong at 47%, all while opening 47 greenfields and completing 17 acquisitions. With an operating profit margin of 28%, underlying pretax profits increased to GBP 969 million, while earnings per share increased 11%, reflecting the profit improvement and the impact of the share buyback program. Turning now to the businesses. Slide 6 shows Sunbelt's 9 months results in the U.S. Rental and related revenue was up 12%. As expected, the rate of revenue growth has slowed as we progressed through the year with the comparators becoming more challenging, in part due to prior year hurricane activity. In contrast, this year, the hurricane season was much quieter even to the extent that there was a small drag on our results. The EBITDA margin was strong at 49%, although it does reflect some pressure from the relatively lower rate of growth when compared with the prior years and the drag effect of the significant number of new locations added in the last couple of years. This contributed to a drop-through rate for rental revenue to EBITDA of 48%. Operating profit improved 10% to $1.33 billion at a 31% margin, and ROI is a healthy 23%. Turning now to Sunbelt in Canada on Slide 7. Rental and related revenue growth of 26% reflects a benefit from acquisitions over the last year, including William F. White, which we acquired in December. Organic growth was a healthy 11%. This revenue generated EBITDA of $121 million and operating profit of $57 million and margins of 38% and 18%. The Canadian business is performing as we expected and is benefiting from last year's fleet investment, as the fleet acquired in the second half of last year is put to work. Turning now to Slide 8. A-Plant's rental and related revenue was down slightly at GBP 316 million. The small increase in total revenue reflects a higher level of used equipment sales than a year ago, as we de-fleeted underutilized and lower-returning assets, consistent with the plan we outlined in June. The cost of these used equipment sales was also a key contributor to the 10% increase in operating costs. The market in the U.K. remains relatively flat and competitive. This environment, combined with small losses on the de-fleet compared with gains last year and the cost of realigning the business, have contributed to weaker margins with an EBITDA margin of 31% and an operating profit margin of 10%. As a result, A-Plant's operating profit was GBP 37 million. Slide 9 sets out the group's cash flows for the first 9 months of the year. The strong margins we discussed earlier produced cash flow from operations of GBP 1.8 billion, giving us substantial flexibility to enhance shareholder value within our capital allocation framework. This resulted in record free cash flow of GBP 363 million for the 9 months after funding all our fleet expenditure, both replacement and growth, as we continued to take market share in the U.S. and Canada. In addition, we spent GBP 407 million on bolt-on M&A as we broadened our specialty capabilities and enhanced our geographic footprint and GBP 376 million on our share buyback program. Slide 10 updates our debt and leverage position at the end of January. As expected, net debt increased in the period as we continued to invest in fleet and bolt-on acquisitions and continued our buyback program. In addition, the adoption of IFRS 16 added GBP 883 million of debt from the 1st of May. The leverage was within our target range at 1.9x on a constant currency basis, excluding the impact of IFRS 16, and 2.3x including it. Both our leverage and well-invested fleet continued to provide a high degree of flexibility and security in support of our strategy. In November, we took advantage of good debt markets and issued $600 million of both 4% and 4.25% notes and used the proceeds to redeem the $500 million of more expensive 5 5/8% notes due in 2024 and pay down an element of the ABL facility. This provides us with access to more capital for a longer period of time at a lower cost and with a smooth maturity profile. Our debt facilities are committed for an average of 6 years at a weighted average cost of 4%. And with that, I'll hand back to Brendan.

[Brendan Horgan, CEO & Executive Director]

