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Aggreko Plc — Interim / Quarterly Report 2015
Aug 6, 2015
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Interim / Quarterly Report
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RNS Number : 1567V
Aggreko PLC
06 August 2015
6 August 2015
RESULTS FOR THE SIX MONTHS TO 30 JUNE 2015 AND BUSINESS REVIEW CONCLUSIONS
| £m unless otherwise stated | 2015 | 2014 | As Reported | Underlying1 |
| Group revenue | 781 | 768 | 2% | (2)% |
| Group revenue excl. pass through fuel | 752 | 745 | 1% | (2)% |
| Trading profit 2 | 114 | 140 | (18)% | (22)% |
| Reported trading margin | 15% | 18% | ||
| Profit before tax | 102 | 130 | (21)% | |
| Diluted earnings per share (p) | 29.63 | 36.45 | (19)% | |
| Dividend per share (p) | 9.38 | 9.38 | -% | |
| Return on capital employed 3 | 17% | 21% |
TRADING RESULTS
· Local business revenue increased by 3%, aided by successful delivery of the inaugural European Games;
· Power Projects revenue down 9%, driven by Bangladesh pricing and lower utilisation on Panama contract;
· Solid year to date order intake of 451MW and strong order book reflecting extensions in Argentina, Ivory Coast, Bangladesh and the first 115MW in Mozambique;
· Strong balance sheet with 0.8 times net debt to EBITDA; net debt down £70 million on prior year;
· Maintained interim dividend of 9.38p;
· Full year fleet capex flexed from £300 million to £270 million reflecting current trading conditions;
· As reported on 24 July, results are impacted by the slowdown in the North American oil and gas sector, lower than expected pricing on the Bangladesh contract extension and lower production levels in Yemen due to ongoing security challenges;
· Continue to expect full year profit before tax to be between £250 million and £270 million at current exchange rates.
BUSINESS PRIORITIES
At the full year results in March CEO Chris Weston announced a comprehensive business review to identify priorities for the next phase of growth.
Key Conclusions
· Aggreko is a strong and resilient business in growing markets serving a critical need;
· The market environment has changed;
· A new organisational structure (announced 22 June) is required to better address those markets and improve operational efficiency:
− Created two separate business units, Power Solutions and Rental Solutions, effective from 1 August;
· We will focus the business on three areas: Customer; Technology; and Efficiency
− In Customer we will develop our approach to global and national key account management; further develop our approach to key sectors; increase our skills to deliver more complex projects; continue to pursue market adjacencies; and evaluate bolt-on M&A opportunities;
− In Technology we will continue to work towards reducing the overall cost of power for our customers by working with our strategic partners to develop market leading products;
− In Efficiency we will improve our processes and systems; optimise the deployment of resources; and streamline our cost base;
· Cost savings of £80 million by 2017 will be balanced between reinvestment for growth and support to margins and returns; one off costs will be circa £30 million;
· We expect to grow ahead of our markets whilst delivering margins and returns of around 20% in the medium term;
· 2016 will be a year of change in the business with markets remaining difficult; margins and returns are likely to be lower in the short term.
CHRIS WESTON, CHIEF EXECUTIVE, COMMENTED ON THE RESULTS AND THE BUSINESS REVIEW:
"The performance of the Group in the first half was impacted by difficult trading conditions in a number of our markets, notably Bangladesh, and external factors, including the impact of a lower oil price and ongoing security concerns in Yemen. Whilst we initially expected our financial performance this year to be broadly in line with last year, these challenges mean that, as announced on 24 July, we now expect profit before tax to be between £250 million and £270 million for the full year4.
Our new organisational structure, which incorporates Rental Solutions, comprising our Local business in developed markets, and Power Solutions, comprising our Power Projects business and Local business in developing markets, better focuses the business on our markets and our customers, providing a more effective platform for growth.
Aggreko is the market leader in the provision of fast, mobile, modular power, fulfilling a critical need. It is clear that although the market environment has changed, that our business model is sound and that we have good growth opportunities in each of our markets. Through focusing on three business priorities: our customers; our technology; and our efficiency, we are positioning the business for its next phase of growth. I am impressed by the commitment of our people and our culture and I am confident that our new focus and structure will see the business return to growth."
Regional performance metrics:
| £m | Reported Revenue | Underlying | Reported Trading Profit |
Underlying | ||
| 2015 | 2014 | 2015 | 2014 | |||
| Americas | 329 | 340 | (7)% | 48 | 66 | (29)% |
| APAC | 108 | 125 | (17)% | 13 | 24 | (49)% |
| EMEA excl fuel | 315 | 280 | 10% | 54 | 53 | -% |
| Power Projects excl fuel | 306 | 314 | (9)% | 66 | 86 | (27)% |
| Local business | 446 | 431 | 3% | 49 | 57 | (14)% |
Enquiries
| Investors & Analysts | Louise Bryant, Aggreko plc | +44 7876 478 272 |
| Media | John Sunnucks / Lorna Cobbett, Bell Pottinger | +44 20 3772 2500 |
Interviews with Management
Interviews with Chris Weston and Carole Cran discussing the business review and the interim results are available on our website at www.aggreko.com/investors/reports-results-and-presentations/financial-results-centre.aspx.
Historical financials under new structure
The last 5 years of financials under the new organisation structure are available on our website at www.aggreko.com/investors/reports-results-and-presentations.aspx.
Analyst Presentation
A presentation of our interim results and business review will be held for investors and analysts today at 10am (BST) at King Edward Hall, Bank of America Merrill Lynch, 2 King Edward St, London EC1A 1HQ. A live web-cast and a copy of the slides will be available on our website from 9.45am at www.aggreko.com/investors/reports-results-and-presentations.aspx.
Future Reporting
The Group will report a trading update in November 2015.
INTERIM MANAGEMENT REPORT
Group Trading Performance
Underlying5 revenue was down 2% over the same period last year. The Local business grew 3% on the same basis, with a strong performance from EMEA, aided by £13 million of revenue from the European Games; this was partially offset by a 2% decrease in the Americas due to a slowdown in the oil and gas sector driven by the lower oil price and the prior year comparatives including revenue from the World Cup in Brazil. APAC Local business revenue was in line with the same period last year. In Power Projects, underlying revenue was down 9%, driven by our contract in Panama where the plant has not been running as hard as last year, as hydro levels are higher. In addition, in Indonesia we have seen a decline in volumes over the last year and whilst we are pleased to be in the final stages of approval for an extension to our contract in Bangladesh, the pricing is lower than our expectations. In EMEA Power Projects trading was good, reflecting the strong order intake in Africa through 2014.
Overall, the Group reported margin was 15% (2014: 18%). In the Local business the pricing and volume pressure we experienced in the oil and gas sector in North America had an adverse impact on margins and whilst we have taken actions to mitigate this, we have been unable to offset the impact completely. In Power Projects, as outlined above, we have seen pricing pressure in Bangladesh and this, combined with increased mobilisation costs from higher levels of new work in our EMEA Power Projects business, resulted in a lower margin. The decline in margin impacted reported return on capital employed6, which fell 4 percentage points to 17%.
Looking across the regions, EMEA delivered a good performance, with underlying revenue up 10% and trading profit in line with the same period last year, with the higher revenues offset by higher mobilisation costs. The Americas had a challenging first half, with underlying revenue down 7% and trading profit down 29%. APAC also had a poor first half with underlying revenue down 17% and trading profit down 49%.
On a reported basis, the movement in exchange rates in the period increased revenue by £26 million and trading profit by £6 million. This was driven by the strength of the US dollar against Sterling compared to the average rates in 2014.
Earnings and Dividends
The Group delivered a profit before tax of £102 million (2014: £130 million). The diluted earnings per share was 29.63 pence, a 19% decline on the prior year. The Board has proposed an interim dividend of 9.38 pence per ordinary share (2014: 9.38 pence), which is in line with the prior year.
Cashflow and Balance Sheet
During the first six months, we generated an operating cash inflow of £255 million (2014: £213 million). Fleet capital expenditure was £138 million (2014: £107 million), of which 55% was spent in the Power Projects business, as we further invested in our gas fleet and continued to refurbish our diesel fleet to the more fuel efficient, higher output G3+ engine.
Net debt was £467 million at 30 June 2015, £70 million lower than the prior year. This resulted in net debt to EBITDA on a rolling 12-month basis of 0.8 times compared to 0.9 times at June 2014.
