Final Results

Friday 9 March 2012

Aggreko plc

UNDERLYING GROUP REVENUE UP 22% AND TRADING PROFITS UP 26%

Aggreko plc, the world leader in the supply of temporary power and temperature control, announces its results for the twelve months to 31 December 2011.

·; Underlying Group revenues up 22% and trading profit up 26%. Good growth from both International Power Projects and the Local business.

·; Strong performance from International Power Projects; underlying revenues up 25% and trading profit up 33%.

o Over 1,200 MW of new work won; Asia and Latin America particularly strong

o Closing order book up 21% on prior year; 14 months of revenue at current run rate.

·; Local businesses underlying revenues up 21% and trading profit up 15%

o North America performed extremely well; strategy to develop oil & gas working well

o Revenues up in both Europe & Middle East; Middle East profits impacted by project mix

o Aggreko International's Local business underlying revenues up 37%; strategy of expanding our footprint in fast-growing markets is delivering strong growth; 16 new locations opened or acquired in 2011.

·; Over £200m paid out to investors and capital investment increased by 55% to £418m.

Philip Rogerson, Chairman, commented:

"I am pleased to report that Aggreko has delivered another strong performance in 2011, with underlying growth in revenues of 22% and in trading profit of 26%. The Group also achieved solid headline growth despite the fact that 2010 was an extraordinary year for our revenues from major sporting events, with the FIFA World Cup, the Vancouver Winter Olympics and the Asian Games together accounting for about £87 million of revenue in 2010. The strength of our performance is tribute to the breadth and diversity of the Group and the continuing demand we see in all our key markets."

Rupert Soames, Chief Executive, commented:

"The business has had a strong start to the year and the growth rate in both International Power Projects and the Local business has accelerated.

We are planning to increase the rate of investment in fleet and we now expect that our fleet capital expenditure in 2012 is likely to be about £30 million higher than we anticipated at the end of December, at around £350 million. We are confident that the business will deliver strong growth in the first half of 2012; at this early stage of the year, we are more cautious about the second half of 2012, when, in any case, comparatives will be tougher. Overall we continue to believe that we will deliver another year of good growth in 2012."

Regional performance metrics:

Aggreko Plc will make a presentation to investment analysts at 9.45am GMT today at the City Presentation Centre. The presentation will be broadcast live through the Group's Investor website. To register, please go to http://ir.aggreko.com . A recording of the webcast will also be available on demand later today.

- ENDS -

Enquiries to:

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that Aggreko has delivered another strong performance in 2011, with underlying1 growth in revenues of 22% and in trading profit2 of 26%. The Group also achieved solid headline growth despite the fact that 2010 was an extraordinary year for our revenue from major sporting events, with the FIFA World Cup, the Vancouver Winter Olympics and the Asian Games together accounting for about £87 million of revenue in 2010. Such a happy co-incidence of three world-class events running in the same year happens only once every four years. We therefore feel justified in focusing on the underlying results, which we define as being revenue and trading profit excluding these events, pass-through fuel3, and currency movements, as well as a small amount of revenue from the London Olympics which arose in 2011. The strength of our performance is tribute to the breadth and diversity of the Group and the continuing demand we see in all our key markets.

Amongst our businesses, and on an underlying basis, International Power Projects grew revenue by 25% and trading profit by 33%. Our Local business delivered 21% growth in revenue, and 15% growth in trading profit.

At a Group level, reported revenues increased by 14%, profit before tax increased by 6% to £324 million (2010: £304 million) and diluted earnings per share before a £29 million exceptional tax credit4 increased by 10% to 86.76 pence (2010: 78.98 pence).

Strategy

Aggreko's strategy has remained broadly unchanged since it was developed in 2003. Our goal is to deliver attractive and growing returns to shareholders, excellent service to customers, and rewarding careers to our employees as the leading global provider of temporary power and temperature control. We focus on growing our business organically, supported by fleet investment and geographic expansion, but we will also make acquisitions where they can add value. We continued to invest heavily in the business in 2011, with fleet capital expenditure of 2.2 times depreciation. In addition, on 31 March 2011 we completed the acquisition of N.Z. Generator Hire Limited for a total consideration of £14 million. We also continued our strategy of geographical expansion in the Local business, opening fifteen new locations in the year, and acquiring four others as part of the N.Z. Generator acquisition; most of these new locations were in emerging markets where economies are growing most quickly.

In our last five year strategy review in 2007, we set out our view that the business could deliver, on average, double-digit revenue and earnings growth over the period 2007-2012, with fleet capital expenditure expected to be around £1 billion over the same period. I am pleased to report that we are well ahead of plan, having delivered compound annual growth over the first four years of 19% in revenue and 26% in operating profit. Fleet capital expenditure over the period has averaged £263 million per annum - which is above our original forecast reflecting the strength of revenue and profit growth; in 2012 we expect to invest around £350 million in our fleet. We believe that our strategies for both the Local and International Power Projects businesses are working well, and that our performance in 2012 will allow us to report that the targets we set in 2007 have been significantly exceeded. Work is already well underway on the next five year strategy for the period 2013 - 2017 which will be set out along with our results in March 2013.

Return to shareholders

In July 2011 we completed a £148 million return of capital to shareholders, equivalent to 55 pence per ordinary share; a further £3 million will be paid in 2012 to those shareholders who elected to defer all or part of their return. Following the return, at 31 December 2011 our net debt stands at 0.7 times EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) which has moved us closer to our longer-term target of around 1 times net debt to EBITDA.

Dividend

The Board is recommending a 10% increase in the dividend for the year as a whole; this will comprise a final dividend of 13.59 pence per ordinary share which, when added to the interim dividend of 7.20 pence, gives a total for the year of 20.79 pence. At this level, the dividend would be covered 4.2 times on a pre-exceptional basis. Subject to approval by shareholders, the final dividend will be paid on 22 May 2012 to ordinary shareholders on the register as at 20 April 2012, with an ex-dividend date of 18 April 2012.

Funding

Net cash inflow from operations during the year increased by 9% to £509 million (2010: £468 million). This funded capital expenditure of £418 million, which was £149 million higher than in 2010. Net debt at 31 December 2011 of £365 million was £232 million higher than the previous year mainly as a result of the increase in capital expenditure and the £148 million return of capital to shareholders.

The Group maintains sufficient facilities to meet its normal funding requirements over the medium term. At 31 December 2011 these facilities totalled £669 million in the form of committed bank facilities arranged on a bilateral basis with a number of international banks, and private placement notes which were put in place during the first half of 2011. Since the year end we have put in place a further £30 million of committed facilities.

