Hello and welcome to the Ashtead Group Q3 results, bondholder call. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present Michael Pratt, Finance Director. Please go ahead with your meeting.
Thank you. Good afternoon, everyone. With me today are Brendan Horgan, Chief Executive Officer, and Will Shaw, our Director of Investor Relations. The webcast of our early analyst meeting and the related slide presentation are available on our website, and I will refer to the slides during our call. I will begin by covering some of the highlights from the release in the event you missed the webcast, and then open the call for questions. As an overview, it's been another good performance in the quarter. Our North American markets remain supportive, and we've continued our strategy of growth through greenfield openings and bolt-ons, supplementing our same-store growth. The group's results for the nine months are shown on slide five, and as I did at the half-year, I've set out the results on both a pre- and post-IFRS 16 basis.
I'm only going to comment on the pre-IFRS 16 figures given it is 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 GBP 969 million, while earnings per share increased 11%, reflecting the profit improvement and the impact of the share buyback program. On the next three slides, I'll review the divisional numbers, beginning with Sunbelt in the US. Slide six shows Sunbelt's nine-month results in the US. Rental and related revenue was up 12%. As expected, this rate of revenue growth has slowed as we progressed 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 that it 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 prior years, and the drag effect of the significant number of new locations added in the last couple of years. This contributes 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 of 26% reflects a benefit from acquisitions over the last year, including William F. White, acquired in December. Organic growth was a healthy 11%.
This revenue generated EBITDA of $121 million and an operating profit of $57 million, at margins of 38% and 18%, respectively. 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 eight, 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 defleeted underutilized and low-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. remained relatively flat and competitive.
This environment, combined with small losses on the defleet, compared with gains on sale 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 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 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 nine 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 GBP 407 million on bolt-on M&A as we broaden our specialty capabilities and hence our geographic footprint, and GBP 376 million on our share buyback program. Slide ten 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 to debt on the 1st of May. 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 leveraged and well-invested fleet continue 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 4% and 4.25% notes, and used the proceeds to redeem the $500 million for more expensive 5 and 5/8 notes during 2024 and pay down the elements 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 service is committed for an average of six years at a weighted average cost of 4%. The final slide I'll reference before opening the call for Q&A is our updated view of CapEx for this year and our preliminary view for next year, which appears on page 18. As we trailed at the half-year, we expect CapEx to be at the lower end of our previous guidance for this year at around GBP 1.4 billion.
For 2021, we expect gross CapEx spending to be in the range of GBP 1.1 billion-GBP 1.3 billion, which should result in or should enable us to target mid to high single-digit rental revenue growth in the US next year. This concludes my comments, and so we'll move on to Q&A. Operator, will you please provide instructions for Q&A?
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Amanuel Abebe from JPMorgan Chase. Please go ahead.
Thank you. A couple of questions for me. My guess, firstly, if we look at slide 15, I was hoping to get your thoughts on what you think of the forecast, the Dodge forecast in 2021 and in 2020. If you can give us a bit of what you are seeing relative to your business and what you feel, what do you think of this forecast here?
Yeah, sure. This is Brendan. I think as we've been very consistent with this, and I think it all really plays out quite true, frankly. Albeit, I would have mentioned on the results call this morning, we definitely saw a tapering off of the market as it relates to forecast as we progressed through 2019. As I look back with hindsight, so to speak, I really think 2019 was really kind of flat throughout the year. In other words, I don't really think we had an entry point of, say, plus 2, plus 3, and then we found ourselves down to minus 2, minus 3 sequentially, which would all equal out to about zero. The reason why we felt as though there was a reasonable amount of just sort of credibility or instinctive check as it relates to 2020 and 2021 really boils down to two things.
Let's face it, it's an election year. It's been a reasonably good decade, if you will, from an overall business perspective. By that, I mean pretty slow and steady growth. There's an election coming up, and what will happen being the question. Let's face it, it's not exactly a benign administration. If there were to be a change, what would that amount to? Why wouldn't you just pause a bit? That's why, as these forecasts began to come clear, that 2020 looked to moderate and 2021 looked to go down a bit, it kind of made sense. When you have a pause, if you will, from a planning perspective, it's always going to lead to a year with a bit negative, like is shown in 2021. That's number one. Number two, it's just a capacity thing.
From a construction standpoint, there's not a lot of extra capacity out there, frankly, right now, particularly when it comes to labor. This was bound to happen. I think to us, it feels reasonably right. They're not our forecasts. All we can do is sort of interpret them, hence the reason why we've been talking about them the way that we have. I hope that answers your question.
It does. Thank you very much. The second question I had is related to sort of the energy market and the volatility that we're seeing, at least as it relates to oil prices. Maybe if you can give us a sense for what you're seeing in your market as it relates to perhaps equipment coming off of that market, and if there's any parallels or comparisons we can draw this time around versus 2015, 2016 when we had this kind of volatility.
Yeah. No, I mean, first of all, keep in mind our upstream oil and gas business has circled 2% of our revenue, and the same thing for profit. You would have seen in the results that oil and gas, as an individual segment, was down just slightly for the year. Actually, profits are up just slightly. I don't anticipate that to be the case all year. They will move more toward a flattening. Yeah, I think you can compare and contrast what we saw happen in 2015, 2016, as you said, kind of 2014, 2015. First of all, I think it's not been very well documented how well our industry in total actually tolerated, at the time, a very volatile market as it relates to oil and gas. Certainly, it was sort of boom time as it relates to rental in that arena.