Outlook
At a Group level we expect the second half underlying revenue trend to be similar to the first half reflecting current trading conditions. Given this we have flexed our capital expenditure and now anticipate spending around £270 million on fleet for the full year. Overall, as indicated in our trading update of 24 July, profit before tax for the full year is now expected to be between £250 million and £270 million at current exchange rates7.
REGIONAL TRADING PERFORMANCE REVIEW
The performance of our three regions is detailed below, along with an analysis of the group wide performance of our Power Projects and Local businesses.
Regional Trading Performance as reported in £ million
| Revenue | ||||
| Reported | Underlying | |||
| 2015 | 2014 | Change | Change | |
| By Region | £ million | £ million | % | % |
| Americas | 329 | 340 | (3)% | (7)% |
| Asia, Pacific & Australia | 108 | 125 | (14)% | (17)% |
| Europe, Middle East & Africa | 344 | 303 | 13% | 10% |
| Group | 781 | 768 | 2% | (2)% |
| By Business Line | ||||
| Local Business | 446 | 431 | 4% | 3% |
| Power Projects excl pass-through fuel | 306 | 314 | (3)% | (9)% |
| Pass-through fuel | 29 | 23 | 23% | 13% |
| Group | 781 | 768 | 2% | (2)% |
| Group excluding pass-through fuel | 752 | 745 | 1% | (2)% |
| Trading profit | ||||
| Reported | Underlying | |||
| 2015 | 2014 | Change | Change | |
| By Region | £ million | £ million | % | % |
| Americas | 48 | 66 | (27)% | (29)% |
| Asia, Pacific & Australia | 13 | 24 | (46)% | (49)% |
| Europe, Middle East & Africa | 53 | 50 | 6% | -% |
| Group | 114 | 140 | (18)% | (22)% |
| By Business Line | ||||
| Local Business | 49 | 57 | (13)% | (14)% |
| Power Projects excl pass-through fuel | 66 | 86 | (23)% | (27)% |
| Pass-through fuel | (1) | (3) | 50% | 55% |
| Group | 114 | 140 | (18)% | (22)% |
| Group excluding pass-through fuel | 115 | 143 | (19)% | (22)% |
The performance of each of these regions is described below:
Americas
| Reported | Reported | Reported | Underlying1 | |
| 2015 | 2014 | Change | Change | |
| £ million | £ million | % | % | |
| Revenues | ||||
| Local | 221 | 218 | 2% | (2)% |
| Power Projects | 108 | 122 | (12)% | (15)% |
| Total | 329 | 340 | (3)% | (7)% |
| Trading profit | 48 | 66 | (27)% | (29)% |
| Trading margin | 15% | 19% |
1. Underlying excludes currency.
Americas underlying revenue decreased by 7% and trading profit by 29%. Reported trading margin decreased from 19% to 15%, with the decrease driven by the impact of the slowdown in the oil and gas sector and an increase in the provision for doubtful debts in Power Projects.
Revenue in our Americas Local business decreased 2% with rental revenue down 1% and services revenue down 5%. Within rental revenue power was down by 2% and temperature control was up 6%. Oil free air was down 8%. The prior year comparatives included revenue from the World Cup in Brazil, excluding this the year on year increase in revenue was 1%. Since the end of the first quarter we have experienced pricing and volume pressure in the North America oil and gas sector, where revenue was down 10% in the first half. In diesel, volumes and pricing were down, and in gas, although pricing was also under pressure, we have seen higher volumes as we balance market share gains with price. In contrast we are seeing growth in other sectors, particularly in petrochemical and refining, our second biggest sector in North America, where revenue was up 10%, and where the lower oil price is acting as a stimulus. In Brazil, the economic environment remains challenging, however the actions that we have taken to reorganise the business are having a positive impact, with margins up two percentage points. Elsewhere in Americas Local, the mining sector slowdown has impacted our business in Chile, although we are seeing good growth in Canada driven by the petrochemical and refining sector.
Power Projects revenue, on an underlying basis, was down 15% on last year with a £5 million ($7 million) decrease in Military and reduced running of our Panama plant, as hydro levels were higher. Since the beginning of the year, we have won over 200MW of new work in the region, including the previously announced 150MW contract in Argentina, as well as the extension of our existing 300MW of contracts in the country.
Asia, Pacific & Australia (APAC)
| Reported | Reported | Reported | Underlying1 | |
| 2015 | 2014 | Change | Change | |
| £ million | £ million | % | % | |
| Revenues | ||||
| Local | 51 | 53 | (3)% | -% |
| Power Projects | 57 | 72 | (21)% | (28)% |
| Total | 108 | 125 | (14)% | (17)% |
| Trading profit | 13 | 24 | (46)% | (49)% |
| Trading margin | 12% | 19% |
1. Underlying excludes currency.
Underlying revenue and trading profit in our APAC business declined by 17% and 49% respectively in the first half. The reported trading margin fell from 19% to 12% largely driven by the Power Projects business.
Local business revenue was in line with the same period last year. Rental revenue increased by 2% and services revenue was down 6%. Within rental revenue power increased by 2% and temperature control increased by 6%.
Around 70% of APAC local revenue is generated by the Australia Pacific business which continues to face difficult market conditions driven by the slowdown in the mining sector. However, the rate of decline has slowed, with revenue down 5% in the first half, but whilst iron ore and coal prices remain where they are, it is unlikely that we will see a significant pick up in this market, albeit we would expect that the situation continues to stabilise. We have responded by redeploying fleet and reviewing our cost base more generally, as well as looking for new market opportunities, which do exist. Our business in New Zealand benefited from emergency response work to the cyclones which hit the country and the ICC World Cup and our new business in South Korea continues to perform well. However, trading conditions remain difficult in India despite the initial optimism following last year's election.
Power Projects in APAC had a difficult six months with revenue decreasing 28%, largely driven by pricing pressure on our contract extension in Bangladesh and a reduction in volumes in Indonesia. Despite the reduced rate we are pleased to be in the final stages of approval to extend our contract in Bangladesh, with our expectation being that 180MW will be secured for a further year and 145MW for a further three years; the trading terms secured for these extensions retrospectively apply from the second quarter 2015 and we are looking at ways to reduce our operating costs to partly mitigate the impact of the lower rate. In Indonesia, the environment continues to be challenging; to make us more competitive, we have taken the decision to address this market with a local presence and will open a depot in Jakarta later this/early next year. During the period we were also awarded new contracts in Myanmar and the Philippines as well as the extension of our existing contract in Japan through to early 2016.
Europe, Middle East & Africa (EMEA)
| Reported | Reported | Reported | Underlying1 | |
| 2015 | 2014 | Change | Change | |
| £ million | £ million | % | % | |
| Revenues | ||||
| Local | 174 | 161 | 8% | 12% |
| Power Projects excl pass through fuel | 141 | 119 | 18% | 8% |
| Pass through fuel | 29 | 23 | 23% | 13% |
| Total | 344 | 303 | 13% | 10% |
| Trading profit | ||||
| Excl pass-through fuel | 54 | 53 | 3% | -% |
| Pass-through fuel | (1) | (3) | 50% | 55% |
| Total | 53 | 50 | 6% | -% |
| Trading margin excl. pass-through fuel | 17% | 19% |
1. Underlying excludes currency and pass-through fuel.
In our EMEA business first half underlying revenue increased by 10% and trading profit was in line with the same period last year. Reported trading margin decreased from 19% to 17% mainly driven by a higher level of mobilisation costs from higher levels of new work partially offset by a reduction in the Power Projects provision for doubtful debts due to a better payment profile.
Revenue in our EMEA Local business, on an underlying basis, increased 12% on last year driven by revenues from the European Games in Baku (Azerbaijan). Rental revenue increased by 11% with services revenue up 15%. Within rental revenue, power increased by 12% and temperature control increased by 2%. On a geographical basis we saw good growth in Africa where mining remains strong, and particularly in South Africa where the business is growing rapidly on the back of the worsening power outages and regular load shedding. Belgium also performed well as we provided blackout support to industrial customers over the winter months. Elsewhere performance was mixed and we started to see an impact on our oil and gas business across the region, particularly in Scotland. The integration of Golden Triangle Generators Limited (acquired in November 2014) was completed during the period and this small acquisition is performing in line with our expectations. We were pleased to have successfully supplied power for the first European Games in Baku. In total, we provided 35MW of temporary power across the Games' fifteen venues and the International Broadcast Centre.