Ethics Committee

Integrity and honesty in all our business dealings are central to Aggreko's reputation and long term success. For many years the Group has had a clear and robust ethics policy, and strong related procedures. Last year the Board took the further step of establishing a committee whose principal tasks are to advise the Board on the development of strategy and policy on ethical matters, and to oversee Aggreko's policies and procedures for the identification, assessment, management and reporting of ethical risk. The members of the Committee are David Hamill, Ken Hanna, and myself as Chairman. The Ethics Committee had its first meeting in February 2011 and a report on its activities is included in the Annual Report.

Board

At the Company's AGM in April 2011, I announced that I intend to step down as Chairman and also from the Board of Aggreko at the AGM in April 2012 at which point I will have served ten years as Chairman and fifteen years on the Board. Over the last ten years your Company has enjoyed compound growth of 19% in earnings per share and the share price has increased six-fold. I shall be succeeded as Chairman by Ken Hanna, who joined the Board in October 2010; Ken is Chairman of Inchcape plc and a Non-executive Director of Tesco plc.

It has always been my belief that the most important investment that a company can make is in its people, and there is no doubt in my mind that the outstanding success of your Company is due to its dedicated and talented management team, and to the quality and determination of its workforce worldwide. On behalf of all the owners of the business, I would like to thank them all for their contribution to the success of your Company.

Outlook for 2012

The business has had a strong start to the year. Having entered 2012 with 21% more power on hire than the prior year in International Power Projects and 14% more in the Local business, the growth rate in both businesses has accelerated.

Our International Power Projects business has had very strong order intake in the first two months of the year, with almost 300 MW of new orders taken so far, mainly in Africa, Asia and the Middle East. At the end of 2011 we had a record 14 months of forward order cover and the prospect pipeline remains strong.

Amongst the Local businesses, Europe & Middle East have had a good start, and, with the London Olympics in the second half, should have a strong year. North America likewise is showing double-digit growth in rental revenue in the first two months. Aggreko International's Local businesses continue to benefit from our strategy of expanding our depot network in fast-growing markets; at the end of February they have over 30% more power on rent than the prior year, and we currently plan to open about 20 new facilities in 2012.

Given the strong start to the year, we are planning to increase the rate of investment in fleet; we now expect that our fleet capital expenditure in 2012 is likely to be about £30 million higher than we anticipated at the end of December, at around £350 million. We are confident that the business will deliver strong growth in the first half of 2012; at this early stage of the year, we are more cautious about the second half of 2012, when, in any case, comparatives will be tougher. Overall, we continue to believe that we will deliver another year of good growth in 2012.

Philip Rogerson

Chairman

9 March 2012

Review of Trading

Group Trading Performance

I am pleased to report that Aggreko has delivered another strong performance in 2011, with underlying1 growth in revenues of 22% and in trading profit2 of 26%. The Group also achieved solid headline growth despite the fact that 2010 was an extraordinary year for our revenue from major sporting events, with the FIFA World Cup, the Vancouver Winter Olympics and the Asian Games together accounting for about £87 million of revenue in 2010. Such a happy co-incidence of three world-class events running in the same year happens only once every four years. We therefore feel justified in focusing on the underlying results, which we define as being revenue and trading profit excluding these events, pass-through fuel3, and currency movements, as well as a small amount of revenue from the London Olympics which arose in 2011. To give added perspective, the table below shows the reported versus underlying numbers for both 2010 and 2011.

A summarised Income Statement for 2011 is set out below.  All references to taxation, profit after tax and earnings per share in this section are pre-exceptional items unless otherwise stated.

As reported, Group revenue at £1,396 million (2010: £1,230 million) was 14% higher than 2010, while Group trading profit of £338 million (2010: £312 million) was 8% ahead of 2010. This delivered a Group trading margin of 24.2% (2010: 25.4%), with the reduction due to not having the benefit of the major sporting events revenue of 2010. Underlying revenue and trading profit increased by 22% and 26% respectively. On the same basis trading margin increased to 25.9% (2010: 25.1%).

As reported, Group profit before tax increased by 6% to £324 million (2010: £304 million), and profit after tax increased by 9% to £232 million (2010: £213 million) reflecting the reduction in the effective tax rate from 30.0% to 28.5%. Diluted earnings per share grew 10% to 86.76 pence (2010: 78.98 pence). Return on capital employed, measured as operating profit divided by average net operating assets, decreased by 4pp to 28.0% (2010: 32.4%) due to increased working capital and the absence of the major sporting events revenue of 2010 which were less capital intensive than the base business. The ratio of revenue (excluding pass-through fuel) to average gross rental assets decreased from 76% to 71% also reflecting the higher capital productivity of major sporting events as well as the high level of fleet investment in 2011, particularly during the second half.

The strengthening of Sterling during the year, in particular against the US Dollar, had the effect of reducing revenue by £26 million and trading profit by £9 million. Pass-through fuel, which we manage as a service to two customers at little or no margin, increased sharply, primarily driven by the unit cost of fuel rather than volumes, and accounted for £108 million (2010: £74 million) of reported revenue of £1,396 million and £2 million (2010: £2 million) of reported trading profit of £338 million.

Fleet capital expenditure for the year was £392 million (2010: £254 million) which represented 94% of total capital expenditure. This fleet spend was 2.2 times the depreciation charge in the period, reflecting the continued expansion of our rental fleet; our International business accounted for around 71% of this investment. The largest investment in terms of product was in our gas fleet. In addition, we acquired £5 million of property, plant and equipment as part of the acquisition of N.Z. Generator Hire Ltd, in March 2011. The total consideration for this acquisition was £14 million.

Net debt of £365 million at 31 December 2011 was £232 million higher than the same period last year. We regard this as a creditable performance given the £149 million year-on-year increase in total capital expenditure and the £160 million increase in cash returns to shareholders; this latter item comprised the £148 million return of capital to shareholders, completed in July 2011, and a £12 million increase in the ordinary dividend.

Regional Trading Performance

The performance of each of our regional businesses is described below. Our International Power Projects grew revenue in constant currency and excluding pass-through fuel by 25%, and secured over 1,200 MW of new work in 20 countries; on the same basis, trading profit increased by 33%. Our Local business delivered an underlying 21% growth in revenue, and on the same basis 15% growth in trading profit.

Regional Trading Performance as reported in £ million

Local business: North America

In generally difficult market conditions, our North American business performed extremely well in 2011 with underlying revenues (i.e. excluding the impact of the Vancouver Winter Olympics in 2010) increasing by 18% and trading profit by 27%; on the same basis trading margin improved from 17.9% to 19.1%.

