8th Mar 2007 07:02
Aggreko PLC08 March 2007 AGGREKO plc PRELIMINARY RESULTS FOR THE TWELVE MONTHS TO 31 DECEMBER 2006 Aggreko plc, the world leader in the supply of temporary power, temperaturecontrol and oil-free compressed air services, announces its preliminary resultsfor the twelve months to 31 December 2006. Financial Highlights: Movement pre-exceptional items 2006 post- 2006 pre- As Constant exceptional exceptional 2005 reported Currency items items Group revenue £540.7m £540.7m £417.7m 29.5% 30.7% Trading profit (1) £77.5m £86.7m £59.6m 45.5% 47.1% Profit before tax £73.9m £83.1m £56.4m 47.5% Earnings per share 17.41p 20.05p 13.81p 45.2% Dividend per share 6.72p 6.72p 6.11p 10.0% (1) Trading profit represents operating profit before gain on sale of property,plant and equipment. Operational Highlights: • Local business revenue, in constant currency, increased by 22% and trading profit by 47% - Doubled profits in Europe marks start of recovery - Strong demand in Middle East, Asia and Australia - Excellent performance in North America despite greatly reduced storm revenues • International Power Projects revenue, in constant currency and excluding pass-through fuel, increased by 46% and trading profit by 41%. - 37 new contracts signed in 2006 and many customers extending existing projects. - Strong momentum going into 2007, with very high levels of utilisation • Integration of GE Energy Rentals, acquired in December 2006, proceeding faster than expected. - Integration costs lower than forecast, and the businesses and assets acquired are likely to contribute to profits earlier than expected. - No material contribution to preliminary results as acquisition completed in December. Chairman of Aggreko, Philip Rogerson commented: "2006 was a very successful year for Aggreko, with record earnings and stronggrowth across all our businesses. The acquisition in December of GE EnergyRentals, one of our largest competitors, has materially strengthened Aggreko'sposition, and brings skilled people as well as a large amount of additionalrental fleet, which will help sustain our growth in the years ahead. Trading in the first few weeks of 2007 has been strong, and the integration ofGE Energy Rentals is running ahead of plan. Overall, if current trends continue,we anticipate a strong first half. For the year as a whole we expect to achievea material increase in profits compared to 2006, and to be ahead of currentmarket expectations." Rupert Soames, Chief Executive of Aggreko commented: "Aggreko has made excellent progress in 2006. Trading profits reached recordlevels, and returns on capital improved for the third year in a row. We grewrevenues in all our major markets and served customers in more than 90countries. North America and Aggreko International both performed extremelywell, and, after three difficult years, our European business delivered sharpimprovements in both revenue and profitability. We continued our strategy of investing to grow the scale and reach of thebusiness. Capital investment increased by 60% to £128.0 million, and we openednew service centres in Europe, the Middle East, South America and Asia. Theacquisition of GE Energy Rentals complemented this by adding further geographicreach, and also increased our rental fleet by about 30%." - ENDS - Enquiries to: Rupert Soames or Angus Cockburn Aggreko plc Tel. 0141 225 5900 Neil Bennett/Charlotte Barker Maitland Tel: 020 7379 5151 CHAIRMAN'S STATEMENT Introduction 2006 was a very successful year for Aggreko, with record earnings for the Groupand strong growth across all our businesses: North America and AggrekoInternational both performed extremely well, and, after three difficult years,our European business delivered sharp improvements in both revenue andprofitability. Additionally on 4 December 2006, Aggreko completed theacquisition of substantially all the activities of GE Energy Rentals, one of ourlargest competitors. This acquisition has materially strengthened Aggreko'sposition, and brings skilled people as well as a large amount of additionalfleet, which will help sustain our growth in the years ahead. Strategy Aggreko's strategy is to drive the growth of our core business of power,temperature control and oil-free compressed air rental in two ways: by organicgrowth, enabled by fleet investment and geographic expansion, and by judiciousacquisitions. We made good progress on both fronts in 2006. To drive organicgrowth, we increased capital investment in the year to £128.0 million (2005:£80.2 million), the equivalent of 1.8 times depreciation, and we opened newservice centres in Dubai, Hong Kong, Doncaster, Manaus in Brazil and Moerdijk inthe Netherlands. The acquisition of GE Energy Rentals complemented this byadding further geographic reach, with new service centres being added to ournetwork in Europe, North, Central & South America, and also increased our rentalfleet size by about 30%. Trading As the acquisition of GE Energy Rentals was completed only a few weeks beforethe year end, it did not have a material impact on the year's trading results. Reported revenue at £540.7 million (2005: £417.7 million) was 29.5% higher than2005 while revenue in constant currency(1) and excluding pass-through fuel(2)from our contracts in Sri Lanka and Uganda increased by 27.1%. Profit before tax and exceptional items increased by 47.5% to £83.1 million(2005: £56.4 million); earnings per share pre-exceptional items increased by45.2% to 20.05 pence (2005: 13.81 pence). An exceptional charge of £9.2 millionbefore tax, £7.0 million after tax, was recorded in respect of the GE EnergyRentals acquisition. Net of this exceptional item, earnings per share were 17.41pence. Net debt increased to £205.2 million (2005: £102.9 million), largely as a resultof the GE Energy Rentals acquisition and increased capital expenditure. Around90% of this capital investment was spent on our rental fleet to support thestrong growth in the business. Looking ahead we estimate that fleet capitalinvestment in 2007 will be around £140 million. (1) Constant currency takes account of the impact of translational exchange movements in respect of our businesses which operate in currency other than sterling. (2) Pass-through fuel revenue relates to two contracts in Sri Lanka and Uganda in our International Projects business where we provide fuel on a pass-through basis. Dividend Aggreko's financial position remains strong as measured by interest cover of13.9 times (2005: 14.1 times). With this in mind, the Board is recommending afinal dividend of 4.19 pence per ordinary share which, when added to the interimdividend of 2.53 pence, gives a total for the year of 6.72 pence, a 10.0%increase on 2005. At this level, the dividend would be covered 2.98 times.Subject to approval by shareholders, the final dividend will be paid on 18 May2007 to ordinary shareholders on the register as at 20 April 2007, with anex-dividend date of 18 April 2007. Employees 2006 was an extremely busy year, during which employees have had to manage thepressure caused by the businesses' rapid growth; many of them have also beeninvolved in the preparation, planning and execution of our acquisition of GEEnergy Rentals. I would like to record my, and the whole Board's, thanks to allour colleagues for their hard work, dedication and commitment to deliveringfirst-class customer service, often in difficult circumstances. I would alsolike to welcome those employees of GE Energy Rentals who have joined Aggreko,and who have risen to the challenge of adapting quickly to a new environment. Update on the integration of GE Energy Rentals The integration of the GE Energy Rentals business is going well and we havesecured many of the cost savings faster than we expected; by way of example, wecompleted the planned 25 property exits (out of 33 properties occupied at thetime of the acquisition) by mid-February. Agreements we reached with GEconcerning the re-deployment of people and a number of other mitigating actionshave also significantly reduced the exceptional costs related to theacquisition; as a consequence, we are taking an exceptional charge of £9.2million in 2006, against £16 million estimated at the time of the announcementof the acquisition in September 2006. Our ability to achieve planned levels ofutilisation from the GE Energy Rentals fleet in the short term will be dependentupon demand during the summer season, but the good progress we have made on theintegration leads us to believe that the businesses and assets we have acquiredwill contribute to profits in 2007, rather than being earnings neutral asoriginally expected. Outlook for 2007 Aggreko is a business in which the flow of events can have a powerful influenceon short-term performance, so it is always difficult at this early stage topredict the year's performance. However, trading in the first few weeks has beenstrong, and the integration of GE Energy Rentals is running ahead of plan.Overall, if current trends continue, we anticipate a strong first half. For theyear as a whole we expect to achieve a material increase in profits compared to2006, and to be ahead of current market expectations. We are carefully monitoring economic conditions in North America, where we aregetting mixed signals from the various economic indicators we follow. On anunderlying basis, the business is still growing, albeit at a slower rate than in2006. While