Thank you, Michael. I'll now move on to some operational colors beginning with Slide 12. Sunbelt U.S. delivered 9% rental revenue growth in the third quarter, contributing to 13% for the 9 months. Our growth in the period continues to outpace the market and our listed peers, as the advancement of our cluster model delivers market share gains. It's important to understand the interplay that exists from time to time between organic and bolt-on growth, and it was certainly at play this year, as some of the bolt-ons have been geographically executed in lieu of previously planned greenfields. The resulting organic growth of 5% in the quarter and 8% for the 9 months, again, outpaced any organic growth levels others have reported. This growth in isolation is strong and even more so when considering this is on top of last year's Q3 growth of 20%. So this is growth on top of extraordinary growth. Furthermore, this was achieved during a period that we now know was flat as it relates to our construction end markets. I'll touch on end market activity and outlook shortly. Moving to Slide 13. You'll see utilization levels in our general tool and specialty business remain in a healthy range, while coming off the highs of recent years where our business played a key role in the response efforts to 5 hurricanes, placing significant demand on our fleet. Regardless, our general tool and specialty business units fleet on rent levels were 11% and 18% greater than a year ago, respectively. This leaves us with a degree of built-in capacity from a utilization standpoint. You'll remember, we indicated in our CapEx guidance for the second half of the year that we would be on the lower end of our range, which seems to be consistent with the moderating CapEx levels throughout the industry. This supply discipline and the general market outlook leaves us confident we will absorb fleet capacities, moving back toward previous utilization levels in the quarters to come. It's important to note that in the current environment, rate remains healthy and is consistent with last winter's levels in absolute and improving on an underlying basis when considering hurricane, greenfield and bolt-on effects, which we've documented in detail previously. This speaks volumes for the rational behavior being demonstrated by the industry's leading businesses. Let's move to Slide 14 for an update on our 2021 plan. Beginning with the table on the top left of the slide, you will see our general tool business growth rate is double that of the market, balanced well between organic and bolt-on rental revenue growth. I'm pleased to report that all our 14 general tool geographic regions delivered growth in the 9 months. As you might imagine, the levels of growth will vary based on end market conditions, comp periods and relative levels of market share. To add a bit of color on this, the regional growth ranges from 2% to 28%. At the 2% level are Florida and the Carolinas, both among our longest-standing and highest-share markets and certainly coming off significant hurricane impact years. All other regions are, of course, higher. And the highest growth examples would be California at 28% growth, the Northeast at 20% and the Pacific Northwest at 17%. I share this level of detail as I think it puts in context our exceptional room for further growth in our less-penetrated markets. Speaking of growth, let's look at our specialty business over the same period. Our growth is 2x that of the general tool business, which continues the trend that we've been demonstrating in the last couple of years. When you look at the high levels and broad growth inherent in our various specialty divisions, as illustrated on the bottom right of the slide, it will clearly demonstrate the early phases of structural change these businesses are in, compounded through leveraging our platform to bring these exciting business segments to market. Our customers are increasingly choosing Sunbelt as we offer them a comprehensive product and service offering. You'll hear more about our specialty business and our plans for continued growth from the specialty leadership team during our April Capital Markets Day. Finally, we've added another 20 locations in the quarter through greenfield and bolt-on and have a healthy number of openings planned for Q4. This is an impressive grouping of what will then be roughly 260 locations added to our offering over just 3 years, all with ample runway for more. Turning now to a look at the construction end market. Slide 15 shows Dodge starts and put in place forecast. The pattern in forecasted starts remains largely the same, which leads to the put in place figures in the top-right chart. Since our December update, we were using the Venn latest figures from September 2019. We've seen 2019 go from a forecasted plus 1% to a now actual 0%, and 2020 go from a forecast of plus 1% to flat as well. Albeit these changes are relatively small, I think it's worth adding a bit of context. At this point a year ago, the construction market in 2019 was forecasted to grow by 2%. We now know that calendar 2019 was indeed a flat construction year. So what does this tell us about rental? And what does this tell us about Sunbelt? In calendar 2019, we grew 15%, 11% of which was organic. This is growth in a flat construction year and should demonstrate in full color a few things: number one, how we have diversified our end markets beyond construction; two, our growth and go-to-market model driving share gains; and three, the structural change evident and remaining in our market. Of course, I'm not suggesting that our growth will continue to be 15% in the construction market as forecasted by Dodge through 2021. However, we will continue to grow. Before we move on, I want to emphasize that at the current and forecasted levels, the construction market remains strong. We continued to enjoy large contract wins, such