We chose very consciously and strategically not to enter at the level in which we would have been before, pound for pound, so it's not going to have as much of an impact on us. I do think when I talked earlier, and you can see a little bit of upward capacity or slight weakening in terms of time utilization across the entire industry, and there's no question about that, given others spend more time in it. That's got a little bit of an impact as we are today. I think, remember, we've not had, although it's been volatile, we've had nowhere near what those peaks were in the market, and it's nowhere near as broad as it was in the years you referenced. The Tar Sands in Alberta, Canada are not as robust as they were. Bakken is not as robust. Marcellus, Eagle Ford, Permian, etc.
It's all just a bit more of a moderate sort of oil and gas space to begin with, and as a result, it's just going to be somewhat less volatile.
Thank you. The final question I had is maybe if you can update us in terms of what you're seeing on the M&A front, any deals in the pipeline that's of interest, and maybe in what context in terms of the size of deals, any takeaways there or any updates there. Thank you very much.
Yeah. Look, there's lots of bolt-on potential out there. There's no shortage of discussions that we're having. We're in a pretty nice position. There aren't a lot of buyers out there that are interested in the size of deals that we are. That being said, we have generally steered to, we think, the year coming will be a bit more modest, a year of bolt-on M&A. We've had a pretty robust last two years. It's not as a result of there not being quality businesses out there. We just are kind of the determining factor, if you will, as to when some may go. Obviously, there are always a few out there that we've always earmarked or liked or would like a combination with over the years. If those came, that could change. Generally speaking, that's how I see it.
Rest assured, there is a long, long runway of bolt-on M&A remaining in our industry. Just look how fragmented it is.
The nature of that pipeline is probably more akin to the typical size of transaction we do, as opposed to we've had them hardly large, but I would characterize $100 million-$200 million plus size deals as being at the larger end of what are our typical bolt-ons, whereas our pipeline is more in the sort of the traditional size, which I would put as sort of that $50 million and sub $50 million, really.
Thank you very much.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Next question comes from the line of James Keeler from Bank of America. Please go ahead.
Hey, guys. How are you?
Hey, James. Good. Thank you.
Good. Maybe just first on used equipment. The Ritchie Bros. data kind of throughout the year had shown some softness in the used equipment market. I think what we've heard is that the retail market's been better than the auction market. Just curious for your color and what you're seeing, and if you think that's telling you anything about the market.
Yeah. I mean, look, retail's always better than auction, so it doesn't really matter at what time you are throughout a cycle. Again, I mean, the auction market's actually pretty strong. I mean, if you look at the latest Ritchie Bros. information that would have just come out, there is a bit of, keep in mind, let's use the term softness gently, because compared to historic sort of points, it's relatively robust. It goes back to the earlier question related to oil and gas. The type of product you see that is softening just a bit is the product that you would see in the oil patch, and that makes all the sense in the world. If you listen to some of our peers' results, they would have talked about that specifically in terms of obviously needing to move some of that fleet.
I just don't think it flags anything all that particular.
I think also in the earlier part of last year, some outside it was in sort of that larger earth-moving type of equipment as opposed to the more traditional range of kit.
The fear of that's going to come off patch as well.
Correct. Yeah. The feet on the ground we would have had at the recent Orlando auctions, which was a big auction of the year, the initial feedback we got from our feet on the ground, as I said, was good, strong activity, and reasonable volumes.
Very good. Maybe also just kind of maybe a broader sort of industry question, but as it relates to your strategy, maybe just in terms of capital investment, it feels like throughout the industry, everyone is tempering investment a little bit. Maybe you could just give us a sense for how you feel about the level of capital investment, either yours or industry-wide, and if you think there's more likelihood that people continue to do those numbers go lower, or if there are certain scenarios where capital investment increases as the year goes on.
Yeah. Look, I think it's a great question and an even more important point. It is a point of emphasis. Obviously, from a capital markets perspective, everyone looks at this business and this industry to say, and they compare and contrast it to the Great Recession. If you think about that as it relates to a comparison, and by no means is anyone suggesting or forecasting we have any sort of economy coming our way like that. My reason for saying all that is the industry didn't prepare as we went into what ended up being a surprise sort of economy in 2008, 2009. It was invest, invest, invest, and then all of a sudden, we found ourselves in this extraordinary, let's hope once-in-a-professional career recession. It's different this time.
I mean, the answer to the question in terms of why you have businesses like ourselves behaving the way that we are, we all look at forecasts. We all look inside of our own business. Yeah, things are good. It is a market most would freeze for a long time. That being said, there is some notable difference in terms of time utilization, as small as it might be. In businesses like ours, if you get an extra 1-2% time utilization, that's a big deal. I think it does seem as though, particularly from a leaders in the industry standpoint, everyone seems to be trying to demonstrate a degree of discipline. Let's not forget, we are also all the ones who can ramp up the fastest if we so choose. I have zero hesitation.
If what we're seeing in the market is even more demand, you better believe it. We will follow our capital allocation priority, and the first priority is investing in rental fleet for our existing locations, and that's exactly what we would do. Us and a few others, really, I should say us and other, have the ability to do that, and I'm sure that we will.
Very good. Thank you.
Sure.
All right. There are no further questions. I'll hand it back to the speakers.
Great. Thank you very much for your interest, and we will speak to you again. We have a capital markets day at the end of April, and we look forward to speaking to you after our Q4 results in June. Thank you.
This now concludes our conference call. Thank you all for attending. You may now disconnect your line.