Revenue in our Power Projects business, excluding fuel, was up 8% reflecting the strong order intake in Africa through 2014. We have extended 115MW of our 260MW of gas contracts in Mozambique until the end of the year and are making progress on the rest; since the beginning of the year we have secured new work in Tanzania, Kenya and Ghana.
BUSINESS LINE PERFORMANCE REVIEW
Whilst we report on a regional basis, we have also outlined the performance of our two business lines below, to provide further clarity on performance.
Power Projects Business
| Reported | Reported | Reported | Underlying1 | |
| 2015 | 2014 | Change | Change | |
| £ million | £ million | % | % | |
| Revenues | ||||
| Excl pass-through fuel | 306 | 314 | (3)% | (9)% |
| Pass-through fuel | 29 | 23 | 23% | 13% |
| Total | 335 | 337 | (1)% | (9)% |
| Trading profit | ||||
| Excl pass-through fuel | 66 | 86 | (23)% | (27)% |
| Pass-through fuel | (1) | (3) | 50% | 55% |
| Total | 65 | 83 | (22)% | (27)% |
| Trading margin excl pass-through fuel | 22% | 27% |
1. Underlying excludes currency and pass-through fuel.
Our Power Projects business saw underlying revenue decreasing by 9% and trading profit decreasing by 27% in the first six months of the year. Reported trading margin decreased to 22% (2014: 27%). The main reasons for the margin decline were higher mobilisation costs driven by higher levels of new work in EMEA and pricing pressure in Bangladesh, as well as reduced volumes in Indonesia.
Order intake for the first half was a solid 422MW (30 June 2014: 488MW) with year to date order intake of 451MW; last year's comparative includes 170MW of lower rate, summer peak shaving work in Saudi Arabia and Oman, which didn't repeat in 2015. New contracts in 2015 include 150MW in Argentina and 95MW in Myanmar. With regards to our key contract extensions, we are pleased to have extended our contracts in Bangladesh, Argentina and the Ivory Coast. We have also extended 115MW of our 260MW of gas contracts in Mozambique until the end of the year and are making progress on the rest; we have assumed that this fully extends until the end of 2015 in our guidance. At the end of the period, our order book was over 38,000MW months, the equivalent of 13 months' revenue (30 June 2014: 9 months) at the current run-rate and the highest level of recent times. The off-hire rate in the first half was 8% (2014: 10%).
Local Business
| Reported | Reported | Reported | Underlying1 | |
| 2015 | 2014 | Change | Change | |
| £ million | £ million | % | % | |
| Revenue | 446 | 431 | 4% | 3% |
| Trading profit | 49 | 57 | (13)% | (14)% |
| Trading margin | 11% | 13% |
1. Underlying excludes currency.
Our Local business, in revenue terms, had a solid first half with underlying revenue increasing by 3% with good performances from Africa, the Middle East, South Korea and Canada partially offset by a decline in North America, Australia Pacific and Brazil. Rental revenue increased by 4% and services revenue by 2%. Within rental, power increased 4% whilst temperature control increased by 5% and oil-free air decreased 8%. This increase in revenue included £13 million of revenue from the European Games. Trading profit decreased by 14% and trading margin reduced from 13% to 11% mainly driven by the decline in the mining and oil and gas sectors in our Americas Local business.
BUSINESS PRIORITIES
Since the beginning of the year, we have undertaken a comprehensive review of our business, with a view to determining the actions that we need to take in order to deliver sustainable growth.
First, it is clear that Aggreko is an exceptional business, with a unique business model. It operates in markets and sectors that provide underlying growth over the economic cycle and it has a number of distinct competitive advantages. These include: our people and unique culture that delivers consistently for our customers; expertise in sales, engineering and operations, enabling rapid deployment globally; scale and global reach, providing a capital cost and utilisation advantage; and technology, providing packaged modular and mobile products, working closely with our OEM partners. These strengths are complemented by a strong balance sheet, providing great flexibility for the future.
Secondly, our markets are changing: emerging market growth rates have slowed, as has growth in the associated power shortfall. The competitive environment has intensified and geopolitical events have made the operating environment more challenging. In addition, there has been a marked slowdown in the commodities cycle, impacting the oil & gas and mining sectors in particular. This has had an impact on our business, but Aggreko is the market leader in the provision of modular, mobile power and is well positioned to respond to the changes in the market environment.
In reviewing the business, it was clear that Aggreko has two mutually beneficial businesses, each operating in a different market environment and each focused on customers with specific needs. In order to better address these needs, we announced on 22 June 2015, that we will change our organisation structure, creating the Rental Solutions and Power Solutions business units, effective from 1 August 2015. Aggreko Rental Solutions incorporates our Local businesses in developed markets8. Aggreko Power Solutions includes our existing Power Projects business and our Local businesses in developing markets9.
Within these business units we have identified specific actions that will drive growth and enhance our existing competitive advantages. In order to realise these opportunities, whilst ensuring the business continues to deliver good margins and returns, we are focusing on three key areas: our customer; our technology; and our efficiency which require specific actions in each of our business units as follows.
Aggreko Rental Solutions
Aggreko Rental Solutions will focus on how it identifies and provides service to its customers and the efficiency of its operations in the field and in both the front and back office.
Our customer priority will include:
· Improving the account management service we provide to our customers, something we are uniquely positioned to offer on a global basis, covering both International and National Accounts;
· Enhanced sector focus, covering oil & gas, petrochemical & refining, mining and events, both in terms of expertise and product solutions;
· Developing our temperature control business and other adjacencies (loadbanks, etc). These are products that are used extensively in our target sectors and benefit our core business, requiring associated power, around 80% of the time in the case of temperature control; and
· Developing a digital offering for our more transactional customers. This will cover sales and service, including pricing, the ability for customers to manage their accounts and make payments.
Efficiency will include the assessment and re-design, as appropriate, of our existing processes and systems. It will cover fleet and field management, streamlining back office processes, as well as our CRM capability. It will lead to greater efficiency and an improved customer service as well as improved utilisation and return on capital.
We expect GDP in our Rental Solutions markets to grow at around 2% per annum.
Aggreko Power Solutions
Aggreko Power Solutions will focus on efficiency, particularly reducing the cost base; technology; and customers.
Historic high growth rates combined with the regional structure led to cost inflation, whether through duplication of resource or limited investment in Group capability in areas such as procurement. The first priority is to reduce our cost base. There are further areas for efficiency improvements, including:
· Optimising the depot infrastructure that has been deployed over the last few years and moving to a regional hub and spoke model, such as that deployed in Southern Africa. This will reduce the capital employed and improve returns. There may be some countries, such as Indonesia, where we have to invest in appropriate local infrastructure to capture market share; and in
· Mobilisation/demobilisation of our projects; the standards and equipment deployed, without compromising on safety or reliability; and the operations of each site, addressing inefficiencies and variability in site operations across the globe.
It is clear that our customers value our reliability, quality and flexibility, particularly our speed of response. They are also keen to reduce the total cost of electricity produced. Technology plays a key role in enabling this, either through the fuel type used; or the efficiency of the equipment, the engine deployed; or through site operations. Aggreko will further invest in fleet technology and fleet, covering each of these areas. This will particularly require investment in new gas technology; to provide other fuels; and, on a lesser scale, in the areas of renewables and storage.
Lastly, like Rental Solutions, Power Solutions will improve its customer capability. This includes how we approach the market; the training and deployment of sales resource; partnering, including OEMs, IPPs, and global bodies: in many instances complementing their core capability in providing permanent power with our fast, bridging capability. Global account management and a sector focus are equally important in Power Solutions, which operates in similar sectors, oil & gas and mining, in particular. The customers in many instances are the same, global companies like BHP, BP, Shell, LaFarge, etc and we will execute this on a Group basis.
GDP growth in the markets in which we operate is expected to be around 5% per annum going forward. The power shortfall in these markets is forecast to grow at around 6% per annum, albeit more slowly in 2015 and 2016.
Execution
At the Group level, our reorganisation will remove duplication, which combined with an improvement in procurement practices and improved project site efficiency, we expect will generate savings of £80 million by 2017. These savings provide optionality to balance reinvestment in the business for growth and with support to margins and returns. There will be a one-off cost of circa £30 million, which will largely be incurred in the current year, to enable the delivery of these savings.
