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RNS
Aggreko PLC   -  AGK   

Results in line with market expectations

Released 07:00 06-Mar-2019

RNS Number : 9220R
Aggreko PLC
06 March 2019
 

 

           

RESULTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2018

6 MARCH 2019

 

 

Results in line with market expectations despite currency headwinds

 

Chris Weston, Chief Executive Officer, commented:

 

"We are pleased to report results which continue the positive momentum demonstrated at the interims.  We have delivered results in line with market expectations and ahead of our guidance at the start of the year, with 10% growth in the Group's underlying profits. The overall result was supported by a strong performance in Rental Solutions, which represents 52% of the Group's revenue. With the wide-ranging initiatives we are implementing to improve our operational and capital efficiency, we are confident we can meet our mid-teens ROCE target in 2020." 

 

Results summary

 

£m

2018

20172

CHANGE

UNDERLYING CHANGE1

Group revenue

1,760

1,698

4% 

8%

Operating profit

 219

2243

(2)%

10%

Operating profit margin (%)

12.5

13.2

(0.7)pp

0.2pp

Profit before tax

182

1903

(4)%

10%

Diluted EPS (p)

49.2

52.4

(6)%

7%

Operating cash inflow

423

450

 

 

Dividend per share (p)

27.1

27.1

-

 

ROCE (%)

10.3

10.7

(0.4)pp

0.5pp

1Underlying excludes pass-through fuel, currency and 2017 exceptional items (no exceptional items reported in 2018).  A reconciliation between reported and underlying performance is detailed on page 11.

2Pre-exceptional items in 2017.

32017 operating profit and profit before tax post-exceptional items were £183 million and £149 million respectively.

 

·      Good underlying1 Group revenue growth of 8%

Rental Solutions underlying1 revenue up 22% (52% of Group revenue)

Power Solutions Industrial underlying1 revenue up 7% (27% of Group revenue)

Power Solutions Utility underlying1 revenue down 14% (21% of Group revenue), reflecting known off-hires

·      Profit before tax of £182 million, up 10% on an underlying1 basis and in line with market expectations despite currency headwinds

·      ROCE of 10.3% (2017: 10.7%), up 0.5 percentage points on an underlying1 basis  

·      Operating cash flow of £423 million (2017: £450 million), impacted by cash outflows relating to mobilisation activities on a number of new contracts

·      Working capital outflow of £56 million (2017: £53 million), including £60 million outflow on payables

·      Fleet capex of £196 million (2017: £246 million), reflecting increased discipline and focus on utilisation

·      Full year dividend maintained at 27.1 pence

·      Awarded the supply contract for temporary electricity generation for the Olympic and Paralympic Games in Tokyo, worth an expected $200 million revenue in 2020

·    Plans to improve ROCE are well under way, including the launch of our £50 million cost reduction programme

 

Financial calendar

18 April 2019    

Ex-dividend date

23 April 2019

Record date to be eligible for the final dividend

25 April 2019

Annual General Meeting

24 May 2019

Final dividend payment

30 July 2019

Half year results for the six months to 30 June 2019

Enquiries

Investors, analysts and financial media

Jill Sherratt, Aggreko plc

+44 7970 142 486

Richard Foster, Aggreko plc

+44 7989 718 478

Analyst presentation

 

A presentation will be held for analysts and investors today at 09:30am (GMT) at the London Stock Exchange, 10 Paternoster Square, EC4M 7LS. A live web-cast and a copy of the slides will be available on our website at www.plc.aggreko.com/investors.

 

The presentation at 09:30am will also feature live telephone coverage:

Participant dial-in numbers

United Kingdom (Local): 020 3936 2999

All other locations: +44 20 3936 2999

Participant Access Code: 275470

 

 

     

 

 

 

 

OPERATING & FINANCIAL REVIEW

 

Group trading performance

 

£m

 

 

 

 

post exceptional items

 

2018

20172

Change

UNDERLYING CHANGE1  

2017

Change

Group revenue

1,760

1,698

4% 

8%

1,698

4%

Operating profit

219

224

(2)%

10%

183

20%

Operating profit margin (%)

12.5

13.2

(0.7)pp

0.2pp

10.7

1.8pp

Profit before tax

182

190

(4)%

10%

149

23%

Diluted EPS (p)

49.2

52.4

(6)%

7%

40.0

23%

Operating cash inflow

423

450

 

 

 

 

Dividend per share (p)

27.1

27.1

-

 

 

 

ROCE (%)

10.3

10.7

(0.4)pp

0.5pp

 

 

The Group has adopted IFRS 15 'Revenue from Contracts with Customers' with effect from 1 January 2018.  Note 1 to the Accounts explains these changes in detail. Comparative figures for 2017 have been restated to reflect this change. 

 

Underlying1 Group revenue rose 8%, driven primarily by a strong performance in Rental Solutions, offset by a decline in Power Solutions Utility, which now represents only 21% of Group revenue.  Underlying1 profit before tax was up 10% at £182 million.  The operating margin was 12.5% (2017: 13.2%), up 0.2 percentage points on an underlying1 basis, with improvements in Rental Solutions and Power Solutions Industrial partially offset by a reduction in Power Solutions Utility. Diluted earnings per share (DEPS) were 49.2 pence (2017: 52.4 pence, excluding exceptional items), up 7% on an underlying1 basis. 

 

The Group's return on capital employed (ROCE) decreased to 10.3% (2017: 10.7%) primarily due to the impact of currency.  On an underlying1 basis ROCE rose 0.5 percentage points.

 

Reported financial measures

 

Reported revenue and operating profit include the translational impact of currency as Aggreko's revenue and profit are earned in different currencies (most notably the US Dollar), which are then translated and reported in Sterling. The movement in exchange rates in the period had the translational impact of decreasing revenue by £112 million and operating profit by £24 million.

 

In addition, the Group separately reports fuel revenue from certain contracts in the Power Solutions Utility business in Brazil and Sri Lanka, where we manage fuel on a pass-through basis on behalf of our customers. The reason for the separate reporting is that fuel revenue on these contracts is entirely dependent on fuel prices and the volumes of fuel consumed, which can be volatile and may distort the view of the performance of the underlying business.  In 2018, fuel revenue from these contracts was £172 million (2017: £139 million).

 

Reported Group revenue was up 4% on the prior year, with Rental Solutions up 19%, Power Solutions Industrial down 1% and Utility (excluding pass-through fuel) down 22%. 

 

There were no exceptional items reported in 2018.  During 2017 the Group incurred exceptional costs of £41 million relating to the implementation of our Business Priorities programme, split as follows: Rental Solutions £13 million, Power Solutions Industrial £11 million and Power Solutions Utility £17 million. 

 

 

 

Divisional headlines

 

As previously announced, as a result of the Group's increased sector focus, we have refined our segmental reporting and reassigned all non-utility sector customer contracts from within our Power Solutions Utility business into Power Solutions Industrial.  The details of the impact of this change are contained in Note 2(a) to the Accounts. Comparative figures for 2017 have been restated to reflect this change. 

 

REVENUE £m

 

 

2018

2017

 

CHANGE

 UNDERLYING

CHANGE1

 

 

 

 

 

Rental Solutions

822

690

19%

22%

Power Solutions

 

 

 

 

    Industrial

424

429

(1)%

7%

    Utility excl. pass-through fuel

342

440

(22)%

(14)%

    Pass-through fuel

172

139

24%

47%

Group

1,760

1,698

4%

8%

 

OPERATING PROFIT £m

POST EXCEPTIONAL ITEMS

 

2018

20172

 

CHANGE

UNDERLYING CHANGE1

2017

 

CHANGE

 

 

 

 

 

 

 

Rental Solutions

105

81

30%

34%

68

55%

Power Solutions

 

 

 

 

 

 

  Industrial

71

73

(3)%

10%

62

15%

  Utility excl.

pass-through fuel             

46

73

(37)%

(23)%

56

(17)%

  Pass-through fuel

(3)

(3)

n/m

n/m

(3)

n/m

Group

219

224

(2)%

10%

183

20%

 

Rental Solutions underlying1 revenue was up 22% and represented 52% of Group revenue. North America had a strong year with revenue up 25%, including £27 million (2017: £22 million) earned from hurricane related work (net of base business lost due to hurricanes) and a strong performance across several key sectors including oil & gas, petrochemical & refining, utilities and building services & construction.  We also achieved good revenue growth of 17% and 16% in Europe and Australia Pacific respectively. Operating margin on an underlying1 basis rose 1.2 percentage points to 12.9%, driven by improved rates and operational efficiency.

 

Power Solutions Industrial underlying1 revenue (27% of Group revenue) increased 7%, supported by particularly strong growth in Latin America of 31%, Asia up 11% and the Winter Olympics in South Korea.  Underlying1 revenue was up 4% excluding the Winter Olympics.  Operating margin rose by 0.4 percentage points to 16.6% on an underlying1 basis representing good performance across key sectors in Latin America partially offset by the Middle East with the impact of the ongoing Qatar blockade.

 

Power Solutions Utility underlying1 revenue (21% of Group revenue) was down 14% primarily due to known off-hires in Zimbabwe, Bangladesh and Japan, and lower volumes and pricing in Argentina. As a result, the Power Solutions Utility margin was down 1.4 percentage points on an underlying1 basis to 13.4%.

 

 

Cash flow and balance sheet

 

During the year cash generated from operations was £423 million (2017: £450 million).  The decrease in operating cash flow is mainly driven by cash outflows relating to mobilisation (fulfilments assets) and demobilisation activities, with an outflow of £48 million in 2018 compared to £22 million in 2017.  The higher outflows in 2018 relate primarily to mobilisation costs for new contracts in Bangladesh, Brazil and St Croix. 

 

In 2018 we had a working capital outflow of £56 million compared to a £53 million outflow in 2017. This year's outflow consisted of a £10 million outflow from trade and other receivables, and a £60 million outflow from trade and other payables, partially offset by a £14 million inflow from inventory.

 

The £14 million decrease in inventory was driven by the initiatives we put in place during the year to improve our performance in this area, including reduced levels of manufacturing activity aligned with our more disciplined approach to capital expenditure.

 

The decrease in trade and other payables balances was primarily as a result of the reduced manufacturing, together with the release of deferred revenue associated with the Winter Olympics in South Korea, and the timing of some contract payments in our Power Solutions Utility business.

 

The increase in trade and other receivables of £10 million comprised a £9 million increase in Rental Solutions (2017: £47 million increase), a £2 million increase in Power Solutions Industrial (2017: £30 million increase), and a decrease of £1 million in Power Solutions Utility (2017: £86 million increase). The increase in Rental Solutions is driven by revenue growth, principally in North America.  In Power Solutions Utility, the level of our bad debt provision is broadly unchanged at $83 million and we remain focused on managing the trade receivables which have risen over recent years, primarily as a result of our customers' liquidity and limited access to foreign currency rather than any dispute or otherwise over the amounts due.

