4th Mar 2010 07:00
Aggreko plc
PRELIMINARY RESULTS
FOR THE TWELVE MONTHS TO 31 DECEMBER 2009
Aggreko plc, the world leader in the supply of temporary power and temperature control, announces its preliminary results for the twelve months to 31 December 2009.
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Movement pre- intangible |
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2009 pre- |
2008 pre- |
asset amortisation |
2009 post- |
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intangible asset |
intangible asset |
As |
Constant |
intangible asset |
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amortisation |
amortisation |
reported |
currency |
amortisation |
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Group revenue |
£1,023.9m |
£946.6m |
8.2% |
(6.3)% |
£1,023.9m |
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Group revenue excl pass through fuel
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£965.9m |
£861.9m |
12.1% |
(2.6)% |
£965.9m |
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Trading profit (1) |
£255.0m |
£202.2m |
26.1% |
7.0% |
£252.5m |
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Profit before tax |
£246.5m |
£191.6m |
28.7% |
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£244.0m |
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Earnings per share |
63.30p |
46.16p |
37.2% |
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62.67p |
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Dividend per share |
12.60p |
10.08p |
25.0% |
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12.60p |
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(1) |
Trading profit represents operating profit before gain on sale of property, plant and equipment. |
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(2) |
All figures below are stated before amortisation of intangible assets arising from business combinations (2009: £2.5m pre-tax, £1.7m post-tax; 2008: £1.6m pre-tax, £1.0m post-tax) as management believe that the exclusion of such items provides a better comparison of business performance. |
·; Another strong performance, with the Group delivering record revenues, profits, margins and returns on capital
·; Operating cashflow increased by 56% to £431m (2008: £276m); net debt reduced by 52% to £175m
·; £150m invested in new fleet (1.1x depreciation); average fleet age reduced
·; Continued growth in International Power Projects which is now contributing more than 60% of Group profits
- 10% more on hire at the end of the year than at the start
- Strong order intake in H2 carries forward into 2010 : 360 MW of new contracts signed in first 8 weeks
- Supplied power to a record 56 countries during the year
- Rate of investment in International Power Projects fleet in 2010 to be increased after encouraging start to the year
·; Local business increased market share in difficult market conditions
- Power volumes similar to 2008, despite tough comparators
- Delivered 18% margins and 20% return on capital despite weak demand and lower rates
Philip Rogerson, Chairman, commented:
"Aggreko delivered another record performance in 2009, despite the challenging economic conditions. While we remain cautious about the outlook for the Local business, we are encouraged by the strong start made by International Power Projects in 2010. As a consequence we are increasing our December guidance for fleet capital expenditure in 2010 by £20 million to £200 million; most of which will be invested in the International Power Projects business."
"Given the encouraging prospects for International Power Projects, and the additional fleet investment, we now believe that we will do a little better than we anticipated at the time of our December trading update."
Rupert Soames, Chief Executive, commented:
"We made very good progress against our strategy in 2009, thanks to another strong performance from International Power Projects. Group revenues, margins and returns on capital employed all improved on the prior year, to stand at record levels."
Regional performance metrics:
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Revenue millions |
Constant currency change |
Trading Profit millions* |
Constant currency change |
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2009 |
2008 |
% |
2009 |
2008 |
% |
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North America |
$309.8 |
$386.2 |
(19.5)% |
$55.9 |
$85.6 |
(35.7)% |
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Europe & Middle East |
£249.6 |
£256.6 |
(11.6)% |
£35.5 |
£43.6 |
(28.1)% |
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International Local business |
£96.8 |
£116.3 |
(25.3)% |
£24.2 |
£32.8 |
(34.8)% |
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International Power Projects excl fuel |
$661.3 |
$524.1 |
26.2% |
$247.6 |
$143.6 |
69.6% |
* Trading profit is before amortisation of intangible assets arising from business combinations
- ENDS -
Enquiries to:
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Rupert Soames / Angus Cockburn |
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Aggreko plc |
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Tel. 0141 225 5900 |
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Neil Bennett / George Hudson |
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Maitland |
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Tel: 020 7379 5151 |
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report that Aggreko delivered another record performance in 2009, despite the challenging economic conditions. Reported revenue grew by 8.2% to £1,023.9 million (2008: £946.6 million) and trading profit(1)grew by 25.9% to £252.5 million (2008: £200.6 million). Performance was helped by a positive foreign exchange impact; nevertheless, trading profit grew by 6.8% on a constant currency(2) basis. It should also be noted that 2009 was a 53-week financial year, which added about £10 million to reported trading profit.
Amongst our businesses, International Power Projects once again performed extremely well: trading profit grew by 69.6% in constant currency on revenue which was 26.2% ahead on the same basis excluding pass through fuel(3). Our Local business, which is more exposed to the GDP cycle and faced some very tough year-on-year comparators, had a more difficult time, with trading profit in constant currency falling by 33.8% on revenues 17.3% lower than 2008.
At Group level, profit before tax increased by 28.4% to £244.0 million (2008: £190.0 million) and earnings per share increased by 36.9% to 62.67 pence (2008: 45.77 pence). Return on average capital employed improved by 0.5pp to 29.0%.
Strategy
Aggreko's strategy is to deliver attractive and growing returns to shareholders, excellent service to customers, and rewarding careers to our employees by being 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 we feel they can add value. We continued to make good progress in 2009, despite adopting a more cautious approach in terms of capital investment and costs. Capital expenditure fell to £160.9 million, a reduction of almost 40% compared to 2008, but still some 1.1 times depreciation.
In March 2008 we reported on the result of the biennial strategy update we carried out in 2007. In this update, we said that we believed the business could deliver on average double digit revenue and earnings growth over the period 2007-2012; as part of this plan, we anticipated spending about £1 billion on fleet capital expenditure over the same timescale. Despite the unanticipated onset of world-wide recession, I am pleased to report that so far we remain well on track having delivered over the first two years of the plan, compound annual revenue growth in constant currency of 11% and operating profit growth of 22%. Fleet capital expenditure over the period has averaged £203 million per annum - exactly in line with our forecast; in 2010 we expect to invest around £200 million.
In the body of this report we give the results of our 2009 biennial strategy update. In summary, we believe that our strategies for both the Local and International Power Projects businesses are working well, and we still believe our aspiration of delivering double digit revenue and earnings growth over the five years to 2012 is reasonable although, as we have repeatedly said, progress towards this objective will not be in a smooth line; there will be peaks and troughs from year to year. We also set out our thoughts about how the market for the supply of electrical energy will develop over the next ten years; we believe that a combination of inadequate levels of investment in new and replacement generating capacity, rapid growth in demand for power in emerging markets, and the implications of having to incorporate large amounts of renewable generation into power networks will bring increasing levels of stress and uncertainty to the electricity supply markets. This is likely to present new opportunities for Aggreko in the years ahead.
Funding
The business delivered a very strong cash performance. Net cash inflow from operations during the year increased by 56.0% to £430.8 million (2008: £276.1 million). This funded capital expenditure of £160.9 million, which was £104.3 million lower than in 2008. As a consequence of this strong cash performance, net debt at 31 December 2009 fell by more than half during the year to £175.5 million, a reduction of £188.5 million.
Our financial position continues to be very strong with net debt to EBITDA (Earnings before Interest Tax Depreciation & Amortisation) of 0.4 times (2008: 1.1 times) at 31 December 2009 compared to our bank covenant of 3 times. Interest cover, measured on an EBITDA basis, remains strong at 22.8 times (2008: 21.8 times), and well ahead of our covenant of 4 times cover. We also have plenty of headroom against our bank facilities: net debt at the year end stood at £175.5 million (2008: £364.0 million), against current committed bank facilities of around £450 million. The next significant tranche of debt which the Group will need to refinance matures in the second half of 2011.