the business is highly seasonal, and makes a high proportion of itsprofits in the summer months, at this stage we believe that we will makeprogress during 2007. Our performance in Europe during the second half of 2006 was encouraging andthis momentum has continued into the first weeks of 2007. We expect thisbusiness to continue its recovery and to increase revenues and improve marginsin 2007. The strong demand we have seen in Aggreko International over the last few yearscontinues unabated. In the Local business we have had a strong summer season inAustralia, and our operations in Asia, South America and the Middle East areperforming well. The International Power Projects business has had a good startto the year, with very high levels of utilisation on a fleet that is materiallylarger than last year. We anticipate that this business will deliver anotherstrong performance in 2007. Philip G RogersonChairman8 March 2007 REVIEW OF TRADING Group Trading Performance Aggreko has made excellent progress on many fronts in 2006. Trading profitsreached record levels, and returns on capital grew strongly. We grew revenues inall our major markets, and at a rate which we believe in aggregate to have beenfaster than the market; in the year, we did business in more than 90 countries.We have developed our core product range, and won a major contract for our newgas-fuelled temporary power solution. In December 2006, we achieved a long-held ambition of acquiring one of ourlargest competitors, GE Energy Rentals. Although this transaction came too latein the year to have a material impact on performance in 2006, we believe thatthe people, customers and rental assets acquired will help sustain the futuregrowth of Aggreko. An exceptional charge of £9.2 million before tax, £7.0million after tax, was recorded in respect of the GE Energy Rentals acquisition. The results pre- and post- this charge are set out in the table below, but thecommentary relates to the results before these exceptional charges unlessotherwise stated. There were no exceptional items in 2005. 2006 2006 Post- Pre- exceptional exceptional items items 2005 Movement As Const £ million £ million £ million reported currency Revenue 540.7 540.7 417.7 29.5% 30.7% Revenue excl pass-through fuel 497.3 497.3 394.9 25.9% 27.1% Trading profit (1) 77.5 86.7 59.6 45.5% 47.1% Operating profit 80.3 89.5 60.7 47.6% 49.2% Net interest expense (6.4) (6.4) (4.3) (49.4)% Profit before tax 73.9 83.1 56.4 47.5% Taxation (27.7) (29.9) (19.7) (51.7)% Profit after tax 46.2 53.2 36.7 45.2% Basic earnings per share (pence) 17.41 20.05 13.81 45.2% (1) Trading profit represents operating profit before gain on sale of property,plant and equipment. As reported, Group revenue at £540.7 million (2005: £417.7 million) was 29.5%higher than 2005, while Group trading profit of £86.7 million (2005: £59.6million) was 45.5% ahead of 2005. This resulted in an increase in Group tradingmargin from 14.3% in 2005 to 16.0% in 2006. Return on capital employed, measuredas operating profit divided by average net operating assets, improved to 22.1%(2005: 18.6%). Group profit before tax increased by 47.5% to £83.1 million (2005: £56.4million); profit after tax was £53.2 million (2005: £36.7 million), up 45.2%.Earnings per share grew 45.2% to 20.05 pence (2005: 13.81 pence). The impact of currency movements - mainly the US dollar exchange rate - has beento decrease revenue by £3.8 million and trading profit by £0.6 million. TheGroup has contracts with two customers (Sri Lanka and Uganda) to whom itsupplies large amounts of fuel on a pass-through basis; as these revenues arehighly variable, and dependent on consumption and the prevailing fuel price, wenormally exclude these revenues when measuring the operating performance of thebusiness. In 2006 pass-through fuel revenues amounted to £43.4 million (2005:£22.8 million) and generated a trading profit of £1.6 million (2005: £0.5million). On an underlying basis, excluding the impact of the currency movementsand the pass-through fuel, Group revenue grew by 27.1% (as reported: 29.5%) andtrading profit by 45.6% (as reported: 45.5%). On the same basis trading marginwas 17.1% (as reported: 16.0%) which compares with 15.0% in 2005 (as reported:14.3%). The Group's growth was made possible by sharply increased investment in newfleet during the year. Total capital expenditure for the year was £128.0 million, £47.8 million up on the prior year, at which level it represented 176% of thedepreciation charge. £114.1 million (2005: £73.7 million) was investment in newfleet. In addition we acquired £33.1 million of property, plant and equipment aspart of the GE Energy Rentals acquisition. Notwithstanding this substantialincrease in fleet capacity, the ratio of revenue (excluding pass-through fuel) :gross rental assets, which is a key measure of capital efficiency, increased by6 percentage points to 72.0%. EBITDA (earnings before interest, taxes, depreciation and amortisation) for theyear amounted to £162.8 million (pre-exceptional items), up 31.3% on 2005. TheGroup had a net cash outflow of £102.3 million (2005: £20.8 million) mainly as aconsequence of the GE Energy Rentals acquisition and the high level of capitalexpenditure. It is encouraging to note that the measures we track related toworking capital efficiency (principally revenue : debtors and revenue :inventories) improved in the year, notwithstanding the very considerableincrease in transaction volumes. In September, we re-financed our existing debt facilities to raise additionalfunding for the acquisition of GE Energy Rentals business. The new facilities,amounting to c£370 million in total, are in the form of bilateral multi-currencyagreements, with maturities of either 3 or 5 years. The key financial covenantsare unchanged from the previous arrangements. The acquisition of GE-Energy Rentals On 4 December 2006, Aggreko completed the acquisition of substantially all theactivities (other than those relating to large gas turbines) of GE EnergyRentals for an initial consideration (including transaction fees) of US$192.1million. Deferred consideration, up to a maximum of $29.4 million, will bepayable during 2007 dependent on GE delivering further fleet assets to Aggreko. The integration of the acquired businesses is going well and we have securedmany of the cost savings faster than we expected; by way of example, wecompleted the planned 25 property exits (out of 33 properties occupied at thetime of the acquisition) by mid-February. Agreements we reached with GEconcerning the re-deployment of people and a number of other mitigating actionshave also significantly reduced the exceptional costs related to theacquisition; as a consequence, we are taking an exceptional charge of £9.2million in 2006, £7.0 million after tax, against £16 million pre-tax estimatedat the time of the announcement of the acquisition in September 2006. Ourability to achieve planned levels of utilisation from the GE Energy Rentalsfleet in the short term will be dependent upon demand during the summer season,but the good progress we have made on the integration leads us to believe thatthe businesses and assets we have acquired will contribute to profits in 2007,rather than being earnings neutral as originally expected. Regional Trading Performance Revenue Trading Profit Management Group Geography / 2006 2005 Change 2006 2005 Change Line of £ £ % £ £ % business million million million million Local Business North America USA & Canada 159.0 141.7 12.2% 33.8 26.5 27.5% Europe Northern 70.2 58.7 19.7% 5.6 4.5 24.9% Europe Europe Continental 65.5 55.9 17.1% 5.3 0.9 465.5% Europe Aggreko International: Middle East, 77.6 52.0 49.1% 15.7 9.5 67.0% Local Asia-Pacific, Businesses South America Sub-total Local Business 372.3 308.3 20.8% 60.4 41.4 46.0% International Power Projects International International 125.0 86.6 44.3% 24.7 17.7 39.4% Power Projects excl fuel International Pass-through 43.4 22.8 1.6 0.5 fuel Sub-total International Power Projects 168.4 109.4 54.0% 26.3 18.2 44.4% Group 540.7 417.7 29.5% 86.7 59.6 45.5% North America 159.0 141.7 12.2% 33.8 26.5 27.5% Europe 135.7 114.6 18.4% 10.9 5.4 100.1% International 246.0 161.4 52.4% 42.0 27.7 52.2% Group 540.7 417.7 29.5% 86.7 59.6 45.5% Group excluding 497.3 394.9 25.9% 85.1 59.1 44.0% fuel The performance of each of these regions is described below: Local Business: North America 2006 2005 Change % $million $million % Revenue 293.1 257.6 13.8% Trading profit 62.3 48.2 29.2% Our Local business in North America had an excellent year with revenueincreasing 13.8% to $293.1 million and trading profit increasing by 29.2% to$62.3 million. Trading margin increased by 2.6 percentage points to 21.3%. On anunderlying basis, the performance was even better: in 2006 no major hurricanesmade landfall in the United States, and storm-related revenues amounted to $8million, compared with 2005 when $32 million of revenues and $16 million oftrading profit came from emergency and reconstruction work following HurricanesKatrina and Rita. Excluding the impact from the storms, North American revenuesin 2006 grew by 26.6% and trading profit by 81.9%. This growth has been theresult of our investment in new fleet and the continued productivityimprovements delivered by our new area structure. Encouragingly, revenue growthwas broadly based, covering multiple sectors and geographies. In terms