 

Fleet capital expenditure was £196 million (2017: £246 million), representing 0.7 times fleet depreciation (2017: 0.9 times). Within this overall fleet spend, £79 million was invested in our Rental Solutions business, primarily on new temperature control equipment and the renewal of our oil free air (OFA) fleet, and £117 million in Power Solutions, including £27 million upgrading our G3 diesel engine to the market leading G3+. As we continue to drive increased utilisation, fleet capital expenditure is expected to remain below £200 million in 2019.

 

Net debt was £686 million at 31 December 2018, £34 million higher than the prior year. This resulted in net debt to EBITDA on a rolling 12-month basis of 1.3 times compared to 1.2 times at December 2017.  We remain committed to reducing our leverage over time, despite the adverse impact of IFRS 16.

 

Dividends

 

The Group is proposing to maintain the final dividend at 17.7 pence per share. Subject to shareholder approval, this will result in a full year dividend of 27.1 pence (2017: 27.1 pence) per Ordinary Share; this equates to dividend cover of 1.8 times (2017: 1.9 times, pre-exceptional items). Dividend cover is calculated as basic earnings per share for the period divided by the full year dividend per share. We remain committed to a sustainable dividend.

 

Outlook

 

We will continue to build on the work we have done over the last three years to drive efficiency and strengthen the foundations of the business and the improvements we have seen in 2018.

 

Our outlook for the Group in 2019 is in line with the market's expectations, despite currency headwinds and the impact of IFRS 16, although with a greater weighting to the second half than in 2018.  In addition, the performance initiatives we announced in August, to drive operational and capital efficiency, are beginning to take effect and we expect to make progress this year towards our mid-teens ROCE target in 2020.

 

Additional performance metrics

 

 

 

2018

2017

CHANGE

Average megawatts on hire (MW)

     Rental Solutions average megawatts on hire

    6,659

1,531

   6,613

1,271

n/m

20%

     Power Solutions Industrial average megawatts on hire

    2,445

  2,244

9%

     Power Solutions Utility average megawatts on hire

    2,683

  3,098

(13)%

 

 

 

 

Total Power Solutions order intake (MW)

1,002

1,132

(11)%

Power Solutions Industrial (ex. Eurasia)

        271

  137

98%

Power Solutions Industrial (Eurasia only)

Power Solutions Utility

       333

398

 333

662

Flat

(40)%

 

Utilisation

 

 

 

Rental Solutions

Power Solutions Industrial

Power Solutions Utility

62%

71%

66%

56%

69%

73%

6.0pp

2.0pp

(7.0)pp

 

Financial

 

 

 

Effective tax rate

31%

29%*

2.0pp

Fleet capex (£m)

196

246

(20)%

Fleet depreciation (£m)

273

275

(1)%

Average net operating assets (£m)

    2,119

2,090

1%

Net debt (£m)

(686)

    (652)

5%

* pre-exceptional items
 

BUSINESS UNIT PERFORMANCE REVIEW

 

RENTAL SOLUTIONS

 

REVENUE £m

 

 

2018

2017

 

CHANGE

UNDERLYING CHANGE1

 

822

690

19%

22%

 

OPERATING PROFIT £m

POST 2017 EXCEPTIONAL ITEMS

 

2018

2017

 

CHANGE

UNDERLYING CHANGE1

2017

 

CHANGE

 

105

81

30%

34%

68

55%

Operating

Margin %

12.9%

11.8%

1.1pp

1.2pp

9.9%

3.0pp

 

 

 

 

 

 

 

ROCE

14.7%

12.2%

2.5pp

2.7pp

 

 

 

·      Our Rental Solutions business had a very good year, with improvements across all key metrics. 

·      Underlying1 revenue and operating profit up 22% and 34% respectively

·      Improved operating margin of 12.9%, up 1.2 percentage points on an underlying1 basis

·      ROCE of 14.7% reflects an underlying1 increase of 2.7 percentage points driven by profit growth in North America

·      Strong performance in key sectors, notably oil & gas (representing 13% of Rental Solutions revenue), Petrochemicals & Refining and Utilities

·      Successful execution of the Commonwealth Games in Australia, with revenue of £7 million

 

North American underlying1 revenue rose 25% on the prior year. Our sector focus continued to drive growth, and we saw good performance in most of our key sectors, in particular oil and gas, petrochemical & refining, building services & construction and utilities.

 

In our Australia Pacific business, underlying1 revenue increased 16% excluding the Commonwealth Games, supported by good growth in the mining sector and a 100 MW contract delivering emergency power to Melbourne over the summer months.

 

Our Continental European business grew underlying1 revenue 24%, with good growth in most countries, in particular the Netherlands and Belgium, as well as benefiting from the Ryder Cup in France in September. Key sectors included petrochemical & refining, where we have leveraged our experience and expertise in North America to expand our market footprint, and in the utilities sector, where we have supported renewable energy build out as well as responding to the power shortages in Belgium.

 

The Northern European business also delivered good growth with underlying1 revenue increasing 8%, driven by our Next Generation Gas contracts in Ireland and an increase in activity in the oil & gas sector.

 

Operating profit rose significantly, driven by higher rates and our measures to improve operational efficiency.  This is reflected in the 1.2 percentage point underlying1 increase in operating margin to 12.9%. 

 

Operational summary

 

 

2018

2017

CHANGE

 

 

 

 

Rental Solutions average MW on hire

1,531

  1,271

20%

Rental Solutions utilisation

62%

56%

6.0pp

 

POWER SOLUTIONS

 

REVENUE £m

 

 

2018

2017

CHANGE

UNDERLYING CHANGE1

 

 

 

 

 

Industrial

424

429

(1)%

7%

Utility excl. pass-through fuel

342

440

(22)%

(14)%

Pass-through fuel

172

139

24%

47%

 

OPERATING PROFIT £m

 

 

 

POST 2017 EXCEPTIONALS

 

2018

2017

 

CHANGE

UNDERLYING CHANGE1

2017

CHANGE

 

 

 

 

 

 

 

Industrial

71

73

(3)%

10%

62

15%

Utility excl. pass-through fuel

46

73

(37)%

(23)%

56

(17)%

Pass-through fuel

(3)

(3)

n/m

n/m

(3)

n/m

 

 

 

 

 

 

 

OPERATING

MARGIN %

 

 

 

 

 

 

Industrial

16.6

16.9

(0.3)pp

0.4pp

14.2

2.4pp

Utility excl. pass-through fuel

13.4

16.4

(3.0)pp

(1.4)pp

12.6

0.8pp

 

 

 

 

 

 

 

ROCE

 

 

 

 

 

 

Industrial

10.7

11.3

(0.6)pp

0.1pp

 

 

Utility excl. pass-through fuel

6.2

9.2

(3.0)pp

(1.6)pp

 

 

 

·      Power Solutions Industrial

−    Underlying1 revenue and profit increased 7% and 10% respectively, supported by the Winter Olympics in South Korea and good growth in Latin America and Asia

−    Underlying1 revenue excluding the Winter Olympics rose 4% 

−    Operating margin at 16.6% is up slightly on the prior year on an underlying1 basis

−    ROCE of 10.7% is broadly flat

·      Power Solutions Utility

−    Underlying1 revenue was down 14% and operating profit down 23%

−    Overall performance reflects the impact of known off-hires in Zimbabwe, Bangladesh and Japan and lower volumes and pricing in Argentina

−    ROCE down 1.6 percentage points to 6.2% on an underlying1 basis, reflecting our reduced profitability

 

Power Solutions Industrial

Underlying1 revenue increased by 7%. In Eurasia revenue grew 7%, with good growth in its key sector of oil & gas. Revenue in Latin America increased 31%, supported by an emergency contract in Argentina for a local utility distribution company.  In the Middle East revenue decreased 8% with weakness in most areas, notably in Qatar and the UAE, largely as a result of the ongoing Qatar blockade.  Revenue in Africa decreased 4%, driven by East Africa and off-hire of certain mining projects, while revenue in Asia excluding the Winter Olympics increased 11% with good performances from Japan and Singapore. 

 

Operating margin on an underlying1 basis was up slightly on the prior year at 16.6%, with a good performance in Latin America partially offset by the impact of the continued Qatar blockade in the Middle East on competition and pricing in that region, particularly in the first half.   

 

Power Solutions Industrial order intake (excluding Eurasia) for the year was 271 MW (2017: 137 MW). Eurasia order intake was in line with the prior year at 333 MW (2017: 333 MW). While revenue in Eurasia showed good growth in 2018, we are experiencing increased competition in this market and expect to see a reduced level of  growth in 2019.

 

Reported revenue and operating profit decreased by 1% and 3% respectively, while underlying revenue and operating profit increased 7% and 10% respectively with the difference due to exchange rate movements.

 

Power Solutions Utility 

Underlying1 revenue decreased 14%, due primarily to lower rates and volume in Argentina and off-hires in Zimbabwe, Bangladesh and Japan. Consequently, the operating margin on an underlying1 basis was down 1.4 percentage points to 13.4%.  During the year we initiated a cost reduction programme to deliver savings of £50 million in 2021, the majority of which will be in our Power Solutions Utility business.

 

Average megawatts on hire was 2,683 (2017: 3,098), with the reduction reflecting an increased off-hire rate of 42% (2017: 34%), driven by known off-hires in Japan, Zimbabwe and Bangladesh.  Order intake in the year was 398 MW (2017: 662 MW), including most notably a 50 MW HFO contract in Burkina Faso and a 70MW diesel contract in the Philippines. In addition, we have agreed contract extensions on a number of key contracts, including our 117MW contract in Yemen and our 100MW contract in Benin.

 

Managing the trade receivables in our Power Solutions Utility business continues to be a major focus, with active ongoing engagement with our customers a key priority.  The primary reason for delay in receiving payments remains our customers' liquidity position and their limited access to foreign currency, with the situation in parts of Africa, Venezuela and Yemen being the most difficult.  Resolving these situations remains a key part of our strategy to improve returns in this business.

 

Operational summary

 

 

2018

2017

CHANGE

 

 

 

 

Power Solutions Industrial average MW on hire

Power Solutions Utility average MW on hire

    2,445

2,683

  2,244

3,098

9%

(13)%

 

Power Solutions order intake (MW)

 

1,002

 

1,132

 

(11)%

Power Solutions Industrial (ex. Eurasia)

        271

  137

98%

Power Solutions Industrial (Eurasia only)

Power Solutions Utility

       333

398

 333

662

Flat

(40)%

 

Utilisation

Power Solutions Industrial

 

 

71%

 

 

69%

 

 

2.0pp

Power Solutions Utility

66%

73%

(7.0)pp

 

 

 

 

FINANCIAL REVIEW

 

A summarised Income Statement for 2018 is set out below, together with the comparative results for 2017 (both excluding and including the effects of exceptional items). 