The majority of this work will be completed over the next two years. To minimise the risk associated with delivery a Programme Management Office will oversee the whole programme, providing assurance and risk management, thereby allowing the rest of the business to focus on our customers and day to day operational requirements.
Capital allocation
From a capital allocation perspective our priority will be to invest in organic growth, investing in our fleet. We are evaluating new products that drive efficiency improvements and, as a result, will underpin our growth agenda. We expect that our capital investment will be higher in the short term compared with historic years with utilisation and returns likely to be lower for a period. We expect to have annual maintenance capital of around £200 million.
As well as investing organically, there are opportunities for growth through acquisition, both for scale and capability, or adjacencies such as temperature control and loadbanks. Acquisitions are most likely in Rental Solutions and each acquisition will be subject to our disciplined capital allocation process and will have to meet appropriate hurdle rates of return.
As we anticipate being a more capital intensive business in the short term, dividend cover will remain at around three times in order to ensure that we maintain the strength of our balance sheet. As and when the opportunity arises, we will continue to look at returning surplus capital to shareholders. This is less likely in the short term.
We continue to maintain a strong balance sheet and want to retain the flexibility that it provides. Having reassessed the business model and the market environment, we are reaffirming our belief in operating with leverage at around one times net debt to EBITDA in the normal course of trading. Where opportunities exist it is likely that the leverage will be above this, but we would then expect to bring it back down to around this level.
Summary
The market environment has changed, but Aggreko has a unique business model. There are good opportunities for growth in each of our markets. To capture these, management is focusing on three business priorities: Customer; Technology and Efficiency. As a result, we expect to grow faster than our markets whilst delivering margins and returns of around 20% in the medium term. There will be significant change in the business in 2016 and the market environment remains difficult, so we anticipate that margins and returns will be lower in the short term.
FINANCIAL REVIEW
A summarised income statement for the six months ended 30 June 2015 as well as related ratios are set out below.
| 2015 | 2014 | Movement | ||
| £m | £m | As reported | Underlying | |
| change | ||||
| Revenue | 781 | 768 | 2% | (2)% |
| Revenue excl pass-through fuel | 752 | 745 | 1% | (2)% |
| Trading profit | 114 | 140 | (18)% | (22)% |
| Operating profit | 115 | 140 | (17)% | |
| Net interest expense | (13) | (10) | (39)% | |
| Profit before tax | 102 | 130 | (21)% | |
| Taxation | (27) | (33) | 20% | |
| Profit after tax | 75 | 97 | (22)% | |
| Diluted earnings per share (pence) | 29.63 | 36.45 | (19)% | |
| Trading margin | 15% | 18% | (3)pp | |
| Underlying trading margin | 15% | 19% | (4)pp | |
| ROCE | 17% | 21% | (4)pp | |
| Revenue (excluding pass-through fuel) to average gross rental assets | 60% | 63% | (3)pp |
Currency Translation
The movement in exchange rates during the period increased revenue by £26 million and trading profit by £6 million. This was driven by the strength of the US dollar against Sterling compared to the average rates in 2014 partially offset by the weakness of the euro, Russian rouble, Brazilian real and Australian dollar. Currency translation also gave rise to a £49 million decrease in net assets from December 2014 to June 2015. Set out in the table below are the principal exchange rates affecting the Group's overseas profits and net assets.
| June 2015 | June 2014 | Dec 2014 | ||||
| (per £ sterling) | ||||||
| Average | Period | Average | Period | Average | Period | |
| End | End | End | ||||
| Principal Exchange Rates | ||||||
| United States Dollar | 1.52 | 1.57 | 1.67 | 1.70 | 1.65 | 1.55 |
| Euro | 1.36 | 1.41 | 1.22 | 1.25 | 1.24 | 1.27 |
| UAE Dirhams | 5.60 | 5.78 | 6.13 | 6.25 | 6.06 | 5.71 |
| Australian Dollar | 1.95 | 2.05 | 1.83 | 1.81 | 1.83 | 1.92 |
| Brazilian Reals | 4.51 | 4.92 | 3.83 | 3.74 | 3.87 | 4.18 |
| Argentinian Peso | 13.43 | 14.28 | 13.05 | 13.84 | 13.37 | 13.29 |
| (Source: Bloomberg) |
Reconciliation of underlying growth to reported growth
The table below reconciles the reported and underlying revenue and trading profit growth rates:
| Revenue | Trading profit | |
| £ million | £ million | |
| 2014 | 768 | 140 |
| Currency | 26 | 6 |
| 2014 pass-through fuel | (23) | 3 |
| 2015 pass-through fuel | 29 | (1) |
| Underlying growth | (19) | (34) |
| 2015 | 781 | 114 |
| As reported growth | 2% | (18)% |
| Underlying growth | (2)% | (22)% |
Interest
The net interest charge for the first half of 2015 was £13 million, an increase of £3 million on 2014, reflecting higher average net debt period on period, and arrangement fees included in the 2015 interest number for debt refinanced during the period. Interest cover, measured against rolling 12-month EBITDA, remains strong at 23 times (June 2014: 28 times) relative to the financial covenant attached to our borrowing facilities that EBITDA should be no less than 4 times interest.
Effective Tax Rate
The current forecast of the effective tax rate for the full year, which has been used in the interim accounts is 26% which is in line with the same period last year.
Dividends
The Board has decided to pay an interim dividend of 9.38 pence per ordinary share which is in line with the same period in 2014; dividend cover is 3.2 times (30 June 2014: 3.9 times) and is consistent with our strategy of full year dividend cover of around 3 times (31 December 2014: 3.0 times). This interim dividend will be paid on 2 October 2015 to shareholders on the register at 4 September 2015, with an ex-dividend date of 3 September 2015.
Cashflow
The net cash inflow from operations during the period totalled £255 million (2014: £213 million). This funded capital expenditure of £147 million which was up £26 million on the same period in 2014. Of the £147 million, £138 million was spent on fleet with 55% going to the Power Projects business, as we further invested in our gas fleet and continued to refurbish our diesel fleet to the more fuel efficient, higher output G3+ engine . Net debt of £467 million at 30 June 2015 was £70 million lower than the same period last year.
Power Projects debtor days have decreased by 13 days to 97 days since December 2014 (30 June 2014: 100 days). The Group monitors the risk profile and debtor position of all contracts regularly, and particularly those in Power Projects, and deploys a variety of techniques to mitigate the risk of delayed or non-payment; these include securing advance payments, bonds and guarantees. The decrease in debtor days reflects a better payment profile by a small number of customers. We have forms of payment protection in place for these customers and therefore this decrease had little impact on the overall level of provision. Overall, the Power Projects bad debt provision at 30 June 2015 was £1 million higher than the provision at 31 December 2014 (£9 million lower than 30 June 2014). The Local business debtor days were in line with December 2014.
Financial Resources
The Group maintains sufficient facilities to meet its normal funding requirements over the medium term. At 30 June 2015, these facilities totalled £850 million in the form of committed bank facilities arranged on a bilateral basis with a number of international banks and private placement notes. Since the start of 2015, we have refinanced £477 million of facilities The financial covenants attached to these facilities are that EBITDA should be no less than 4 times interest and net debt should be no more than 3 times EBITDA; at 30 June 2015, these stood at 23 times and 0.8 times respectively. The Group does not consider that these covenants are restrictive to its operations. The maturity profile of the borrowings is detailed in Note 11 in the Accounts.
Net debt amounted to £467 million at 30 June 2015 and, at that date, un-drawn committed facilities were £385 million.
Net Operating Assets
The net operating assets of the Group at 30 June 2015 totalled £1,650 million, up £34 million on the same period in 2014. The main components of net operating assets are:
| Movement | ||||
| £ million | 2015 | 2014 | Headline | Const Curr.1 |
| Rental fleet | 1,059 | 1,035 | 2% | 1% |
| Property and plant | 89 | 89 | -% | 1% |
| Inventory | 180 | 157 | 14% | 12% |
| Net trade debtors | 277 | 308 | (10)% | (11)% |
| 1. | Constant currency takes account of the impact of translational exchange movements in respect of our businesses which operate in currency other than sterling. |
A key measure of Aggreko's performance is Return on Capital Employed (ROCE) (expressed as operating profit as a percentage of average net operating assets). For each first half, we calculate ROCE by taking the operating profit on a rolling 12-month basis and expressing it as a percentage of the average net operating assets at 30 June, 31 December and the previous 30 June. For the full year, we state the year's operating profit as a percentage of the average net operating assets as at 31 December, 30 June and the previous 31 December. The average net operating assets for the 12 months to 30 June 2015 were £1,652 million, down 1% on the same period in 2014; operating profit for the same period was £285 million.