of business mix, rental revenue grew 18.9% and services revenue grew3.3%. The slower growth in services revenues (which comprise services ancillaryto the rental such as fuel, transport and engineering) reflects the lack ofstorm-related work, which typically generates large amounts of services revenue.Power rental revenue for 2006 was 32.7% ahead of prior year. Temperature controland oil-free air rental revenue grew during 2006 by 11.2% and 5.0% respectively. The main challenge facing the North American business in 2007 is putting to workthe 45% increase in generating capacity now available for rent as a consequenceof the GE Energy Rentals acquisition. Considerable effort is being devoted togetting the equipment re-branded and serviced in time for the summer season. We are carefully monitoring economic conditions in North America, as we aregetting mixed signals from the various economic indicators we follow. On anunderlying basis, the business is still growing, albeit at a slower rate than in2006. While the business is highly seasonal, and makes a high proportion of itsprofits in the summer months, at this stage we believe that we will makeprogress during 2007. Local business: Europe Revenue 2006 2005 Change % •million •million % Northern Europe 102.9 85.8 20.0% Continental Europe 96.1 81.8 17.4% Total Europe 199.0 167.6 18.7% Trading Profit 2006 2005 Change % •million •million % Northern Europe 8.3 6.6 25.2% Continental Europe 7.7 1.4 467.1% Total Europe 16.0 8.0 100.6% For the past three years, Europe has been the poorest-performing of our regions.A combination of a difficult restructuring programme in 2004 and 2005, pooreconomic growth resulting in subdued demand, as well as fierce competition haveserved to hold the business back. However, we feel that 2006 has seen a turningpoint in the European business. A combination of reductions in the overhead costbase, combined with strong revenue growth, led to a sharp improvement inperformance: revenue grew by 18.7% and trading profit doubled to €16.0 million.Trading margin increased from 4.7% in 2005 to 8.0% in 2006. This performance isflattered by the impact of the €2.4 million one-off restructuring charge takenin 2005 in Continental Europe; on an underlying basis trading profit increasedby 104.9% in Continental Europe and by 54.1% for the region as a whole. Revenue in Northern Europe (which comprises our businesses in the UK, Irelandand the Nordic countries) was 20.0% ahead of the prior year at €102.9 millionwith trading profit of €8.3 million being 25.2% ahead of 2005. Rental revenueincreased by 11.9%, with power and temperature control revenue increasing by12.7% and 10.0% respectively. Revenue from our smallest product, oil-free air,increased by 7.3%. Services revenue, which mainly comprises fuel and transport,grew by 35.5%. Revenue in Continental Europe was 17.4% ahead of 2005 at €96.1 million withtrading profit of €7.7 million being €6.3 million ahead of last year, resultingin an improvement in trading margin from 1.7% in 2005 to 8.0% in 2006. Rentalrevenue grew by 10.4%, while services revenue grew by 32.2%. Within rentalrevenue, power increased by 14.1%, temperature control increased by 9.3% andoil-free air decreased by 19.0%. During 2006 we completed the roll-out of the ERP system in the UK, a processthat went smoothly despite the very high transactional volumes in this business.The focus across the European business is now on driving operationalimprovements and efficiency in order to grow revenues and margins. Returns and margins in Europe are yet to reach satisfactory levels but themomentum is in the right direction, and the business is beginning to show thebenefits of the enormous changes which have been implemented over the last threeyears. In 2007, the business will also have access to the fleet and customerbase of GE Energy Rentals, which should provide additional opportunities forgrowth. Overall, we expect to see further progress from this region in the yearahead. Local Business: Aggreko International 2006 2005 Change % $million $million % Revenue 143.0 94.6 51.2% Trading profit 29.0 17.1 69.4% Aggreko International's Local businesses in the Middle East, Asia, Australia,New Zealand and South America all performed extremely well in 2006, supported byhigh levels of fleet investment. In aggregate, year on year revenue grew by51.2% to $143.0 million, which resulted in trading profit growth of 69.4% to$29.0 million and a trading margin of 20.3% as against 18.1% in 2005. Our Local business in the Middle East operates from 9 depots across the region,including a large new facility opened in 2006 in Jebel Ali which will enable usto offer improved service to our customers in the United Arab Emirates. Acrossthe Middle East as a whole, activity levels are high and are supported by alarge number of infrastructure projects. Although power is by far the strongestproduct in the Middle East, we are now starting to make encouraging progress intemperature control, which should, in time, provide opportunities to widen thebusiness's customer base and provide additional opportunities for growth. Our Australian business had an outstanding year with both power and temperaturecontrol revenues benefiting from a strong economy and a buoyant mining sector.An encouraging performance from our New Zealand business, as well as high levelsof utility work also contributed to a strong year. In Asia, we continued toexperience strong growth in Singapore where shipping and shipyard activitycontinued at high levels. We opened a new depot in Hong Kong during the firstquarter of 2006, and a new depot in Shanghai in January 2007; both theseoperations have been established to help us to explore opportunities for Aggrekoin China. Our Local business in Brazil continued to grow strongly as it buildsits business with major oil-field operators. Three years after the establishmentof our service centre in Macae, north of Rio de Janiero, the business is growingstrongly and producing good returns on capital; we also established in the yeara new service centre in Manaus. The acquisition of GE Energy Rentals has strengthened Aggreko International'sLocal businesses significantly. In South America, the addition of four newdepots in Brazil and Chile has transformed our position in the region; it willgive the business better reach and provide a platform for growth, as well asbeing a "shop window" for our power projects business. In the Middle East andAsia, the additional fleet is being re-branded and has increased our capacity.In Australia, the gas-fuelled fleet acquired from GE Energy Rentals will enableus to develop this important market segment. Given the favourable market conditions across Aggreko International's Localbusinesses, and the opportunities provided by the acquisition of GE EnergyRentals, we expect to make continued progress in this segment in 2007. International Power Projects : Aggreko International 2006 2005 Change % $million $million % Revenue (excluding pass-through fuel) 230.5 157.5 46.3% Trading profit (excluding pass-through 45.6 32.3 41.4% fuel) Building on the progress made in 2005, the International Power Projects businesshad an outstanding year, with revenues and profits (excluding pass-through fuel)increasing by 46.3% and 41.4% respectively. Trading margin declined slightlyfrom 20.5% in 2005 to 19.8% in 2006. Revenue growth was driven in part by new contracts, of which we signed 37 in theyear, and in part by the very high proportion of customers extending existingprojects, which is a tribute to the quality of service delivered by ouroperations teams in the power projects business. Revenues grew in nearly allareas, including the Middle East, Africa, Asia and South America. In 2006 wecarried out power projects in a total of 48 countries, and increased the numberof operational projects by 20%. Our African business delivered impressive growth. Much of this growth wasfocussed on supporting utilities in East Africa, where severe droughts havereduced output from hydro-power plants. Aggreko has been able to help theauthorities to mitigate the impact of severe power shortfalls in Kenya, Uganda,Rwanda and Tanzania. The business ran power projects in a further 17 countriesin Africa, underlining the very considerable presence we have established in thecontinent. Of great significance for the Group's strategy of developingsolutions based on gas, was the award of a two-year contract to supply 40 MW inTanzania. This plant was generating power within 12 weeks of contract signature,which underlines the flexibility and operational excellence of our gas solution. Demand was also strong in the Middle East: military revenues grew to $59.6million (2005: $47.3 million), and utility revenues were boosted by two 50MWcontracts in the Yemen. Our Asian projects business also performed well withcontracts in Malaysia, Indonesia and South Korea - most of these were related tooil and gas projects. Our South American business continued to develop duringthe year with on-going contracts in Brazil and Venezuela and our first contractfor the mining industry in Chile. Our International Power Projects business performed extremely well in 2006 andits ability to manage rapid growth while maintaining excellent customer service,sometimes in very demanding conditions, is testament to the strength of theAggreko International team. Given the high level of utilisation at