 

 

INCOME STATEMENT

 

 

 

POST EXCEPTIONAL ITEMS

£m

2018

20172

 

CHANGE

UNDERLYING CHANGE1

2017

 

 

CHANGE

 

 

 

 

 

 

 

Revenue

1,760

1,698

4%

8%

1,698

4%

Operating profit

      219

224

(2)%

10%

183

20%

Net interest expense

(37)

(34)

(9)%

 

(34)

(9)%

Profit before tax

182

190

(4)%

10%

149

23%

Taxation

(57)

(56)

(2)%

 

(47)

(23)%

Profit after tax

125

134

(6)%

 

102

23%

Diluted EPS (p)

49.2

52.4

(6)%

7%

40.0

23%

Operating margin

12.5%

13.2%

(0.7)pp

0.2pp

10.7%

1.8pp

ROCE

10.3%

10.7%

(0.4)pp

0.5pp

 

 

                   

 

Currency translation

 

The movement in exchange rates in the period had the translational impact of decreasing revenue by £112 million and operating profit by £24 million. This was driven by the strength against Sterling in the majority of the principal currencies impacting the Group. Currency translation also gave rise to a £24 million decrease in the value of the Group's net assets.  Set out in the table below are the principal exchange rates which affected the Group's profit and net assets.

 

PRINCIPAL EXCHANGE RATES

2018

2017

(PER £ STERLING)

 

 

 

 

AVERAGE

YEAR

AVERAGE

YEAR

 

 

END

 

END

 

 

 

 

 

United States Dollar

1.34

1.27

1.29

1.35

Euro

1.13

1.11

1.14

1.13

UAE Dirhams

4.91

4.66

4.74

4.96

Australian Dollar

1.79

1.80

1.68

1.73

Brazilian Reals

4.87

4.91

4.12

4.48

Argentinian Peso

37.48

48.62

21.36

25.92

Russian Rouble

83.70

88.02

75.19

78.15

           

(Source: Bloomberg)

 

 

Reconciliation of reported to underlying results

The tables below reconcile the reported and underlying revenue and operating profit movements:

 

Revenue

£m

RENTAL SOLUTIONS

INDUSTRIAL

UTILITY

GROUP

 

2018

2017

CHANGE

2018

2017

CHANGE

2018

2017

CHANGE

2018

2017

CHANGE

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported

822

690

19%

424

429

(1)%

514

579

(11)%

1,760

1,698

4%

Pass-through fuel

-

-

 

-

-

 

(172)

(139)

 

(172)

(139)

 

Currency impact

-

(18)

 

-

(32)

 

-

(41)

 

-

(91)

 

Underlying

822

672

22%

424

397

7%

342

399

(14)%

1,588

1,468

8%

 

Operating profit

 

£m

RENTAL SOLUTIONS

INDUSTRIAL

UTILITY

GROUP

 

2018

2017

CHANGE

2018

2017

CHANGE

2018

2017

CHANGE

2018

2017

CHANGE

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported

105

68

55%

71

62

15%

43

53

(18)%

219

       183

20%

Pass-through fuel

-

-

 

-

-

 

3

3

 

3

3

 

Currency impact

-

(3)

 

-

(8)

 

-

(13)

 

-

(24)

 

Exceptional items

-

13

 

-

       11

 

-

17

 

-

41

 

Underlying

105

78

34%

71

65

10%

46

60

(23)%

222

203

10%

Notes:

1.   The currency impact is calculated by taking the 2017 results in local currency and retranslating them at 2018 average rates.

2.   The currency impact line included in the tables above excludes the currency impact on pass-through fuel in PSU, which in 2018 was £21 million on revenue and £nil million on operating profit.

 

Interest

 

The net interest charge of £37 million was £3 million higher than last year, reflecting higher average net debt year on year, an increase in the effective interest rate and the net interest cost relating to the Defined Benefit Pension Scheme (previously reported within administrative expenses). Interest cover measured against rolling 12-month EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation) remained strong at 14 times (2017: 15 times) relative to the financial covenant attached to our borrowing facilities that EBITDA should be no less than 4 times interest.

 

 

 

Taxation

Tax charge

The Group's effective corporation tax rate for the year was 31% (2017: 29%, pre-exceptional items) based on a tax charge of £57 million (2017: £56 million, pre-exceptional items) on a profit before taxation of £182 million (2017: £190 million, pre-exceptional items).  The increase in the Group's effective tax rate in 2018 is largely due to a one-off tax credit in 2017 following the revaluation of our deferred tax liabilities in respect of the US business as a result of US tax reform.

 

Total cash taxes

In 2018, the Group's worldwide operations resulted in direct and indirect taxes of £241 million (2017: £228 million) being paid to tax authorities. This amount represents all corporate taxes paid on operations, payroll taxes paid and collected, import duties, sales taxes and other local taxes.  

 

Capital structure & dividends

The objective of our strategy is to deliver long-term value to shareholders while maintaining a balance sheet structure that safeguards the Group's financial position through economic cycles. Given the operational risk profile of the Group we believe gearing of around one times net debt to EBITDA is appropriate, recognising that from time to time it may be higher for a period of time as investment opportunities present themselves.

 

From a capital allocation perspective our priority is to invest in organic growth.  As well as investing organically, there are opportunities for growth through acquisition, both for scale and capability, including into product adjacencies such as temperature control and loadbanks. Acquisitions are subject to our disciplined capital allocation process and will have to meet appropriate hurdle rates of return.  While our first priority is investment to generate growth, we recognise the importance of the dividend in providing value to our shareholders.  Finally, as and when the opportunity arises, we will look at returning surplus capital to shareholders.  The retained earnings of the Company as at 31 December 2018 were £374 million and the majority of these earnings are distributable.

 

Subject to shareholder approval, the proposed final dividend of 17.7 pence will result in a full year dividend of 27.1 pence (2017: 27.1 pence) per Ordinary Share, giving dividend cover (basic EPS divided by full year declared dividend) of 1.8 times (2017: 1.9 times, pre-exceptional items). 

 

Cash flow

 

During the year cash generated from operations was £423 million (2017: £450 million).  The decrease in operating cash flow is mainly driven by cash outflows relating to mobilisation (fulfilments assets) and demobilisation activities, with an outflow of £48 million in 2018 compared to £22 million in 2017.  The higher outflows in 2018 relate primarily to mobilisation costs for new contracts in Bangladesh, Brazil and St Croix. In 2018 we had a working capital outflow of £56 million compared to a £53 million outflow in 2017. The working capital movements in the period are explained in more detail on page 5. Capital expenditure in the year was £216 million (2017: £272 million), of which £196 million (2017: £246 million) was spent on fleet assets. 

 

 

 

Net operating assets

 

The net operating assets of the Group (including goodwill) at 31 December 2018 totalled £2,159 million, £85 million higher than 31 December 2017, as detailed in the table below.

 

 

£m

 

2018

 

2017

 

MOVEMENT

 

MOVEMENT EXCLUDING

THE IMPACT OF CURRENCY

 

 

 

 

 

Goodwill/intangibles/investments

235

215

9%

10%

Rental fleet

1,057

1,104

(4)%

(6)%

Property & plant

112

110

2%

1%

Working capital (excl. interest creditors)

646

588

10%

9%

Fulfilment asset & demobilisation provision

33

(2)

n/a

n/a

Cash (incl. overdrafts)

76

59

28%

29%

Total net operating assets

2,159

2,074

4%

2%

 

A key measure of our performance is the return generated from the Group's average net operating assets (ROCE).  We calculate ROCE by taking the operating profit (pre-exceptional items) for the year and expressing it as a percentage of the average net operating assets at 31 December, 30 June and the previous 31 December.  In 2018 ROCE decreased to 10.3% compared with 10.7% in 2017, primarily driven by a lower return in our Power Solutions Utility business.

 

Property, plant and equipment

Our rental fleet accounts for £1,057 million, which is around 91% of the net book value of property, plant and equipment used in our business. The majority of equipment in the rental fleet is depreciated on a straight-line basis to a residual value of zero over eight years, with some classes of rental fleet depreciated over 10 and 12 years. The annual fleet depreciation charge of £273 million (2017: £275 million) reflects the estimated service lives allocated to each class of fleet asset. Asset lives are reviewed at the start of each year and changed, if necessary, to reflect their remaining lives in light of technological change, prospective economic utilisation and the physical condition of the assets. No changes were made in 2018. 

 

Acquisitions

 

The Group completed two acquisitions during the year, details of which are contained in Note 13 to the Accounts.

 

On 15 February 2018 the Group acquired the business and assets of A Contact Electric Rentals (A Contact) in North America.  A Contact specialises in the rental of medium and high voltage electrical distribution equipment across North America and furthers Aggreko's leadership position in the speciality rental market in the region.  The cost of the acquisition was £21 million.

 

On 31 May 2018 the Group acquired the business and assets of Generator Hire Service in Australia, for a total consideration of £3 million.

 

 

 

Shareholders' equity

 

Shareholders' equity increased by £53 million to £1,367 million, represented by the net assets of the Group of £2,053 million less net debt of £686 million.  The movements in shareholders' equity are analysed in the table below:

 

 

MOVEMENTS IN SHAREHOLDERS' EQUITY

 

 

 

£m

£m

AS AT 1 JANUARY 2018

 

1,314

Profit for the period

125

 

Dividend4

(69)

 

Retained earnings

Employee share awards

Purchase of Treasury shares

 

56

10

(12)

Re-measurement of retirement benefits

 

26

Currency translation

 

(24)

Other

 

(3) 

AS AT 31 DECEMBER 2018

 

1,367

4 Reflects the final dividend for 2017 of 17.7 pence per share (2016 17.7 pence) that was paid during the period.

 

Pensions

Pension arrangements for our employees vary depending on best practice and regulation in each country. The Group operates a defined benefit scheme for UK employees, which was closed to new employees joining the Group after 1 April 2002. Most of the other schemes in operation around the world are defined contribution schemes.   

 

Under IAS 19: 'Employee Benefits', Aggreko has recognised a pre-tax pension surplus of £1 million at 31 December 2018 (2017: £25 million deficit) which is determined using actuarial assumptions. The improvement in pension funding is primarily driven by lower life expectancies (reflecting the latest evidence), the impact of a higher discount rate, lower expectations for future salary increases, and the additional contributions paid by the Company during the year. These were partially offset by the lower than expected returns on the scheme's assets and incorporating an allowance in the liabilities for the impact of guaranteed minimum pension equalisation.

 

The sensitivities regarding the main valuation assumptions are shown in the table below.

 

Assumption

POTENTIAL CHANGE INC./(DEC)

DEFICIT IMPACT (INC.) /DEC

(£m)

PROFIT IMPACT

(INC.)/DEC.

(£m)

Rate of increase in salaries

0.5%

(1)

-

Discount rate

(0.5)%

(13)

(1)

Inflation (0.5% increases on pensions increases, deferred revaluation and salary increases)

0.5%

(12)

(1)

Longevity

1 year

(3)

-

 

Treasury

The Group's operations expose it to a variety of financial risks that include liquidity, the effects of changes in foreign currency exchange rates, interest rates, and credit risk. The Group has a centralised treasury operation whose primary role is to ensure that adequate liquidity is available to meet the Group's funding requirements as they arise, and that financial risk arising from the Group's underlying operations is effectively identified and managed.

 

The treasury operations are conducted in accordance with policies and procedures approved by the Board and are reviewed annually. Financial instruments are only executed for hedging purposes, and transactions that are speculative in nature are expressly forbidden. Monthly reports are provided to senior management and treasury operations are subject to periodic internal and external review.

