Ashtead Group plc (ASHTF) CEO Brendan Horgan on Q3 2020 Results - Earnings Call Transcript

Ashtead Group plc (OTCPK:ASHTF) Q3 2020 Results Conference Call March 3, 2020 3:00 AM ET

Company Participants

Brendan Horgan - CEO

Michael Pratt - Group Finance Director

Conference Call Participants

Rajesh Kumar - HSBC

Will Kirkness - Jefferies

Andrew Nussey - Peel Hunt

Arnaud Lehmann - Bank of America

Rory McKenzie - UBS

Anvesh Agrawal - Morgan Stanley

Jane Sparrow - Barclays

Brendan Horgan

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 US, UK 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 three 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 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 events in April in Washington DC.

So let's now turn to the highlights Slide 3. We delivered another solid 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, which 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 £1.7 billion in existing location CapEx, greenfield openings, and bolt-on acquisitions and a further 376 million in share buybacks. We accomplished all of these, while remaining within our long-term leverage range and doing so by delivering record levels of free cash flow. In conjunction with a 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 Pratt

Thanks, Brendan and good morning. The Group's results for the nine months as shown on Slide five and as Brendan said, it has been another good performance in the quarter. Once again, Ashtead has results on both the pre and post-IFRS 16 basis, and I'm only going to comment on the pre IFRS 16 figures given that they 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 pre-tax profit increased to £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 six shows Sunbelt's nine months results in US, rental related revenue was up 12%. As expected, the rate of new growth has slowed as we progress through the year with the comparisons 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 there was a small drag on our results.

The EBITDA margin was strong with 49% although it does reflect some pressure from a relatively lower rate of growth when compared to prior years and the drag effect of the significant number of new location 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 seven, rental and related revenue growth was 26% effect of 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 at margins of 38% and 18%. The Canadian business is performing as we expected and benefiting from last year's fleet investments as a fleet acquired in the second half of last year is put to work.

Turning now to Slide eight, A-plants rental and related revenue was down slightly at £360 million. The small increase in total revenue reflects a high level of used equipment sales than a year ago, as we defleeted 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 $0.10 increase in operating costs. The market in the UK remains relatively flat and competitive. This environment combined with small losses on the B fleet compared with gains last year, and the cost of realigning the business that contributes to weaker margins with an EBITDA margin of 31% and operating profit margin of 10%. As a result, A- Plants operating profit was £37 million.

Slide nine sets out the group's cash flows for the first nine months of the year. The strong margins we discussed earlier, produced cash flow from operations of £1.8 billion, giving a substantial flexibility to enhance shareholder value within our cash allocation framework. This resulted in record free cash flow of £363 million of 9 months after funding all our fleet expenditure, both replacement and growth. As we continue to take market share in the US and Canada. In addition, we spent £407 million on bolt on M&A as we broaden our special capabilities and enhance our geographic footprint and £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 the fleet and bolt-on acquisitions and continued our buyback program. In addition, the adoption of IFRS 16 added £883 million to debt from the 1st of May. The leverage was within our target range at 1.9 times on a constant currency basis, excluding the impact of IFRS 16, and 2.3 times including it.

Both our average 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, about 4% and 4.25% notes, and used the proceeds to redeem the $500 million of more expensive 5 and 5.8 notes due in 2020 and pay down an element of the ABL facility.

This provides us with access to more cash flow for a long period of time as a lower costs and with a smooth maturity profile. On debt facilities are committed for an average of 6 years at weighted average cost of 4%.

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

Brendan Horgan

Thank you, Michael. I'll now move on to some operational color beginning with Slide 12. Sunbelt US 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% in the 9 months, again, outpaced any organic growth levels, others have reported. This growth and 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 that our general pool 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 five 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 leads us with a degree of built in capacity from utilization standpoint. You remember, we indicated in our CapEx guidance for the second half of the year that we will be on the lower end of our range, which seems to be consistent with the moderating CapEx levels throughout the industry. This supply discipline in 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, and absolute and improving on an underlying basis from considering hurricane, greenfield and bolt-on effects, which we 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 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 in 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 2 times that of the general tool business, which continues a trend that we've been demonstrating 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 for 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 offerings. 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 three years, all with ample runway for more.