Dividend
The Board is recommending a 25% increase in the dividend for the year as a whole; this will comprise a final dividend of 8.23 pence per ordinary share which, when added to the interim dividend of 4.37 pence, gives a total for the year of 12.60 pence. At this level, the dividend would be covered 4.97 times. Subject to approval by shareholders, the final dividend will be paid on 21 May 2010 to ordinary shareholders on the register as at 23 April 2010, with an ex-dividend date of 21 April 2010.
Employees
Once again I have been extremely impressed by the commitment and professionalism of all our employees, especially in this challenging economic environment. On behalf of the Board I would like to thank all of them for the contribution they have made to Aggreko's success in 2009.
Outlook for 2010
The pattern of trading seen in the second half of 2009 has continued in the first two months of 2010, namely: growth in International Power Projects, stability but no signs of material improvement in our Local markets.
International Power Projects started the year with nearly 10% more capacity on rent than a year ago and about 10 months of forward order cover. The order intake in the last quarter of 2009 was strong and we quoted for projects in 36 countries. Since the beginning of the year we have signed some 364 MW including 100 MW in Panama and 115 MW in the Sultanate of Oman; our prospect pipeline remains very healthy.
Trading in the Local business remains subdued; power volumes on rent are about 4% ahead of last year, but temperature control volumes are about 7% down. The Vancouver Winter Olympics are going well, and we expect these to contribute around $25 million to first quarter revenues in North America. While some areas have achieved modest price improvements, rates generally remain weak.
It is always difficult at this early stage to come to a definitive view of the likely outcome of the year, and never more so than in the current economic environment. While we remain cautious about the outlook for the Local business, we are encouraged by the strong start made by International Power Projects in 2010. As a consequence we are increasing our December guidance for fleet capital expenditure in 2010 by £20 million to £200 million; most of which will be invested in the International Power Projects business.
Given the encouraging prospects for International Power Projects, and the additional fleet investment, we now believe that we will do a little better than we anticipated at the time of our December trading update.
Philip G Rogerson
Chairman
4 March 2010
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(1) |
Trading profit represents operating profit before gain on sale of property, plant and equipment. |
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(2) |
Constant currency takes account of the impact of translational exchange movements in respect of our businesses which operate in currency other than sterling. |
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(3) |
Pass-through fuel relates to two contracts in our International Power Projects business where we provide fuel on a pass-through basis. |
GROUP STRATEGY
Our strategy is to deliver long-term value to shareholders, excellent service to customers and rewarding careers to our employees by being the leading global provider of temporary power and temperature control. This strategy was developed following an in-depth review of Aggreko's business in 2003, and has been consistently applied for the last six years; it continues to be the basis of our business planning. The strong growth in revenues, margins and returns on capital achieved by the Group over the last six years indicate that the strategy is the right one, and we continue to work relentlessly to implement it.
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Aggreko Group - excluding pass-through fuel |
2009 |
2003 |
CAGR |
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Revenue (£M) |
966 |
324 |
20% |
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Trading profit (£M) |
251 |
42 |
35% |
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Trading margin |
26% |
13% |
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Return on capital employed (ROCE)* |
29% |
13% |
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Enterprise value (£M) |
2,719 |
514 |
32% |
*calculated using average net operating assets
Aggreko's strategy is developed by the senior management team, led by the Chief Executive, and involves internal and external research, much of it proprietary. We seek to develop a deep understanding of the drivers of demand, changing customer requirements, the competitive environment, as well as developments in technology and regulation. We look at our own strengths and weaknesses, and at the opportunities and threats that are likely to face us. From this analysis, we develop a list of investment and operational options, and analyse their relative risks and rewards, bearing in mind the capabilities and resources of the Group.
We test our strategy on a two-year cycle; this keeps the strategy fresh and relevant, and enables us to spot and react to new opportunities. Having conducted a root-and-branch review in 2003 we re-examined our conclusions in 2005 and 2007 and have done so again in 2009. The conclusions from this most recent review are summarised below:
·; The strategy we developed in 2003 and re-confirmed in 2005 and 2007 is working well.
·; Our Local business continues to offer attractive opportunities for growth, both from growing our density and footprint in existing markets, and expanding into new countries.
·; The factors which have driven the growth of our International Power Projects business will continue to provide plenty of headroom for this business for the foreseeable future; the world faces serious structural shortages of power which will last for many years and which should sustain demand for our services.
·; In our 2009 review we stepped up the work we are doing on emissions and planning the transition of our fleet to use equipment with improved emissions performance.
·; In all our businesses, there are opportunities to improve the efficiency of operations, whilst maintaining our prized agility. There are plenty of things we can do better.
Below we set out our strategy for each of our business lines, and at the end of this section we reflect on some of the future trends that we believe may come to be important to our business in the years ahead.
Business line operational strategy
Supporting the Group strategy, Aggreko has developed operational strategies for our two different lines of business:
·; The Local business rents power and temperature control systems, from small generators to large cooling plants, to customers who are typically within a few hours driving time of our service centres.
·; The International Power Projects business installs and operates temporary power plants and sells their power on to utilities, the military and major industrial users.
The Local business
The Local business serves customers from 144 service centres in 34 countries in North, Central & South America, Europe, the Middle East, Africa, Asia and Australasia. This is a business with high transaction volumes: average contracts have a value of around £3,000 and last for 2-3 weeks. The Local business represents 56% of Aggreko's revenues and 37% of trading profit, excluding pass-through fuel. Since 2003, the performance of the Local business has improved sharply, despite the difficult trading conditions experienced in 2009:
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Aggreko Local business |
2009 |
2003 |
CAGR |
% of Group (09) |
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Revenue (£M) |
544 |
258 |
13% |
56% |
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Trading profit (£M) |
93 |
27 |
23% |
37% |
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Trading margin |
17% |
10% |
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ROCE* |
20% |
11% |
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There are three elements in our strategy for the Local business:-
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1. |
Maintain a clear differentiation between our offering and that of our competitors through superior service |
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2. |
To be extremely efficient in the way we run the Local business |
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3. |
To deliver growth in revenues |
Against the first objective - to maintain a clear differentiation between our offering and our competitors - our research shows that Aggreko is regarded by our customers as providing extremely good service, and that we deliver high levels of customer satisfaction. We are determined to maintain this reputation for premium service and we do this through the attitude and expertise of our staff, the geographic reach of our operations, the design, availability and reliability of our equipment, and the ability to respond to our customers 24 hours a day, 7 days a week.
There is tangible evidence that we are succeeding in building service differentiation in the form of our Net Promoter Scores. This is an objective measure of customer satisfaction which we derive from questioning over 25,000 customers a year; when customers off-hire equipment in our Local business, we ask them to rate our performance, and distil their responses into a single number which reflects the relationship between those who think we are wonderful, and those who think we are dreadful. Happily, the former greatly outnumber the latter. Over the last four years our score has improved by 10pp and, in many of our Local businesses, is now at levels that match or exceed those achieved by companies in other sectors renowned for delivering high levels of service.
The second objective of our strategy is to be extremely efficient in the way we run our operations. This is essential if we are to provide superior customer service at a competitive price, and at the same time deliver to our shareholders an attractive return on capital. In a business in which lead-times are short, logistics are complex, and we process a large number of low-value transactions, an essential pre-condition of efficiency is having high quality systems and processes.
The operation of our Local businesses in Europe and North America is based on a "hub-and-spoke" model which has two types of service centre: hubs hold our larger items of equipment as well as providing service and repair facilities; spokes are smaller and act as logistics points from which equipment can be delivered quickly to a customer's site. The hubs and spokes have been organised into areas in which a manager has responsibility for the revenues, profitability and use of capital within that area. In this model, most administrative and call handling functions are carried out in central rental centres.