the end of2006, and the strong pipeline of new opportunities, we expect the business tocontinue to make good progress in 2007. DETAILED FINANCIAL REVIEW Critical Accounting Policies The Group's significant accounting policies are set out in Note 1 to thefinancial statements. Preparation of the consolidated financial statements requires Directors to makeestimates and assumptions that affect the reported amounts in the consolidatedfinancial statements and accompanying notes. Actual outcomes could differ fromthose estimated. The Directors believe that the accounting policies discussed below representthose accounting policies that require the greatest exercise of judgement. TheDirectors have used their best judgement in determining the estimates andassumptions used in these areas but a different set of judgements could resultin material changes to our reported results. The discussion below should be readin conjunction with the full statement of accounting policies, set out in Note 1to the Financial Statements. Pensions Pension arrangements for our employees vary depending on best practice andregulation in each country. The Group operates a defined benefit scheme for UKemployees, which was closed to new employees joining the group after 1 April2002; most of the other schemes in operation around the world are varieties ofdefined contribution schemes. Under IAS 19: 'Employee Benefits' Aggreko has recognised a pre tax pensiondeficit of £13.1 million at 31 December 2006 (2005: £16.8 million). The decreasein the pension deficit is mainly as a result of additional contributions made bythe Company during the year. Following the completion of the actuarial valuationat 31 December 2005, the Company and trustees agreed upon a Schedule ofContributions and a Recovery Plan. During 2006 the Company contributions forbenefits building up in the future were increased to 31.5% of pensionableearnings and from 1 January 2007 the Company contributions will be 25.4% ofpensionable earnings. From 1 January 2007 future benefits will be accrued on aCareer Average basis hence the change to the required contribution rate. Toaddress the Scheme deficit the Company made an additional contribution of £3.5million in 2006 and plans to make additional contributions of £4.0 million in2007, £4.0 million in 2008 and £0.5 million per annum until December 2015.Employee contributions will increase to 6% from 1 January 2007. The main assumptions used in IAS 19 valuation for the previous two years areshown in note 28 of the Accounts. The sensitivities regarding the discount rateand longevity assumptions are shown in the table below. Indicative effect on the Assumptions Change in assumption scheme's liabilities Discount rate Increase / decrease by Decrease by 13.6% / 0.5pp increase by 16.0% Longevity Increase by 1 Year Increase by 2.7% Taxation Aggreko's tax charge is based on the profit for the year and tax rates in forceat the balance sheet date. Estimation of the tax charge requires an assessmentto be made of the potential tax treatment of certain items which will only beresolved once finally agreed with the relevant tax authorities. Property, plant and equipment Rental fleet accounts for 88% (£312 million) of the net asset value of property,plant and equipment used in our business; equipment in the rental fleet istypically depreciated over a period between 8 and 10 years. The annualdepreciation charge is sensitive to the estimated service lives allocated toeach class of asset. Asset lives are reviewed regularly and changed if necessaryto reflect current thinking on their remaining lives in light of technologicalchange, prospective economic utilisation and the physical condition of theassets. Intangible assets In accordance with IFRS 3 'Business Combinations' goodwill arising onacquisition of assets and subsidiaries is capitalised and included in intangibleassets. IFRS 3 also requires the identification of other acquired intangibleassets. The techniques used to value these intangible assets are in line withrecognised models but do require the use of estimates which may differ fromactual outcomes. Future results are impacted by the amortisation period adoptedfor these items and, potentially, by any differences between estimated andactual circumstances related to individual intangible assets. Goodwill is not amortised but is tested annually for impairment and carried atcost less accumulated impairment losses. The impairment review calculationsrequire the use of estimates related to the future profitability and cashgenerating ability of the acquired assets. Currency Translation The net overall impact of exchange rates on currency translation in 2006 was todecrease revenue and operating profit by £3.8 million and £0.6 millionrespectively. Currency translation also gave rise to a £20.5 million decrease inreserves as a result of year on year movements in the exchange rates. Set out inTable 2 are the principal exchange rates affecting the Group's overseas profitsand net assets. Table 2 2006 2005 (per £ sterling) Average Year End Average Year End Principal Exchange Rates United States dollar 1.84 1.96 1.82 1.72 Euro 1.47 1.49 1.46 1.46 Other Operational Exchange Rates UAE Dirhams 6.77 7.20 6.68 6.32 Australian dollar 2.45 2.49 2.39 2.35 (Source: Reuters) Exceptional items The definition of exceptional items is contained within Note 1 to theconsolidated financial statements. An exceptional charge of £9.2 million beforetax, £7.0 million after tax, was recorded in respect of the GE Energy Rentalsacquisition comprising integration costs, redundancy and related costs, propertyand other costs. Interest The net interest charge for the year was £6.4 million, an increase of £2.1million on 2005, reflecting the higher level of net debt during the year.Interest cover decreased to 13.9 times (pre-exceptional items) from 14.1 timesin 2005. Effective Tax Rate The effective tax rate for the full year is 36.0% as compared with 35.0% in2005. This increase in the tax rate largely reflects the changes in the regionalmix of profits. Dividends If the proposed final dividend of 4.19 pence is agreed by shareholders, it wouldresult in a full-year dividend of 6.72 pence per ordinary share, giving dividendcover (pre-exceptional items) of 2.98 times (2005: 2.26 times). Cashflow The net cash inflow from operations during the year totalled £160.2 million(2005: £101.9 million). This funded capital expenditure of £128.0 million, whichwas £47.8 million higher than in 2005. Net debt increased by £102.3 millionduring the year to £205.2 million mainly as a result of the GE Energy Rentalsacquisition and increased capital investment. As a result of the increase in netdebt, gearing (net debt as a percentage of equity) at 31 December 2006 increasedto 91% from 49% at 31 December 2005. Net Operating Assets The net operating assets of the Group (including goodwill) at 31 December 2006totalled £470.0 million, up £113.5 million on 2005; £95.1 million of thisincrease was accounted for by the acquisition of assets from GE Energy Rentals.The main components of Net Operating Assets are:- £ million 2006 2005 Movement Rental Fleet 312.1 259.7 20.2% Property, Plant 41.7 35.2 18.5% Inventory 41.5 35.7 16.2% Net Trade Debtors 95.6 87.5 9.3% A key measure of Aggreko's performance is the return (expressed as operatingprofit) generated from average net operating assets (ROCE). We calculate theaverage net operating assets for a period by taking the average of the netoperating assets as at 1 January, 30 June and 31 December; this is the basis onwhich we report our calculations of Return on Capital Employed (ROCE). Theaverage net operating assets in 2006 were £403.2 million, up 24.0% on 2005. In2006 the ROCE increased to 22.1% compared with 18.6% in 2005. A geographic analysis of our returns on net operating assets is set out in thetable below: 2006 2005 Europe 9.7% 5.4% International 25.1% 21.7% North America 30.3% 29.9% Group 22.1% 18.6% Acquisition of GE Energy Rentals On 4 December 2006 the Group acquired the entire share capital of GE EnergyRentals Inc and the entire share capital of GE Energy do Brasil Ltda as well assubstantially all the other trade and assets of GE Energy Rentals (excludingthose relating to gas turbines). The maximum consideration payable is £112.0million and the fair value of net assets acquired is £65.3 million resulting ingoodwill of £46.7 million. The initial purchase consideration for thisacquisition (including transaction fees) was $192.1 million, or £97.1 million atan exchange rate of £=$1.98 with a further payment of up to $29.4 million (£14.9million) dependent on the delivery by GE of additional fleet assets during 2007. Shareholders' Equity Shareholders' equity increased by £18.0 million to £226.2 million, representedby the net assets of the Group of £431.4 million before net debt of £205.2million. The movements in shareholders' funds are analysed in the below: Movements in Shareholders' Equity £ million £ million As at 1 January 2006 208.2 Profit for the financial year 46.2 Dividend (1) (16.7) ----------- Retained earnings 29.5 New share capital subscribed 0.5 Purchase of own shares held under trust (2.6) Credit in respect of employee share awards 4.1 Actuarial gains on retirement benefits 1.5 Currency translation difference (20.5) Other (2) 5.5 ------------ As at 31 December 2006 226.2 ------------ (1) Reflects the final dividend