as those that I shared at the half year, and is further demonstrated in our regional and specialty growth. These are diverse and supportive end markets. Moving on to our business outside of the U.S., we'll begin with Sunbelt Canada on Slide 16. Mike will cover our overall growth of 25% in the period, which, of course, was bolstered by bolt-on activity. However, I'll highlight the organic growth, which has outpaced the market by an impressive 5x. Once again, this demonstrates the benefits of the still early development of our cluster strategy taking shape. Utilization remained strong and the end market supportive as we continue to develop this market following a similar playbook to the one we developed over the years in the U.S., a large part of which is increasing our reach beyond construction into the everyday operations and maintenance that takes place in the geographies we serve. These markets, such as facilities maintenance, events and municipal activities are in the early stages of development, particularly in our Canadian business. In the short time since closing on the William F. White business, we were seeing early cross-selling wins into this exciting film and television space. You can bet on seeing more and more green equipment supporting the robust film market throughout Canada, ranging from aerial work platform equipment to power and HVAC. Turning now to the U.K. on Slide 17. As you know, we are now several months into the design and implementation of Project Unify. During this period, the leadership team has fully engaged with the business to identify our strength, and just as importantly, highlight the weaknesses we needed to address as an organization. Through this process, the consistent themes have been the need for a greater focus on leveraging the notable scale and diversity of product and services through a collaborative effort of cross-selling to what is indeed a broad set of customers. More tangible perhaps has been our exercise of rightsizing the fleet to current and prospective market demands. You'll continue to see more of this as it relates to fleet as our spend will largely be seen as replacement in the year to come, as I will cover in more detail shortly. Also tangible is the free cash flow the business is producing, which is on track to amount to more than GBP 100 million for the full year. These efforts are showing early signs of progress with time utilization now outpacing last year, and I anticipate a positive turn to margins in current Q4 or Q1 of next year. Following this call, I'll actually be leaving London for Manchester where we are holding a national conference that will serve as a culmination of sorts of the Project Unify work done and provide the framework to leverage our significant U.K. platform to deliver long-term and sustainable results. Turning now to Slide 18. Let's take a look at our CapEx expectations for the balance of the year and our initial guidance for fiscal 2021. As we indicated in December, the U.S. will end up on what was the lower end of our range, divided evenly between growth and replacement. As we've covered so often over the last year, it's important to understand the interplay between growth and replacement, as reported. Specifically, we report on replacement spend as the original cost of equipment disposed of during the period. That does not mean necessarily that we replaced like-for-like. Rather, we are able to utilize our fleet age profile to dispose of assets in one market and replace it with new assets in other markets, which is all based on demand. This is, in essence, growth CapEx being disguised as replacement. Said simply, we're investing in new assets in markets with demand, no different than you would expect. In the U.S. for fiscal year 2021, we anticipate a combination of growth and replacement CapEx of between $900 million to $1.1 billion. With this level of investment, we would expect a mid- to high single-digit rental revenue growth rate. Our guidance for Canada indicates increased CapEx at a level indicative of our current momentum and expecting to generate organic growth in the high single digits next year. And as I alluded to previously, the U.K. investment will be replacement for a total size of fleet standpoint. However, this will be invested in product and geographic areas of high demand as we work through the year. Turning to capital allocation on Slide 19. As you'd expect, our priorities remain the same. We have invested GBP 1.3 billion in existing store and greenfield fleet and GBP 407 million in bolt-ons. Further, we have fulfilled returns to shareholders through our usual dividends and completed GBP 376 million in share buybacks year-to-date, and expect to deliver the full GBP 500 million by our fiscal year-end. The business has accomplished this while remaining inside of our 1.5 to 2x leverage range. And finally, I'm pleased to announce our formal decision to extend the share buyback program into next year at a level no less than GBP 500 million, which we will do comfortably within our leverage range. So in conclusion, our performance remains strong, and our business has more than tolerated the moderating construction end market environment. Our runway for growth and development of our general tool and specialty business remain strong. And we intend to continue leveraging the market dynamics to our favor, while executing on our clear ongoing strategy. I've talked a lot about growth as part of this update, and that theme also comes through as it relates to cash generation. As our growth levels moderate, we amplify the important free cash flow our business delivers. At record levels of free cash flow, we have a great optionality to invest following our very clear capital allocation strategy. So as a result of these points, we continued to look to the medium term with confidence. And with that, operator, we will open it up for Q&A.