An integral part of the strategy for the Local business is the implementation of our ERP system which provides a single, global, IT system for managing our business. The system gives us greatly improved visibility of the business, which enables us to drive improvements in operating efficiency. The system is fully operational in Europe and North America, and is well progressed in the Middle East and Aggreko International.
This operating model, and the investment in a standard global IT platform, is delivering benefits to both our customers and shareholders. As described above, our Net Promoter Scores tell us that the model is benefitting customers, and for our shareholders the benefit has been a compound growth in trading profit of 23% over the last six years and a return on capital employed that has improved from 11% to 20% over the same period.
The third objective of our strategy for the Local business is to deliver growth in revenues by increasing market share and global reach. In our more mature markets, such as North America and Europe, we know that the most profitable businesses are those where we have dense networks of service centres, which can share equipment, staff and customers, and benefit from the low transport costs that come from being physically close to customers. So, in these markets, we focus on adding new service centres and upgrading existing centres to make them more capable. In the last three years, in our mature markets in North America and Europe, we have opened or upgraded service centres in:
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North America: |
Indianapolis, Long Island, Fort McMurray, Gillette |
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Europe: |
Bordeaux, Bristol, Metz, Padova, Berlin |
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Australia: |
Geraldton, Gladstone |
However, we know that our businesses grow fastest where there is strong growth in GDP, and, specifically, in Aggreko GDP (GDP weighted to industries which typically use our services). So a core part of our strategy has been expanding our Local business in the faster-growing economies of South America, the Middle East, Africa and Asia. The acquisition of GE Energy Rentals in 2006 helped us to expand our footprint in Brazil, Chile and Mexico, and since then we have opened or upgraded service centres in:
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Africa: |
Johannesburg |
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Middle East: |
Doha, Jebel Ali, Abu Dhabi, Muscat, Jeddah, Al Khobar |
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Central & South America: |
Panama, Buenos Aires, Antofagasta |
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Asia: |
Pune, Shanghai, Dalian, Singapore |
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Russia: |
Moscow |
International Power Projects
This business serves the requirements of power utilities, governments, armed forces and major industrial users for utility-quality, temporary power generation. Whereas in the Local business we rent equipment to customers who operate it for themselves, in International Power Projects we contract to provide power generated by plants financed, installed and operated by our own staff. The power plants range in size from 10 MW to 100 MW on a single site, and the initial contract value will typically be around £1 million, with a duration of 6-9 months, although many contracts are subsequently extended beyond this in both time and value.
The business operates in areas where we do not have a large Local business. Most of the customers are power utilities in Africa, Asia, Central and South America. The driver of demand in these markets is that our customers' economies are growing, with consequent increases in demand for additional power which cannot be met by the current generating capacity. As a result, many of them face chronic power shortages which damage their ability to support economic growth and increased prosperity. These shortages are often caused or exacerbated by the variability of supply arising from the use of hydro-electric power plants whose output is dependent on rainfall.
International Power Projects now represents 44% of Group revenues and 63% of trading profit excluding pass-through fuel. Since 2003, the International Power Projects business has grown very rapidly:
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International Power Projects excl pass-through fuel |
2009 |
2003 |
CAGR |
% of Group (09) |
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Revenue (£M) |
422 |
66 |
36% |
44% |
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Trading profit (£M) |
158 |
15 |
48% |
63% |
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Trading margin |
37% |
23% |
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ROCE* |
42% |
25% |
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Footnote: pass-through fuel refers to revenues we generate from two customers for whom we have agreed to manage the provision of fuel on a "pass-through" basis. This revenue stream fluctuates with the cost of fuel and the volumes taken, while having little impact on our profitability. We therefore exclude pass-through fuel from most discussions of our business.
The strategy for this business is straightforward: grow as fast as we prudently can, to secure for ourselves the operating efficiencies and competitive advantages which come from being the largest global operator. So far, we have been very successful in executing this strategy, and Aggreko's International Power Projects business is now many times bigger than its next largest competitor.
The reason why it is advantageous to be a global operator in temporary power is because demand can shift rapidly between continents. Six years ago, South America and Sri Lanka were the largest markets, and Africa was only a small proportion of global demand. In 2009, the market in Africa was larger than South America and Sri Lanka combined. It would not surprise us if this situation were to change again in the next three years. These shifts in demand were driven in part by rainfall patterns, in part by the relationship between economic growth and investment in permanent power generation and in part by geo-political issues. To be successful in the long-term, therefore, requires the ability to serve demand globally, and that requires sales, marketing and operational infrastructure to be present in all major markets.
The reason we want to be big - and bigger than any of our competitors - is because we believe that this is a business in which scale brings significant competitive advantages. There are numerous reasons for this:-
·; Being able to address demand on a world-wide basis means higher utilisation. When fleet returns from a customer at the end of a contract, the speed with which it can be put back on contract again is a major determinant of profitability and returns on capital. Fleet will find new work far more quickly if it can address the total pool of world demand than if it is only able to operate in a single region.
·; By the time customers have decided they really do have to spend money on temporary power, they generally want it as fast as possible. Being able to offer very fast lead-times for large amounts of capacity is a significant competitive advantage. Small operators simply cannot afford to keep 250-300 MW of capacity (say, £30-£40 million of capital) hanging around waiting for the next job; they will tend to wait until they get a job, and then try to finance and build the equipment to serve it, which inevitably means longer lead-times. Because the equipment used in International Power Projects is also used in the Local business fleet, we manage our large generators as a common global pool. Between the Local business and International Power Projects, we currently have a fleet of around 4,400 of these large generators, and can therefore assemble hundreds of MW of capacity from our various businesses around the world on very short notice. A good example would be a recent contract award in Kenya, where we were able to deliver and commission 140 MW within 8 weeks of contract. No competitor could meet this delivery.
·; The management of risk is a critical part of our business; we place tens of millions of pounds worth of capital assets in countries where the operational, political and payment risks are significant. While we take great care to mitigate these risks, it is probable that sooner or later we will have a loss of either a debtor, or equipment, or both. However, because of our scale, such a loss would not imperil the company as a whole. The risk of loss for smaller companies is no less, but their ability to withstand the consequences of a large loss is. Scale therefore allows us to deal in markets where others might sensibly fear to tread.
·; Returns from rental businesses are heavily dependent upon the underlying capital cost of the rental fleet. Clearly, large buyers should get better terms than small buyers, and since we are by far the largest purchaser of power generation and temperature control equipment for rental applications in the world, we believe that we are advantaged in this area. The fact that we have the scale to justify having our own manufacturing and design facilities means that we can source equipment better suited to our precise requirements, and more cheaply, than smaller operators.
In summary, a large operator will have lower volatility of demand, better lifetime utilisation of equipment, be better able to respond to customer requirements, and will have a lower fleet cost per MW. In International Power Projects, bigger is better - and Aggreko is now much larger than any other competitor in this market, as well as being the only company to have distribution in all the major markets.
Further ahead
In the 2009 strategy update, we also tried to look ahead and outside the boundaries of our existing business model to see if there might be other opportunities for us to deliver value to our shareholders. We were encouraged by what we found, and we set out below some of our thoughts about the way the energy market might develop. We do this with trepidation, because there is a danger that some people will take our musings on the opportunities that might lie in front of us, and the ideas that we want to explore, as commitments that we will move into a particular market space. They most definitely are not. But on balance, we think it right that we should share with investors and other stakeholders what we are thinking about; how we see the world and our markets evolving; and where we are investing time and money in research. So it is with this caveat that we lay out below how we see the future.