 

Liquidity and funding

The Group maintains sufficient facilities to meet its funding requirements over the medium term.  At 31 December 2018, these facilities totalled £1,191 million in the form of committed bank facilities arranged on a bilateral basis with several international banks and private placement lenders. 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 31 December 2018, these stood at 14 times and 1.3 times respectively. The Group does not expect to breach these covenants in the year from the date of approval of these financial statements. 

 

The Group expects to be able to arrange sufficient finance to meet its future funding requirements. It has been the Group's custom and practice to refinance its facilities in advance of their maturity dates, providing that there is an ongoing need for those facilities.

 

Net debt amounted to £686 million at 31 December 2018 (2017: £652 million) and, at that date, un-drawn committed facilities were £465 million.

 

Further detail can be found in the Going Concern disclosure within Note 1 to the Annual Report and Accounts.

 

Interest rate risk

The Group's policy is to manage its exposure to interest rates by ensuring an appropriate balance of fixed and floating rate debt. At 31 December 2018, £591 million of the net debt of £686 million was at fixed rates of interest resulting in a fixed to floating rate net debt ratio of 86:14 (2017: 94:6). The proportion of our debt with fixed interest rates was higher than usual at the 2018 and 2017 year ends due to some fixed rate debt maturities in the first half of 2018 and 2019.

 

Foreign exchange risk

The Group is subject to currency exposure on the translation into Sterling of its net investments in overseas subsidiaries. In order to reduce the currency risk arising, the Group uses direct borrowings in the same currency as those investments.  Group borrowings are predominantly drawn down in the currencies used by the Group.

 

The Group manages its currency flows to minimise foreign exchange risk arising on transactions denominated in foreign currencies and uses forward contracts and forward currency options, where appropriate, in order to hedge net currency flows.

 
Credit risk

Cash deposits and other financial instruments give rise to credit risk on amounts due from counterparties. The Group manages this risk by limiting the aggregate amounts and their duration depending on external credit ratings of the relevant counterparty. In the case of financial assets exposed to credit risk, the carrying amount in the balance sheet, net of any applicable provision for loss, represents the amount exposed to credit risk.

 

Insurance

The Group operates a policy of buying cover against the material risks which the business faces, where it is possible to purchase such cover on reasonable terms.  Where this is not possible, or where the risks would not have a material impact on the Group as a whole, we self-insure.

 

 

 

Principal risks and uncertainties

In the day to day operations of the Group, we face various risks and uncertainties. We seek both to prevent these risks from materialising and to mitigate their impact if they do arise. The Board has developed a risk management framework to facilitate this. The principal risks that we believe could potentially affect the Group are summarised below:

 

·      Global macroeconomic uncertainty;

·      Market dynamics;

·      Disruptive technology;

·      Talent management;

·      New technology market introduction;

·      Change management;

·      Cyber security;

·      Escalating sanctions;

·      Health and safety;

·      Security;

·      Failure to conduct business dealings with integrity and honesty; and

·      Failure to collect payments or to recover assets.

 

This year three risks were promoted to the Group's register of principal risks and two risks were relegated.

 

Risks promoted to the Group's register this year:

·      Global macroeconomic uncertainty:  Geopolitical and global macroeconomic uncertainty may result in lower than expected GDP growth, reducing demand for our services.

·      Change management:  One of our strategic priorities is to update Rental Solutions' systems and processes to better meet the needs of our customers.  We are in a critical period of implementation during which the likelihood of disruption to operations is highest.

·      Escalating sanctions:  Sanctions have been extended in some countries in which we operate. Further extensions to sanctions could restrict our ability to service existing customers and win new work. 

 

Risks relegated from last year's Group register:

·      Equipment obsolescence: While we have been introducing new fleet and technologies into our business we have focused on ensuring the continued utilisation of our older fleet. We have successfully identified applications which best utilise this fleet and, as a result, the risk that this equipment becomes obsolete before the end of its useful life has now reduced.

·      Funding our strategic plan: The risk that an unexpected funding requirement for working capital affects our ability to fund the strategic plan has fallen as a result of initiatives to improve the forecasting and management of working capital.

 

UK withdrawal from the European Union

At this point we do not know whether the UK will leave the EU with a deal, without a deal or whether the decision to leave will be revoked and we will continue to monitor the situation closely. However, as a business with over 80% of revenues derived from territories outside the UK and the European Union, we do not expect the UK's withdrawal from the European Union to have a material impact on the Group's underlying trading performance. Notwithstanding this, a material change in the relative strength of Sterling could give rise to significant volatility in the Group's reported results.

 

 

 

Shareholder information

 

Our website can be accessed at www.plc.aggreko.com.  This contains a large amount of information about our business.  The website also carries copies of recent investor presentations, as well as London Stock Exchange announcements.

 

 

 

Chris Weston

Chief Executive Officer

 

 

 

Heath Drewett

Chief Financial Officer

 

6 March 2019

 

 

 

 

 

 

GROUP INCOME STATEMENT

 

FOR THE YEAR ENDED 31 DECEMBER 2018

               

 

 

 

 

 

 

 

 

 

TOTAL BEFORE EXCEPTIONAL

 

 

 

 

 

ITEMS

EXCEPTIONAL

ITEMS

2017

2017

 

 

 

2018

RESTATED

(Note 1)

2017

(Note 3)

RESTATED

(Note 1)

 

NOTES

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Revenue

2

 

1,760

1,698

-

1,698

Cost of sales

 

 

(824)

(778)

(5)

(783)

Gross profit

 

 

936

920

(5)

915

Distribution costs

 

 

(476)

(456)

(12)

(468)

Administrative expenses

 

 

(241)

(219)

(23)

(242)

Impairment loss on trade receivables

9

 

(7)

(25)

-

(25)

Other income

 

 

7

4

(1)

3

Operating profit

2

 

219

224

(41)

183

Net finance costs

 

 

 

 

 

 

- Finance cost

 

 

(41)

(36)

-

(36)

- Finance income

 

 

4

2

-

2

Profit before taxation

 

 

182

190

(41)

149

Taxation

6

 

(57)

(56)

9

(47)

Profit for the year

 

125

134

(32)

102

All profit for the year is attributable to the owners of the Company.

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share (pence)

5

 

49.22

 

 

40.04

Diluted earnings per share (pence)

5

 

49.18

 

 

40.01

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE YEAR ENDED 31 DECEMBER 2018

 

 

2017

 

2018

RESTATED

(Note 1)

 

£ MILLION

£ MILLION

 

 

 

Profit for the year

125

102

Other comprehensive income/(loss)

 

 

Items that will not be reclassified to profit or loss

    Remeasurement of retirement benefits

26

5

    Taxation on remeasurement of retirement benefits

(5)

(1)

Items that may be reclassified subsequently to profit or loss

   Cash flow hedges

2

3

   Taxation on cash flow hedges

-

(1)

   PDVSA private placement notes: net change in fair value

-

(4)

   Net exchange losses offset in reserves

(24)

(98)

 

 

 

Other comprehensive loss for the year (net of tax)

(1)

(96)

 

 

 

Total comprehensive income for the year

124

6

 

 

 

GROUP BALANCE SHEET
(COMPANY NUMBER: SC177553)

AS AT 31 DECEMBER 2018

 

 

 

2017

 

 

2018

RESTATED

(Note 1)

 

NOTES

£ MILLION

£ MILLION

Non-current assets

 

 

 

Goodwill

 

184

184

Other intangible assets

 

42

31

Investment

13

9

-

Property, plant and equipment

7

1,169

1,214

Deferred tax asset

 

36

42

Fulfilment asset

8

29

3

Retirement benefit surplus

 

1

-

 

 

1,470

1,474

 

 

 

 

Current assets

 

 

 

Inventories

 

229

232

Trade and other receivables

9

781

770

Fulfilment asset

8

15

5

Cash and cash equivalents

 

85

71

Derivative financial instruments

 

1

-

Current tax assets

 

23

23

 

 

1,134

1,101

Total assets

 

2,604

2,575

 

 

 

 

Current liabilities

 

 

 

Borrowings

10

(144)

(139)

Derivative financial instruments

 

(1)

(1)

Trade and other payables

11

(371)

(410)

Current tax liabilities

 

(47)

(60)

Demobilisation provisions

12

(6)

(9)

Provisions

 

(2)

(8)

 

 

(571)

(627)

 

 

 

 

Non-current liabilities

 

 

 

Borrowings

10

(627)

(584)

Derivative financial instruments

 

-

(2)

Deferred tax liabilities

 

(34)

(22)

Retirement benefit obligation

 

-

(25)

Demobilisation provisions

12

(5)

(1)

 

 

(666)

(634)

 

 

 

 

Total liabilities

 

(1,237)

(1,261)

 

 

 

 

Net assets

 

1,367

1,314

 

 

 

 

Shareholders' equity

 

 

 

Share capital

 

42

42

Share premium

 

20

20

Treasury shares

 

(17)

(7)

Capital redemption reserve

 

13

13

Hedging reserve (net of deferred tax)

 

1

(1)

Foreign exchange reserve

 

(51)

(27)

Retained earnings

 

1,359

1,274

Total shareholders' equity

 

1,367

1,314

 

 

 

 

 

The financial statements on pages 18 to 42 were approved by the Board of Directors on 6 March 2019 and were signed on its behalf by:

 

 

Ken Hanna

Heath Drewett

Chairman

Chief Financial Officer

 

GROUP CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2018

 

 

 

2017

 

 

2018

RESTATED

(Note 1)

 

NOTES

£ MILLION

£ MILLION

Operating activities

 

 

 

Profit for the year

 

125

102

Adjustments for:

 

 

 

Exceptional items

3

-

41

Tax

 

57

47

Depreciation

 

293

296

Amortisation of intangibles

 

5

4

Fulfilment assets

8

9

20

Demobilisation provisions

12

4

9

Finance income

 

(4)

(2)

Finance cost

 

41

36

Profit on sale of property, plant and equipment (PPE) (i)

 

(7)

(4)

Share-based payments

 

10

8

Negative goodwill on acquisition

 

-

(2)

Changes in working capital (excluding the effects of exchange differences on consolidation):

 

 

 

Decrease/(increase) in inventories

 

14

(1)

Increase in trade and other receivables

 

(10)

(163)

(Decrease)/increase in trade and other payables

 

(60)

111

Cash flows relating to fulfilment assets

8

(44)

(12)

Cash flows relating to demobilisation provisions

12

(4)

(10)

Cash flows relating to prior year exceptional items

 

(6)

(30)

Cash generated from operations

 

423

450

 

    

 

 

Tax paid

 

(61)

(69)

Interest received

 

4

2

Interest paid

 

(36)

(36)

Net cash generated from operating activities

 

330

347

 

 

 

 

Cash flows from investing activities

 

 

 

Acquisitions (net of cash acquired)

Acquisitions: repayment of loans and financing

13

 

(24)

-

(55)

(18)

Purchases of PPE

Purchase of other intangible assets

 

(216)

(10)

(272)

(5)

Purchase of investment

 

(9)

-

Proceeds from sale of PPE

 

15

14

Net cash used in investing activities

 

(244)

(336)

 

 

 

 

Cash flows from financing activities

 

 

 

Increase in long-term loans

 

726

905

Repayment of long-term loans

 

(624)

(826)

Increase in short-term loans

 

5

21

Repayment of short-term loans

 

(94)

(6)

Dividends paid to shareholders

 

(69)

(69)

Purchase of treasury shares

 

(12)

-

Net cash (used in)/from financing activities

 

(68)

25

 

 

 

 

Net increase in cash and cash equivalents

18

36

Cash and cash equivalents at beginning of the year

 

59

25

Exchange loss on cash and cash equivalents

 

(1)

(2)

 

 

 

 

Cash and cash equivalents at end of the year

 

76

59

         

Cash flows for the purchase and sale of rental fleet assets are presented as arising from investing activities because the acquisition of new fleet assets represents a key investment decision for the Group, the assets are expected to be owned and operated by the Group to the end of their economic lives, the disposal process (when the assets are largely depreciated) is not a major part of the Group's business model and the assets in the rental fleet are not specifically held for subsequent resale.