for 2005 of 3.77 pence per share (2005: 3.57pence) and the interim dividend for 2006 of 2.53 pence per share (2005: 2.34pence) that were paid during the year. (2) Other includes tax on items taken directly to reserves and movements in thehedging reserve. The £53.2 million of pre-exceptional post-tax profit in the year represents areturn of 23.5% on shareholders' equity. The post-tax and post-exceptional itemsreturn was 20.4%. Treasury The Group's operations expose it to a variety of financial risks that includeliquidity, the effects of changes in foreign currency exchange rates andinterest rates, and credit risk. The Group has a centralised treasury operationwhose primary role is to ensure that adequate liquidity is available to meet theGroup's funding requirements as they arise, and that financial risk arising fromthe Group's underlying operations is effectively identified and managed. The treasury operations are conducted in accordance with policies and proceduresapproved by the Board and are reviewed annually. Financial instruments are onlyexecuted for the purpose of hedging known exposures, and transactions that arespeculative in nature are expressly forbidden. Monthly reports on treasuryoperations are provided to senior management and treasury operations are subjectto periodic internal and external review. Liquidity and funding The Group maintains sufficient facilities to meet its normal fundingrequirements over the medium term. These facilities are primarily in the form ofbank facilities arranged on a bilateral basis with a number of internationalbanks. The financial covenants attached to these facilities are that operatingprofit should be no less than 3x interest, and net debt should be no more than3x EBITDA. The Group does not consider that these covenants are restrictive to itsoperations. The Group's borrowings were £218.2 million at 31 December 2006 andnet debt amounted to £205.2 million. At that date un-drawn committed facilitieswere £152.9 million. Interest rate risk The Group's policy is to minimise the exposure to interest rates by ensuring anappropriate balance of fixed and floating rates. The Group's primary funding isat floating rates through its bank facilities. In order to manage the associatedinterest rate risk, the Group uses interest rate swaps to vary the mix of fixedand floating rates. At 31 December 2006 £121.0 million of the net debt of £205.2million was at fixed rates of interest resulting in a fixed to floating rate netdebt ratio of 59:41. Foreign exchange risk The Group is subject to currency exposure on the translation of its netinvestments in overseas subsidiaries into sterling. In order to reduce thecurrency risk arising, the Group uses direct borrowings in the same currency asthose investments. Group borrowings are currently drawn down in the principalcurrencies used by the Group, namely US Dollar, Euro and Sterling. The Group manages its currency flows to minimise foreign exchange risk arisingon transactions denominated in foreign currencies and uses forward contractswhere appropriate in order to hedge net currency flows. Counterparty and credit risk Cash deposits and other financial instruments give rise to credit risk onamounts due from counterparties. The Group manages this risk by limiting theaggregate amounts and their duration depending on external credit ratings of therelevant counterparty. In the case of financial assets exposed to credit risk,the carrying amount in the balance sheet, net of any applicable provision forloss, represents the amount exposed to credit risk. Management of trade debtors The management of trade debtors is the responsibility of the operating units,although they report monthly to Group on debtor days, debtor ageing andsignificant outstanding debts. Many of the International Power Projectscontracts require sophisticated risk management, and the Group deploys a numberof tools to manage its risk, including advanced payments, letters of credit,bank guarantees, bonds, and insurances. On large contracts, all sucharrangements are approved at Group level. Insurance The Group operates a policy of buying cover where possible for material risksfrom the global insurance market, while self-insuring risks which would not havea material impact on the Group as a whole. The Group monitors its insurancearrangements in such a way to ensure the quality and extent of cover. Auditors During the year, the Company carried out a competitive tender in relation to theprovision of external audit services. Following the outcome of this exercise theBoard, on the recommendation of the Audit Committee, will propose a resolutionre-appointing PricewaterhouseCoopers LLP as the Company's auditors at the nextAnnual General Meeting. Shareholder information Our website can be accessed at www.aggreko.com. This contains a large amount ofinformation about our business, including a range of charts and data, which canbe down loaded for easy analysis. The website also carries copies of recentinvestor presentations, as well as Stock Exchange announcements. Rupert Soames Angus Cockburn Chief Executive Finance Director 8 March 2007 Group Income Statementfor the year ended 31 December 2006 Notes Total before Exceptional exceptional Items Items (Note 2) 2006 2006 2006 2005 £ £ £ £ million million million million Revenue 1 540.7 - 540.7 417.7 Cost of sales (263.8) (0.3) (264.1) (207.9) ------------------------------------------------Gross Profit 276.9 (0.3) 276.6 209.8 Distribution costs (131.4) (1.2) (132.6) (108.9) Administrative expenses (58.8) (7.7) (66.5) (41.3) Other income 2.8 - 2.8 1.1 ------------------------------------------------Operating profit 1 89.5 (9.2) 80.3 60.7 Finance costs - Interest expense (7.2) - (7.2) (4.8) - Interest income 0.8 - 0.8 0.5 ------------------------------------------------Profit before taxation 83.1 (9.2) 73.9 56.4 Taxation: 3 ------------------------------------------------- UK (6.1) 0.7 (5.4) (6.1) - Overseas (23.8) 1.5 (22.3) (13.6) ------------------------------------------------Profit for the year 53.2 (7.0) 46.2 36.7 ================================================ Dividends paid in the 4 (16.7) - (16.7) (15.7) year ------------------------------------------------ Dividends per share 4 6.30 5.91 (pence) ------------------------------------------------Earnings per share Basic 5 20.05 (2.64) 17.41 13.81 ------------------------------------------------ ------------------------------------------------Diluted 5 19.87 (2.62) 17.25 13.72 ------------------------------------------------ The above results relate to continuing operations and all profit for the periodis attributable to equity shareholders of the Company. Group Statement of Recognised Income and Expensefor the year ended 31 December 2006 2006 2005 £ £ million million Profit for the year 46.2 36.7 Actuarial gains/(losses) on retirement benefits 1.5 (7.9) Movement of deferred tax on pension liability (0.4) 2.4 Cashflow hedges (net of deferred tax) 1.2 (0.6) Net exchange (losses)/gains offset in reserves (20.5) 14.1 --------------------Total recognised income for the year 28.0 44.7 Prior year adjustment for implementation of IAS 39 - 0.6 --------------------Total recognised income since last annual Accounts 28.0 45.3 ==================== Group Balance Sheetas at 31 December 2006 Notes 2006 2005 £ £ million million Non-current assets Goodwill 46.9 - Intangible assets 7 11.5 1.5 Property, plant and equipment 8 353.8 294.9 Financial assets - derivative financial 1.1 0.7 instruments Deferred tax asset 14 1.0 0.4 ----------------------------- 414.3 297.5 -----------------------------Current assets Inventories 9 41.5 35.7 Trade and other receivables 10 153.2 114.0 Financial assets - derivative financial 0.9 0.1 instruments Cash and cash equivalents 13.0 8.3 Current tax assets 1.3 1.6 ----------------------------- 209.9 159.7 ----------------------------- Total assets 624.2 457.2 ----------------------------- Current liabilities Financial liabilities - Borrowings 11 (10.3) (9.5) - Derivative financial instruments - (0.6) Trade and other payables 12 (141.4) (93.7) Current tax liabilities (9.4) (10.4) Provisions 13 (5.9) (0.8) ----------------------------- (167.0) (115.0) ----------------------------- Non-current liabilities Financial liabilities - Borrowings 11 (207.9) (101.7) - Derivative financial instruments (0.3) (0.2) Deferred tax liabilities 14 (9.4) (14.2) Retirement benefit obligation (13.1) (16.8) Provisions 13 (0.3) (1.1) ----------------------------- (231.0) (134.0) ----------------------------- Total liabilities (398.0) (249.0) ----------------------------- Net assets 226.2 208.2 ============================= Shareholders' equity Share capital 15 53.9 53.8 Share premium 17 7.2 6.8 Treasury shares 16 (9.1) (6.5) Capital redemption reserve 17 0.1 0.1 Hedging reserve (net of deferred tax) 17 1.2 - Foreign exchange reserve 17 (25.7) (6.5) Retained earnings 17 198.6 160.5 -----------------------------Total shareholders' equity 226.2 208.2 ============================= The financial statements on pages x to x were approved by the Board of Directorson 8 March 2007 and were signed on its behalf by: P G Rogerson A G CockburnChairman Finance Director Group Cash Flow Statementfor the year ended 31 December 2006 Notes 2006 2005 £ £ million million Cash flows from operating activities Cash generated from operations (i) 160.2 101.9 Tax paid (26.2) (18.3) -------------------------------Net cash generated from operating activities 134.0 83.6 ------------------------------- Cash flows from investing activities Acquisitions (net of cash acquired) (95.8) - Purchases of property, plant and equipment (PPE) (128.0) (80.1) Proceeds from sale of PPE 4.7 3.8 Purchase of intangible assets - (0.1) -------------------------------Net cash used in investing activities (219.1) (76.4) ------------------------------- Cash flows from financing activities Net proceeds from issue of ordinary shares 0.5 1.0 Increase in long term loans 157.5 31.5 Repayment of long term loans (43.7) (19.0) Net movement in short term loans 0.1 3.4 Interest received 0.8 0.5 Interest paid (6.8) (4.6) Dividends paid to shareholders (16.7) (15.7) Purchase of treasury shares (2.6) (3.2) -------------------------------Net cash used in financing activities 89.1 (6.1) Net increase in cash and cash equivalents 4.0 1.1 Cash and cash equivalents at beginning of the year 6.0 4.9 -------------------------------Cash and cash equivalents at end of the year 10.0 6.0 ------------------------------- Reconciliation of net cash flow to movement in net debt for the year ended 31 December 2006 Increase in cash and cash equivalents 4.0 1.1 Cash inflow from movement in debt (113.9) (15.9) -------------------------------Changes in net debt arising from cash flows (109.9) (14.8) Exchange gains/(losses) 7.6 (6.0) ------------------------------- Movement in net debt in period (102.3) (20.8) Net debt at beginning of period (102.9) (82.1) -------------------------------Net debt at end of period (205.2) (102.9) =============================== Notes to the Group Cash Flow Statementfor the year ended 31 December 2006 (i) Cashflow from operating activities 2006 2005 £ £ million million Profit for the year 46.2 36.7 Adjustments for: Tax 27.7 19.7 Depreciation 72.5 63.0 Amortisation of intangibles 0.8 0.4 Interest income (0.8) (0.5) Interest expense 7.2 4.8 Profit on sale of PPE (see below) (2.8) (1.1) Share based payments 4.1 2.5 Changes in working capital (excluding the effects of exchange differences on consolidation): Increase in inventories (5.5) (9.0) Increase in trade and other receivables (27.6) (35.9) Increase in trade and other payables 32.8 25.4 Net movements in provisions for liabilities and charges 4.3 (4.2) Net retirement benefit cost 1.3 0.1 --------------------Cash generated from operations 160.2 101.9 ==================== In the cashflow statement, proceeds from sale of PPE comprise: 2006 2005 £ £ million million Net book amount 1.9 2.7 Profit on sale of PPE 2.8 1.1 ---------------------Proceeds from sale of PPE 4.7 3.8 ===================== Notes to the Accountsfor the year ended 31 December 2006 Note 1 Segmental reporting (a) Revenue by segment Total Inter-segment External revenue revenue revenue 2006 2005 2006 2005 2006 2005 £ £ £ £ £ £ million million million million million million Northern Europe 70.2 58.7 - - 70.2 58.7 Continental Europe 65.5 56.0 - 0.1 65.5 55.9 North America 159.2 141.8 0.2 0.1 159.0 141.7 Middle East, Asia-Pacific, South America 77.9 52.5 0.3 0.5 77.6 52.0 ----------------------------------------------------------Local Business 372.8 309.0 0.5 0.7 372.3 308.3 International Power Projects 170.1 110.7 1.7 1.3 168.4 109.4 Eliminations (2.2) (2.0) (2.2) (2.0) - - ----------------------------------------------------------Group 540.7 417.7 - - 540.7 417.7 ========================================================== Inter-segment transfers or transactions are entered into under the normalcommercial terms and conditions that would also be available to unrelated thirdparties. International Power Projects ('IPP') is a global segment administered from Dubai. At the end of 2006 and 2005 the assets of the International Power Projects segment are predominantly located in the Middle East, Asia-Pacific, South America and Africa. The former South and Central Europe segment has been re-named as the ContinentalEurope segment. (b) Profit by segment Trading Gain/(loss) Operating Profit on sale of PPE Profit 2006 2005 2006 2005 2006 2005 £ £ £ £ £ £ million million million million million million Northern Europe 5.6 4.5 0.6 0.2 6.2 4.7 Continental Europe 5.3 0.9 0.1 0.3 5.4 1.2 North America 33.8 26.5 2.2 0.3 36.0 26.8 Middle East, Asia-Pacific, South America 15.7 9.5 0.1 0.1 15.8 9.6 --------------------------------------------------------------Local Business 60.4 41.4 3.0 0.9 63.4 42.3 International Power Projects 26.3 18.2 (0.2) 0.2 26.1 18.4 --------------------------------------------------------------Group 86.7 59.6 2.8 1.1 89.5 60.7 ==============================================================Exceptional items (Note 2) (9.2) - -------------------------------------------------------------- Operating profit post exceptional items 80.3 60.7 Finance costs - net (6.4) (4.3) --------------------------------------------------------------Profit before taxation 73.9 56.4 Taxation (27.7) (19.7) --------------------------------------------------------------Profit for the year 46.2 36.7 ============================================================== (c) Depreciation and amortisation by segment 2006 2005 £ £ million million Northern Europe 9.9 9.8 Continental Europe 10.2 9.7 North America 19.6 17.0 Middle East, Asia-Pacific, South America 10.1 7.6 --------------------Local Business 49.8 44.1 International Power Projects 23.5 19.3 --------------------Group 73.3 63.4 ==================== (d) Capital expenditure on property, plant and equipment and intangible assetsby segment 2006 2005 £ £ million million Northern Europe 20.7 6.2 Continental Europe 19.5 5.7 North America 47.8 21.2 Middle East, Asia-Pacific, South America 27.7 16.2 --------------------Local Business 115.7 49.3 International Power Projects 56.1 30.9 --------------------Group 171.8 80.2 ==================== Capital expenditure comprises additions and acquisitions to property, plant andequipment and intangible assets (excluding goodwill). (e) Assets/(liabilities) by segment Assets Liabilities 2006 2005 2006 2005 £ £ £ £ million million million million Northern Europe 74.2 57.4 (12.9) (7.4) Continental Europe 89.6 70.4 (21.0) (17.0) North America 147.0 132.1 (28.7) (27.4) Middle East, Asia-Pacific, South America 81.1 56.3 (18.4) (11.7) ---------------------------------------Local Business 391.9 316.2 (81.0) (63.5) International Power Projects 181.1 138.2 (68.9) (34.4) ---------------------------------------Group 573.0 454.4 (149.9) (97.9) ======================================= Segment assets include property, plant and equipment, intangible assets,inventory, receivables and operating cash. As at 31 December 2006 goodwill hasnot been allocated to segments as a result of the timing of the acquisition andfinalisation of the fair value process. Segment liabilities comprise operating liabilities. They exclude taxation, theretirement benefit obligation and corporate borrowings. (f) Average number of employees by segment 2006 2005 number number Northern Europe 360 345 Continental Europe 362 385 North America 719 635 Middle East, Asia-Pacific, South America 303 254 --------------------Local Business 1,744 1,619 International Power Projects 485 378 --------------------Group 2,229 1,997 ==================== (g) Segmental revenue by location of customer 2006 2005 £ £ million million UK 55.9 47.7 Continental Europe 79.7 66.9 North America 159.0 141.7 Middle East 86.1 58.4 Australasia 23.6 22.1 Africa 97.6 46.8 Other 38.8 34.1 --------------------Total 540.7 417.7 ==================== (h) Reconciliation of net operating assets to net assets 2006 2005 £ £ million million Net operating assets 423.1 356.5 Goodwill 46.9 - Retirement benefit obligation (13.1) (16.8) Net tax and finance payable (17.2) (22.6) -------------------- 439.7 317.1 Borrowings and derivative financial instruments (213.5) (108.9) --------------------Net assets 226.2 208.2 ==================== Note 2Exceptional items The exceptional charge in the period of £9.2 million relates to the acquisitionof GE Energy Rentals on 4 December 2006 and comprises £3.6 million ofintegration costs, £2.4 million of redundancy and related costs, £1.0 million ofproperty costs and £2.2 million of other costs. Geographically this exceptionalcharge can be split into Northern Europe £2.0 million, Continental Europe £1.3million, North America £4.0 million, Middle East, Asia Pacific, South America£1.6 million and IPP £0.3 million. Note 3Taxation 2006 2005 £ £ million million Analysis of charge in year Current tax expense: UK Corporation tax 5.3 6.5 Double taxation relief (1.8) (0.6) --------------------- 3.5 5.9 ---------------------Overseas taxation 23.8 16.5 --------------------- 27.3 22.4 Adjustments in respect of prior years: UK (0.4) - Overseas 0.4 (0.4) --------------------- - (0.4) --------------------- 27.3 22.0 Deferred taxation (Note 14): Temporary differences arising in current year (0.3) (2.2) Movements in respect of prior year 0.7 (0.1) --------------------- 27.7 19.7 ===================== 2006 2005 £ £ million million Tax on items charged to equity Current tax on exchange movements offset in reserves 1.3 - Deferred tax on IAS 39 movements (0.5) - Deferred tax on pension scheme deficit (0.4) 2.4 Deferred tax on share-based payments 3.4 1.1 --------------------- 3.8 3.5 --------------------- Variances between the current tax charge and the standard 30% UK corporate taxrate