As we have set out in the section describing our markets in our Annual Report & Accounts, we estimate that world demand for electricity will increase at a compound rate of around 4% between now and 2015; this compares to a growth in net capacity of around 3% per annum, resulting in a world-wide projected shortfall in supply growing at around 50,000 MW per annum. This supply : demand gap is likely to be focussed on emerging markets, who have burgeoning demand, and inadequate supply. These emerging markets have been strong markets for our International Power Projects business for the last five years. However, in our 2009 study, we have identified that some of the stresses which create demand for us in emerging markets may also start to appear in more developed economies.
The market for the supply of electricity, like most utility businesses, thrives on stability and hates uncertainty. This is particularly so in countries that rely on the private sector to fund investment in power generation, which is the case in most developed markets. The long life and enormous capital costs of the infrastructure required to generate and deliver cheap electricity require an environment in which investors can build power plants and be reasonably sure of the amount of money they will earn over the next thirty or forty years. We believe that the market for the supply of electricity in developed markets is going through a phase where that stability and certainty is lacking. There is going to be a lot of change, uncertainty and market stress, and the next ten years are going to be hugely challenging for governments, regulators, investors and operators.
The main source of that stress and uncertainty arises from the struggle to devise ways to manage the electricity supply market to deliver de-carbonisation of power generation, and to accommodate changing public attitudes to nuclear power. On the one hand, the great power-plant manufacturers of the world have developed over the last fifty years extremely effective technology for generating vast amounts of cheap electricity using hydro-carbon and nuclear fuels. These technologies have been perfected in time for public opinion to decide that they must have less of that, and far more renewable technology, much of which is decades away from competing in terms of either cost or efficiency with thermal plants.
The amount of subsidy, or the increase in the price of carbon, required to level the playing field between a modern Combined-Cycle Gas Turbine and an off-shore wind-farm is enormous. Regulators, economists and politicians have struggled to devise "market signals" with which they can square this circle, proposing revisions to policy, subsidy regimes and planning regulations at bewildering rates, and this rapidly changing outlook has encouraged investors to wait-and-see rather than build new plant.
Levels of investment have been inadequate to replace power plants which, either because of age or because they fail to meet emissions standards, will have to be closed in the next ten years. Between 2000 and 2007 the amount of generating capacity outside China over 40 years old (a reasonable proxy for the average life of power plants) more than doubled, and yet in the same period the amount of new capacity commissioned per year outside China fell sharply; by 2015 over a quarter of the world's generating capacity outside China will be over 40 years old.
We believe that the developed world is building up a bow-wave of delayed investment that sometime in the next ten years will have to break. The most immediate effect of the wave breaking will likely be rapid inflation in the building costs of new plant as plant operators rush to order the plants that should already be in construction.
But what plants will they build? The majority of plants will inevitably have to be thermal, but the electricity networks of the future are all going to have to deal with large amounts of wind-power, and that is going to require substantial investment in transmission and distribution networks to cope with intermittent output and, in the case of wind, the fact that large wind-farms have to be positioned far from centres of consumption. For those unfamiliar with the variability of wind generation, the paragraph below describes the output from Ireland's 900 MW of installed wind capacity during the period 1 January - 31 March 2009.
During this 3-month period, there were 12 occasions where power output varied by more than 100 MW within 15 minutes, 76 when that variation occurred within 30 minutes; that variation is equivalent to around 37% of the average output. The peak output was 940 MW, the lowest was 9 MW. These variations in output bore no relationship to demand, which was at its peak during a cold period in mid-February, characterised (as cold winter periods often are) by very little wind.
Presenting these facts is neither a polemic against wind-power, nor one in favour of thermal plants. It is simply stating that the generation mix in ten years time will be different, and will have to cater for part of the mix being far more variable than system operators are used to having to deal with.
Our whole strategy in developing our International Power Projects business has been based on our analysis that the energy gap between supply and demand was getting worse, and particularly so in emerging markets. So that is not new. What is new is our analysis that similar stresses may begin to emerge in developed economies over the next ten years, driven partially by the policy of de-carbonising power generation and lack of investment.
These stresses should present opportunities for Aggreko. The technology we have developed over recent years has some unique features which may make it attractive to system operators who will have to manage large amounts of renewable generation, low reserve margins and ageing plant. To be more specific:-
·; We have developed a highly-efficient, multi-fuel, utility power generating capability which has a capital cost per megawatt about one third that of conventional utility power plants. We think conventional power-plant technologies such as Combined-Cycle Gas Turbines, Hydro and Nuclear, while ideally suited for base-load operation, will struggle with the economics of operating on an intermittent basis and the unpredictable start-stop cycle required to respond to the variable output of renewable power generation.
·; Our technology is ideally suited to intermittent, fast-start operation. We can bring enough power on-line to keep the lights on for whole cities within 30 seconds. We think system operators will come to find this sort of sustainable, distributed, fast response capability essential if they are to operate with meaningful amounts of wind generation.
·; Our technology is ideally suited to distributed operation. Because it comes in 1MW blocks, and is mobile, we can put 25 MW here, 150 MW there, and 5 MW over there. And then can shift 50 MW of the 150 MW site to the 25 MW site within a couple of days. We think that distributed generation will become increasingly popular with system operators and they will value the mobility and flexibility we have the capability to provide. And for our part, we should be able to generate premium returns by being able to move our plant globally to where the need, and therefore prices, are greatest.
·; To match what we believe will become an increasingly attractive technical proposition, we also have, for a power generation company, an enormous customer base and global reach. We already are established suppliers to power utilities and governments in around 50 countries. This means that we have the ability to roll out good ideas on a global scale.
In summary: to date the main focus of our International Power Projects business has been emerging markets. Over the next ten years, however, as wind penetration rises, and as old plants retire, reserve margins will fall in developed economies as well. And at this point opportunities might arise for Aggreko to support system operators and utilities in developed markets as well as in emerging markets.
We would like to stress that this is not a short-term opportunity. Quite the opposite: in the short term many developed countries have high reserve margins as the economic crisis has caused power consumption to reduce. But these reserve margins are forecast to fall quite sharply between now and 2015. So we will spend some time over the next few years exploring these ideas.
Review of Trading
Group Trading Performance
The trading results for the 53 weeks to 31 December 2009 are set out below.
Aggreko delivered another strong trading performance in 2009, despite the difficult macro-economic environment. We made very good progress against our strategy, thanks to another strong performance from International Power Projects. Group revenues, margins and returns on capital employed all improved on the prior year, to stand at record levels.
|
|
|
|
Movement |
|
|
|
2009 |
2008 |
As |
Constant |
|
|
£m |
£m |
reported |
Currency |
|
|
|
|
|
|
|
Revenue |
1,023.9 |
946.6 |
8.2% |
(6.3)% |
|
Revenue excl pass-through fuel |
965.9 |
861.9 |
12.1% |
(2.6)% |
|
Trading profit (1) |
252.5 |
200.6 |
25.9% |
6.8% |
|
Operating profit |
262.1 |
204.8 |
28.0% |
8.7% |
|
Net interest expense |
(18.1) |
(14.8) |
(22.6)% |
|
|
Profit before tax |
244.0 |
190.0 |
28.4% |
|
|
Taxation |
(75.6) |
(67.3) |
(12.4)% |
|
|
Profit after tax |
168.4 |
122.7 |
37.2% |
|
|
Basic earnings per share (pence) |
62.67 |
45.77 |
36.9% |
|
(1) Trading profit represents operating profit before gain on sale of property, plant and equipment.
As reported, Group revenue at £1,023.9 million (2008: £946.6 million) was 8.2% higher than 2008, while Group trading profit of £252.5 million (2008: £200.6 million) was 25.9% ahead of 2008. This delivered an increase in Group trading margin from 21.2% in 2008 to 24.7% in 2009. Return on capital employed, measured as operating profit divided by average net operating assets, improved by 0.5pp to 29.0% (2008: 28.5%).