[Operator]

[Operator Instructions] And our first question comes from the line of Rajesh Kumar from HSBC.

[Rajesh Kumar, Analyst]

Just trying to work out, when you're giving CapEx indication for the next year, what your underlying thinking is. How much of that will be replacement? How much of that will be growth? And which segment are you thinking of deploying that? And the second one is, I know both you and United Rentals have changed the way they report their yields and rental rates and things like that. So just on an underlying basis, what do you think the market is doing in terms of utilization and rates? And some color on the competitive environment there.

[Brendan Horgan, CEO & Executive Director]

Sure. Well, look, first of all, if we were going to split out the growth and replacement CapEx guidance, we would have split it out on the slide. You can see why we bucket it, I think. Look, you've heard us say for a long time, and I just said it as part of the results, you get to a point where you have this growth disguised as replacement, as what we've said. Certainly, at the half year results and following during the road show, we talked a fair amount about a replacement in that 700 million to 800 million range, and I think that holds true, so the balance of which would be growth. In terms of where we're going to put it, it's no secret that our specialty business has been growing 2x that of our general tool business. So certainly, there will be a fair amount of investment there. But look, we are -- we have -- some of these markets, as I covered, that are still in extraordinary growth ranges, and we will be sending CapEx that way. But look, this is a very early steer as to how we think things will shape up for next year, and we will progress that as we go through the year. And whatever the market does is what we will invest in. In terms of your yield rate sort of question, I mean, look, I think it's so important to understand how we're seeing the discipline come through within our industry. There's no question about it. As I said, we have a bit of capacity built in, given our current time utilization. You can see that in the utilization charts. Certainly, a big part of that has to do with hurricanes. But nonetheless, they didn't come this past year, which means that we have some capacity built in, and there's no reason why we can't run at those utilization levels. When you look at some of the others that are reporting, I'm not speaking for them, you can look at the numbers on your own, clearly, there's a bit off in terms of time utilization in the market. The key thing to understand there is what's that mean in terms of the response from a CapEx guidance standpoint and how rates are doing. So utilization being off just a bit from the market leaders and rates being very strong as they are, that is a very, very good sign in terms of the overall discipline and how we will go through this period ahead.

[Rajesh Kumar, Analyst]

That's very helpful. So basically, you think that the growth you would generate could be margin accretive, not dilutive, even if the volume -- market environment is lower?

[Brendan Horgan, CEO & Executive Director]

Yes. I mean, look, look at this year. As Mike said, the margins had a bit of pressure at a more -- moderating revenue growth. Yes, I think they'll be there or thereabouts what they are today.

[Operator]

Our next question comes from the line of Will Kirkness from Jefferies.

[William Kirkness, Equity Analyst]

I've got 3 questions, please, around CapEx. So firstly, just on disposals. So the guidance there is higher, and obviously, we're seeing you guys and industry running higher on disposals. Just wondering if there's any theme on what you're disposing and where.And secondly, looking at the CapEx discipline across the industry, just wondering how soon we might see that better fleet absorption. Is it going to be early in calendar 2020 or it'll be more of a second half story?And then lastly, again, on CapEx discipline, obviously, that would drive pretty massive free cash flow. So your capital allocation priorities are clear. But if the markets are still moderating, then greenfields and bolt-ons may not necessarily be sufficient to absorb all of that. So I just wonder whether it's more on the buyback the most likely outcome.

[Brendan Horgan, CEO & Executive Director]

Sure. Thanks, Will. But first of all, from a CapEx standpoint, where is it going? What sort of products? You have to look at this guidance, and this -- I think this gets a few people. But in general, when you look at what our guidance is for the balance of the year, we are at $558 million in terms of replacement, and we're saying we will be $700 million to $725 million. So all that means is we're going to dispose of another between $140 million and $170 million. And in order to not take away from that growth beneath it, we'll spend about the same. Look, secondhand values and secondhand equipment market pricing is strong right now. It continues to be pretty resilient, and we are divesting into that. There's not really any specific sort of equipment that I would earmark that we are raising, if you will, to dispose of. There's no question about there is a dampening from an upstream oil and gas standpoint. And you're seeing some of those equipment categories go through auction, if you look at what the last Rouse report that came out was. As it relates to utilization, so when would I look for next year, yes, I would say -- I would speak more in the Q1, Q2 terms of our fiscal year, so it's going to put you more into the second half of the calendar year. And look, I think your question around CapEx and proceeds may just be the most important thing that we get out there overall. I mean, look, the -- as I said, the markets are strong. This is nothing new in terms of the trajectory. We have been flagging for quite some time now actually going back to the summer of last year that from a construction end market standpoint, things are moderating. And if there is a slide maybe we could spend most of our time on will be the appendix Slide 25. We have LTM free cash flows of GBP 122 million after our M&A, GBP 659 million before M&A. So I think your question is a very good one, which is basically, hey, depending on the extent of CapEx the market will absorb, what do we do with it? Yes, from a capital allocation standpoint, obviously, given the trajectory of our leverage as we model into next year, I think that will be biased to buybacks.