On an underlying basis, rental revenue grew by 15% and services revenue was up 27%. Power rental revenue was up 21% with good base business growth as well as the added benefit of the acquisition of the Northland Power Services business in late 2010. Temperature control revenue increased by 9% and oil-free compressed air rental revenues grew by 13%. A significant part of the growth came from an improvement in rental rates across all three product lines, most notably in power, where rates are back to pre-recession levels.

Nearly all geographic areas of the North American business achieved strong base business growth on the same period last year. Our strategy to develop our presence in both upstream and downstream oil & gas both through acquisitions and organic growth has paid off handsomely, and it now represents the largest customer segment our North American business.

During 2011 we continued our investment in new emissionised fleet and by the end of 2012 we will have invested $135 million in our North American fleet renewal programme with the vast majority of our power fleet capable of operating at Tier 2 EPA standards or above.

The North American business has made a strong start to 2012, maintaining the momentum we saw in the second half of 2011, and we expect that the business will continue to deliver growth in the first half. The second half, in which the business generally delivers the majority of its profits, is hard to discern at this distance in time. Our current view is that we should deliver continued growth in the second half, but perhaps at a slightly slower rate than in the first half.

Local business: Europe & Middle East

Europe

Middle East & SEE

Our Europe & Middle East business experienced something of a role reversal in 2011, in that the Middle East - which has historically been one of Aggreko's fastest-growing businesses (and is now our largest Local business world-wide in terms of MW on rent), went backwards in 2011 in trading profit terms. In contrast, the European business, which has historically grown more slowly than other parts of our Local business, delivered a very creditable 7% underlying growth in profits.

The main driver of the movements in the Middle East was that some highly profitable power projects came to an end, and were replaced by some temperature-control contracts which brought with them very high volumes of fuel which went through our books at tiny margins; so revenues went up, and margins went down. In Europe, our oil and gas business, notably in Russia, grew strongly as a result of several years investing in our Local business there.

Revenue of £189 million in Europe was 12% ahead of the prior year on an underlying basis (i.e in constant currency and excluding a small amount of early revenue from London 2012). In terms of performance in individual countries, it was the usual mixed picture. We made progress in Russia, France, Germany, Italy and in the UK while our businesses in Spain and Ireland continued to suffer from the weak economy. Given the state of their economies this is hardly a surprise. Rental revenue increased by 14%, with power increasing by 18% and temperature control increasing by 4%. Services revenue, which mainly comprises fuel and transport, increased by 9%. The underlying trading margin of 10.8% was slightly down on prior year (11.3%).

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Revenue in the Middle East of AED666 million (£113 million) was 20% ahead of the prior year on an underlying basis, and much of this growth was driven by high volumes of low-margin fuel. Rental revenue increased by 7%, with power increasing by 6% and temperature control increasing by 25%. Services revenue, where the fuel is booked, increased by 73%.  Margins fell to 17.5% (2010: 23.5%), reflecting the higher proportion of services revenue. Our businesses in the Southern Gulf and Saudi Arabia grew strongly; trading was weak in the Northern Gulf and Bahrain.

Across Europe & the Middle East rental rates showed a small improvement on the prior year, but are still below pre-recession levels, reflecting the challenging economic conditions in most of the countries in which we operate.

We are continuing to expand the footprint of our Europe & Middle East business: in the second half of 2011, we established a new local business in Turkey, and we also signed our first civilian contracts in Iraq, serving the rapidly-developing oil and gas sector. These developments, combined with a 45MW emergency contract providing power in Cyprus and continued growth in Russia, will help our business in the face of a tough economic environment in many parts of this region. Our Europe & Middle East business also has to deliver a faultless service to the London 2012 Olympic Games, which is one of the largest events contracts ever delivered by Aggreko. We now expect to install well over 500 generators and 1,200 kilometres of cable across 44 sites; we will have over £25 million of fleet assets serving the event, much of it delivered new from our factory in Dumbarton, and the timing of the contract means that we are having to pull forward fleet capital expenditure into the first half in order to ensure that all the equipment is available on time. We now expect that the total contract will be worth over £40 million. On an underlying basis, excluding the Olympics, we expect the business to deliver modest growth.

Aggreko International's Local business

Aggreko International's Local businesses operate in Australia, New Zealand, Brazil, Mexico, Argentina, Chile, Singapore, China, India, South Africa, Peru, Panama and Colombia. It is in this business that the difference between reported and underlying growth is most stark, as revenues in 2010 included over £68 million from the FIFA World Cup contract in South Africa and the Asian Games in Guangzhou; to confuse matters further, there was also a small amount of revenue in 2011 from the Asian Games. As a result reported revenue in 2011 decreased by 8%, trading profit decreased 46% and trading margin was 17.3% (2010: 29.4%). However, excluding the impact of these events, revenue increased by 37%, with rental revenue increasing by 41% and services by 25% while trading profit increased by 29%. Between them, these businesses now account for nearly 25% of Aggreko's Local business, and they are growing at an impressive rate. They are not diluting margins, but they are diluting returns on capital as every time we open a new depot we have to stock it with fleet and it generally takes 5 years to get a depot to the point where it has the utilisation to deliver respectable returns on capital. In 2011 we opened 12 new service centres, namely, in South America, Lima, Belo Horizonte, Bogota, Camacari, Copiapo, and Porto Alegre; in Asia, in New Delhi and Guangzhou; in Africa, we opened in Durban. In Australia-Pacific, we opened depots in Muswellbrook, Newman, and Wollongong, and also, through the acquisition of N.Z. Generators in New Zealand, gained depots in Christchurch, New Plymouth, Tauranga and Wellington. We have sown a lot of seed-corn in these territories; not all of them will work out, but we are confident that enough of them will provide strong growth in the years ahead.

In terms of the trading performance, excluding the major sporting events, revenue from power was up 47% and temperature control was up 5%. Revenue in all of Aggreko International's Local businesses increased as compared with last year most notably in our largest market Australia where revenue increased 27% driven by a strong performance in the mining sector.

It is extremely encouraging to see that our strategy of expanding our footprint in fast-growing markets is bearing fruit. At the end of February 2012, this business had over 30% more power on rent than the previous year, and we intend to continue to build our service centre network with about 20 new facilities planned to be opened in 2012. As a consequence, we believe that this business will continue to deliver good growth in 2012.

Aggreko International: International Power Projects

Our International Power Projects business delivered another strong performance in 2011 with revenue, in constant currency and excluding pass-through fuel, growing by 25% to $888 million and trading profits increasing by 33% to $344 million. Trading margin increased to 38.8% (2010: 36.5%).