The trading results are for 53 weeks; the estimated impact of the extra week's trading was around an additional £16 million of revenue and £10 million of trading profit. More materially, the weakening of Sterling during the year, particularly against the US Dollar and the Euro, had a powerful effect with reported revenue increasing by £145.9 million and trading profit by £35.9 million as a consequence of currency movements. On an underlying basis, Group revenue in constant currency and excluding pass-through fuel (see below), decreased by 2.6% and trading profit increased by 7.6%. On the same basis trading margin was 26.0% (2008: 22.9%).
Group profit before tax increased by 28.4% to £244.0 million (2008: £190.0 million), and profit after tax increased by 37.2% to £168.4 million (2008: £122.7 million). Earnings per share grew 36.9% to 62.67 pence (2008: 45.77 pence). The effective tax rate for the full year is 31.0% compared to 35.4% in the prior year.
In the interests of transparency, the Group separately reports revenue from pass-through fuel, supplies of which we manage for two International Power Projects customers. The reason for the separate reporting is that the revenue is entirely dependent on fuel prices and volumes of fuel consumed, neither of which we control, and which can be very volatile and may distort measurement of the performance of the underlying business. The margin we make on this revenue relates to the fractional difference between the contracted rate of fuel consumption per kilowatt hour and the actual rate we achieve across our power plants. In 2009, revenue from these contracts was £58.0 million (2008: £84.7 million) and generated a trading profit of £1.7 million (2008: £2.9 million).
In response to the deteriorating market conditions we reduced the rate of investment in our rental fleet, but still kept it at a level (1.1x depreciation) which enabled us to continue to reduce the average age of the fleet. We spent £149.7 million (2008: £256.4 million) on fleet capital expenditure, which represented 93% of total capital expenditure of £160.9 million. In addition, we acquired £1.4 million of property, plant and equipment as part of the Cummins India Ltd power rental business acquisition. Capital productivity - expressed as the ratio of revenue (excluding pass-through fuel) to gross rental assets dropped from 78% to 69% reflecting the impact of reduced rates in the Local business in both the power and temperature control product lines and reduced volumes for temperature control.
The Group delivered a strong performance on cash. EBITDA (earnings before interest, taxes, depreciation and amortisation) increased 28.0% to £413.0 million, and, helped by positive working capital movements, net cash inflow from operations during the year increased by 56.0% to £430.8 million (2008: £276.1 million). Together with the reduced level of capital expenditure and £19.8 million of positive currency movements, this enabled us to more than halve our net debt to £175.5 million (2008: £364.0 million).
Corporate Activity
In November 2008 we announced, and on 1 January 2009 we completed, the acquisition of the power rental business of Cummins India Ltd. Since the acquisition we have opened our first depot in Pune, and by year end we had over 35 MW on rent in the country.
As we disclosed in the December 2008 Annual Report and Accounts the sale of our Northern European oil-free air business was completed in March 2009 and a gain on sale of £5.8 million was recognised within operating profit in the Group income statement in the year ending 31 December 2009.
Regional Trading Performance as reported in £ million
|
|
Revenue |
|
|
Trading |
|
|
|
|
|
|
|
Profit |
|
|
|
Management |
2009 |
2008 |
Change |
2009 |
2008 |
Change |
|
Group |
£ million |
£ million |
% |
£ million |
£ million |
% |
|
|
|
|
|
|
|
|
|
Local business |
||||||
|
North America |
197.6 |
207.5 |
(4.7)% |
34.1 |
44.9 |
(24.1)% |
|
Europe |
158.9 |
181.6 |
(12.5)% |
12.9 |
24.0 |
(46.3)% |
|
Middle East |
90.7 |
75.0 |
21.0% |
22.4 |
19.4 |
14.8% |
|
Sub-total Europe & Middle East |
249.6 |
256.6 |
(2.7)% |
35.3 |
43.4 |
(18.9)% |
|
International Local businesses |
96.8 |
116.3 |
(16.8)% |
23.5 |
32.6 |
(27.5)% |
|
Sub-total Local business |
544.0 |
580.4 |
(6.3)% |
92.9 |
120.9 |
(23.2)% |
|
International Power Projects (IPP) |
||||||
|
IPP excl. pass-through fuel |
421.9 |
281.5 |
49.8% |
157.9 |
76.8 |
104.8% |
|
IPP pass-through fuel |
58.0 |
84.7 |
(31.5)% |
1.7 |
2.9 |
(40.6)% |
|
Sub-total International Power Projects |
479.9 |
366.2 |
31.0% |
159.6 |
79.7 |
100.3% |
|
Group |
1,023.9 |
946.6 |
8.2% |
252.5 |
200.6 |
25.9% |
|
Group excluding pass - through fuel |
965.9 |
861.9 |
12.1% |
250.8 |
197.7 |
26.8% |
The performance of each of these regions is described below:
Local business: North America
|
|
|
2009 |
2008 |
Constant currency change (1) |
|
|
|
$ million |
$ million |
% |
|
Revenue |
|
309.8 |
386.2 |
(19.5)% |
|
Trading profit |
|
53.4 |
83.6 |
(37.2)% |
(1) Constant currency takes account of the impact of translational exchange movements in respect of our businesses which operate in currency other than sterling.
Our North America business had a good start to 2009 with a strong first quarter helped by the Presidential Inauguration as well as work arising from the major storms of 2008. From April onwards, market conditions became progressively more difficult, in particular in temperature control. The full year results saw a decrease in revenue of 19.5% to $309.8 million; the trading margin at 17.2% (2008: 21.6%) was more robust than might have been expected with such a sharp fall in revenues, due to effective cost control. Trading profit decreased by 37.2% to $53.4 million.
While this performance was mainly attributable to poor market conditions, comparatives were particularly challenging in the second half which in 2008 included $26 million of storm related revenue and a very strong year for our Cooling Towers business. This was only partly offset in 2009 by the $14.5 million of revenue from the Vancouver Olympics in the fourth quarter and the impact of the 53rd week.
In terms of business mix, rental revenue declined 22% and services revenue declined 14%, the latter mainly due to lower fuel and freight charges. Power rental revenue for 2009 was 18% behind the prior year while temperature control revenue for the year was 29% behind last year. Oil-free air rental revenue was 11% down on the prior year. Nearly all market segments were weak.
Revenue in all areas decreased on prior year with the exception of Canada, reflecting the full year impact of the Power Plus acquisition which completed in August 2008. Having started off well, the performance of the Power Plus business was badly affected by the falling oil price and the cancellation of projects which had been planned in the Athabasca oil sands. Recent performance has been more encouraging.
Despite the poor economic backdrop the North American business continued to implement our Local business strategy of expanding our footprint and increasing our density, opening new service centres in Indianapolis, Gillette, Fort McMurray and Long Island.
The last quarter of 2009 saw trading conditions stabilising, although not visibly improving. On an underlying basis, this pattern has continued in the first few weeks of 2010, although the first quarter will benefit from revenues from the Vancouver Olympics, which will likely generate revenues of around $25 million in the period. At this early stage of the year it is hard to see far ahead, and trading for the year as a whole will be dependent on rates and volumes in the critical summer season.
Local business: Europe & Middle East
|
|
|
2009 |
2008 |
Constant currency change |
|
|
|
£ million |
£ million |
% |
|
Revenue |
|
249.6 |
256.6 |
(11.6)% |
|
Trading profit |
|
35.3 |
43.4 |
(28.2)% |
Europe
|
|
|
2009 |
2008 |
Constant currency change |
|
|
|
£ million |
£ million |
% |
|
Revenue |
|
158.9 |
181.6 |
(18.3)% |
|
Trading profit |
|
12.9 |
24.0 |
(50.3)% |
Middle East
|
|
|
2009 |
2008 |
Constant currency change |
|
|
|
AED million |
AED million |
% |
|
Revenue |
|
522.4 |
512.6 |
3.0% |
|
Trading profit |
|
128.9 |
133.4 |
(3.7)% |
The Europe & Middle East business had a challenging year, with revenue decreasing on a constant currency basis by 11.6% to £249.6 million; trading margin decreased to 14.1% (2008: 17.0%) and trading profit decreased on a constant currency basis by 28.2% to £35.3 million.