[Operator]

Our next question comes from the line of Andrew Nussey from Peel Hunt.

[Andrew Nussey, Analyst]

Just a question around specialty, please, and Slide 14 where you usefully strip out those various segments, are those ranked in order of fleet size? Or can you just give us any insight to the relative contributions in terms of revenues from those specialty segments, please?

[Brendan Horgan, CEO & Executive Director]

Yes, of course. They are actually stacked in order of revenue size. So we don't, for a whole host of reasons, give the exact, but that's the stacking we're from.

[Michael Richard Pratt]

Andrew, we were -- only because we're short of space, we didn't reproduce the chart we did at the half year. But if you go back to the slide from the half year where we have the bars across the bottom, you've got the relative sizes because that was based -- as opposed to fleet, is based on revenues, but you can get the relative sizes of those divisions from there.

[Operator]

Our next question comes from the line of Arnaud Lehmann from Bank of America.

[Arnaud Lehmann]

Just a couple of follow-ups on CapEx, if I may. Firstly, for Sunbelt U.S., you seem to -- you're increasing your non-rental fleet CapEx guidance for 2021, I think, $275 million. Could you please give us some color on that? And also for A-Plant, I think you mentioned it in your introduction, but could you explain the pickup in CapEx for year 2021, please?

[Brendan Horgan, CEO & Executive Director]

Sure. Look, I'll start with A-Plant, and that is just a function of the aging bands. So we've shared so often the aging bands in the U.S. business where we have this really smooth profile, in part because of the way we grew the A-Plant business over the years, we don't exactly have that same profile. It's one that we will work toward over the years. But that is basically, purely -- I shouldn't say basically. It is purely replacement CapEx, but we will very much use it, as I would have said in the commentary, where there are areas of demand. As it relates to the non-rental fleet, look, generally, throughout the year, we bring that up as we go. And it's a result of our greenfield pace, but also we have a few truck capital CapEx plans that we have put in play. So really, it's just a modest sort of uptick up for those 2 things, and of course, just general sort of facility upkeep as we go through and refreshing some of our locations.

[Operator]

Our next question comes from the line of Nicole Manion from UBS.

[Rory Edward McKenzie, European Support Services Analyst]

It's actually Rory McKenzie here, hiding as always. First, I wanted to ask, firstly, on those regional growth rates, Brendan, it's really interesting. Can you remind us of the range of your market shares by state? And also, is that growth in, say, California, both general tool and specialty? Or are you aiming to kind of penetrate new market leading with specialty in the current market environment?

[Brendan Horgan, CEO & Executive Director]

Yes. Sure, Rory. As it relates to the market share, I would refer you to the typical appendix slide that we show. And in the half year results, that would be the appendix Slide 35. So those green states, as we call them, are going to be plus 15% market share, and some of the other markets that I represented are going to be well below 10%. And that, in and of itself, would have a big range where we might be low 20s in some of our more dense markets in the Southeast, and we may be low to mid-single digits in certain markets West of the Rockies. The growth rate that I actually mentioned for California, which would also indicate our growth in Arizona, that is -- that was purely general tool, and specialty would not look all that different from that. Those were the -- when I was -- when I referenced the regions, those are general tool regions growth.

[Rory Edward McKenzie, European Support Services Analyst]

Got it. Okay. Great. And then I just wanted to talk about pricing. You said it's holding up well. In your experience, what environment could you see or do you worry about seeing industry discipline slip? Would you worry about a construction market that kept deteriorating and actually ended up in a year-over-year decline, say, over the next 12 months?