Demand was very strong during 2011. We secured 36 new contracts in 20 countries and 1,242 MW of new work comprising 513 MW in Asia, 316 MW in Africa & Middle East, 330 MW in Latin America and 83 MW of other. At the start of 2012, our order book stood at almost 36,000 MW-months, an increase of 21% over the prior year and the equivalent of 14 months' revenue at the current run-rate. In terms of rates, the mix impact of the rapid growth in our higher rate gas business meant that overall rates were slightly higher than the previous year, despite diesel rates being flat on 2010.

On a geographic basis, Asia continued to deliver strong growth, and is now our largest area. Latin America also grew strongly; our African and Middle East businesses had a tough year reflecting the full-year impact of the off-hires in 2010 in Kenya and Yemen. As anticipated, military revenues also declined as the US military presence in Iraq ended and we anticipate that military revenues will be materially lower in 2012. Around 80% of International Power Projects' revenue in 2011 came from utilities; military projects represented about 11%, and oil & gas, mining and manufacturing together contributed the remaining 9%. At the start of 2012, the International Power Projects fleet, at over 4,400 MW, is 22% larger than 12 months earlier and includes around 840 MW of gas-powered fleet.

A key challenge in our International Power Projects business is cash collection and the potential volatility that this can have on the trading results. This was illustrated during 2011 when the bad debt provision increased by $23 million in the first half due to delays in payment by three major customers. During the second half, significant payments were received from these customers and we were able to release $18 million of the provision, leaving a net increase for the year as a whole of $5 million. Unpredictable payment behaviour is a feature of the International Power Projects business, and it is likely that this pattern of bad debt provisions moving up and down between reporting periods will continue in the future. It is for this reason that we continue to take a prudent view when it comes to taking provisions against overdue debt. At 31 December 2011 bad debt provisions amounted to around 17% of our 2011 International Power Projects gross debtors.

International Power Projects has started the year strongly with nearly 21% more capacity on rent than a year ago and a 14-month forward order book. Order intake so far in the first quarter has been strong, with almost 300 MW of new business secured. Although we expect the first half to be strong, comparators in the second half are going to be tough, as we have to replace revenues from Japanese and US Military contracts off-hiring, and we will not have the benefit of the 2011 second half bad debt provision release described above. We hope to be able to partially offset these factors with the continued growth in our gas business. Overall we expect to deliver continued strong growth for the year as a whole.

Critical Accounting Policies

The Group's significant accounting policies are set out in Note 1 to the Group's Annual Report & Accounts.

Preparation of the consolidated financial statements requires Directors to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual outcomes could differ from those estimated.

The Directors believe that the accounting policies discussed below represent those which require the greatest exercise of judgement. The Directors have used their best judgement in determining the estimates and assumptions used in these areas but a different set of judgements could result in material changes to our reported results. The discussion below should be read in conjunction with the full statement of accounting policies, set out in Note 1 to the Group's Annual Report & Accounts.

Property, plant and equipment

Rental fleet accounts for £1,015 million, or around 93%, of the net book value of property, plant and equipment used in our business; the great majority of equipment in the rental fleet is depreciated on a straight-line basis to a residual value of zero over 8 years, although we do have some classes of non-power fleet which we depreciate over 10 years. The annual fleet depreciation charge of £175 million (2010: £147 million) relates to the estimated service lives allocated to each class of fleet asset. Asset lives are reviewed regularly and changed if necessary to reflect current thinking on their remaining lives in light of technological change, prospective economic utilisation and the physical condition of the assets.

Intangible assets

In accordance with IFRS 3 (revised) 'Business Combinations', goodwill arising on acquisition of assets and subsidiaries is capitalised and included in intangible assets. IFRS 3 (revised) also requires the identification of other acquired intangible assets. The techniques used to value these intangible assets are in line with internationally used models but do require the use of estimates and forecasts which may differ from actual outcomes. Future results are impacted by the amortisation period adopted for these items and, potentially, by any differences between forecast and actual outcomes related to individual intangible assets. The amortisation charge for intangible assets in 2011 was £4 million (2010: £3 million). Substantially all of this charge relates to the amortisation of intangible assets arising from business combinations.

Goodwill of £65 million (2010: £60 million) is not amortised, but is tested annually for impairment and carried at cost less accumulated impairment losses. The impairment review calculations require the use of forecasts related to the future profitability and cash generating ability of the acquired assets. There were no impairment charges in 2011 and 2010.

Taxation

Aggreko's pre-exceptional effective tax charge of 28.5% is based on the profit for the year and tax rates in force at the balance sheet date. As well as corporation tax, Aggreko is subject to indirect taxes such as sales and employment taxes across various tax jurisdictions in the approximate 100 countries in which the Group operates. The varying nature and complexity of tax law requires the Group to review its tax positions and make appropriate judgements at the balance sheet date. In addition, the recognition of deferred tax assets is dependent upon an estimation of future taxable profits that will be available, against which deductible temporary differences can be utilised. In the event that actual taxable profits are different, such differences may impact the carrying value of such deferred tax assets in future periods. Further information, including a detailed tax reconciliation, is shown at Notes 9 and 20 to the Annual Report and Accounts.

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost. An impairment is recorded for the difference between the carrying amount and the recoverable amount where there is objective evidence that the Group may not be able to collect all amounts due. 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, are considered indicators that the trade receivable is impaired.

The majority of the contracts into which the Group enters are small relative to the size of the Group and, if a customer fails to pay a debt, this is dealt with in the normal course of business. However, some of the contracts the Group undertakes in developing countries are very large, and are in jurisdictions where payment practices can be unpredictable. The Group monitors the risk profile and debtor position of all such contracts regularly, and deploys a variety of techniques to mitigate the risks of delayed or non-payment; these include securing advance payments and guarantees. As a result of this rigorous approach to risk management, the Group has historically had a low level of bad debt. When a trade receivable is uncollectable it is written off against the provision for impairment of trade receivables. At 31 December 2011 the provision for impairment of trade receivables in the balance sheet was £36 million (2010: £33 million).

Currency Translation

The movement of exchange rates during the year decreased revenue and trading profit by £26 million and £9 million respectively as a result of currency movement. Currency translation also gave rise to a £12 million decrease in the value of net assets as a result of year-on-year movements in the exchange rates. Set out in the table below are the principal exchange rates which affect the Group's profits and net assets.

Reconciliation of underlying growth to reported growth 

The table below reconciles the reported and underlying revenue and trading profit growth rates:

Interest

The net interest charge was £18 million, an increase of £8 million on 2010 reflecting the higher level of average net debt mainly as a consequence of increased levels of capital expenditure and the return of £148 million of capital to shareholders. Interest cover, measured against rolling 12-month EBITDA, remains very strong at 28.4 times (2010: 47.1 times).