 

(i)             Loss on disposal of £1 million was included in exceptional items in 2017.

 

 

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

 

FOR THE YEAR ENDED 31 DECEMBER 2018

 

 

At 1

JANUARY 2018

CASH FLOW - EXCLUDING

ACQUISITIONS

CASH FLOW -ACQUISITIONS

EXCHANGE

RECLASS

At 31 DECEMBER 2018

Analysis of changes in net debt

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Cash and cash equivalents

59

18

-

(1)

-

76

 

 

 

 

 

 

 

Current borrowings:

 

 

 

 

 

 

Bank borrowings

(72)

34

-

(2)

(75)

(115)

Private placement notes

(55)

55

-

(2)

(18)

(20)

 

(127)

89

-

(4)

(93)

(135)

 

 

 

 

 

 

 

Non-current borrowings:

 

 

 

 

 

 

Bank borrowings

(103)

(78)

(24)

(4)

75

(134)

Private placement notes

(481)

-

-

(30)

18

(493)

 

(584)

(78)

(24)

(34)

93

(627)

 

 

 

 

 

 

 

Net debt

(652)

29

(24)

(39)

-

(686)

 

 

 

 

 

 

 

Analysis of changes in liabilities from financing activities

 

 

 

 

 

 

Current borrowings

(127)

89

-

(4)

(93)

(135)

Non-current borrowings

(584)

(78)

(24)

(34)

93

(627)

 

 

 

 

 

 

 

Financing derivatives

(2)

2

-

-

-

-

 

 

 

 

 

 

 

Total financing liabilities

(713)

13

(24)

(38)

-

(762)

 

 

FOR THE YEAR ENDED 31 DECEMBER 2017

 

 

At 1

JANUARY

2017

CASH FLOW - EXCLUDING

ACQUISITIONS

CASH FLOW -ACQUISITIONS

EXCHANGE

RECLASS

At 31 DECEMBER 2017

Analysis of changes in net debt

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Cash and cash equivalents

25

36

-

(2)

-

59

 

 

 

 

 

 

 

Current borrowings:

 

 

 

 

 

 

Bank borrowings

(41)

(15)

-

4

(20)

(72)

Private placement notes

-

-

-

3

(58)

(55)

 

(41)

(15)

-

7

(78)

(127)

 

 

 

 

 

 

 

Non-current borrowings:

 

 

 

 

 

 

Bank borrowings

(329)

265

(73)

14

20

(103)

Private placement notes

(304)

(271)

-

36

58

(481)

 

(633)

(6)

(73)

50

78

(584)

 

 

 

 

 

 

 

Net debt

(649)

15

(73)

55

-

(652)

 

 

 

 

 

 

 

Analysis of changes in liabilities from financing activities

 

 

 

 

 

 

Current borrowings

(41)

(15)

-

7

(78)

(127)

Non-current borrowings

(633)

(6)

(73)

50

78

(584)

 

 

 

 

 

 

 

Financing derivatives

(5)

3

-

-

-

(2)

 

 

 

 

 

 

 

Total financing liabilities

(679)

(18)

(73)

57

-

(713)

               
 

 

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018

AS AT
31 DECEMBER 2018

ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

 

 

ORDINARY

SHARE

CAPITAL

£ MILLLION

 

SHARE

PREMIUM

ACCOUNT

£ MILLLION

 

 

TREASURY

SHARES

£ MILLLION

 

CAPITAL

REDEMPTION

RESERVE

£ MILLLION

 

 

HEDGING

RESERVE

£ MILLLION

FOREIGN

EXCHANGE

RESERVE

(TRANSLATION)

£ MILLLION

 

 

RETAINED

EARNINGS

£ MILLLION

 

 

TOTAL

EQUITY

£ MILLLION

Balance at 1 January 2018 as previously reported

42

20

(7)

13

(1)

(27)

1,277

1,317

Impact of change in accounting policy (Note 1)

-

-

-

-

-

-

(3)

(3)

Restated balance at 1 January 2018

42

20

(7)

13

(1)

(27)

1,274

1,314

Profit for the year

-

-

-

-

-

-

125

125

Other comprehensive income/(loss):

 

 

 

 

 

 

 

Fair value gains on interest rate swaps (net of tax)

-

-

-

-

2

-

-

2

Currency translation differences (i)

-

-

-

-

-

(24)

-

(24)

Re-measurement of retirement benefits (net of tax)

-

-

-

-

-

-

21

21

Total comprehensive income for the  year ended 31 December 2018

-

-

-

-

2

(24)

146

124

Transactions with owners:

 

 

 

 

 

 

 

 

Purchase of Treasury shares

-

-

(12)

-

-

-

-

(12)

Employee share awards

-

-

-

-

-

-

10

10

Issue of ordinary shares to employees under share option schemes

-

-

2

-

-

-

(2)

-

Dividends paid during 2018

-

-

-

-

-

-

(69)

(69)

 

-

-

(10)

-

-

-

(61)

(71)

Balance at 31 December 2018

42

20

(17)

13

1

(51)

1,359

1,367

                               

 

(i)

Included in currency translation differences of the Group are exchange losses of £46 million arising on borrowings denominated in foreign currencies designated as hedges of net investments overseas, and exchange gains of £22 million relating to the translation of overseas results and net assets.

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2018

AS AT
31 DECEMBER 2017

ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

 

 

ORDINARY

SHARE

CAPITAL

£ MILLLION

 

SHARE

PREMIUM

ACCOUNT

£ MILLLION

 

 

TREASURY

SHARES

£ MILLLION

 

CAPITAL

REDEMPTION

RESERVE

£ MILLLION

 

 

HEDGING

RESERVE

£ MILLLION

FOREIGN

EXCHANGE

RESERVE

(TRANSLATION)

£ MILLLION

 

 

RETAINED

EARNINGS

£ MILLLION

 

 

TOTAL

EQUITY

£ MILLLION

Balance at 1 January 2017 as previously reported

42

20

(14)

13

(3)

71

1,239

1,368

Impact of change in accounting policy (Note 1)

-

-

-

-

-

-

1

1

Restated balance at 1 January 2017

42

20

(14)

13

(3)

71

1,240

1,369

Profit for the year

-

-

-

-

-

-

102

102

Other comprehensive income/(loss):

 

 

 

 

 

 

 

Fair value gains on interest rate swaps (net of tax)

-

-

-

-

2

-

-

2

PDVSA private placement notes: net change in fair value

-

-

-

-

-

-

(4)

(4)

Currency translation differences (i)

-

-

-

-

-

(98)

-

(98)

Re-measurement of retirement benefits (net of tax)

-

-

-

-

-

-

4

4

Total comprehensive income for the  year ended 31 December 2017

-

-

-

-

2

(98)

102

6

Transactions with owners:

 

 

 

 

 

 

 

 

Employee share awards

-

-

-

-

-

-

8

8

Issue of ordinary shares to employees under share option schemes

-

-

7

-

-

-

(7)

-

Dividends paid during 2017

-

-

-

-

-

-

(69)

(69)

 

-

-

7

-

-

-

(68)

(61)

Balance at 31 December 2017

42

20

(7)

13

(1)

(27)

1,274

1,314

                               

 

(i)

Included in currency translation differences of the Group are exchange gains of £55 million arising on borrowings denominated in foreign currencies designated as hedges of net investments overseas, and exchange losses of £153 million relating to the translation of overseas results and net assets.

 

 

 

NOTES TO THE ACCOUNTS

For the year ended 31 December 2018

 

1. CHANGES IN ACCOUNTING POLICY AND DISCLOSURES

 

(a) New and amended standards adopted by the Group

 

The Group has adopted IFRS 15 'Revenue from Contracts with Customers' and IFRS 9 'Financial Instruments' from 1 January 2018 therefore this is the first set of the Group's annual financial statements where IFRS 15 and IFRS 9 have been applied. Changes to significant accounting policies are described below.

 

IFRS 15

IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised in accordance with the five-step model included in IFRS 15 which specifies that revenue should be recognised when (or as) an entity transfers control of goods or services to a customer at an amount to which the entity expects to be entitled.

 

The Group has applied IFRS 15 retrospectively using the practical expedient not to restate for contract extensions before 1 January 2017.  Comparative numbers for the year ended 31 December 2017 have been restated. The main changes from adopting IFRS 15 are detailed below.

 

Mobilisation and demobilisation

Mobilisation costs are classified as fulfilment costs where they are separately identifiable and specific to a project and where the mobilisation does not itself form a separate performance obligation. In these circumstances, mobilisation costs are capitalised as they relate to future performance obligations, i.e. the provision of power is the future performance obligation, which begins when the power starts to be generated. During the phase of mobilisation this service has not yet started and as such represents a future performance obligation. The costs incurred during mobilisation are directly related to the contract and enable Aggreko to earn revenue from the provision of power. They are expected to be recovered because the contract is profitable although they will be reviewed carefully for any indication of impairment.

 

With respect to demobilisation costs the Group has a legal obligation to incur demobilisation costs once the assets are installed on site, as this is required by the contract. This creates a legal obligation from a past event. The majority of these costs can be measured reliably and therefore they meet the definition of a provision. These costs are capitalised as a fulfilment cost asset as they are incurred in relation to a performance obligation (delivering power) and are expected to be recovered and generate or enhance resources because they facilitate Aggreko's delivery of the contract.

 

The fulfilment costs (mobilisation and demobilisation costs) are amortised to the income statement over the period of the initial contract. The amortisation starts when we start to earn revenue and stops when the initial contract period ends. If there is a signed extension, the unamortised amount left in the balance sheet when the extension is signed is then amortised over the remaining period of the initial contract and the extension period.

 

In contracts where mobilisation and demobilisation income timing is specifically stipulated in the contract in order to match the timing of associated costs, then this income is now recognised during the period of provision of power.