when applied to profit on ordinary activities for the year are as follows: 2006 2005 £ £ million millionProfit before taxation 73.9 56.4 Exceptional items 9.2 - -----------------------Profit before taxation and exceptional items 83.1 56.4 ======================= Tax calculated at 30% standard UK corporate rate 24.9 16.9 Differences between UK and overseas tax rates 1.9 1.6 Permanent differences 2.4 1.7 -----------------------Tax on current year profit before exceptional items 29.2 20.2 Prior year adjustments - current tax - (0.4) Prior year adjustments - deferred tax 0.7 (0.1) -----------------------Total tax on profit before exceptional items 29.9 19.7 Tax credit on exceptional items (2.2) - ----------------------- 27.7 19.7 =======================Effective tax rate pre exceptional items 36.0% 35.0% ======================= Note 4Dividends 2006 2006 2005 2005 £ million per share (p) £ million per share (p) Final paid 10.0 3.77 9.5 3.57 Interim paid 6.7 2.53 6.2 2.34 ---------------------------------------------------- 16.7 6.30 15.7 5.91 ==================================================== In addition, the directors are proposing a final dividend in respect of thefinancial year ended 31 December 2006 of 4.19 pence per share which will absorban estimated £11.1 million of shareholders' funds. It will be paid on 18 May2007 to shareholders who are on the register of members on 20 April 2007. Note 5Earnings per share Basic earnings per share have been calculated by dividing the earningsattributable to ordinary shareholders by the weighted average number of sharesin issue during the year, excluding shares held by the Employee Share OwnershipTrusts which are treated as cancelled. 2006 2005 Profit for the year (£ million) 46.2 36.7 =====================Weighted average number of ordinary shares in issue 265.4 265.3 (million) ===================== Basic earnings per share (pence) 17.41 13.81 ===================== For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. These represent share options granted to employees where the exerciseprice is less than the average market price of the Company's ordinary sharesduring the year. The number of shares calculated as above is compared with thenumber of shares that would have been issued assuming the exercise of the shareoptions. 2006 2005 Profit for the year (£ million) 46.2 36.7 --------------------- Weighted average number of ordinary shares in issue 265.4 265.3 (million) Adjustment for share options (million) 2.4 1.8 ---------------------Diluted weighted average number of ordinary shares in issue (million) 267.8 267.1 --------------------- ---------------------Diluted earnings per share (pence) 17.25 13.72 --------------------- Aggreko plc assesses the performance of the Group by adjusting earnings pershare, calculated in accordance with IAS 33, to exclude items it considers to benon-recurring and believes that the exclusion of such items provides a bettercomparison of business performance. The calculation of earnings per ordinaryshare on a basis which excludes exceptional items is based on the followingadjusted earnings: 2006 2005 £ £ million million Profit for the year 46.2 36.7 Exclude exceptional items (net of attributable taxation) 7.0 - ---------------------Adjusted earnings 53.2 36.7 ===================== An adjusted earnings per share figure is presented below. 2006 2005 Basic earnings per share pre-exceptional items (pence) 20.05 13.81 ---------------------Diluted earnings per share pre-exceptional items (pence) 19.87 13.72 --------------------- Note 6Goodwill 2006 £ million Cost At 1 January - Acquisitions (Note 18) 46.7 Exchange adjustments 0.2 ---------At 31 December 46.9 =========Accumulated impairment losses ---------At 1 January 2006 and 31 December 2006 - =========Net book value at 1 January 2006 - =========Net book value at 31 December 2006 46.9 ========= Note 7Intangible assets 2006 2005 £ £ million million Cost At 1 January 2.8 2.7 Acquisitions (Note 18) 10.7 - Additions - 0.1 Exchange adjustments 0.1 - --------------------- At 31 December 13.6 2.8 =====================Accumulated amortisation At 1 January 1.3 0.9 Charge for the year 0.8 0.4 ---------------------At 31 December 2.1 1.3 =====================Net book values At 31 December 11.5 1.5 ===================== Amortisation charges in the year have been recorded in administrative expenses. Note 8Property, plant and equipmentYear ended 31 December 2006 Short Vehicles, Freehold leasehold Rental plant & properties properties fleet equipment Total £ £ £ £ £ million million million million millionCost At 1 January 2006 25.0 6.1 653.0 44.6 728.7 Exchange adjustments (2.0) (0.6) (61.7) (2.0) (66.3) Additions 7.2 1.1 114.1 5.6 128.0 Acquisitions (Note 18) - - 32.2 0.9 33.1 Disposals (1.7) - (16.6) (0.8) (19.1) --------------------------------------------------------- At 31 December 2006 28.5 6.6 721.0 48.3 804.4 ========================================================= Accumulated depreciationAt 1 January 2006 10.8 2.6 393.3 27.1 433.8 Exchange adjustments (0.7) (0.2) (36.1) (1.5) (38.5) Charge for the year 0.7 0.4 66.5 4.9 72.5 Disposals (1.7) - (14.8) (0.7) (17.2) --------------------------------------------------------- At 31 December 2006 9.1 2.8 408.9 29.8 450.6 ========================================================= Net book values At 31 December 2006 19.4 3.8 312.1 18.5 353.8 ========================================================= At 31 December 2005 14.2 3.5 259.7 17.5 294.9 ========================================================= Year ended 31 December 2005 Short Vehicles, Freehold leasehold Rental plant & properties properties fleet equipment Total £ £ £ £ £ million million million million million Cost At 1 January 2005 22.3 5.1 549.8 40.3 617.5 Reclassifications 0.1 - - (0.1) - Exchange adjustments 1.7 0.3 43.5 1.4 46.9 Additions 1.0 0.9 73.7 4.5 80.1 Disposals (0.1) (0.2) (14.0) (1.5) (15.8) --------------------------------------------------------- At 31 December 2005 25.0 6.1 653.0 44.6 728.7 =========================================================Accumulated depreciation At 1 January 2005 9.3 2.3 321.1 23.8 356.5 Exchange adjustments 0.7 0.1 25.5 1.1 27.4 Charge for the year 0.8 0.4 58.1 3.7 63.0 Disposals - (0.2) (11.4) (1.5) (13.1) --------------------------------------------------------- At 31 December 2005 10.8 2.6 393.3 27.1 433.8 =========================================================Net book values At 31 December 2005 14.2 3.5 259.7 17.5 294.9 =========================================================At 31 December 2004 13.0 2.8 228.7 16.5 261.0 ========================================================= Note 9Inventories 2006 2005 £ £ million million Raw materials and consumables 39.3 31.2 Work in progress 2.2 4.5 --------------------- 41.5 35.7 ===================== Note 10Trade and other receivables 2006 2005 £ £ million million Trade receivables 102.5 91.6 Less: provision for impairment of receivables (6.9) (4.1) ---------------------Trade receivables - net 95.6 87.5 ---------------------Prepayments and accrued income 33.4 19.0 Other receivables 24.2 7.5 --------------------- Total receivables 153.2 114.0 ===================== There is no concentration of credit risk with respect to trade receivables, asthe Group has a large number of customers who are unrelated and internationallydispersed. Although at any one time, it is possible to have a very small numberof customers that have significant balances due, primarily related to largecontracts in IPP. Other receivables principally comprise deposits and advance payments. Note 11Financial assets/liabilities 2006 2005 £ £ million million Non-current Bank borrowings 207.9 101.7 Current Bank overdrafts 3.0 2.3 Bank borrowings 7.3 7.2 --------------------- 10.3 9.5 ---------------------Total borrowings 218.2 111.2 --------------------- Short-term deposits (0.5) (0.4) Cash at bank and in hand (12.5) (7.9) ---------------------Net borrowings 205.2 102.9 ===================== The bank overdrafts and borrowings are all unsecured. Note 12Trade and other payables 2006 2005 £ £ million million Trade payables 43.9 27.3 Other taxation and social security payable 5.4 3.3 Other payables 23.0 8.8 Accruals and deferred income 69.1 54.3 --------------------- 141.4 93.7 ===================== Note 13Provisions Statutory Reorganisation employee and termination restructuring benefit Total £ million £ million £ million At 1 January 2006 1.6 0.3 1.9 New provisions 9.2 - 9.2 Utilised during year (4.9) - (4.9) ------------------------------------------At 31 December 2006 5.9 0.3 6.2 ------------------------------------------ 2006 2005 £ million £ million Analysis of total provisions Current 5.9 0.8 Non-current 0.3 1.1 ------------------------------------------Total provisions 6.2 1.9 ------------------------------------------ (i) The provision for reorganisation and restructuring comprises the following: (a) Estimated costs of restructuring the Group's North American, European and International operations and the provisions are generally in respect of severance, property and related costs. The provision is expected to be fully utilised before the end of 2007. (b) Estimated costs related to the integration of the GE Energy Rentals businessinto the Group's global operations. These provisions are in respect ofseverance, property and other integration costs and are expected to be fullyutilised before the