Taxation

Tax Strategy

In 2011 Aggreko had operations in around 100 countries across the world. For each country in which we operate, we ensure that we pay the appropriate amount of tax so that we comply with the laws of the relevant country and with the Group's tax policies and guidelines. We aim to be transparent in terms of where we pay tax, recognising the importance of tax receipts to countries in which we do business. Aggreko's tax strategy is aligned with the Group's business strategy and is reviewed and endorsed regularly by the Board. This strategy is executed by a global team of tax professionals who are integrated into our business and who are based in a variety of locations across the world.

Our tax strategy covers the application of all taxes, both direct and indirect, to our business including corporation tax, payroll taxes, value added tax and customs duties. The tax strategy also covers our approach to any tax planning required by the business and key policy areas such as transfer pricing.

Given the number of countries in which we operate, local compliance is a key area of focus for Aggreko, particularly for our International Power Projects business, where we will generally only be in country for a relatively short period of time. The complexity and nature of tax rules in certain countries in which we operate makes tax compliance a key skill. We seek to manage this proactively by engaging with local tax authorities across the world, as appropriate, to agree and confirm our tax positions.

As a UK group, we are subject to the UK's senior accounting officer (SAO) legislation requiring us to certify that our systems are adequate for the purposes of calculating the Group's UK tax liabilities. We recently undertook a review which confirmed that our systems are appropriate for this purpose.

Total Taxes

 In 2011, Aggreko's worldwide operations resulted in direct and indirect taxes of £154 million being paid to tax authorities. This amount represents all corporate taxes paid on operations, payroll taxes, customs duty and miscellaneous other local taxes.

Tax Charge

The Group's pre-exceptional effective corporation tax rate for the year was 28.5% (2010: 30.0%) based on a tax charge of £92 million on profit before taxation of £324 million. The reduction in the effective rate from 2010 to 2011 resulted from the combination of mix of profits between operating territories, the reduction in the UK statutory tax rate from 28% to 26% and a small net reduction in the level of corporate tax provisions held centrally. In quantifying the tax charge each year, the varying nature and complexity of tax legislation requires the Group to review its tax positions and make appropriate judgements. Further information, including a detailed tax reconciliation of the current year tax charge, is shown at Note 9 in the Annual Report and Accounts.

The UK Finance Act 2011 introduced legislation exempting the profits of foreign branches of UK resident companies from UK corporation tax; this is applicable to a significant portion of our International Power Projects business. The impact of this exemption was that in 2011 there was a release to the income statement of a previously created deferred tax liability of £29 million which will no longer crystallise. Given its size and nature, this release is treated as an exceptional item. Starting in 2012, we expect there will be an ongoing reduction of around three percentage points in the Group's effective tax rate. The exact amount of the reduction each year will be subject to the mix of countries where International Power Projects operates and to the tax regime in those countries.

Reconciliation of Income statement tax charge and cash tax paid

The Group's total cash taxes borne and collected was £154 million which differs from the tax charge reported in the income statement of £92 million. The income statement tax charge figure comprises corporate taxes only. These two figures are reconciled below.

Dividends

If the proposed final dividend of 13.59 pence is approved by shareholders, it will result in a full year dividend of 20.79 pence (2010: 18.90 pence) per ordinary share, giving dividend cover, on a pre-exceptional basis of 4.2 times (2010: 4.2 times).

Cashflow

The net cash inflow from operations during the year totalled £509 million (2010: £468 million). This funded capital expenditure of £418 million, which was £149 million higher than in 2010. This spend was made up of £392 million of fleet and £26 million of non fleet with 71% of the fleet investment supporting the continued expansion of our International business. Net debt at 31 December 2011 was £232 million higher than the previous year mainly as a result of the increase in total capital expenditure and the return of capital to shareholders of £148 million completed in July 2011. As a result of the increase in net debt, gearing (net debt as a percentage of equity) at 31 December 2011 increased to 42% from 16% at 31 December 2010 while net debt to EBITDA increased to 0.7 times (2010: 0.3 times).

There was a £38 million working capital outflow in the year, which reflected increased activity levels across the business. More specifically, Aggreko's working capital position tends to be heavily influenced by our International Power Projects business and also activity levels at our manufacturing operation. In International Power Projects, we saw an increase in all elements of working capital, which is to be expected given the 29% (including pass-through fuel) increase in revenues in the business. Although the absolute level of accounts receivable increased in International Power Projects, debtor days decreased by 18 days year on year to 67 days (on a count back basis) as we received payment during 2011 from a small number of countries where payments were slower than usual at the prior year end. Our manufacturing operation saw increases in inventory and accounts payable reflecting the increased level of production in 2011 and early 2012.

Net Operating Assets

The net operating assets of the Group (including goodwill) at 31 December 2011 totalled £1,354 million, £289 million higher than 2010. The main components of net operating assets are:-

A key measure of Aggreko's performance is the return (expressed as operating profit) generated from average net operating assets (ROCE). We calculate the average net operating assets for a period by taking the average of the net operating assets as at 1 January, 30 June and 31 December; this is the basis on which we report our calculations of ROCE. The average net operating assets in 2011 were £1,224 million, up 26% on 2010. In 2011 the ROCE decreased to 28.0% compared with 32.4% in 2010. This decrease was due to increased working capital, and the absence of the major sporting events of 2010, which, by their nature, were less capital intensive than the base business.

Acquisitions

On 31 March 2011, the Group completed the acquisition of the business and assets of N.Z. Generator Hire Limited for a total cash consideration of £14 million. The fair value of net assets acquired was £9 million resulting in goodwill of £5 million.

Shareholders' Equity

Shareholders' equity increased by £64 million to £881 million, represented by the net assets of the Group of £1,246 million before net debt of £365 million. The movements in shareholders' equity are analysed in the table below:

The £232 million of post-tax profit (pre-exceptional items) in the year represents a return of 26% on shareholders' equity (2010: 26%) which compares to a Group weighted average cost of capital of 7.4%.

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 varieties of defined contribution schemes. The UK scheme will undergo a formal valuation at 31 December 2011. This valuation is expected to be completed during 2012.

Under IAS 19: 'Employee Benefits', Aggreko has recognised a pre-tax pension deficit of £6 million at 31 December 2011 (2010: £3 million) which is determined using actuarial assumptions. The increase in the pension deficit is a result of lower net interest rates to value the liabilities and lower than expected returns achieved on Scheme assets over the year, partially offset by the additional contributions made by the Company during the year over and above the cost of accrual of benefits. The Company paid £3 million in February 2011 in line with the Recovery Plan agreed for the Scheme following the actuarial valuation at 31 December 2008.