 

The financial impact of these items for the year ended 31 December 2017 is detailed below (Note references refer to tables below):

·      Note 1: Revenue for the year ended 31 December 2017 is £2 million higher reflecting revenue now being recognised during the provision of power. Deferred revenue in the balance sheet also increases by £2 million

·      Note 2: Cost of sales for the year ended 31 December 2017 is £7 million higher reflecting mobilisation and demobilisation costs amortised to the income statement over the period of the contract

·      Note 5: A fulfilment asset of £8 million was recognised as at 31 December 2017, with £5 million less than one year and £3 million greater than one year

·      Note 6: A demobilisation provision of £10 million was recognised as at 31 December 2017, with £9 million less than one year and £1 million greater than one year

·      Note 11: IFRS 9 requires any impairment loss on trade receivables to be shown separately on the face of the income statement

 

 

1. CHANGES IN ACCOUNTING POLICY AND DISCLOSURES CONTINUED

 

Rehire arrangements (Principal vs. Agent)

Aggreko will sometimes hire equipment from a third party to use on a contract. Before IFRS 15 the revenue and cost associated with this was accounted for separately as Aggreko was the principal. Under IFRS 15 Aggreko is acting as an agent rather than principal in this instance mainly because Aggreko does not control the provision of the service due to factors such as the fact that the third party is still responsible for repairs to the equipment. Under IFRS 15 the cost of the rehire is netted against revenue.

·      Note 3: The impact of this for the year ended 31 December 2017 was to reduce revenue and cost of sales by £34 million. There is no impact on operating profit.

 

IMPACT ON FINANCIAL STATEMENTS

 

GROUP INCOME STATEMENT

 

 

YEAR ENDED 31 DECEMBER 2017

 

 

 

AS PREVIOUSLY REPORTED

ADJUSTMENTS

AS RESTATED

 

ADJUSTMENT NOTES

 

£ MILLION

£ MILLION

£ MILLION

Revenue

1,3

 

1,730

(32)

1,698

Cost of sales

2,3

 

(810)

27

(783)

Gross profit

 

 

920 

(5)

915 

Distribution costs

 

 

(493)

25

(468)

Administrative expenses

 

 

(242)

-

(242)

Impairment loss on trade receivables

11

 

-

(25)

(25)

Other income

 

 

3

-

3

Operating profit

 

 

188 

(5)

183 

Net finance costs

 

 

(34)

-

(34)

Profit before taxation

 

 

154

(5)

149

Taxation

4

 

(48)

1

(47)

Profit for the period

 

106

(4)

102

 

 

 

 

 

 

Basic earnings per share (pence)

 

 

 41.54

(1.50) 

40.04 

Diluted earnings per share (pence)

 

 

 41.51

(1.50)

40.01 

             

Notes 1,2,3,11 - Refer to narrative above

Note 4 - Tax impact of adjustments 1, 2 & 3.

 

 

1. CHANGES IN ACCOUNTING POLICY AND DISCLOSURES CONTINUED

 

GROUP BALANCE SHEET

 

 

31 DECEMBER 2017

 

 

 

AS PREVIOUSLY REPORTED

ADJUSTMENTS

AS RESTATED

 

ADJUSTMENT NOTES

 

£ MILLION

£ MILLION

£ MILLION

Non-current assets

Other non-current assets

 

 

1,471

-

1,471

Fulfilment asset

5

 

-

3

3

 

 

 

1,471 

3

1,474 

Current assets

Other current assets

 

 

1,096

-

1,096

Fulfilment asset

5

 

-

5

5

 

 

 

1,096 

5

1,101

Total assets

 

 

2,567

8

2,575

Current Liabilities

 

 

 

 

 

Other current liabilities

1,4

 

(617)

(1)

(618)

Demobilisation provision

6

 

-

(9)

(9)

 

 

(617)

(10)

(627)

Non-current liabilities

 

 

 

 

Other non-current liabilities

 

(633)

-

(633)

Demobilisation provision

6

 

-

(1)

(1)

 

 

 

(633)

(1)

(634)

Total Liabilities

 

 

(1,250)

(11)

(1,261)

Net assets

 

 

1,317

(3)

1,314

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

Other

 

 

40

-

40

Retained earnings

 

 

1,277

(3)

1,274

Total shareholders' equity

 

 

1,317

(3)

1,314

 

 

 

 

 

             

Notes 5,6 - Refer to narrative on page 24

 

 

1. CHANGES IN ACCOUNTING POLICY AND DISCLOSURES CONTINUED

 

GROUP CASH FLOW STATEMENT

 

 

YEAR ENDED 31 DECEMBER 2017

 

 

 

AS PREVIOUSLY REPORTED

ADJUSTMENTS

AS RESTATED

 

ADJUSTMENT NOTES

 

£ MILLION

£ MILLION

£ MILLION

Profit for the period

7

 

106

(4)

102

Adjustments for:

 

 

 

 

 

Tax

8

 

48 

(1)

47 

Fulfilment assets

9

 

-

20

20

Demobilisation provisions

10

 

-

9

9

Cash flows relating to fulfilment assets

9

 

-

(12)

(12)

Cash flows relating to demobilisation provisions

10

 

-

(10)

(10)

Increase in trade and other payables

 

 

113 

(2)

111

Other items

 

 

183

-

183

Cash generated from operations

 

450

-

450

             

Notes 7,8 - Refer to income statement above

Note 9 - Refer to Note 8 (Fulfilment assets)

Note 10 - Refer to Note 12 (Demobilisation provision)

IFRS 9

IFRS 9 addresses the classification, measurement and recognition of financial assets and liabilities. The Group has adopted IFRS 9 using the cumulative effect method and therefore comparatives have not been restated.

 

The main changes from implementing IFRS 9 are detailed below:

 

Impairment of financial assets

IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (ECL) model. Under IFRS 9 credit losses tend to be recognised earlier than under IAS 39. Receivables (including accrued revenue) are required to be considered immediately for impairment to reflect the possibility of future default or non-collectability. The Group assesses the ECL as explained below:

 

Power Solutions Industrial and Rental Solutions

The Group has taken advantage of the practical expedient in IFRS 9 to use a provision matrix to simplify the calculation where accounts receivable are split into various risk categories (e.g. based on Credit Rating Agencies) and then a percentage is applied to each category to obtain the impairment allowances. An example of the provision matrix is detailed below:

Ageing

Notes

Current

0-30 days

31-60 days

61-90 days

Ø 90 days

Risk

 

 

 

 

 

 

Low risk

1

 

 

 

 

 

Medium risk

1

 

 

 

 

 

High risk

1

 

 

 

 

 

Specific

2

 

 

 

 

 

Notes

 

 

 

 

 

 

1. Classification based on assessment of customer credit risk

 

2. Specific provision for customers

 

 

 

 

                 

 

                                   

 

 

 

 

1. CHANGES IN ACCOUNTING POLICY AND DISCLOSURES CONTINUED

 

Each operating unit within the Power Solution Industrial and Rental Solutions businesses has used this provision matrix to calculate the provision and each matrix is specific to the economic and operating conditions of each operating unit. In applying this matrix the operating units will also consider the following: significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation and default, or large and old outstanding balances, particularly in countries where the legal system is not easily used to enforce recovery. When a trade receivable is uncollectable it is written off against the provision for impairment of trade receivables.

 

Power Solutions Utility (PSU)

Within our PSU business when considering the risk profile of the debtors and the relevant impairment provision the Group considers each debtor and customer individually, within the relevant environment to which it relates, taking into account a number of factors. These factors include the political and economic conditions in the relevant country, duration and quality of relationship with the customer, age of debt, cash flows from the customer and any relevant communication throughout the year. We then apply the matrix approach detailed above to any debtors that do not have a specific provision.

 

Based on this there is no material impact to the Group.

 

Classification and measurement of financial assets and financial liabilities

There are no material changes relating to derivatives, however we will defer implementation until the macro hedging requirements are finalised.

 

In September 2016 the Group signed £14 million of private placement notes with one customer in Venezuela (PDVSA) to progress clearing the overdue debt. This resulted in a financial instrument which replaced the net trade receivable balance. The financial instrument was booked at fair value which reflected our estimation of the recoverability of these notes. This fair value at 31 December 2018 was £4 million (2017: £4 million). This financial instrument was included in other receivables. Previously the change in fair value of these notes was reflected in the statement of changes in equity, however under IFRS 9 the changes in the fair value are now reflected in the income statement. There has been no change to the fair value of these notes in year ended 31 December 2018.

 

(b) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2018 and not early adopted

 

IFRS 16 'Leases'

IFRS 16 applies to annual periods beginning on or after 1 January 2019 and requires lessees to recognise all leases on balance sheet with limited exemptions for short-term leases and low value leases (<$10,000). This will result in the recognition of a right-to-use asset and corresponding liability on the balance sheet, with the associated depreciation and interest expense being recorded in the income statement over the lease period. The Group has completed its impact assessment of this standard and the expected impact of applying IFRS 16 in its first full year of application is detailed below:

·      The total annual income statement charge is expected to increase by circa £2 million.

·      EBITDA is expected to increase by around £30 to £40 million as the expense is now depreciation and interest.

·      The total income statement charge over the life of the leases is unchanged - the difference under IFRS 16 is a 'front-loading' of the recognition of the charge.

·      Recognition of a right-of-use asset and lease liability in the range of £100-£110 million with no impact on net assets.

In addition, the combined impact of IFRS 16 on operating profit and net operating assets is expected to reduce the Group's return on capital employed by c. 0.3pp. The Group plans to apply IFRS 16 initially on 1 January 2019, using a modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparatives.

 

 

IFRIC 23 'Uncertainty over Income Tax Treatments'

IFRIC 23 comes in to effect from 1 January 2019. Management has assessed the impact of this change and this is expected to be immaterial.

 

 

 

 

 

2. SEGMENTAL REPORTING

 

(a) As a result of the Group's increased sector focus we have refined our segmental reporting and reassigned all non-utility sector customer contracts from within our Power Solutions Utility business into Power Solutions Industrial. Accordingly, the comparative figures have been restated. The impact was to reduce the previously stated Power Solutions Utility balances and results and to increase similarly the Power Solutions Industrial balances and results by the amounts shown below.

 

 

 

 

2017

 

 

 

£ MILLION

 

 

 

 

Revenue

 

 

93

Operating profit

 

 

17

Depreciation and amortisation

 

 

17

Capital expenditure

 

 

8

Net operating assets

 

Average number of employees

 

 

122

 

454

 

 

Note 14 contains a reconciliation between previously reported segmental information and restated segmental information for the year ended 31 December 2017.

 

(b) Revenue by segment

 

 

 

 

 

EXTERNAL REVENUE

 

 

 

 

 

2017

 

 

 

 

2018

RESTATED

(Notes 1, 2(a))

 

 

 

 

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

 

  Industrial

 

 

 

424

429

  Utility

 

 

 

514

579

 

 

 

 

938

1,008

Rental Solutions

 

 

 

822

690

Group

 

 

 

1,760

1,698

(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.

 

 

 

 

 

2. SEGMENTAL REPORTING CONTINUED

 

(b) Revenue by segment continued

 

Disaggregation of revenue

 

In the tables below revenue is disaggregated by geography and sector.