In the first half of 2015 the ROCE decreased to 17% compared with 21% for the same period in 2014. This decrease was mainly driven by lower trading margins in our Power Projects business.
Shareholders' Equity
Shareholders' equity decreased by £19 million to £1,059 million in the six months ended 30 June 2015, represented by the net assets of the Group of £1,526 million before net debt of £467 million. The movements in shareholders' equity are analysed in the table below:
| Movements in Shareholders' Equity | £ million | £ million |
| As at 1 January 2015 | 1,078 | |
| Profit for the financial period | 75 | |
| Dividend1 | (45) | |
| Retained earnings | 30 | |
| Employee share awards | 2 | |
| Issue of shares to employees under share option schemes | 2 | |
| Return of value to shareholders | (1) | |
| Remeasurement of retirement benefits | (3) | |
| Currency translation difference | (49) | |
| Movement in hedging reserve | 1 | |
| Other2 | (1) | |
| As at 30 June 2015 | 1,059 |
| 1. | Reflects the dividend of 17.74 pence per share (2014: 17.19 pence) that was paid during the period. |
| 2. | Other includes tax on items taken directly to reserves. |
Principal Risks and Uncertainties
In the day to day operations of the Group, we face risks and uncertainties. Our job is to mitigate and manage these risks and to aid this Board has a risk management process which is described on page 28 of the 2014 Annual Report and Accounts. Also set out on pages 28 to 33 of that report are the principal risks and uncertainties which we believe could potentially impact the Group, and these are summarised below:
· Economic activity
· Oil price volatility
· Exchange rate fluctuations;
· Political environment;
· Failure to collect payments or to recover assets;
· Competition;
· Product technology and emissions regulation
· Failure to conduct business dealings with integrity and honesty;
· Safety and security; and
· People retention.
We do not believe that the principal risks and uncertainties facing the business have changed materially since the publication of the Annual Report and we believe these will continue to be the same in the second half of the year.
Shareholder information
Our website can be accessed at www.aggreko.com. This contains a large amount of information about our business, including a range of charts and data, which can be downloaded for easy analysis. The website also carries copies of recent investor presentations, as well as Stock Exchange announcements.
| Chris Weston | Carole Cran |
| Chief Executive | Chief Financial Officer |
| 6 August 2015 |
GROUP INCOME STATEMENT
For the six months ended 30 June 2015 (unaudited)
| 6 months | 6 months | Year | |||||
| ended | ended | ended | |||||
| 30 June | 30 June | 31 Dec | |||||
| 2015 | 2014 | 2014 | |||||
| Notes | £ million | £ million | £ million | ||||
| Revenue | 5 | 781 | 768 | 1,577 | |||
| Cost of sales | (339) | (334) | (674) | ||||
| Gross profit | 442 | 434 | 903 | ||||
| Distribution costs | (220) | (197) | (407) | ||||
| Administrative expenses | (108) | (97) | (190) | ||||
| Other income | 1 | - | 4 | ||||
| Operating profit | 5 | 115 | 140 | 310 | |||
| Net finance costs | |||||||
| - Finance cost | (13) | (11) | (23) | ||||
| - Finance income | - | 1 | 2 | ||||
| Profit before taxation | 102 | 130 | 289 | ||||
| Taxation | 8 | (27) | (33) | (74) | |||
| Profit for the period | 75 | 97 | 215 | ||||
| All profit for the period is attributable to the owners of the Company | |||||||
| Basic earnings per share (pence) | 7 | 29.65 | 36.48 | 82.57 | |||
| Diluted earnings per share (pence) | 7 | 29.63 | 36.45 | 82.49 |
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2015 (unaudited)
| 6 months | 6 months | Year | |
| ended | ended | ended | |
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | |
| Profit for the period | 75 | 97 | 215 |
| Other comprehensive (loss)/income | |||
| Items that will not be reclassified to profit or loss | |||
| Remeasurement of retirement benefits (net of tax) | (2) | 1 | (3) |
| Items that may be reclassified subsequently to profit or loss | |||
| Cashflow hedges (net of tax) | 1 | (4) | (3) |
| Net exchange losses offset in reserves (net of tax) | (51) | (22) | (9) |
| Other comprehensive loss for the period (net of tax) | (52) | (25) | (15) |
| Total comprehensive income for the period | 23 | 72 | 200 |
GROUP BALANCE SHEET
(COMPANY NUMBER: SC177553)
As at 30 June 2015 (unaudited)
| 30 June | 30 June | 31 Dec | ||
| 2015 | 2014 | 2014 | ||
| Notes | £ million | £ million | £ million | |
| Non-current assets | ||||
| Goodwill | 117 | 133 | 130 | |
| Other intangible assets | 15 | 18 | 18 | |
| Property, plant and equipment | 9 | 1,148 | 1,124 | 1,177 |
| Deferred tax asset | 22 | 22 | 22 | |
| 1,302 | 1,297 | 1,347 | ||
| Current assets | ||||
| Inventories | 180 | 157 | 163 | |
| Trade and other receivables | 10 | 462 | 478 | 474 |
| Cash and cash equivalents | 54 | 38 | 37 | |
| Derivative financial instruments | 3 | 4 | 5 | |
| Current tax assets | 21 | 15 | 21 | |
| 720 | 692 | 700 | ||
| Total assets | 2,022 | 1,989 | 2,047 | |
| Current liabilities | ||||
| Borrowings | 11 | (56) | (36) | (76) |
| Derivative financial instruments | - | - | (1) | |
| Trade and other payables | (315) | (318) | (303) | |
| Current tax liabilities | (57) | (62) | (67) | |
| (428) | (416) | (447) | ||
| Non-current liabilities | ||||
| Borrowings | 11 | (465) | (539) | (455) |
| Derivative financial instruments | (7) | (8) | (7) | |
| Deferred tax liabilities | (54) | (51) | (53) | |
| Retirement benefit obligation | (9) | (3) | (7) | |
| (535) | (601) | (522) | ||
| Total liabilities | (963) | (1,017) | (969) | |
| Net assets | 1,059 | 972 | 1,078 | |
| Shareholders' equity | ||||
| Share capital | 12 | 42 | 42 | 42 |
| Share premium | 20 | 20 | 20 | |
| Treasury shares | (10) | (15) | (14) | |
| Capital redemption reserve | 13 | 13 | 13 | |
| Hedging reserve (net of deferred tax) | (3) | (5) | (4) | |
| Foreign exchange reserve | (132) | (94) | (81) | |
| Retained earnings | 1,129 | 1,011 | 1,102 | |
| Total shareholders' equity | 1,059 | 972 | 1,078 |
GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2015 (unaudited)
| 6 months | 6 months | Year | ||
| ended | ended | ended | ||
| 30 June | 30 June | 31 Dec | ||
| 2015 | 2014 | 2014 | ||
| Notes | £ million | £ million | £ million | |
| Cash flows from operating activities | ||||
| Cash generated from operations | 4 | 255 | 213 | 498 |
| Tax paid | (37) | (30) | (77) | |
| Interest received | - | 1 | 2 | |
| Interest paid | (13) | (10) | (22) | |
| Net cash generated from operating activities | 205 | 174 | 401 | |
| Cash flows from investing activities | ||||
| Acquisitions (net of cash acquired) | - | - | (4) | |
| Purchases of property, plant and equipment (PPE) | (147) | (121) | (251) | |
| Proceeds from sale of PPE | 5 | 4 | 12 | |
| Net cash used in investing activities | (142) | (117) | (243) | |
| Cash flows from financing activities | ||||
| Net proceeds from issue of ordinary shares | 2 | 2 | 3 | |
| Increase in long-term loans | 213 | 392 | 448 | |
| Repayment of long-term loans | (231) | (204) | (335) | |
| Net movement in short-term loans | 13 | 8 | 10 | |
| Dividends paid to shareholders | (45) | (46) | (70) | |
| Return of capital to shareholders | (1) | (198) | (198) | |
| Net cash used in financing activities | (49) | (46) | (142) | |
| Net increase in cash and cash equivalents | 14 | 11 | 16 | |
| Cash and cash equivalents at beginning of the period | 26 | 12 | 12 | |
| Exchange loss on cash and cash equivalents | (2) | (3) | (2) | |
| Cash and cash equivalents at end of the period | 38 | 20 | 26 |
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
For the six months ended 30 June 2015 (unaudited)
| 6 months | 6 months | Year | ||
| ended | ended | ended | ||
| 30 June | 30 June | 31 Dec | ||
| 2015 | 2014 | 2014 | ||
| Notes | £ million | £ million | £ million | |
| Increase in cash and cash equivalents | 14 | 11 | 16 | |
| Cash outflow/(inflow) from movement in debt | 5 | (196) | (123) | |
| Changes in net debt arising from cash flows | 19 | (185) | (107) | |
| Exchange gain/(loss) | 8 | 11 | (24) | |
| Movement in net debt in period | 27 | (174) | (131) | |
| Net debt at beginning of period | (494) | (363) | (363) | |
| Net debt at end of period | 11 | (467) | (537) | (494) |
GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2015 (unaudited)
As at 30 June 2015
| Attributable to equity holders of the Company | ||||||||
| Ordinary share capital £ million |
Share premium account £ million |
Treasury shares £ million |
Capital redemption reserve £ million |
Hedging reserve £ million |
Foreign exchange reserve (translation) £ million |
Retained earnings £ million |
Total equity £ million |
|
| Balance at 1 January 2015 | 42 | 20 | (14) | 13 | (4) | (81) | 1,102 | 1,078 |
| Profit for the period | - | - | - | - | - | - | 75 | 75 |
| Other comprehensive (loss)/income: | ||||||||
| Fair value gains on foreign currency cash flow hedge | - | - | - | - | 2 | - | - | 2 |
| Transfers from hedging reserve to revenue | - | - | - | - | (1) | - | - | (1) |
| Currency translation differences | - | - | - | - | - | (49) | - | (49) |
| Deferred tax on items taken to or transferred from equity | - | - | - | - | - | (1) | - | (1) |
| Current tax on items taken to or transferred from equity | - | - | - | - | - | (1) | - | (1) |
| Remeasurement of retirement benefits(net of tax) | - | - | - | - | - | - | (2) | (2) |
| Total comprehensive income for the period ended 30 June 2015 | - | - | - | - | 1 | (51) | 73 | 23 |
| Transactions with owners: | ||||||||
| Employee share awards | - | - | - | - | - | - | 2 | 2 |
| Issue of ordinary shares to employees under share option schemes (Note (i)) | - | - | 4 | - | - | - | (2) | 2 |
| Return of capital to shareholders (Note 12) | - | - | - | - | - | - | (1) | (1) |
| Dividends paid during the period | - | - | - | - | - | - | (45) | (45) |
| - | - | 4 | - | - | - | (46) | (42) | |
| Balance at 30 June 2015 | 42 | 20 | (10) | 13 | (3) | (132) | 1,129 | 1,059 |
| (i) | During the period 210,068 Ordinary shares have been transferred from the Employee Benefit Trust to satisfy the exercise of options under the Sharesave Schemes by eligible employees. In addition 72,234 shares were transferred from the Employee Benefit Trust to participants in the Long Term Incentive Plan. |
GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2015 (unaudited)
As at 30 June 2014
| Attributable to equity holders of the Company | ||||||||
| Ordinary share capital £ million |
Share premium account £ million |
Treasury shares £ million |
Capital redemption reserve £ million |
Hedging reserve £ million |
Foreign exchange reserve (translation) £ million |
Retained earnings £ million |
Total equity £ million |
|
| Balance at 1 January 2014 | 49 | 20 | (24) | 6 | (1) | (72) | 1,162 | 1,140 |
| Profit for the period | - | - | - | - | - | - | 97 | 97 |
| Other comprehensive (loss)/income: | ||||||||
| Fair value gains on foreign currency cash flow hedge | - | - | - | - | 1 | - | - | 1 |
| Transfers from hedging reserve to revenue | - | - | - | - | (5) | - | - | (5) |
| Currency translation differences | - | - | - | - | - | (24) | - | (24) |
| Deferred tax on items taken to or transferred from equity | - | - | - | - | - | 2 | - | 2 |
| Remeasurement of retirement benefits(net of tax) | - | - | - | - | - | - | 1 | 1 |
| Total comprehensive income for the period ended 30 June 2014 | - | - | - | - | (4) | (22) | 98 | 72 |
| Transactions with owners: | ||||||||
| Employee share awards | - | - | - | - | - | - | 2 | 2 |
| Issue of ordinary shares to employees under share option schemes (Note (i)) | - | - | 9 | - | - | - | (7) | 2 |
| Return of capital to shareholders | - | - | - | - | - | - | (198) | (198) |
| Capital redemption reserve | (7) | - | - | 7 | - | - | - | - |
| Dividends paid during the period | - | - | - | - | - | - | (46) | (46) |
| (7) | - | 9 | 7 | - | - | (249) | (240) | |
| Balance at 30 June 2014 | 42 | 20 | (15) | 13 | (5) | (94) | 1,011 | 972 |
| (i) | During the period 269,681 Ordinary shares have been transferred from the Employee Benefit Trust to satisfy the exercise of options under the Sharesave Schemes by eligible employees. In addition 174,147 shares were transferred from the Employee Benefit Trust to participants in the Long Term Incentive Plan. |
NOTES TO THE INTERIM ACCOUNTS
For the six months ended 30 June 2015 (unaudited)
1 General information
The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The address of the registered office is 120 Bothwell Street, Glasgow, G2 7JS, UK.
This condensed interim financial information was approved for issue on 6 August 2015.
This condensed consolidated interim financial information does not comprise Statutory Accounts within the meaning of Section 434 of the Companies Act 2006. Statutory Accounts for the year ended 31 December 2014 were approved by the Board on 5 March 2015 and delivered to the Registrar of Companies. The report of the auditors on those Accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.
The condensed consolidated interim financial information is unaudited but has been reviewed by the Group's auditors, whose report is on page 31.
2 Basis of preparation
This condensed consolidated interim financial information for the six months ended 30 June 2015 has been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority (previously the Financial Services Authority) and IAS 34 'Interim financial reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with IFRSs as adopted by the European Union.
Going concern basis
The Group's banking facilities are primarily in the form of committed bank facilities arranged on a bilateral basis with a number of international banks and private placement notes; facilities totalled £850 million at 30 June 2015. The financial covenants attached to these facilities are that EBITDA should be no less than 4 times interest (30 June 2015: 23 times) and net debt should be no more than 3 times EBITDA (30 June 2015: 0.8 times). The Group does not consider that these covenants are restrictive to its operations. The maturity profile of the borrowings is detailed in Note 11 to the Accounts. Having reassessed the principal risks and the Group's forecasts and projections, the directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.
3 Accounting policies
Except as described below, the accounting policies are consistent with those of the annual financial statements for the year ended 31 December 2014, as described in those annual financial statements.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.
New and amended standards and interpretations need to be adopted in the first interim financial statements issued after their effective date (or date of early adoption). There are no new IFRSs or IFRICs that are effective for the first time for this interim period that would be expected to have a material impact on the Group.