The main assumptions used in the IAS 19 valuation for the previous two years are shown in Note 25 of the Annual Report & Accounts. The sensitivities regarding these assumptions are shown in the table below.

Capital Structure

The intention of Aggreko's strategy is to deliver long-term value to its shareholders whilst maintaining a balance sheet structure that safeguards the Group's financial position through economic cycles.

In the last five years we have delivered growth of 394% in Total Shareholder Return - which compares with 8% and 4% for the FTSE-100 and FTSE-250 respectively. This value creation comes from two sources. First, our share price has increased as a result of the 34% compound growth in earnings per share; this earnings growth is the result of very high rates of capital investment in the business (about £1.4 billion invested over the last five years, compared with depreciation over the same period of about £770 million), along with one large and several small acquisitions (about £146 million spent over the last five years). The second source of investor return has been dividends which, in the last five years, have grown at a compound rate of 25%. In addition, in 2011 we had a special return to shareholders of 55 pence per share, worth £148 million.

With respect to our balance sheet structure, our objective is to safeguard the Group's financial position through economic cycles. Given the proven ability of the business to fund organic growth from operating cashflows, and the nature of our business model, we believe it is sensible to run the business with a modest amount of debt. We say "modest" because we are strongly of the view that it is unwise to run a business which has high levels of operational gearing with high levels of financial gearing. Given the above considerations, we believe that a Net Debt to EBITDA ratio of around 1 times is appropriate for the Group over the longer term, which is the level the Group has run at, on average, since the Group listed on the Stock Exchange in 1997. Absent a major acquisition, or the requirement for an unusual level of fleet investment, this level gives us the ability to deal with the normal fluctuations in capital expenditure (which can be quite sharp: +/- £100 million in a year) and working capital, and is well within our covenants to lenders which stand at 3 times Net Debt to EBITDA.

At the end of 2010, Net Debt to EBITDA was around 0.3 times despite investing significantly ahead of depreciation over the previous few years. This reflected the highly cash generative nature of the business model and in particular the high returns earned in our fast growing International Power Projects business. Given this level of gearing relative to our target of around 1 times, we decided to make a return of capital to shareholders thereby increasing the ratio of Net Debt to EBITDA to 0.7 times at 31 December 2011. This was completed in July 2011 by way of a B share scheme which returned 55 pence per share (approximately £148 million) to shareholders. Our priority remains to invest in the organic growth of our business supported by bolt-on acquisitions but, if we still have the capacity, we will continue to review the potential for future returns of value.

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 normal funding requirements over the medium term. At 31 December 2011, these facilities totalled £669 million in the form of committed bank facilities arranged on a bilateral basis with a number of international banks and private placement notes. The private placement was completed during the first half of 2011. 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 2011, these stood at 28 times and 0.7 times respectively. The Group does not consider that these covenants are restrictive to its operations. The maturity profile of the borrowings is detailed in Note 17 in the Annual Report & Accounts. Since the year end we have put in place a further £30 million of committed facilities.

Net debt amounted to £365 million at 31 December 2011 and, at that date, un-drawn committed facilities were £289 million.

The Group's policy is to minimise the exposure to interest rates by ensuring an appropriate balance of fixed and floating rates. The Group's primary funding is at floating rates through its bank facilities. In order to manage the associated interest rate risk, the Group uses interest rate swaps to vary the mix of fixed and floating rates. At 31 December 2011, £260 million of the net debt of £365 million was at fixed rates of interest resulting in a fixed to floating rate net debt ratio of 71:29 (2010: 84:16).

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 principal currencies used by the Group, namely US Dollar, Euro and Sterling.

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

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 many risks and uncertainties. Our job is to mitigate and manage these risks, and the Board has developed a formal risk management process to support this. Set out below are the principal risks and uncertainties which we believe could adversely affect us, potentially impacting our employees, operations, revenue, profits, cash flows or assets. This list is not exhaustive - there are many things that could go wrong in an operation as large and geographically diverse as ours - and the list might change as something that seems immaterial today assumes greater importance tomorrow.

The foundation upon which the Group's risk management process is built is the Group Risk Register. This is compiled based on input from the businesses across the world as well as a top-down review by members of the Executive Committee and Board. This forms the basis of the mitigation strategies put in place for all the key identified risks. In the section below, we have picked from the Risk Register those items we currently consider to be our most important risks. The order in which they are presented is not significant.

Economic conditions

There is a link in our business between demand for our services and levels of economic activity; this link is particularly evident in the Local business. If GDP growth goes negative, demand for rental equipment is likely to shrink even faster and this impact is likely to be multiplied by pricing weakness at times of low demand. As we have experienced in recent years, the operational gearing inherent in our business models means that variations in demand can lead to much larger variations in profitability. We also have some businesses which, by their nature, are exposed to particular sectors - for instance, our Australian business is highly dependent on mining activity, our Singapore business has a high proportion of shipping activity, and a material proportion of our North American business comes from upstream and downstream oil & gas.

We mitigate this risk in a number of ways. First, having a global footprint is a great advantage because we can move rental fleet from low-growth economies to higher-growth environments; for example, in 2011, we moved fleet out of Western Europe into Russia to support its rapid growth. Secondly, we try to ensure that, as they grow, our businesses build a customer-base which is as diverse as possible, to minimise exposure to any single sector. In Brazil, we are investing in temperature control to reduce our sectoral exposure to offshore oil & gas; while in South Africa we are expanding our geographic footprint to enable us to develop under-penetrated sectors such as shipping. Thirdly, in the event of a more generalised downturn in demand, as we experienced in 2009, we can quickly reduce capital expenditure which was demonstrated by our new fleet investment being £107 million lower in 2009 than 2008. Given the large depreciation element in the business' cost base (£186 million in 2011), reducing capital expenditure to a level close to depreciation makes the business very cash generative which, in turn, reduces debt and interest cost.

Another economic factor to consider is the price of fuel, which is usually the single biggest element in the cost of running a generator. Over the last 5 years, the price of fuel has been volatile, with the Brent Blend price1 ranging from $35 to $145, but this does not seem to have had any noticeable impact on people's willingness to rent; people rent generators because they need power, not because it is a cheap way of generating electricity. The major impact of the oil-price on our business is that, at times when it has been high it has produced huge wealth in oil-producing countries which has been re-cycled into infrastructure investment and this, in turn, stimulated demand for our services. If the oil-price is persistently low - by which we mean under $50 per barrel - we would expect to see an adverse impact on our business in a number of oil-producing countries.