 

Revenue by geography

 

 

 

 

 

 

2017

 

 

 

 

 

RESTATED

 

 

 

 

2018

(Note 1)

 

 

 

 

£ MILLION

£ MILLION

North America

 

 

 

460

369

UK

 

 

 

106

93

Continental Europe

 

 

 

179

136

Eurasia

 

 

 

77

85

Middle East

 

 

 

148

168

Africa

 

 

 

200

246

Asia

 

 

 

166

168

Australia Pacific

 

 

 

100

89

Latin America

 

 

 

324

344

 

 

 

 

1,760

1,698

 

Revenue by sector

At 31 December 2018

 

 

 

 

 

PSI

PSU

RS

Group

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Utilities

27

514

99

640

Oil & gas

163

-

110

273

Petrochemical & refining

9

-

147

156

Building services & construction

48

-

151

199

Events

53

-

80

133

Manufacturing

32

-

56

88

Quarrying & mining

53

-

43

96

Other

39

-

136

175

 

424

514

822

1,760

 

 

 

2. SEGMENTAL REPORTING CONTINUED

 

Revenue by sector continued

At 31 December 2017

 

 

 

 

 

PSI

PSU

RS

Group

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Utilities

24

579

79

682

Oil & gas

166

-

63

229

Petrochemical & refining

8

-

114

122

Building services & construction

62

-

148

210

Events

37

-

66

103

Manufacturing

42

-

57

99

Quarrying & mining

55

-

35

90

Other

35

-

128

163

 

429

579

690

1,698

 

(c) Profit by segment

 

 

OPERATING PROFIT

 

 

2017

 

2018

RESTATED

(Notes 1, 2(a))

 

£ MILLION

£ MILLION

Power Solutions

 

 

  Industrial

71

73

  Utility

43

70

 

114

143

Rental Solutions

105

81

Operating profit pre-exceptional items

219

224

Exceptional items (Note 3)

-

(41)

Operating profit post-exceptional items

219

183

Finance costs - net

(37)

(34)

Profit before taxation

182

149

Taxation

(57)

(47)

Profit for the year

125

102

 

 

 

2. SEGMENTAL REPORTING CONTINUED

 

(d) Depreciation and amortisation by segment

 

 

 

 

2017

 

 

2018

RESTATED

(Note 2(a))

 

 

£ MILLION

£ MILLION

Power Solutions

 

 

 

  Industrial

 

90

89

  Utility

 

104

115

 

 

194

204

Rental Solutions

 

104

96

Group

 

298

300

 

(e) Capital expenditure on property, plant & equipment and intangible assets by segment

 

 

 

2018

2017

RESTATED

(Note 2(a))

 

 

£ MILLION

£ MILLION

Power Solutions

 

 

 

  Industrial

 

55

63

  Utility

 

76

175

 

 

131

238

Rental Solutions

 

109

75

Group

 

240

313

 

(i)         Capital expenditure comprises additions of property, plant and equipment (PPE) of £216 million (2017: £272 million), additions of intangible assets of £10 million (2017: £5 million), acquisitions of PPE of £13 million (2017: £28 million), and acquisitions of intangible assets of £1 million (2017: £8 million).

 

(f) Assets/(Liabilities) by segment

 

 

ASSETS

LIABILITIES

 

 

2017

 

2017

 

2018

RESTATED

(Notes 1, 2(a))

2018

RESTATED

(Notes 1, 2(a))

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

  Industrial

714

802

(94)

(112)

  Utility

996

943

(214)

(224)

 

1,710

1,745

(308)

(336)

Rental Solutions

833

765

(76)

(100)

Group

2,543

2,510

(384)

(436)

Tax and finance assets/(liabilities)

59

65

(90)

(86)

Derivative financial instruments

1

-

(1)

(3)

Borrowings

-

-

(762)

(711)

Retirement benefit surplus/(obligation)

1

-

-

(25)

Total assets/(liabilities) per balance sheet

2,604

2,575

(1,237)

(1,261)

           

 

 

 

2. SEGMENTAL REPORTING CONTINUED

 

(g) Average number of employees by segment

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

2018

RESTATED

(Note 2(a))

 

 

 

 

 

 

 

NUMBER

NUMBER

Power Solutions

 

 

 

 

 

 

 

     Industrial

 

 

 

 

 

1,954

1,834

     Utility

 

 

 

 

 

 

1,314

1,629

 

 

 

 

 

 

 

3,268

3,463

Rental Solutions

 

 

 

 

 

2,759

2,515

Group

 

 

 

 

6,027

5,978

 

 

 

 

 

 

 

 

 

 

                         

(h) Geographical information

 

 

NON-CURRENT ASSETS

 

 

2017

 

2018

RESTATED

(Note 2(a))

 

£ MILLION

£ MILLION

North America

288

253

UK

161

110

Continental Europe

137

119

Eurasia

59

70

Middle East

251

343

Africa

153

159

Asia

151

150

Australian Pacific

70

67

Latin America

164

161

 

1,434

1,432

Non-current assets exclude deferred tax.

 

(i) Reconciliation of net operating assets to net assets

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

2018

RESTATED

(Note 1)

 

 

 

 

 

 

 

£ MILLION

£ MILLION

Net operating assets

 

 

 

 

2,159

2,074

Retirement benefit surplus/(obligation)

1

(25)

Net tax and finance payable

 

 

 

 

(31)

(21)

 

 

 

 

 

 

 

2,129

2,028

Borrowings and derivative financial instruments

 

(762)

(714)

Net assets

 

1,367

1,314

                         

 

3. EXCEPTIONAL ITEMS           

           

There were no exceptional items in 2018. An exceptional charge of £41 million before tax was recorded in the year to 31 December 2017 in respect of the Group's Business Priorities programme. The costs comprised £22 million of employee related costs, £8 million of professional fees and £11 million of property related costs. The employee costs related to severance costs as well as the costs of employees who were working full time on the Business Priorities programme implementation. This exceptional charge was split into Rental Solutions £13 million, Power Solutions - Industrial £11 million and Power Solutions - Utility £17 million.

 

4. DIVIDENDS

 

 

2018

2018

2017

2017

 

£ MILLION

PER SHARE(P)

£ MILLION

PER SHARE(P)

 

 

 

 

 

Final paid

45

17.74

45

17.74

Interim paid

24

9.38

24

9.38

 

69

27.12

69

27.12

 

In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2018 of 17.74 pence per share which will utilise an estimated £45 million of Shareholders' funds.  It will be paid on 24 May 2019 to shareholders who are on the register of members on 23 April 2019.

 

5. 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 year, excluding shares held by the Employee Share Ownership Trusts which are treated as cancelled.

 

 

2018

2017

RESTATED

(Note 1)

 

 

 

Profit for the year (£ million)

125.4

102.0

 

 

 

Weighted average number of ordinary shares in issue (million)

254.8

254.7

 

 

 

Basic earnings per share (pence)

49.22

40.04

 

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 year.  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.

 

 

2018

2017

RESTATED

(Note 1)

 

 

 

Profit for the year (£ million)

125.4

102.0

 

 

 

Weighted average number of ordinary shares in issue (million)

254.8

254.7

Adjustment for share options

0.2

0.2

Diluted weighted average number of ordinary shares in issue (million)

255.0

254.9

 

 

 

Diluted earnings per share (pence)

49.18

40.01

 

 

 

5. EARNINGS PER SHARE CONTINUED

 

Aggreko plc assesses the performance of the Group by adjusting earnings per share, calculated in accordance with IAS 33, to exclude items it considers to be non-recurring and believes that the exclusion of such items provides a better comparison of business performance. The calculation of earnings per ordinary share on a basis which excludes exceptional items is based on the following adjusted earnings:

 

 

2018

2017

RESTATED

(Note 1)

 

£ MILLION

£ MILLION

Profit for the year

125.4

102.0

Exclude exceptional items

-

31.7

Profit for the year pre-exceptional items

125.4

133.7

 

 

 

An adjusted earnings per share figure is presented below.

 

 

 

 

 

Basic earnings per share pre-exceptional items (pence)

49.22

52.48

Diluted earnings per share pre-exceptional items (pence)

49.18

52.44

 

6. TAXATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL BEFORE EXCEPTIONAL ITEMS

2017

 

 

EXCEPTIONAL ITEMS

2017

 

 

 

 

2018

RESTATED

(Note 1)

2017

(Note 3)

RESTATED

(Note 1)

 

 

 

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Analysis of charge in year

 

 

 

 

 

Current tax expense:

 

 

 

 

 

  - UK corporation tax

 

6

11

(2)

9

  - Overseas taxation

 

62

77

(7)

70

 

 

 

 

68

88

(9)

79

Adjustments in respect of prior years:

 

 

 

 

  - UK

 

 

 

(2)

(2)

-

(2)

  - Overseas

 

 

(17)

(3)

-

(3)

 

 

 

 

49

83

(9)

74

Deferred taxation:

 

 

 

 

 

  - temporary differences arising in current year

5

(27)

-

(27)

  - movements in respect of prior years

3

-

-

-

 

 

 

 

57

56

(9)

47

 

(i)

Prior year exceptional items are explained in Note 3 and comprised costs of £41 million relating to our Business Priorities programme.  Of these costs £41 million were tax deductible and resulted in an exceptional tax credit of £9 million.

 

 

 

6. TAXATION CONTINUED

 

Variances between the current tax charge and the standard 19% (2017: 19%) UK corporate tax rate when applied to profit on ordinary activities for the year are as follows:

 

 

 

TOTAL BEFORE EXCEPTIONAL

 

 

 

 

 

ITEMS

2017

EXCEPTIONAL ITEMS

2017

 

2018

RESTATED

(Note 1)

2017

(Note 3)

RESTATED

(Note 1)

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Profit before taxation

182

190

(41)

149

 

 

 

 

 

Tax calculated at 19% standard UK corporate tax rate

35

37

(8)

29

Differences between UK and overseas tax rates

32

30

(1)

29

Expenses not tax effected

6

8

-

8

Income not subject to tax

(1)

(3)

-

(3)

Impact of deferred tax rate changes in relation to US tax reform

-

(10)

-

(10)

Impact of deferred tax rate changes - non US

1

(1)

-

(1)

Tax on current year profit

73

61

(9)

52

Prior year adjustments - current tax*

(19)

(5)

-

(5)

Prior year adjustments - deferred tax

3

-

-

-

Total tax on profit

57

56

(9)

47

 

 

 

 

 

Effective tax rate

31%

29%

23%

31%

 

*The main components of the prior year credit are the release of a provision in respect of a historic matter in Yemen and other Power Solutions movements.

