Financial Releases

Preliminary Results for the twelve months to 31 December 2003

01 Mar 2004

Aggreko plc, the world leader in the supply of temporary power, temperature control and oil-free compressed air services announces the outcome of its strategic review and its preliminary results for the twelve months to 31 December 2003.

12 Months to
12 Months to
Increase/
31 December
2003
31 December
2002
(Decrease)
Turnover (£m)
331.8
340.1
(2.4%)
Operating Profit (£m)
44.7
61.2
(26.9%)
Profit before taxation (£m)
40.1
55.1
(27.2%)
Diluted earnings per share (p)
10.14
13.02
(22.1%)
Dividend per share (p)
5.65
5.55
1.8%

Key points include:

  • Turnover down 2.4% to £331.8m due to tough trading conditions across many of our markets
  • Profit before tax down 27.2% to £40.1m ; in line with market expectations
  • Net debt reduced by £31.9m since June 2003 to £99.9m
  • Dividend increased 1.8% to 5.65p
  • Strategic review completed
  • New hub-and-spoke operating model for the local businesses
  • Geographic expansion for the international power projects business into South America and Asia
  • Restructuring expected to deliver annual cost savings of £6m by 2006, and a payback in less than three years.

Chairman Philip Rogerson commented:

“2003 has been a tough year for Aggreko with generally difficult trading conditions in many of the markets in which we operate around the world. However, our financial position remains strong and we remain confident in the medium term outlook for Aggreko.”

“The Strategy Review, led by our new Chief Executive Rupert Soames, has delivered a clear vision of where the opportunities lie and what management’s priorities should be, thereby giving the Company a strong sense of direction and purpose. ”

Chief Executive Rupert Soames commented:

“The Strategy Review has established two clear priorities for Aggreko: to implement a new hub-and-spoke operating model across our local service centres in North America and Europe, and to drive geographic expansion into South America and Asia in our international power projects business.

“Both of these actions will deliver best-in-class service to our customers as well as a more efficient and scalable business, creating a solid platform for long-term earnings growth.”

2003 PERFORMANCE

In terms of trading performance, revenue for the Group was 2.4% lower than 2002 at £331.8 million and operating profit at £44.7 million was down 26.9%. Group pre tax profits fell by 27.2% to £40.1 million whilst diluted earnings per share of 10.14 pence were 22.1% lower. These numbers include a £5.9 million reduction in revenue and a £1.1 million reduction in operating profit as a result of currency translation. In addition, the weakness of the US dollar has caused a significant negative impact on revenues and profits in our international power projects business.

Revenue in North America at $182.4 million was 5.8% lower than the previous year, with trading profit of $14.9 million compared to $25.9 million in 2002. The revenue decline was due to the impact of the Salt Lake City Winter Olympics, which accounted for $17 million of revenue in 2002. A small increase in our underlying business was insufficient to offset the lack of revenue and profit from this major event.

Performance in Europe as a whole was poor; revenue increased by 5.6% to €163.3 million but trading profit of €17.7 million was sharply down against the prior year’s €30.1 million. Three factors were behind this fall in profitability. First, there has been a change in business mix, with fewer high-value utilities contracts; second, market conditions in the Netherlands were exceptionally poor; third, a significant investment was made in rejuvenating our rental fleet and expanding our service centre network in Spain and Italy.

Our International business had a strong first half but its second half performance was affected by the reduction in revenues from Sri Lanka. This was in part offset by a high level of other project related activity across the international region, with military support work in the Middle East contributing over £20 million of revenue during the year.

Despite the challenging trading conditions, we continued to focus on the management of the company’s resources. During the year our net borrowings decreased by £17.3 million to £99.9 million; in the second half, cash generation was particularly strong, with net borrowings falling by £31.9 million since 30 June 2003.

With this in mind, together with our confidence in the medium term outlook for Aggreko, the Board is recommending a final dividend for the year of 3.45 pence, which when added to the interim dividend, gives a total for the year of 5.65 pence, representing a 1.8% increase on 2002.

STRATEGY REVIEW

We have spent the last six months undertaking a thorough review of the business. This review confirmed that Aggreko is number one or number two in all its current core markets; that these markets are worth in aggregate about £1.1bn worldwide, and that demand is likely to be growing at an average of 5% pa in the medium to long term. The key conclusions were, first, that the existing operating model used in our local businesses in North America and Europe (circa. 70% of Aggreko’s 2003 revenues) can be greatly improved, and, secondly, that good opportunities exist to expand our international power projects business into new geographies.

The result for our local businesses in North America and Europe is that we will implement a new structure incorporating a “hub-and-spoke” model. This will enable us to deliver improved service levels to our customers, with faster on-site response and 24x7 availability, which will bring opportunities for revenue growth. Through reduced transport and administration costs, as well as lower on-going capital requirements and improved operating efficiencies, the new model will also deliver significant cost savings, as well as improved scalability, allowing us to enhance margins as business volumes increase.

The review of the international power projects business identified that whilst our business has market leading positions in Africa and the Middle East, other markets such as South America and Asia offer significant future opportunities. The sales and service operations of this business are therefore being expanded to extend our reach in these territories.

An encouraging start has been made to the implementation of the strategy across both the local and international power projects businesses. In December, we signed our first utility contract in Venezuela, and in February we signed contracts in two other target territories – in the Philippines (15 megawatts) and in Indonesia (30 megawatts). We have also won a further contract in Sri Lanka to provide an additional 85 megawatts, taking the total in service in the country to 105 megawatts.

In the local business, headcount reductions have been implemented in North America affecting about 10% of the workforce, and eight service centres, out of a total of fifty nine, have been closed, allowing us to concentrate our rental fleet in the highest-potential markets. In the UK, a new National Rental Centre, which will provide centralised administration and call handling, is on track to go live in the summer.

Across all parts of the local businesses, the restructuring programme will result in a net reduction approaching 200 people over the next two years from the 2,100 employed at 31 December 2003. Against the estimated £15 million restructuring costs announced in December, to be taken to the profit and loss account in 2004, we expect annual gross cost savings in the local businesses of £6 million by 2006, and a payback in less than three years, without taking into account the additional revenue we expect to achieve as a result of the restructuring.

OUTLOOK

2004 will be a year of transition for Aggreko as we implement the results of our Strategy Review. Nearly everyone in our operations in Europe and North America will be involved in significant changes in both organisation and business processes. As set out in our Trading Update published in December 2003, we expect that the exceptional costs related to these changes will not exceed £15 million, and will be charged to the Profit and Loss Account in 2004. At the same time as our restructuring, we are rolling out our new company-wide IT system; the implementation of these two tasks in parallel is likely to result in some short-term disruption to the business, but we have taken the view that it is better to execute both initiatives quickly so that we can deliver the expected benefits as early as possible.

From a trading perspective, there is evidence of some improvement in the market in North America; profitability in Europe remains weak. Recent contract wins have secured a large part of our planned 2004 revenue in our international power projects business, giving us a larger order book than at the same time in 2003.

At this early stage of the year, and subject to exchange rate variations, we expect the underlying trading performance of the business in 2004 to be at a level broadly similar to that in 2003, although this is likely to take the form of a weak first half, as we implement many of our changes, followed by a stronger second half as we begin to see some of the efficiency gains coming through.


For further information

Aggreko plc
Rupert Soames, CEO
Angus Cockburn, Finance Director
0141 225 5900

The Maitland Consultancy
Fiona Piper
0207 379 5151 / 07808 727 500 (m)

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