Exchange rate fluctuations can have a material impact on our performance reflected in Sterling: the Group's asset values, earnings and cash flows are influenced by a wide variety of currencies owing to the geographic diversity of the Group's customers and areas of operation. Around 75% of the Group's revenue and costs are denominated in US Dollars; the next largest currency exposure is to the Euro which accounts for around 7% of our revenues and costs. The relative value of currencies can fluctuate widely and could have a material impact on the Group's asset values, costs, earnings, debt levels and cash flows, expressed in Sterling. We manage the transactional exchange impact through hedging and denomination of borrowings but we do not try and manage translational exchange impact. In terms of translational exchange, a 5 cent movement in the Sterling/Dollar exchange rate had an impact in 2011 of around £30 million on revenue and £9 million on trading profit.

Political Risk

This section should be read in conjunction with the subsequent section on failure to collect payments. The Group operates in around 100 countries, many in Africa, Asia and Central and South America. In some jurisdictions there are significant risks of political instability which can result in civil unrest, equipment seizure, renegotiation or nullification of existing agreements, changes in laws, taxation policies or currency restrictions. Any of these could have a damaging effect on the profitability of our operations in a country.

Prior to undertaking a contract in a new country, we carry out a risk assessment process to consider risks to our people, to assets and to payments. By far the greatest exposure to political risk is in the International Power Projects business. In all cases, the safety of our employees is always our first concern, and if the level of risk is considered unacceptable we will decline to participate in any contract; where there are potential risks, we develop detailed security plans to ensure the safety of our employees. In terms of asset risks, the Group uses a wide range of tools and techniques to manage risk, including insurances, bonds, guarantees and cash advances. International Power Projects' financial exposures are monitored by the Board on a monthly basis and action plans to address assets, payments or tax exposures are reviewed.

Generally, we find that Governments are keen to behave in a fair way to suppliers of critical infrastructure such as Aggreko. In the last four years, we have had two incidents, both of which were subsequently resolved, where our equipment was seized by authorities as a result of tax or import duty disputes. Neither of these were material to a Group of our size, but either could have been fatal to a small company. Both are indicative of the fact that we operate in countries where the behaviour of the authorities can be unpredictable, and not always in line with contractual commitments.

The quantum of political risk faced by the business has grown in recent years with the rapid expansion of our International Power Projects business, but the benefit of scale is that the risk becomes more diversified.

Failure to collect payments or to recover assets

In practice, the biggest risk is non-payment. The vast majority of the contracts into which the Group enters are small relative to the size of the Group and, if a customer fails to pay a debt, this is dealt with in the normal course. However, the Group has some large contracts in developing countries where payment practices can be unpredictable. The truth is that, with contracts in around 100 countries, there are always two or three large customers who are misbehaving as far as payment is concerned, and we constantly monitor the risk profile and debtor position of such contracts, deploying a variety of techniques to mitigate the risks of delayed or non-payment. This mitigation will vary from customer to customer, but our armoury includes obtaining advance payments, letters of credit, bank guarantees and, in some cases, insurance against losses. As a result of the rigorous approach to risk management, the Group has never had a significant loss although we have had some very near misses. While the rapid growth in our International Power Projects business makes it less likely that any bad debt would be material to the Group's balance sheet, the increased number of contracts and countries in which we operate increases the likelihood of a loss and makes it highly likely that, at some stage, a major customer will default or prevent us from repatriating assets.

The risk of non-payment of a receivable presents a particular risk for a public company such as Aggreko, because our customers are rarely attuned to our obligations to update regularly the market on our performance. While we seek to ensure that no single country could cause the company material medium or long-term damage, failure to collect a major debt could result in an unexpected, and possibly significant, reduction in our profits in any given reporting period. The impact of failure to collect a debt is twofold; first we have a write-off of the debt, and secondly, we lose future revenue and profit. We continually make judgements as to whether we need to book a provision against particular debts and, if the debts are material, they could cause us to miss a forecast and lead to a negative share price reaction. Unless a customer actually seizes equipment, deciding whether a receivable will be collected or not is more art than science and there have been several occasions when we have had to make difficult judgements as to when to provide for a debt. The potential for volatility was illustrated during 2011. During the first half, the bad debt provision in International Power Projects was increased by £14 million reflecting the heightened risk of non-payment in 3 countries. During the second half, significant payments were received in respect of these countries and circa £11 million of this bad debt provision was released to the Income Statement.

Even though we have an ever broader portfolio of contracts, and therefore a more diversified portfolio of risk, we caution investors that the current very high returns on capital that we earn, particularly in our International Power Projects business, are in effect "risk-unadjusted". So far, no customer has behaved badly enough to adjust them, but, as we repeatedly tell people, it is probably only a matter of time before they do.

Events

The business is, by nature, driven by events. People hire generators because some event or need makes it essential. Aggreko's revenues, cashflows and profits can be influenced significantly by external events as evidenced in the past by hurricanes in North America or by the contracts to supply power to the military camps in the Middle East. These events are, by their nature, difficult to predict and, combined with the high operational gearing inherent in our business, can lead to volatility in trading outcomes. By developing the business globally, as well as by increasing and broadening the Group's revenue base, the impact of a single event on the overall Group will reduce. Additionally, the ability to move equipment around the world allows the Group to adjust to changes in utilisation caused by any changes in demand.

Failure to conduct business dealings with integrity and honesty

Some of the countries in which the Group operates have a reputation for corruption and, given that many of our contracts involve large sums of money, we are at risk of being accused of bribery and other unethical behaviour. The first and most important way of avoiding this risk is to ensure that people, both inside and outside the Group, know that Aggreko does not engage in, and will not tolerate, bribery, corruption or unethical behaviour. We have a strict Ethics Policy, a copy of which is available on our website www.aggreko.com. Rather than just publishing it, we get every employee to sign it when they join the business; every consultant acting on our behalf agrees in writing to abide by it, and every consultancy or agency agreement has an explicit term stating that the agreement will be terminated immediately if the consultant or agent does not abide by our policy. During the year we also rolled out a confidential, multi-lingual hotline, available world-wide, which allows any employee who has any ethical concerns to report them to an independent third party on an anonymous basis.