Revenue in Europe of £158.9 million was 18.3% behind the prior year on a constant currency basis with most markets being materially impacted by the economic downturn. The exceptions were France and Russia, with the former benefiting from storm revenue in the first quarter and the latter beginning to make encouraging progress amongst oil-services companies. As might be expected, our businesses in Spain and Ireland were particularly hard hit.
Rental revenue decreased by 19%, and as in North America, temperature control was worse affected than power; rental revenue from power decreased by 13%, and temperature control fell by 21%. Services revenue, which mainly comprises fuel and transport, decreased 18%. Trading profit fell substantially, in part due to the impact of the disposal of our European Oil-Free Air business and in part due to pressure on rates.
Revenue in the Middle East of AED522.4 million (£90.7 million) was 3.0% ahead of the prior year on a constant currency basis. Most territories grew strongly, but this was offset by a 46% decline in activity in Dubai, which in 2008 was our largest market. The strongest sectors were utilities, oil and gas and events.
Rental revenue increased by 10% in the Middle East, with power increasing by 14%, but temperature control decreasing by 18%. Services revenue, which mainly comprises fuel and transport, decreased by 23%. Margins weakened as we responded to competition on rates and as we deployed a higher proportion of our capacity on summer peak-shaving work, which is generally lower-margin business.
In 2010 the Europe & Middle East region has maintained the pattern of last year namely weakness in Europe and growth in the Middle East. There is some evidence of a modest strengthening of rates, but it is too early to tell if these will be maintained.
Local business: Aggreko International
|
|
|
2009 |
2008 |
Constant currency change |
|
|
|
£ million |
£ million |
% |
|
Revenue |
|
96.8 |
116.3 |
(25.3)% |
|
Trading profit |
|
23.5 |
32.6 |
(36.2)% |
Aggreko International's Local businesses operate in Australia, New Zealand, Brazil, Mexico, Chile, Argentina, Singapore, China, India and South Africa.
The businesses did better than the headline numbers suggest, since 2008 revenues included $41 million of revenue from the Beijing Olympics. Underlying revenues in constant currency fell 6.3%, which was a much lower decline than experienced in either Europe or North America. Headline revenues in constant currency fell by 25.3% to £96.8 million and trading profit declined by 36.2% to £23.5 million; trading margin was 24.4% as against 28.0% in 2008.
Excluding the Beijing Olympics, rental revenue in Aggreko International's Local business decreased by 9.9% and services revenue grew by 7.8%. Within rental revenue, power decreased by 9.7% and temperature control by 11.3%. The businesses in Australia, Brazil and Singapore, which account for the lion's share of the revenues, saw year on year declines in all their key sectors, most particularly in mining and shipping.
So far in 2010, power rental volumes are around 10% down on the prior year, but we would hope to have a stronger year than 2009, particularly given our participation in the World Cup in South Africa, the contract for which we have recently signed.
International Power Projects: Aggreko International
|
|
|
|
Constant currency |
|
|
2009 |
2008 |
change |
|
|
$ million |
$ million |
% |
|
|
|
|
|
|
Revenue (excluding pass-through fuel) |
661.3 |
524.1 |
26.2% |
|
Trading profit (excluding pass-through fuel) |
247.5 |
143.5 |
69.6% |
Our International Power Projects business delivered another excellent performance, with revenue and profits (excluding pass-through fuel) increasing by 26.2% and 69.6% respectively. Trading margin was 10pp ahead of the prior year at 37.4% (2008: 27.4%). The strong margin reflected lower levels of mobilisation costs (as a result of contracts extending), improved rates on existing business, better cost control and operational leverage from overheads as the business continues to grow.
During the year the business operated in 56 countries, and signed contracts for 31 new projects including 140MW in Kenya, 100MW in Saudi Arabia for summer peak shaving, 30MW in Ethiopia and 25MW in American Samoa. All areas increased revenue over the prior year with significant growth in the Middle East, Africa and South America. Capacity utilisation was about 2pp down on prior year. The military business had another strong year and revenue was up 30% as deployments in Afghanistan more than off-set off-hires in Iraq. Around 70% of International Power Projects' revenue in 2009 came from utilities; military projects represented about 19%, and oil & gas, mining and manufacturing together contributed about 11%. Our gas business is now beginning to get real traction; revenues from gas-powered generation grew by 79%, and we now have a fleet of over 250MW.
International Power Projects started 2010 with an order book of approximately 18,500 megawatt-months of contracted capacity, equivalent to about 10 months revenue at the current run-rate. At the year end, the International Power Projects fleet, at over 3,000 MW, was 14% larger than the previous year end and the business had 10% more capacity on rent than at the start of 2009. The level of enquiries is very healthy, and in the last quarter of 2009 we quoted for projects in 36 countries. We have recently announced contract signings in Panama (100MW for 12 months) and the Sultanate of Oman (115MW for a minimum of 3 months), and we have increased our forecast of fleet capital expenditure for the year by about 10%, or £20 million, on the basis of what we see as an encouraging start to the year in International Power Projects.
Detailed Financial Review
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 £660.3 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 which we depreciate over 10 years. The annual fleet depreciation charge of £138.1 million (2008: £107.7 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 'Business Combinations', goodwill arising on acquisition of assets and subsidiaries is capitalised and included in intangible assets. IFRS 3 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 2009 was £2.7 million (2008: £1.9 million). Included in this charge was £2.5 million related to the amortisation of intangible assets arising from business combinations (2008: £1.6 million).
Goodwill of £51.3 million (2008: £53.0 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.
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.
Under IAS 19: 'Employee Benefits', Aggreko has recognised a pre tax pension deficit of £5.8 million at 31 December 2009 (2008: £8.0 million) which is determined using actuarial assumptions. The decrease in the pension deficit is a result of the additional contributions made by the Company during the year over and above the cost of accrual of benefits. These were: £0.5 million paid in March 2009, in line with the Recovery Plan agreed for the Scheme following the 2005 valuation and £3.5 million paid in December 2009, in line with the Recovery Plan agreed for the Scheme following the actuarial valuation at 31 December 2008. In addition higher-than-expected returns were achieved on Scheme assets over the year. The additional contributions and investment returns have been offset by lower net interest rates used to value the liabilities.
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 the discount rate and longevity assumptions are shown in the table below.
|
Assumptions |
Change in assumption |
Indicative effect on the |
|
|
|
scheme's liabilities |
|
Discount rate |
Increase / decrease |
Decrease by 13.0% / increase |
|
|
by 0.5pp |
by 15.4% |
|
Longevity |
Increase by 1 year |
Increase by 2.3% |
Taxation
Aggreko's tax charge is based on the profit for the year and tax rates in force at the balance sheet date. In addition to 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 the tax law in these jurisdictions requires the Group to make judgements in determining the best estimate as to total amount of taxes that will become payable, and should therefore be recorded as a liability at the balance sheet date.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 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 the Group enters into 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, some of the contracts the Group undertakes in developing countries are substantial, 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 the 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 account. At 31 December 2009 the provision for impairment of trade receivables in the balance sheet was £26.2 million (2008: £25.2 million).
Currency Translation
The volatility of exchange rates during the year had a material impact on the results of the Group with revenue and trading profit increasing by £145.9 million and £35.9 million respectively as a result of currency movement. Currency translation also gave rise to a £30.9 million decrease in 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 affecting the Group's overseas profits and net assets.
|
|
2009 |
2008 |
||
|
(per £ sterling) |
|
|
||
|
|
Average |
Year End |
Average |
Year End |
|
Principal Exchange Rates |
|
|
|
|
|
United States Dollar |
1.57 |
1.62 |
1.86 |
1.48 |
|
Euro |
1.12 |
1.12 |
1.26 |
1.05 |
|
Other Operational Exchange Rates |
|
|
|
|
|
UAE Dirhams |
5.76 |
5.95 |
6.84 |
5.42 |
|
Australian Dollar |
1.99 |
1.80 |
2.19 |
2.16 |
|
(Source: Reuters) |
|
|
|
|
Interest
Despite a lower level of average debt, the net interest charge for the year increased by £3.3 million to £18.1 million, largely as a result of the cost of terminating some interest rate swaps as debt declined in the second half of 2009. Interest cover, measured on an EBITDA basis, remains very strong and increased to 22.8 times from 21.8 times in 2008.
Effective Tax Rate
The effective tax rate for the full year is 31.0% compared to 35.4% in the prior year.
Dividends
If the proposed final dividend of 8.23 pence is agreed by shareholders, it will result in a full year dividend of 12.60 pence per ordinary share, giving dividend cover of 4.97 times (2008: 4.54 times).
Cashflow
The net cash inflow from operations during the year totalled £430.8 million (2008: £276.1 million). This funded capital expenditure of £160.9 million, which was £104.3 million lower than in 2008. Net debt at 31 December 2009 was £188.5 million lower than the previous year; £19.8 million of this decrease was as a consequence of currency movements, with the balance being due to strong cashflow from operating activities and decreased levels of capital investment. As a result of the decrease in net debt, gearing (net debt as a percentage of equity) at 31 December 2009 decreased to 29% from 78% at 31 December 2008 while net debt to EBITDA decreased to 0.43x (2008: 1.13x).
We generated a cash inflow of £18.2 million from working capital in the year with a reduction in all elements of working capital, in part driven by revenues being 6.3% lower than the prior year, on a constant currency basis. Furthermore, the 2008 accounts receivable comparative was unusually high, driven by North America storm revenue in the last 4 months of 2008.
Net Operating Assets
The net operating assets of the Group (including goodwill) at 31 December 2009 totalled £883.8 million, £68.0 million lower than 2008; the main reason for this reduction, in constant currency, was the material reduction in Trade Debtors. The main components of net operating assets are:-
|
|
|
|
Movement |
|
|
£ million |
2009 |
2008 |
Headline |
Const Curr. |
|
|
|
|
|
|
|
Rental Fleet |
660.3 |
698.5 |
(5.5)% |
0.5% |
|
Property & Plant |
52.7 |
53.5 |
(1.5)% |
3.1% |
|
Inventory |
86.3 |
98.6 |
(12.5)% |
(7.5)% |
|
Net Trade Debtors |
136.3 |
189.4 |
(28.0)% |
(23.8)% |
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 2009 were £902.7 million, up 25.5% on 2008. In 2009 the ROCE increased to 29.0% compared with 28.5% in 2008.
Acquisition of Cummins India Ltd
On 1 January 2009 the Group completed the acquisition of the power rental business of Cummins India Ltd for a total cash consideration of £4.2 million. The fair value of net assets acquired was £3.5 million resulting in goodwill of £0.7 million.
Shareholders' Equity
Shareholders' equity increased by £138.3 million to £603.1 million, represented by the net assets of the Group of £778.6 million before net debt of £175.5 million. The movements in shareholders' equity are analysed in the table below:
|
Movements in Shareholders' Equity |
£ million |
£ million |
|
|
|
|
|
As at 1 January 2009 |
|
464.8 |
|
|
|
|
|
Profit for the financial year |
168.4 |
|
|
Dividend (1) |
(28.6) |
|
|
Retained earnings |
|
139.8 |
|
New share capital subscribed |
|
3.4 |
|
Purchase of own shares held under trust |
|
(8.4) |
|
Credit in respect of employee share awards |
|
9.2 |
|
Actuarial losses on retirement benefits |
|
(2.1) |
|
Currency translation difference |
|
(30.9) |
|
Movement in hedging reserve |
|
28.3 |
|
Other (2) |
|
(1.0) |
|
As at 31 December 2009 |
|
603.1 |
|
|
|
|
|
(1) |
Reflects the final dividend for 2008 of 6.28 pence per share (2008: 5.02 pence) and the interim dividend for 2009 of 4.37 pence per share (2008: 3.80 pence) that were paid during the year. |
|
|
|
|
(2) |
Other mainly includes tax on items taken directly to reserves. |
The £168.4 million of post-tax profit in the year represents a return of 27.9% on shareholders' equity (2008: 26.4%).
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.
Capital management
The Group's objective with respect to managing capital is to maintain a balance sheet structure that is efficient in terms of providing long term returns to shareholders and one that safeguards the Group's financial position through economic cycles. If appropriate, the Group can choose to adjust its capital structure by varying the amount of dividends paid to shareholders, by returning capital to shareholders, by issuing new shares, or by adjusting the level of capital expenditure. As discussed above gearing at 31 December 2009 decreased to 29% from 78% at 31 December 2008.
Liquidity and funding
The Group maintains sufficient facilities to meet its normal funding requirements over the medium term. These facilities are primarily in the form of committed bank facilities totalling £524.1 million at 31 December 2009, arranged on a bilateral basis with a number of international banks. The financial covenants attached to these facilities are that Operating Profit should be no less than 3 times interest, EBITDA should be no less than 4 times interest and net debt should be no more than 3 times EBITDA. 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 with the next significant maturity not due until September 2011. Since the year end, the Group has reduced committed facilities by £70.8 million to £453.3 million and the facilities now in place are currently anticipated to be ample for meeting the Group's requirements over the period until the next refinancing.
Net debt amounted to £175.5 million at 31 December 2009 and at that date un-drawn committed facilities were £344.1 million.
Interest rate risk
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 2009, £107.3 million of the net debt of £175.5 million was at fixed rates of interest resulting in a fixed to floating rate net debt ratio of 61:39 (2008: 63:37).
Foreign exchange risk
The Group is subject to currency exposure on the translation of its net investments in overseas subsidiaries into Sterling. 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.
Credit risk
Cash deposits and other financial instruments give rise to credit risk on amounts due from counterparties. The Group manages this risk by limiting the aggregate amounts and their duration depending on external credit ratings of the relevant counterparty. In the case of financial assets exposed to credit risk, the carrying amount in the balance sheet, net of any applicable provision for loss, represents the amount exposed to credit risk.
Insurance
The Group operates a policy of buying cover against the material risks 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 some of the principal risks and uncertainties which we believe could adversely affect us, potentially impacting the employees, operations, revenue, profits, cash flows or assets of the Group. 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.
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 2009, 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 is highly dependent on shipping activity and a large proportion of our Middle East business comes from construction.
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 2008 and 2009 we moved considerable quantities of fleet from Europe to the Middle East. Secondly, we try to ensure that, as they grow, our businesses build a customer-base which is as diverse as possible, to reduce sectoral exposure. In the Middle East, for instance, we are investing in our temperature control business which in time will reduce our relative exposure to construction; in North America we have special initiatives in place to develop our business in under-penetrated sectors. Thirdly, in the event of a more generalised downturn in demand, as experienced in 2009, we can quickly reduce capital expenditure which is demonstrated by our new fleet investment being £106.7 million lower than in 2008. Given the large depreciation element in the business' cost base (£148 million in 2009), 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 greatest element in the cost of running a generator. Over the last few years, the price of fuel has been extremely volatile, but this does not seem to have 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 on our business of the oil-price 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, which has in turn stimulated demand for our services. If the oil-price is persistently low - by which we mean under $40 per barrel - we would expect to see an adverse impact on our business in oil-producing countries.