Turning now to look at the construction end market. Slide 15 shows Dodge starts and put in place forecasts. The pattern and forecast of starts remains largely the same, which leads to the put in place figures in the top of the chart. Since our December update, we were using the then latest figures from September 2019. We've seen 2019 go from a forecasted plus 1% to a now actual zero percent. In 2020 growth from a forecast of plus one 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 the 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 it's a current and forecasted levels, the construction market remains strong. We continue 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 US, 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 five times. Once again, this demonstrates the benefits of the still early development of our cluster strategy taking shape. Utilization remains 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 US, 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 times is closing on the William F. White business we are seeing early cross selling winds 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 or platform equipment to power and HVAC.

Turning now to UK 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 strengths, 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 products 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 right sizing the fleet to current and prospective market demands. We will 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 reaching, which is on track to amount more than £100 million for the full year. These efforts are showing early signs of progress with time utilization now outpacing last year, if I anticipate a positive terms of margins, incurred 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 UK 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 US 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 our replacement spend as the original cost of equipment disposed of during the period. That does not mean necessarily that we replace 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 been disguised as replacements. Said simply we're investing in new assets and markets with demand no different than you would expect.

In the US 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 UK investment will be replaced with the total size of fleet standpoint. However, this will be invested in products in 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 1.3 billion in existing store and greenfield fleet and 407 million in bolt-ons.

Further, we have fulfilled returns to shareholders through our usual dividends and completed £376 million in share buybacks year-to-date and expect to deliver 400 million to 500 million by our fiscal year end. The businesses accomplished this while remaining inside of our 1.5x 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 £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 tools and specialty business remains strong and we intend to continue leveraging the market dynamics to our favor, while executing on our clear, ongoing strategy. I 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 continue to look to the medium term with confidence.

And with that operator, we will open it up for Q&A.

Question-and-Answer Session

Operator

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

Rajesh Kumar

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

First of all, if we were going to split out the group replacement CapEx guidance, we would have split it out on the slide, you can see why we bucketed I thank. Look, you heard us say for a long time, I just said as part of the results. You get to a point where you have this growth disguised as replacement is what we said. Certainly at the half year results and following during the roadshow, 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 out of our general tool business. So certainly will be a fair amount of investment there. But look, we have some of these markets as I covered that are certainly extraordinary growth ranges and we will be spending 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 was, 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

Very helpful. So, basically, using that growth, you will generate could be margin accretive, not diluted, even if the volume market environment is slower.

Brendan Horgan

Yeah, I mean, look, look at this year as Mike said, the margins had a bit of pressure at a more moderating revenue growth. Yeah, I think they will be there thereabouts what they are today.

Rajesh Kumar

Thank you very much.

Operator

Thank you. Our next question comes from the line of Will Kirkness from Jefferies. Please go ahead. Your line is now open.

Will Kirkness

Morning and I've three questions for you around CapEx. So firstly, just on disposal so guidance there is higher and as you've seen you guys in industry running high on disposals. Just wondering if there's any theme on what you're disposing and where. And secondly, look 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 will be more of a second half story.

And then lastly, again on CapEx discipline. Obviously that will drive pretty massive free cash flow. So your capital allocation priorities are clear that if the markets are still moderating then greenfields and bolt-ons may not necessarily be sufficient to absorb all that. So I just wonder whether it is more on the buyback the most likely outcome. Thanks very much.

Brendan Horgan

Sure, thanks, Will. First of all, from a CapEx standpoint, where's it going? What sort of products, you have to look at the guidance. And this, I think this gets a few people. But in general, when you look at what our guidance is from a balance of the year, we are at 5.58 in terms of replacement, and we were saying we will be 7 to 7.25. So all that means is we're going to dispose of another between $140 million or $170 million. And in order to not take away from that growth beneath it we will spend about the same.

Look second hand values and second hand, 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 racing 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 of those equipment categories go through auction, if you look at with the last report that came out was.

As it relates to utilization. So when I looked at that here, yeah, I would say I would speak more in the Q1-Q2 terms of our fiscal year since we're pushing more into the second half of the calendar year. And I think your question around CapEx and proceeds may just be the most important thing that that we get out there overall. I mean, 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 and 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 £122 million after our M&A, £659 million before M&A. So, I think your question is a very good one, which is basically say 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 bias for buybacks.

Operator

Thank you. Our next question comes from the line of Andrew Nussey from Peel Hunt. Please go ahead. Your line is now open.