While the risk of unethical behaviour can take many forms, the most significant risk we run in this area is the behaviour of third party sales agents and consultants in our International Power Projects business. Given the ephemeral nature of this business - there might be no business for us in a country for 5 years and then suddenly a power crisis might present an opportunity to supply 100 MW for 6 months - it is not practical to maintain full-time salespeople in each of the 100 countries where we do, or could conceivably do, business. Instead, we make agreements with organisations which know a country well, can keep our services on the radar of decision makers, and keep us briefed on opportunities. When an opportunity arises, we send in our own salespeople to work with them. These consultants do not get paid a retainer and may receive no compensation other than a "thank you" and a pat on the back for years; the reason why they are prepared to do this is because when we do win a contract, they are well rewarded. And they work hard for the money, often taking responsibility for the supply of critical elements of the project such as finding power-plant sites, providing administration and technical services, labour and security. The fact that they are only paid on results might be seen to raise the risk that they are tempted to indulge in bribery to secure their income. How do we protect against this? In our view, it is all down to the choice of the sales consultant and, to this end, we carry out comprehensive due diligence on all potential candidates. Before we appoint an agent or consultant, we use specialist third-party investigators to conduct comprehensive background checks on them; these checks include obtaining bank references and searches for previous records of inappropriate behaviour or of any family or other links with the customer or government. Once a sales consultant has been appointed, we keep a close eye on them. Payments made to agents and sales consultants are subject to audit by internal auditors to ensure they are in accordance with the agreements, and we have a full-time Compliance Officer who continuously monitors our dealings with sales consultants and agents. In addition, we carry out regular training by outside lawyers of managers and salespeople who deal in at-risk jurisdictions and, from time to time, we conduct independent reviews of contract files. We also structure our sales consultancy agreements to allow us to terminate any agreement immediately and without compensation in the event that we suspect any inappropriate behaviour. Given that these sales consultants have much to gain by working for us, this is a powerful incentive to behave.

Despite the fact that none of the business that we would consider to be at elevated risk of ethical issues comes under its jurisdiction, in the past we modelled our compliance regime around the requirements of the US Foreign Corrupt Practices Act (FCPA), on the basis that it probably set the highest standards in the world. The passing into law of the UK Bribery Act in 2011, which is generally regarded as being significantly stronger than the FCPA, led us to further review and tighten our procedures. Amongst the changes we made was the establishment of a Board Ethics Committee, composed entirely of Non-Executive Directors, to approve our ethics-related policies and procedures, and to monitor compliance. A report from the Committee is set out in the Annual Report and Accounts.

Safety

The business of the group involves transporting, installing and operating large amounts of heavy equipment, which produces lethal voltages or very high pressure air and involves the use of millions of litres of fuel which could cause serious damage to the environment. Every day, we manage the risks associated with this business, and we have carefully designed procedures to minimise the risk of an accident. If these procedures are not followed however, accidents can happen and might result in injury to people, claims against the Group, damage to its reputation and its chances of winning and retaining contracts.

The Group has a proactive operational culture that puts health and safety at the top of its agenda in order to reduce the likelihood of an accident. We work very closely with our customers, employees and Health & Safety authorities, to evaluate and assess major risks to ensure that health and safety procedures are rigorously followed. The Group has developed health and safety KPI's which are reviewed by the Board on a regular basis.

Competition 

Aggreko operates in a highly competitive business. The barriers to entry are low, particularly in the Local business and, in every major market in which we operate, competitors are constantly entering or leaving the market. We welcome this competition as it keeps us sharp and also helps to grow the overall rental market which, in many countries, is under-developed.

We monitor competitor activity carefully but, ultimately, our only protection from suffering material damage to our business by competitors is to work relentlessly to provide our customers with a high quality and differentiated service proposition at a price that they believe provides good value.

Product technology & emissions regulation

The majority of Aggreko's fleet is diesel-powered, and some of our equipment is over 10 years old. As part of the increasing focus on environmental issues, countries continue to introduce legislation related to permissible levels of emissions and this has the potential to affect our business. Our engines are sourced from major manufacturers who, in turn, have to develop products which conform to legislation, so we are dependent on them being able to respond to legislation. We also have to be aware that when we buy a generator we want to be able to rent it for its useful life and to be able to move it between countries.

To mitigate these risks, we adopt a number of strategies. First, we retain considerable in-house expertise on engine technology and emissions - so we have a good understanding of these issues. Secondly, we have very close relationships with engine manufacturers so we get good forward visibility of their product development pipeline. When new products appear - particularly those with improved emissions performance - we try to introduce them into the fleet as quickly as possible to ensure that, over time, our fleet evolves to ever-better levels of emissions performance. An example of this is the significant investment we have made in the development of our gas-fuelled technology: these engines have significantly reduced emissions compared with other fuel types. Thirdly, if emissions-compliance becomes such an issue that it begins to impact our business in a material way in some territories, our global footprint will be a major advantage as it gives us numerous options for the re-deployment of our fleet. An example of this is in our North American business, where by the end of 2012 we will have replaced our whole power fleet with the latest level of emissions compliant equipment, with the previous fleet being re-deployed to other parts of the Group.

People

Aggreko knows that it is people who make the difference between great performance and mediocre performance. This is true at all levels within the business. We are keenly aware of the need to attract the right people, establish them in their roles and manage their development. As a framework for people development, we have in place a talent management programme which covers most of the management population. Under this programme, we try to identify the development needs of each individual from the outset, as well as identifying successor candidates for senior roles. We also have an ongoing relationship with one of the world's leading business schools, IMD, to deliver a tailor-made Group-wide management education programme.

Another risk is that competitors seek to recruit our key personnel. For many years, Aggreko has been a target for recruitment and we manage this on a daily basis. We actually regard it as a compliment that so many companies want to recruit our people. The main mitigation for this is to make sure that people enjoy working for Aggreko, that they feel that they are recognised, cared for, and have challenging and interesting jobs. Reward is also an important part of the equation, and there can be little doubt that our policy of rewarding people well for good performance, and of having a successful Long-Term Incentive Plan, has acted as a powerful retention tool.

Group Income Statement

for the year ended 31 December 2011

The above results relate to continuing operations and all profit for the period is attributable to equity shareholders of the Company.

Group Statement of Comprehensive Income

for the year ended 31 December 2011

Group Balance Sheet (Company Number: SC177553)

as at 31 December 2011

The financial statements on pages 28 to 43 were approved and authorised for issue by the Board of Directors on 9 March 2012 and were signed on its behalf by:

Group Cash Flow Statement

for the year ended 31 December 2011

Reconciliation of net cash flow to movement in net debt

for the year ended 31 December 2011

Group statement of changes in equity

For the year ended 31 December 2011

Notes to the Group Cash Flow Statement

for the year ended 31 December 2011

In the cash flow statement, proceeds from sale of PPE comprise: