Strategy
All numbers quoted in the Business Review exclude the impact of
exceptional items unless otherwise stated.
Our strategy, which was initially developed as a result of an
in-depth review of Aggreko's business in 2003, has remained
consistent for the last three years, and continues to be the basis
of our business planning. At its heart, Aggreko's mission is to
deliver long-term shareholder value by investing in, and managing
effectively, its core business of renting mission-critical
equipment on a global basis. The last three year's trading results,
shown below, indicate to us that the strategy is the right one, and
we continue to work relentlessly to implement it.
Aggreko Group – (excluding pass-through fuel)
|
2007 |
2003 |
CAGR |
| Revenue (£m) |
634 |
324 |
18% |
| Trading profit (£m) |
131 |
42 |
33% |
| Trading margin Return on capital |
21% |
13% |
|
| employed (ROCE)* |
26% |
13% |
|
In Aggreko, strategy is developed by an iterative process of
examining the factors which will affect the business in the years
ahead. We seek to develop a deep understanding of the drivers of
demand, changing customer requirements, the competitive
environment, as well as likely developments in technology and
regulation. We look at our own strengths and weaknesses, and at the
opportunities and threats that are likely to face us. From this
analysis we develop a list of investment and operational options,
and analyse their relative risks and rewards, bearing in mind the
capabilities and resources of the Group.
Business Line Strategy
Supporting the Group strategy, Aggreko develops operational
strategies for our two different lines of business:
- The Local business, which delivers the complete range of our
services to customers who are typically within a few hours driving
time of our service centres;
- The International Power Projects business which provides large
power plants on a global basis to power utilities, the military and
major industrial users.
Looking Ahead
The strategy we developed in 2003, and updated in 2006, is
working well and has produced excellent results. We have
strengthened our competitive position in North, Central & South
America, the Middle East, Africa, Asia and Australasia. Our
performance in Europe has not been as strong, but 2006 was a
turning point for the region with good revenue and profit growth
giving us the confidence that the business is on its way to
recovery.
The acquisition of GE Energy Rentals, completed in December
2006, has been a major step forward in the implementation of our
strategy. The strategic rationale behind the acquisition was that,
at a time when Aggreko was growing rapidly, it increased our fleet
by about 30%, and at a lower cost than buying new fleet. Secondly,
it strengthened our position in important markets, such as South
and Central America, USA, Europe, and in certain important market
sectors such as Major Events (for example, the Football World Cup
and the Olympics). Thirdly, GE Energy Rentals employed a large
number of talented people who could help support our future growth.
An update on the progress of the integration of the business is set
out in the Trading Review, however the early indications are that
the strategic rationale for the acquisition was sound.
In terms of the Local business, a short-term priority is to get
the GE Energy Rentals fleet re-branded and ready-for-rent. We will
continue to drive operational improvement, focusing on turning our
ERP system into a competitive advantage. We intend to grow our
market share in North America and Europe and we will expand the
footprint of our Local business in Asia and South America. As well
as organic growth, we will also look for opportunities to grow our
business through the acquisition of companies or assets in our core
markets.
The International Power Projects business has made good progress
expanding further in Africa, South America and Asia. Our strategy
is to continue to invest heavily in this business to enable it to
further increase its scale and reach. This will deliver increasing
revenues and profits and will reduce the volatility inherent in the
power projects business. A growing proportion of our future
investment is likely to be in gas-fuelled generators, which produce
lower emissions and which, for some customers, are cheaper to run
than diesel generators. We think that this technology could become
an important niche in the International Power Projects marketplace
in the years ahead.
We believe that the drivers of demand in International Power
Projects are strong, and will remain so for as long as developing
countries are growing their economies faster than they can invest
in new permanent power generation capacity. Aggreko's ability to
offer large amounts of reliable power, immediately available and
delivered to the point of need, without the requirement for
customers to commit large amounts of capital is a compelling
proposition for many customers, and will remain so for years to
come.