Andrew Nussey

Just question around speciality, please on Slide 14 where you usefully strip out the various segments, are those ranked in order of fleet size, or can you just give us any insight to the relative contribution in terms of revenues from those speciality segments please?

Brendan Horgan

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 Pratt

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

Operator

Thank you. Our next question comes from the line of Arnaud Lehmann from Bank of America. Please go ahead. Your line is now open.

Arnaud Lehmann

Just a couple of follow ups on CapEx. If I may, firstly for Sunbelt US, 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 pick-up in CapEx for year 2021, please? Thank you.

Brendan Horgan

Sure. So, with A plant and that is just a function of the aging band. So, we've shared so often the aging bands in the US business where we have this really smooth profile, in part because 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 surely I shouldn't say basically it is surely replacing CapEx, so 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 into the results of our greenfield case but also, we have the few even truck capital of CapEx plans that we have put in play. So, really it's just a modest sort of uptick up for those two things and of course, just general sort of facility up keep as we go through and refreshing some of our locations.

Operator

Thank you. Our next question comes from the line of Nicole Manion from UBS. Please go ahead. Your line is now open.

Rory McKenzie

Hi, morning all, it's actually Rory McKenzie here, I am hiding as always. First of all I want to ask firstly on those regional growth rates, Brendan they're very interesting. Can you remind us of the range of the market shares by stake? And also is that growth in say California, both general tool and specialty? Are you aiming to kind of penetrate new markets leading with specialty in the current market environment? Thank you.

Brendan Horgan

As it relates to the market share, I will refer you to the typical Appendix slide that we share and at the half year results, that would be the Appendix slide 35. So, those green spaces, we call them are the top 15% market share and some of the other markets that are represented are going to be well below 10%. And that in of itself will have a big range where we may 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. What else, which would also indicate our growth in Arizona? That was purely general tool and specialty would not look that different from that. Those were, but that was when I referenced the regions, those are general tool regions we have.

Rory McKenzie

And then just wanted to talk about pricing. You said, it's holding up well and 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 they kept deteriorating and actually ended up in the year-over-year decline over the next 12 months?

Brendan Horgan

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 will 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 just gives us great confidence, as I've said earlier, in terms of the overall discipline. 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 or rental growth and rental rate.

Operator

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

Anvesh Agrawal

Just quick question falling on the breakup of this end market, sorry divisional growth you have given earlier. Maybe if you can comment on the end markets that is driving such a high growth in some of the regions. And then if you look at the outlook going forward. Do you expect a moderation in the market growth there as well or those end markets you're growing very highly kind of remains pretty robust, even in a moderating construction environment?

Brendan Horgan

One of the end markets that we talked about and you've done some work on yourself is around the data centers. So certainly, data centers continue to be a contributor. They are certainly not, there are a lot of those that would have driven, what I mentioned in terms of Carolina and Florida. So there's a bit of a impact there. But look, overall, when we look forward to the market, it feels like what those forecasts are about right. Obviously as we have been talking about 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 constructions, when we think about HVAC business, and, you know, our climate control business. And we're seeing that not just from an event standpoint, but from a municipality standpoint. You know, we're seeing those markets grow for 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 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 and US municipal standpoint and event standpoint, which continues to be very positive as we move into 2020.

Anvesh Agarwal

That is very clear. Thank you so much.

Operator

Thank you. [Operator Instructions]. Our next question comes from the line of Jane Sparrow from Barclays. Please go ahead. Your line is now open.

Jane Sparrow

Morning, 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 high 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 the broadly unchanged comment is at the EBIT level, is that correct?

Brendan Horgan

I'll turn it over to Mike in a second Jane but what I think I said was there or thereabouts just to be --

Michael Pratt

You're right from the specialty point of view Jane. Invariably most of our specialty is from an EBITDA perspective are lower margin as EBIT, the -- some slightly better some are slightly lower than the existing margin. And it also impacts on the rate of, impacted greenfield etcetera. So, I think you're back to the there or thereabouts, as we talked about, 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 rates next year as we've had for this year. So, it'll be our battle over but I wouldn't want to be betting on a specific number?

Jane Sparrow

Okay. Thanks.

Operator

Thank you. And at time, no further questions registered at the moment, I will hand over back to the speakers for any final comments. Please go ahead.

Brendan Horgan

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.