end of 2007. (ii) The provision for statutory employee termination benefit relates to astatutory employee termination benefit scheme in France. The provision isexpected to be utilised within 19 years. Note 14Deferred tax 2006 2005 £ £ million million At 1 January (13.8) (17.7) (Charge)/credit to the income statement (0.4) 2.3 Credit to equity 2.5 3.5 Deferred tax recognised on acquisitions 1.2 - Exchange differences 2.1 (1.9) --------------------- At 31 December (8.4) (13.8) ===================== Note 15Share capital 2006 2006 2005 2005 Number £000 Number £000 Authorised: Ordinary shares of 20p each 349,750,010 69,950 349,750,010 69,950 -------------------------------------------------------- Number of Number of shares £000 shares £000 Allotted, called up and fully paid: Ordinary shares of 20p each At 1 January 269,178,880 53,836 268,186,132 53,637 Employee share option scheme 332,106 66 992,748 199 -------------------------------------------------------- At 31 December 269,510,986 53,902 269,178,880 53,836 ======================================================== During the year 332,106 Ordinary shares of 20p each have been issued at pricesranging from £1.05 to £3.07 to satisfy the exercise of options under theSavings-Related Share Option Schemes ('Sharesave') by eligible employees. Note 16Treasury Shares 2006 2005 £ £ million million Treasury Shares (9.1) (6.5) ===================== Interests in own shares represent the cost of 4,436,950 of the company'sordinary shares (nominal value 20 pence) purchased in June 2004 (2,016,720), May 2005 (1,661,621) and October 2006 (758,609). These shares represent 1.6% ofissued share capital as at 31 December 2006 (2005: 1.4%). These shares were acquired by a trust in the open market using funds provided byAggreko plc to meet obligations under the Long Term Incentive Arrangements. Thecosts of funding and administering the scheme are charged to the incomestatement of the Company in the period to which they relate. The market value ofthe shares at 31 December 2006 was £19.3 million (2005: £10.0 million). Note 17Statement of changes in equity As at 31 December 2006 Attributable to equity holders of the company Foreign Ordinary Share Capital Exchange share premium Treasury Redemption Hedging Reserve Retained Total Capital Account Shares Reserve Reserve (translation) earnings equity £ £ £ £ £ £ £ £ million million million million million million million million Balance at 1 January 2006 53.8 6.8 (6.5) 0.1 - (6.5) 160.5 208.2 Net movement in foreign currency cash flow hedge - - - - 1.5 - - 1.5 Net movement in interest rate swaps - - - - 0.2 - - 0.2 Currency translation differences (i) - - - - - (20.5) - (20.5) Current tax on items taken - - - - - 1.3 - 1.3 to or transferred from equity Deferred tax on items taken to or transferred - - - - (0.5) - 3.0 2.5 from equity Actuarial gains on retirement benefits - - - - - - 1.5 1.5 Purchase of treasury shares - - (2.6) - - - - (2.6) Credit in respect of employee share Awards - - - - - - 4.1 4.1 New share capital subscribed 0.1 0.4 - - - - - 0.5 Profit for the year - - - - - - 46.2 46.2 ------------------------------------------------------------------------------------------ Total recognised income/(loss) for the year 0.1 0.4 (2.6) - 1.2 (19.2) 54.8 34.7 ------------------------------------------------------------------------------------------ Dividends paid - - - - - - (16.7) (16.7) ------------------------------------------------------------------------------------------Balance at 31 December 2006 53.9 7.2 (9.1) 0.1 1.2 (25.7) 198.6 226.2 ------------------------------------------------------------------------------------------ (i) Included in currency translation differences of the Group are exchange gainsof £8.4 million arising on borrowings denominated in foreign currenciesdesignated as hedges of net investments overseas, offset by exchange losses of£28.9 million relating to the translation of overseas results and net assets. As at 31 December 2005 Attributable to equity holders of the company Foreign Ordinary Share Capital Exchange share premium Treasury Redemption Hedging Reserve Retained Total Capital Account Shares Reserve Reserve (translation) earnings equity £ £ £ £ £ £ £ £ million million million million million million million million Balance at 31 December 2004 53.6 6.0 (3.3) 0.1 - (19.3) 141.4 178.5 Adoption of IAS 39 - - - - 0.6 - - 0.6 ------------------------------------------------------------------------------------------Balance at 1 January 2005 53.6 6.0 (3.3) 0.1 0.6 (19.3) 141.4 179.1 Net movement in foreign currency cash flow hedge - - - - (1.0) - - (1.0) Net movement in interest rate swaps - - - - 0.4 - - 0.4 Currency translation differences (i) - - - - - 14.1 - 14.1 Current tax on items taken to or - - - - - (1.3) - (1.3) transferred from equity Deferred tax on items taken to or transferred from equity - - - - - - 3.5 3.5 Actuarial losses on retirement benefits - - - - - - (7.9) (7.9) Purchase of treasury shares - - (3.2) - - - - (3.2) Credit in respect of employee share awards - - - - - - 2.5 2.5 New share capital subscribed 0.2 0.8 - - - - - 1.0 Profit for the year - - - - - - 36.7 36.7 ------------------------------------------------------------------------------------------ Total recognised income/(loss) for the year 0.2 0.8 (3.2) - (0.6) 12.8 34.8 44.8 ------------------------------------------------------------------------------------------ Dividends paid - - - - - - (15.7) (15.7) during 2005 ------------------------------------------------------------------------------------------ Balance at 31 December 2005 53.8 6.8 (6.5) 0.1 - (6.5) 160.5 208.2 ------------------------------------------------------------------------------------------ (i) Included in currency translation differences of the Group are exchangelosses of £6.2 million arising on borrowings denominated in foreign currenciesdesignated as hedges of net investments overseas, offset by exchange gains of£20.3 million relating to the translation of overseas results and net assets. Note 18Acquisition of GE Energy Rentals On 4 December 2006 the Group acquired the entire share capital of GE EnergyRentals, Inc and the entire share of GE Energy do Brasil Ltda. as well assubstantially all the other trade and assets of the Energy Rentals business ofGE (excluding those relating to gas turbines). The maximum considerationpayable is £112.0 million and the fair value of net assets acquired is £65.3million resulting in goodwill of £46.7 million. The initial purchaseconsideration for this acquisition (including £4.4 million of transaction fees)was £97.1 million with a further payment of up to £14.9 million dependent on thedelivery by GE of additional fleet assets during 2007. The acquisition method of accounting has been adopted and the goodwill arisingon the purchase has been capitalised. The details of the transaction and fair value adjustments arising from thechange in ownership are shown below: Initial Restatement Book To Fair Fair Value Value Value £ £ £ million million million Intangible fixed assets - 10.7 10.7 Property, plant & equipment 58.3 (25.2) 33.1 Inventories - 3.2 3.2 Trade and other receivables 17.8 (4.3) 13.5 Other assets 14.9 (5.6) 9.3 Trade and other payables (4.0) (2.2) (6.2) Deferred taxation - 1.2 1.2 Cash and cash equivalents 0.5 - 0.5 ---------------------------------Net assets acquired 87.5 (22.2) 65.3 =========================Goodwill 46.7 --------Consideration (including transaction expenses) 112.0 Less cash and cash equivalents acquired (0.5) Less deferred consideration (14.9) Less accrued transaction expenses (0.8) --------Net cash outflow 95.8 ======== The fair value adjustments contain some provisional amounts which will befinalised in 2007. These include estimated values for inventory in a number of locations as well as repairs to fleet assets which have still to be finally assessed. These values could not be finalised given the proximity of the transaction to the year end. Goodwill represents the value of synergies arising from the global integrationof the acquired business and the acquiree's assembled workforce. Synergiesinclude overhead reductions (mainly property and people) and improved utilisation of the acquired fleet assets. The GE Energy Rentals business was fully integrated into the Aggreko business onacquisition therefore it is not possible to separately disclose post acquisitionrevenue or profit/loss for this acquisition. It is also impracticable todisclose pre-acquisition revenue and profit/loss for the period as reliable andaccurate information is not available for 2006. Notes: 1. The above figures represent an abridged version of the Group's full Accounts for the year ended 31 December 2006, upon which the auditors have given an unqualified report. 2. The Annual Report will be posted to all shareholders on 16 March 2007 and will be available on request from the Secretary, Aggreko plc, Ailsa Court, 121 West Regent Street, Glasgow, G2 2SD. The Annual General Meeting will be held in Glasgow on 25 April 2007. The Annual Report contains full details of the principal accounting policies adopted in the preparation of these financial statements. 3. A final dividend of 4.19 pence per share will be recommended to shareholders and, if approved, will be paid on 18 May 2007 to shareholders on the register at 20 April 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
AGK.L