4 Cashflow from operating activities
| 6 months | 6 months | Year | |
| ended | ended | ended | |
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | |
| Profit for the period | 75 | 97 | 215 |
| Adjustments for: | |||
| Tax | 27 | 33 | 74 |
| Depreciation | 138 | 130 | 259 |
| Amortisation of intangibles | 2 | 2 | 3 |
| Finance income | - | (1) | (2) |
| Finance cost | 13 | 11 | 23 |
| Profit on sale of PPE | (1) | - | (4) |
| Share based payments | 2 | 2 | 3 |
| Changes in working capital (excluding the effects of exchange differences on consolidation): | |||
| Increase in inventories | (21) | (12) | (11) |
| Increase in trade and other receivables | (6) | (81) | (57) |
| Increase/(decrease) in trade and other payables | 26 | 32 | (5) |
| ___ | ___ | ___ | |
| Cash generated from operations | 255 | 213 | 498 |
5 Segmental reporting
(a) Revenue by segment
| EXTERNAL REVENUE | |||||||||
| 6 months | 6 months | Year | |||||||
| ended | ended | ended | |||||||
| 30 June | 30 June | 31 Dec | |||||||
| 2015 | 2014 | 2014 | |||||||
| £ million | £ million | £ million | |||||||
| Americas | 329 | 340 | 684 | ||||||
| Europe, Middle East and Africa | 344 | 303 | 647 | ||||||
| Asia, Pacific and Australia | 108 | 125 | 246 | ||||||
| Group | 781 | 768 | 1,577 | ||||||
| Local business | 446 | 431 | 904 | ||||||
| Power Projects | 335 | 337 | 673 | ||||||
| Group | 781 | 768 | 1,577 |
| (i) | Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third-parties. All inter-segment revenue was less than £1 million. |
| (ii) | Trading profit in table 5(b) below is defined as operating profit of £115 million (30 June 2014: £140 million, 31 December 2014: £310 million) excluding gain on sale of property, plant and equipment of £1 million (30 June 2014: £nil million, 31 December 2014: £4 million). |
(b) Profit by segment
| TRADING PROFIT | GAIN ON SALE OF PPE | OPERATING PROFIT | |||||||
| 6 months | 6 months | Year | 6 months | 6 months | Year | 6 months | 6 months | Year | |
| ended | ended | ended | ended | ended | ended | ended | ended | ended | |
| 30 June | 30 June | 31 Dec | 30 June | 30 June | 31 Dec | 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | 2015 | 2014 | 2014 | 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million | |
| Americas | 48 | 66 | 141 | 1 | - | 2 | 49 | 66 | 143 |
| Europe, Middle East and Africa | 53 | 50 | 116 | - | - | 1 | 53 | 50 | 117 |
| Asia, Pacific and Australia | 13 | 24 | 49 | - | - | 1 | 13 | 24 | 50 |
| Group | 114 | 140 | 306 | 1 | - | 4 | 115 | 140 | 310 |
| Local business | 49 | 57 | 139 | 1 | - | 2 | 50 | 57 | 141 |
| Power Projects | 65 | 83 | 167 | - | - | 2 | 65 | 83 | 169 |
| Group | 114 | 140 | 306 | 1 | - | 4 | 115 | 140 | 310 |
| Finance costs - net | (13) | (10) | (21) | ||||||
| Profit before taxation | 102 | 130 | 289 | ||||||
| Taxation | (27) | (33) | (74) | ||||||
| Profit for the period | 75 | 97 | 215 |
(c) Depreciation and amortisation by segment
| 6 months | 6 months | Year | ||||
| ended | ended | ended | ||||
| 30 June | 30 June | 31 Dec | ||||
| 2015 | 2014 | 2014 | ||||
| £ million | £ million | £ million | ||||
| Americas | 55 | 51 | 101 | |||
| Europe, Middle East and Africa | 59 | 54 | 108 | |||
| Asia, Pacific and Australia | 26 | 27 | 53 | |||
| Group | 140 | 132 | 262 | |||
| Local business | 76 | 69 | 143 | |||
| Power Projects | 64 | 63 | 119 | |||
| Group | 140 | 132 | 262 |
(d) Capital expenditure on property, plant & equipment and intangible assets by segment
| 6 months | 6 months | Year | |
| ended | ended | ended | |
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | |
| Americas | 64 | 64 | 134 |
| Europe, Middle East and Africa | 59 | 32 | 83 |
| Asia, Pacific and Australia | 24 | 25 | 39 |
| Group | 147 | 121 | 256 |
| Local business | 69 | 80 | 178 |
| Power Projects | 78 | 41 | 78 |
| Group | 147 | 121 | 256 |
| (i) | The net book value of total Group disposals of PPE during the period were £4 million (30 June 2014: £4 million, 31 December 2014: £8 million). |
(e) Assets/(Liabilities) by segment
| ASSETS | LIABILITIES | |||||
| 6 months | 6 months | Year | 6 months | 6 months | Year | |
| ended | ended | ended | ended | ended | ended | |
| 30 June | 30 June | 31 Dec | 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | £ million | £ million | £ million | |
| Americas | 851 | 859 | 868 | (111) | (117) | (102) |
| Europe, Middle East and Africa | 804 | 728 | 789 | (168) | (164) | (164) |
| Asia, Pacific and Australia | 321 | 361 | 342 | (47) | (51) | (43) |
| Group | 1,976 | 1,948 | 1,999 | (326) | (332) | (309) |
| Local business | 1,106 | 1,092 | 1,127 | (164) | (148) | (139) |
| Power projects | 870 | 856 | 872 | (162) | (184) | (170) |
| Group | 1,976 | 1,948 | 1,999 | (326) | (332) | (309) |
| Tax and finance payable | 43 | 37 | 43 | (116) | (117) | (125) |
| Derivative financial instruments | 3 | 4 | 5 | (7) | (8) | (8) |
| Borrowings | - | - | - | (505) | (557) | (520) |
| Retirement benefit obligation | - | - | - | (9) | (3) | (7) |
| Total assets/(liabilities) per balance sheet |
2,022 | 1,989 | 2,047 | (963) | (1,017) | (969) |
6 Dividends
The dividends paid in the period were:
| 6 months | 6 months | Year | |
| ended | ended | ended | |
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| Total dividend (£ million) | 45 | 46 | 70 |
| Dividend per share (pence) | 17.74 | 17.19 | 26.57 |
An interim dividend in respect of 2015 of 9.38 pence (2014: 9.38 pence), amounting to a total dividend of £24 million (2014: £24 million) was declared during the period. This interim dividend will be paid on 2 October 2015 to shareholders on the register on 4 September 2015, with an ex-dividend date of 3 September 2015.
7 Earnings per share
Basic earnings per share have been calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares in issue during the period, excluding shares held by the Employee Share Ownership Trusts which are treated as cancelled.
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| Profit for the period (£ million) | 75 | 97 | 215 |
| Weighted average number of ordinary shares in issue (million) | 255 | 266 | 261 |
| Basic earnings per share (pence) | 29.65 | 36.48 | 82.57 |
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| Profit for the period (£ million) | 75 | 97 | 215 |
| Weighted average number of ordinary shares in issue (million) | 255 | 266 | 261 |
| Adjustment for share options and B shares (million) | - | - | - |
| Diluted weighted average number of ordinary shares in issue (million) | 255 | 266 | 261 |
| Diluted earnings per share (pence) | 29.63 | 36.45 | 82.49 |
8 Taxation
The taxation charge for the period is based on an estimate of the Group's expected annual effective rate of tax for 2015 based on prevailing tax legislation at 30 June 2015. This is currently estimated to be 26% (2014: 26%).
Changes to the UK corporation tax rates were announced in the Chancellor's Budget on 8 July 2015. These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 18% from 1 April 2020.
As the changes had not been substantively enacted at the balance sheet date their effects are not included in these financial statements. The overall effect of these changes, if they had applied to the deferred tax balance at the balance sheet date, would be immaterial.