 

7. PROPERTY, PLANT AND EQUIPMENT

 

YEAR ENDED 31 DECEMBER 2018

 

 

FREEHOLD

SHORT LEASEHOLD

RENTAL

VEHICLES, PLANT &

 

 

PROPERTIES

PROPERTIES

FLEET

EQUIPMENT

TOTAL

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Cost

 

 

 

 

 

At 1 January 2018

86

20

3,400

152

3,658

Exchange adjustments

4

1

102

2

109

Additions

2

2

196

16

216

Acquisitions (Note 13)

-

-

13

-

13

Disposals

-

-

(99)

(2)

(101)

At 31 December 2018

92

23

3,612

168

3,895

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

At 1 January 2018

35

15

2,296

98

2,444

Exchange adjustments

2

-

77

3

82

Charge for the period

3

1

273

16

293

Disposals

-

-

(91)

(2)

(93)

At 31 December 2018

40

16

2,555

115

2,726

 

 

 

 

 

 

Net book values:

 

 

 

 

 

At 31 December 2018

52

7

1,057

53

1,169

At 31 December 2017

51

5

1,104

54

1,214

 

 

8. FULFILMENT ASSET

 

 

2018

2017

 

£ MILLION

£ MILLION

 

 

 

Balance at 1 January

8

16

Capitalised in the period

44

12

Provision created for future demobilisation costs

3

2

Amortised to the income statement

(12)

(22)

Exchange

1

-

Balance at 31 December

44

8

 

 

 

Analysis of fulfilment assets

 

 

Current

15

5

Non-current

29

3

Total

44

8

 

9. TRADE AND OTHER RECEIVABLES

 

 

2018

2017

 

£ MILLION

£ MILLION

Trade receivables

587

570

Less: provision for impairment of receivables

(85)

(80)

Trade receivables - net

502

490

Prepayments

45

57

Accrued income

169

139

Other receivables (i)

65

84

Total receivables

781

770

 

 

 

(i)         In September 2016 the Group signed £14 million of private placement notes with one customer in Venezuela (PDVSA) to progress clearing the overdue debt. This resulted in a financial instrument which replaced the net trade receivable balance. The financial instrument is booked at fair value which reflects our estimation of the recoverability of the notes. This fair value is estimated to be £4 million (2017: £4 million). This financial instrument is included in other receivables. Other material amounts included in other receivables include indirect taxes receivable (such as sales taxes) of £21 million (2017: £24 million) and deposits of £15 million (2017: £11 million).

 

Movements on the Group's provision for impairment of trade receivables are as follows:

 

2018

2017

 

£ MILLION

£ MILLION

At 1 January

80

67

Net provision for receivables impairment

7

25

Utilised

(2)

(3)

Receivables written off during the year as uncollectable

(2)

(3)

Exchange

2

(6)

At 31 December

85

80

 

 

 

 

 

 

10. BORROWINGS

 

 

2018

2017

 

£ MILLION

£ MILLION

Non-current

 

 

Bank borrowings

134

103

Private placement notes

493

481

 

627

584

Current

 

 

Bank overdrafts

9

12

Bank borrowings

115

72

Private placement notes

20

55

 

144

139

 

 

 

Total borrowings

771

723

 

 

 

Cash at bank and in hand

(85)

(71)

 

 

 

Net borrowings

686

652

 

 

 

Overdrafts and borrowings are unsecured.

 

 

 

11. TRADE AND OTHER PAYABLES

 

 

2018

2017

RESTATED

(Note 1)

 

£ MILLION

£ MILLION

 

 

 

Trade payables

134

160

Other taxation and social security payable

15

99

16

78

Other payables

Accruals

115

127

Deferred income

8

29

 

371

410

 

The value of trade and other payables quoted in the table above also represents the fair value of these items.

 

12. DEMOBILISATION PROVISION

 

 

 

 

 

2018

2017

 

£ MILLION

£ MILLION

 

 

 

Balance at 1 January

10

11

New provisions

4

9

Utilised

(4)

(10)

Exchange

1

-

Balance at 31 December

11

10

 

 

 

Analysis of demobilisation provision

 

 

Current

6

9

Non-current

5

1

Total

11

10

 

 

 

13. ACQUISITIONS AND INVESTMENTS

 

A Contact Electric Rentals (A Contact)

 

On 15 February 2018 the Group completed the acquisition of the business and assets of A Contact.

 

The acquisition furthers Aggreko's leadership position in the speciality rental market and long-term growth strategy to excel through specialised rental solutions. A Contact specialises in the rental of medium and high voltage electrical distribution equipment in North America.

 

The revenue and operating profit included in the consolidated income statement from 15 February 2018 to 31 December 2018 contributed by A Contact was £10 million and £4 million respectively. Had A Contact been consolidated from 1 January 2018, the consolidated income statement for the year ended 31 December 2018 would show revenue and operating profit of £1,760 million and £219 million respectively.

 

The acquisition method of accounting has been adopted and the goodwill arising on the purchase has been capitalised. Acquisition related costs of £0.3 million have been expensed in the period and are included within administrative expenses in the income statement.

 

Goodwill represents the value of synergies arising from the integration of the acquired business. Synergies include combining A Contact's specialised equipment with Aggreko's to offer extended benefits to our customers.

 

Included within this maximum consideration is £3 million which was deposited into an escrow account as contingent consideration and security against any issues with the assets acquired. The escrow period is eighteen months from date of acquisition, with 50% to be released twelve months after the acquisition date and the remaining balance eighteen months after the acquisition date. No claims have been identified to date and the Directors have assessed the fair value of the consideration as £3 million.

 

Generator Hire Service (GHS)

 

On 31 May 2018 the Group completed the acquisition of the business and assets of GHS in Australia.

 

GHS specialises in general rental equipment and it strengthens Aggreko's leadership position in the events sector.

 

The revenue and operating profit included in the consolidated income statement from 31 May 2018 to 31 December 2018 contributed by GHS was £0.9 million and £0.2 million respectively. Had GHS been consolidated from 1 January 2018, the consolidated income statement for the year ended 31 December 2018 would show revenue and operating profit of £1,760 million and £219 million respectively.

 

The acquisition method of accounting has been adopted and the goodwill arising on the purchase has been capitalised. Acquisition related costs of £0.2 million have been expensed in the period and are included within administrative expenses in the income statement.

 

Goodwill represents the value of synergies arising from the integration of the acquired business. Synergies include direct cost savings and a reduction in overheads as well as the ability to leverage Aggreko systems and access to assets.

 

The details of the transactions and fair value of assets acquired in the two acquisitions are shown in the table below:

 

 

 

 

 

 

A CONTACT

GHS

TOTAL

 

 

 

 

 

£ MILLION

£ MILLION

£ MILLION

 

 

 

 

 

 

 

 

Property, plant & equipment

 

 

11

2

13

Intangible assets

 

 

1

-

1

Inventory

 

 

6

-

6

Trade and other receivables

 

 

1

-

1

Net assets acquired

 

 

19

2

21

Goodwill

 

 

 

 

2

1

 

3

Consideration per cashflow

 

21

3

24

                 

13. ACQUISITIONS AND INVESTMENTS CONTINUED

 

Investment in Origami Energy Ltd (Origami)

 

On 21 March 2018 the Group acquired a 14% share in Origami for a consideration of £9 million. Origami was founded in 2013 and has developed intelligent software that optimises the revenue earning capability of grid connected assets. This investment extends Aggreko's capability in evolving energy markets and supports our distributed energy strategy.

 

14. SEGMENTAL DISCLOSURES: RECONCILIATION OF PREVIOUSLY REPORTED TO RESTATED RESULTS

 

Year Ended 31 December 2017

 

Revenue

 

 

 

 

 

 

 

 

 

 

IFRS 15 IMPACT

 

 

 

AS REPORTED

PSU/PSI

MOB/DEMOB

REHIRE

RESTATED

 

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

 

 

  Industrial

 

340

93

-

(4)

429

  Utility

 

670

(93)

2

579

 

 

1,010

-

2

(4)

1,008

Rental Solutions

 

720

-

-

(30)

690

Group

 

1,730

-

2

(34)

1,698

 

 

Operating profit

 

 

 

 

 

 

 

 

 

 

IFRS 15 IMPACT

 

 

 

 

AS REPORTED

PSU/PSI

MOB/DEMOB

RESTATED

 

 

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

 

 

  Industrial

 

 

55

17

1

73

  Utility

 

 

93

(17)

(6)

70

 

 

 

148

-

(5)

143

Rental Solutions

 

 

81

-

-

81

Group

 

 

229

-

(5)

224

 

Depreciation and amortisation

 

 

 

 

 

 

 

 

AS REPORTED

PSU/PSI

RESTATED

 

 

 

 

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

 

 

  Industrial

 

 

 

72

17

89

  Utility

 

 

 

132

(17)

115

 

 

 

 

204

-

204

Rental Solutions

 

 

 

96

-

96

Group

 

 

 

300

-

300

 

Capital expenditure on property, plant & equipment and intangible assets

 

 

 

 

 

AS REPORTED

PSU/PSI

RESTATED

 

 

 

 

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

 

 

  Industrial

 

 

 

55

8

63

  Utility

 

 

 

183

(8)

175

 

 

 

 

238

-

238

Rental Solutions

 

 

 

75

-

75

Group

 

 

 

313

-

313

 

 

 

14. SEGMENTAL DISCLOSURES: RECONCILIATION OF PREVIOUSLY REPORTED TO RESTATED RESULTS CONTINUED

 

Assets

 

 

 

 

 

 

 

 

 

 

 

IFRS  15 IMPACT

 

 

 

 

AS REPORTED

PSU/PSI

MOB/DEMOB

RESTATED

 

 

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

 

 

  Industrial

 

 

628

170

4

802

  Utility

 

 

1,109

(170)

4

943

 

 

 

1,737

-

8

1,745

Rental Solutions

 

 

765

-

-

765

Group

 

 

2,502

-

8

2,510

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

IFRS  15 IMPACT

 

 

 

 

AS REPORTED

PSU/PSI

MOB/DEMOB

RESTATED

 

 

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

 

 

  Industrial

 

 

(61)

(48)

(3)

(112)

  Utility

 

 

(263)

48

(9)

(224)

 

 

 

(324)

-

(12)

(336)

Rental Solutions

 

 

(100)

-

-

(100)

Group

 

 

(424)

-

(12)

(436)

 

Note: As well as a change in operating assets there is also a £1 million decrease in corporation tax payable.

 

Average number of employees

 

 

 

 

 

AS REPORTED

PSU/PSI

RESTATED

Power Solutions

 

 

 

 

 

 

  Industrial

 

 

 

1,380

454

1,834

  Utility

 

 

 

2,083

(454)

1,629

 

 

 

 

3,463

-

3,463

Rental Solutions

 

 

 

2,515

-

2,515

Group

 

 

 

5,978

-

5,978

 

NOTES:

 

1.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; its reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

2.

The Annual Report will be posted to all Shareholders on 22 March 2019 and will be available on request from the Secretary, Aggreko plc, 8th Floor, 120 Bothwell Street, Glasgow, G2 7JS.  The Annual General Meeting will be held in Glasgow on 25 April 2019. The Annual Report contains full details of the principal accounting policies adopted in the preparation of these financial statements.

 

 

3.

A final dividend of 17.74 pence per share will be recommended to Shareholders and, if approved, will be paid on 24 May 2019 to Shareholders on the register at 23 April 2019.

 

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The Annual Report for the year ended 31 December 2018, which will be published on 22 March 2019, complies with the Disclosure and Transparency Rules in respect of the requirement to produce an Annual Financial Report. The Directors confirm that to the best of their knowledge:

 

 

·      the consolidated financial statements contained in the Annual Report for the year ended 31 December 2018, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

 

·      the management report represented by the strategic report contained in the Annual Report for the year ended 31 December 2018 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that the Group faces.

 

By order of the Board

 

Chris Weston

Heath Drewett

Chief Executive Officer

Chief Financial Officer

 

 

6 March 2019

 

 

 


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