[Brendan Horgan, CEO & Executive Director]

Yes. Look, it's an important question. The best way to answer it is the kind of market that we would have and probably even more so you would have worried about how rates would perform was the market we had in 2019. We had a market in 2019 calendar when there was more fleet in the market coming in as the industry and the businesses within it had been growing and the industry overall delivered improved rate growth just like we did. Now as we look forward, I think that, that just gives us great confidence, as I said earlier, in terms of the overall discipline. Look, we are very focused on, yes, continuing to grow our share and expanding the way that we have been, but balancing that well between fleet on rent growth and rental rates.

[Operator]

Our next question comes from the line of Anvesh Agrawal from Morgan Stanley.

[Anvesh Agrawal, Equity Analyst]

This is Anvesh filling in for Ed today. Just a question following on the breakup of the end market, or sorry, divisional growth you had given earlier. Maybe if you can comment on the end market that is driving such a high growth in some of the regions. And then if you look at the outlook going forward, do we expect a moderation in the market growth there as well or those end markets where you're growing very highly kind of remains pretty robust even in a moderating construction environment?

[Brendan Horgan, CEO & Executive Director]

Yes. Certainly -- look, one of the end markets that we talked quite a bit about and you've done some work on yourself is around the data centers. So certainly, data centers continued to be a contributor. And they are certainly not -- there are a lot of those that would have driven what I mentioned in terms of the Carolina and Florida, so there's a bit of a impact there. But look, overall, when we look forward to the market, I think it feels like what those forecasts are, are about right. Obviously, as we have been talking about it, what we're seeing as we continue to fold these specialty businesses into our clusters, we're just seeing a far broader end market. We have an end market that is much, much more than construction. When you think about our HVAC business and our climate control business. And we're seeing that, not just from the event standpoint but from a municipality standpoint, we are seeing those markets grow forth significantly. We are bringing to the Pacific Northwest the kind of rental products, services and solutions that we've not brought before, which speaks to that growth that I mentioned there at 17%. It's not that end market necessarily growing in a way. It is very much us just on our own, if you will, expanding our reach from an end market standpoint. But there are some very, very solid things out there. And as I also said in my commentary, I covered quite a bit of detail at the half year results some of the really nice wins we've had, both from a construction standpoint, municipal standpoint and event standpoint, which continues to be very positive as we move into 2020.

[Operator]

[Operator Instructions] Our next question comes from the line of Jane Sparrow from Barclays.

[Jane Linsdey Sparrow, Director]

I just wanted to come back to an earlier question on margins where you said about margins being unchanged broadly year-on-year next year. Just to clarify, if a higher proportion of growth is coming from specialty, which has a lower depreciation charge, should we be expecting, just so we don't get any unpleasant surprises, slightly lower EBITDA margins, but the broadly unchanged comment is at the EBIT level. Is that correct?

[Brendan Horgan, CEO & Executive Director]

Well, I'll turn it over to Mike in a second, Jane, but what I think I said was there or thereabouts, just to be clear. Mike, do you want to touch on that?

[Michael Richard Pratt]

Yes. No. You're right from the specialty point of view, Jane, in that invariably, most of our specialty business from an EBITDA perspective are lower margin. As an EBITA, there's both. Some are slightly better. Some are slightly lower than the existing margin. And it also impact on the rate of -- impact of greenfields, et cetera. So I think you're back to sort of the there or thereabouts. As we've talked about here, there's been a little bit of pressure this year as we adjust to slowing growth rates from a revenue perspective. And clearly, we're not expecting quite the same level of growth rate next year as we've had for this year. So it will be a bad order, but I wouldn't want to be -- bet you on a specific number.

[Operator]

And as there are no further questions registered at the moment, I will hand the word back to the speakers for any final comments. Please go ahead.

[Brendan Horgan, CEO & Executive Director]

Great. Thank you for your time this morning, and we look forward to seeing all of you at our capital markets event in April. Thank you.

[Operator]

This now concludes today's call. Thank you all for attending, and you may now disconnect your lines.