9 Property, plant and equipment
| Six months ended 30 June 2015 | Short | Vehicles, | |||
| Freehold | leasehold | Rental | plant & | ||
| properties | properties | fleet | equipment | Total | |
| £ million | £ million | £ million | £ million | £ million | |
| Cost | |||||
| At 1 January 2015 | 77 | 20 | 2,599 | 89 | 2,785 |
| Exchange adjustments | (1) | (1) | (72) | (4) | (78) |
| Additions | 3 | 1 | 138 | 5 | 147 |
| Disposals | - | - | (26) | (1) | (27) |
| At 30 June 2015 | 79 | 20 | 2,639 | 89 | 2,827 |
| Accumulated depreciation | |||||
| At 1 January 2015 | 23 | 13 | 1,513 | 59 | 1,608 |
| Exchange adjustments | - | (1) | (41) | (2) | (44) |
| Charge for the period | 1 | 1 | 130 | 6 | 138 |
| Disposals | - | - | (22) | (1) | (23) |
| At 30 June 2015 | 24 | 13 | 1,580 | 62 | 1,679 |
| Net book values | |||||
| At 30 June 2015 | 55 | 7 | 1,059 | 27 | 1,148 |
| At 31 December 2014 | 54 | 7 | 1,086 | 30 | 1,177 |
| Six months ended 30 June 2014 | Short | Vehicles, | |||
| Freehold | leasehold | Rental | plant & | ||
| properties | properties | fleet | equipment | Total | |
| £ million | £ million | £ million | £ million | £ million | |
| Cost | |||||
| At 1 January 2014 | 63 | 19 | 2,373 | 84 | 2,539 |
| Exchange adjustments | (1) | - | (65) | - | (66) |
| Additions | 5 | 1 | 107 | 8 | 121 |
| Disposals | - | - | (27) | (3) | (30) |
| At 30 June 2014 | 67 | 20 | 2,388 | 89 | 2,564 |
| Accumulated depreciation | |||||
| At 1 January 2014 | 19 | 12 | 1,291 | 52 | 1,374 |
| Exchange adjustments | (1) | - | (37) | - | (38) |
| Charge for the period | 1 | 1 | 123 | 5 | 130 |
| Disposals | - | - | (24) | (2) | (26) |
| At 30 June 2014 | 19 | 13 | 1,353 | 55 | 1,440 |
| Net book values | |||||
| At 30 June 2014 | 48 | 7 | 1,035 | 34 | 1,124 |
| At 31 December 2013 | 44 | 7 | 1,082 | 32 | 1,165 |
10 Trade and other receivables
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | |
| Trade receivables | 332 | 369 | 381 |
| Less: provision for impairment of receivables | (55) | (61) | (55) |
| Trade receivables - net | 277 | 308 | 326 |
| Prepayments | 29 | 38 | 32 |
| Accrued income | 111 | 95 | 82 |
| Other receivables | 45 | 37 | 34 |
| Total receivables | 462 | 478 | 474 |
| Provision for impairment of receivables | |||
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | |
| Americas | 25 | 29 | 23 |
| Europe, Middle East and Africa | 23 | 22 | 26 |
| Asia, Pacific and Australia | 7 | 10 | 6 |
| Group | 55 | 61 | 55 |
| Local business | 16 | 13 | 17 |
| Power Projects | 39 | 48 | 38 |
| Group | 55 | 61 | 55 |
11 Borrowings
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | |
| Non-current | |||
| Bank borrowings | 227 | 319 | 214 |
| Private placement notes | 238 | 220 | 241 |
| 465 | 539 | 455 | |
| Current | |||
| Bank overdrafts | 16 | 18 | 11 |
| Bank borrowings | 40 | 18 | 65 |
| 56 | 36 | 76 | |
| Total borrowings | 521 | 575 | 531 |
| Short-term deposits | (9) | (4) | (7) |
| Cash at bank and in hand | (45) | (34) | (30) |
| Net borrowings | 467 | 537 | 494 |
| Overdrafts and borrowings are unsecured. | |||
| The maturity of financial liabilities | |||
| The maturity profile of the borrowings was as follows: | |||
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | |
| Within 1 year, or on demand | 56 | 36 | 76 |
| Between 1 and 2 years | - | 231 | 191 |
| Between 2 and 3 years | 160 | 56 | - |
| Between 3 and 4 years | 64 | 76 | 71 |
| Between 4 and 5 years | 66 | 15 | 16 |
| Greater than 5 years | 175 | 161 | 177 |
| 521 | 575 | 531 |
Fair value estimation
The carrying value of non-derivative financial assets and liabilities, comprising cash and cash equivalents, trade and other receivables, trade and other payables and borrowings is considered to materially equate to their fair value. Derivative financial instruments, which are measured at fair value, comprise interest rate swaps representing a liability of £7 million categorised as level 2 and forward foreign currency contracts representing an asset of £3 million, which are considered to be level 1. The fair value of interest rate swaps is calculated at the present value of estimated future cash flows using market interest rates. The valuation techniques employed are consistent with the year end Annual Report. There are no financial instruments measured as level 3.
12 Share Capital
Following the return of capital using a B share structure in June 2014, the Group made a further purchase of B Shares on 5 May 2015 and completed a conversion of B Shares into Ordinary Shares and Deferred Shares on 28 May 2015.
The main terms of the further purchase and subsequent conversion of the B Shares were:
(i) on 18 March 2015 an offer was made to the holders of the 1,989,357 B Shares to purchase the B Shares for 75 pence each. This resulted in the purchase and subsequent cancellation of 1,778,422 B Shares on 5 May 2015 resulting in a cash payment from the Company of £1.3 million. As a result of this transaction £162k was transferred from B Shares to the capital redemption reserve being 1,778,422 shares at par value 9 84/775 pence. This left a total of 210,935 B Shares in issue.
(ii) on 28 May 2015 the Group converted all outstanding B Shares into 9,806 Ordinary Shares and 573,643,383,325 Deferred Shares of 1/306125 pence each. The ratio used for the conversion of B Shares was 1 Ordinary Shares for every 21.4 B Shares. This ratio was calculated on the basis of 1 Ordinary Share for every (M/75) B Share (Where M represents the average of the closing mid-market quotations in pence of the Ordinary Shares on the London Stock Exchange, as derived from the Official List for the five business days immediately preceding the Conversion Date). Fractional entitlements were disregarded and the balance of the aggregate nominal value of such shares were constituted by reclassifying B Shares as Deferred Shares of 1/306125 pence each, which have the same rights and restrictions as the Deferred Shares of 9 84/775 pence.
(iii) The B Shares Continuing Dividend accrued in respect of the period between 28 May 2014 and 27 May 2015 was paid to holders of B Shares on 28 May 2015.
13 Capital commitments
| 30 June | 30 June | 31 Dec | |
| 2015 | 2014 | 2014 | |
| £ million | £ million | £ million | |
| Contracted but not provided for (property, plant and equipment) | 33 | 40 | 18 |
14 Related party transactions
Transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. There were no other related party transactions in the period.
15 Seasonality
The Group is subject to seasonality with the third quarter of the year being our peak demand period, accordingly revenue and profits have historically been higher in the second half of the year.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that to the best of their knowledge, these condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
· An indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
· Material related party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The Directors of Aggreko plc are listed in the Aggreko plc Annual Report for 31 December 2014.
By order of the Board
| Chris Weston | Carole Cran |
| Chief Executive | Chief Financial Officer |
| 6 August 2015 |
INDEPENDENT REVIEW REPORT TO AGGREKO PLC
REPORT ON THE CONDENSED INTERIM FINANCIAL STATEMENTS
Our conclusion
We have reviewed the condensed interim financial statements, defined below, in the Interim Report of Aggreko Plc for the six months ended 30 June 2015. Based on our review, nothing has come to our attention that causes us to believe that the condensed interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. This conclusion is to be read in the context of what we say in the remainder of this report.
What we have reviewed
The condensed interim financial statements, which are prepared by Aggreko plc, comprise:
· the Group Balance Sheet as at 30 June 2015;
· the Group Income Statement and Group Statement of Comprehensive Income for the period then ended;
· the Group Cash Flow Statement for the period then ended;
· the Group Statement of Changes in Equity for the period then ended; and
· the explanatory notes to the condensed interim financial statements.
As disclosed in note 2, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The condensed interim financial statements included in the Interim Report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
What a review of condensed interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of interim financial statements.
Responsibilities for the condensed interim financial statements and the review
Our responsibilities and those of the directors
The Interim Report, including the condensed interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Interim Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express to the company a conclusion on the condensed interim financial statements in the Interim Report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
6 August 2015
Glasgow
[1] "Underlying" is defined as: adjusted for currency movements and pass-through fuel revenue from Power Projects, where we provide fuel to our contracts in Mozambique on a pass-through basis.
[2] Trading profit represents operating profit before gain on sale of property, plant and equipment.
[3] ROCE is calculated by taking the operating profit on a rolling 12-month basis and expressing it as a percentage of the average net operating assets at 30 June, 31 December and the previous 30 June.
[4] At current full year average exchange rates.
[5] Underlying excludes currency and pass-through fuel revenue from Power Projects, where we provide fuel to our contracts in Mozambique on a pass-through basis. A bridge between reported and underlying revenue and trading profits is provided in the Financial Review.
[6] ROCE is calculated by taking the operating profit on a rolling 12-month basis and expressing it as a percentage of the average net operating assets at 30 June, 31 December and the previous 30 June.
[7] Full year average exchange rates.
[8] North America, Europe and Australia Pacific
[9] Latin America, Africa, Middle East, Russia and Caspian and Asia
This information is provided by RNS
The company news service from the London Stock Exchange
END
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