Exchange rate fluctuations can have a material impact on our performance: 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. The majority of the Group's revenue and costs are denominated in US dollars. 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.
Political
This section should be read in conjunction with the subsequent section on failure to collect payments. The Group operates in circa 100 countries around the world, including 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, assets and to payments. The safety of our employees is always our first concern. If the level of risk is considered unsatisfactory we will decline to participate in any contract; where there are potential issues, we develop detailed contingency plans. Our greatest exposure lies in our International Power Projects business, and they perform risk assessments on a contract-by-contract basis. The Group uses a wide range of tools and techniques to manage financial risk, including insurances, bonds, guarantees and cash advances.
Generally, we find that Governments are keen to behave in a fair way to suppliers of critical infrastructure such as Aggreko. In the last three years, we have had two incidents where our equipment has been 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 deal in countries where the behaviour of the authorities can be unpredictable.
Failure to collect payments or to recover assets
The majority of the contracts the Group enters into 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, some of the contracts the Group undertakes in developing countries are substantial, 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 the rigorous approach to risk management, the Group has historically had a low level of bad debt. However, 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 we operate in increases the likelihood of a loss and make it highly likely that at some stage a major customer will default on us or prevent us from repatriating assets. This could have a noticeable impact on earnings in a particular reporting period.
To use an analogy with the management of financial assets, we reduce our overall risk by having a broad portfolio of uncorrelated exposures; however, conscious that there is a tail risk, and that it is probable that at some stage we will suffer a loss, we caution investors that the current very high returns on capital we earn, particularly in our International Power Projects business are in effect "risk-unadjusted", as we have so far not suffered a material loss.
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 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 terms of performance. 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.
The Group has a comprehensive and detailed set of procedures, approved by the Board, which governs the appointment of agents and sales consultants. Before we appoint an agent or consultant, we use specialist independent 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. Payments made to agents and sales consultants are subject to audit by both internal and external 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 we also conduct in depth reviews of contract files.
Acquisitions
It is part of our strategy to acquire businesses in our core market which can add value to Aggreko. In the last six years, we have acquired three small businesses - the temperature control business of Prime Energy in the USA, the assets and business of Power Plus Rentals & Sales Ltd in Canada, the power rental business of Cummins, India - and one large global business - GE Energy Rentals. We are well aware that buying businesses can be risky; in our business, the greatest areas of risk are:-
·; Over-paying
·; Acquiring liabilities we do not know about or understand
·; Failing to integrate effectively
We mitigate these risks by having a rigorous acquisition process, which is overseen by the Board. All acquisitions are subject to detailed financial modelling, using different scenarios, so we can understand the likely returns in various circumstances. We undertake detailed due diligence, particularly on the operational side, and we look for extensive warranties and covenants from vendors. Finally, we have a well-developed and effective acquisition integration model as demonstrated by the success of the GE ER integration.
Operational Incidents
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. However, if these procedures are not followed, accidents can happen and might result in injury to people, claims against the Group, and 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 ten 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. And 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.
People
Aggreko knows that it is people that 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 have also worked with one of the world's leading business schools to develop and 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.
Information Technology
Our business involves high transaction volumes, complex logistics, and the need to track thousands of assets on hundreds of sites. We are therefore heavily dependent on the resilience of both the application software (we use an ERP system called Movex) and of the data-processing and network infrastructure. A serious failure in this area would immediately and materially affect our business.
The Group has a detailed disaster recovery plan in place which is tested on a regular basis. Our main data centre in Glasgow has high levels of resilience built into it, and we also have a physically separate third-party disaster-recovery site. Additionally, we now have a second data centre operational in Dubai which will allow the Group to continue processing data in the event of a major incident.
Investor Relations and Market Abuse
The Group's reputation and/or share price could suffer due to inappropriate or inadequate engagement with investors. For example, we might fail to communicate consistent, co-ordinated messages to investors or fail to provide adequate information on performance and events in the business. Since, inevitably, management is in possession of market-sensitive information from time to time, the business is at risk from market abuse and insider dealing.
Our approach to this is to recognise that investors have legitimate interests in the Group's business, and that shareholder value will be enhanced by timely, clear, open, honest and transparent communication with markets and investors. Accordingly, the Group's Chief Executive and Finance Director co-ordinate all communications with markets and investors, and controls are in place to make sure that all Group communication - corporate, regional and local - is consistent and co-ordinated. The Group also applies very clear rules to prevent market abuse and insider dealing.
Accounting and Treasury/Major fraud
There is a risk that fraud or accounting discrepancies may occur if the financial and operational control framework is inadequate. This may distort the reported results. In order to mitigate this risk, significant work has been undertaken to put in place a robust control framework. Additionally, a strong Internal Audit function reviews the operation of this control framework and reports regularly to the Audit Committee. The risk is also mitigated by recruiting and developing a strong finance function which is focused on ensuring the accuracy and integrity of the reported results.
Liquidity
The nature of our business model is that, in periods of growth, we consume cash; this is because we can only grow by increasing the rate of investment in fleet assets beyond the rate of depreciation. Conversely, in periods of weaker demand, we would normally hold back fleet investment, at which point the business will become highly cash-generative. Another feature of our business is that we are rich in tangible assets, which means that financial institutions are happy to lend to us on competitive terms. By financing increases in fleet through debt, we enhance the returns we make on shareholders' equity.
The availability of bank finance at competitive rates is therefore an important element in our ability to grow the Group's revenues without recourse to shareholders. Being of a generally conservative disposition, the Group has a policy of keeping a wide margin of safety between forecast financing requirements and committed debt facilities: at 31 December 2009, Aggreko had interest cover of 23x (on an EBITDA basis) and net debt to EDITDA of 0.4x. Net debt was £175.5 million with committed bank facilities of £524.1 million. The maturity profile of the borrowings is detailed in Note 17 in the Annual Report & Accounts with the next significant maturity not due until September 2011. Since the year end the Group has reduced committed facilities by £70.8 million to £453.3 million and the facilities now in place are currently anticipated to be ample for meeting the Group's requirements over the period until the next refinancing.
Group Income Statement
for the year ended 31 December 2009
|
|
Notes |
|
|
|
|
|
2009 |
2008 |
|
|
|
£ million |
£ million |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
1 |
1,023.9 |
946.6 |
|
Cost of sales |
|
(396.0) |
(409.5) |
|
Gross Profit |
|
627.9 |
537.1 |
|
Distribution costs |
|
(251.5) |
(221.3) |
|
Administrative expenses |
|
(123.9) |
(115.2) |
|
Other income |
|
9.6 |
4.2 |
|
Operating profit |
1 |
262.1 |
204.8 |
|
Net finance costs |
|
|
|
|
- Finance cost |
|
(18.5) |
(15.3) |
|
- Finance income |
|
0.4 |
0.5 |
|
Profit before taxation |
|
244.0 |
190.0 |
|
Taxation: |
2 |
|
|
|
- UK |
|
(30.3) |
(18.3) |
|
- Overseas |
|
(45.3) |
(49.0) |
|
Profit for the year |
|
168.4 |
122.7 |
|
|
|
|
|
|
Dividends paid in the year |
3 |
(28.6) |
(23.7) |
|
|
|
|
|
|
Dividends per share (pence) |
3 |
10.65 |
8.82 |
|
Earnings per share (pence) |
|
|
|
|
Basic |
4 |
62.67 |
45.77 |
|
Diluted |
4 |
62.42 |
45.56 |
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 2009
|
|
|
2009 |
2008 |
|
|
|
£ million |
£ million |
|
|
|
|
|
|
Profit for the year |
|
168.4 |
122.7 |
|
Other comprehensive income: |
|
|
|
|
Actuarial losses on retirement benefits |
|
(2.1) |
(4.0) |
|
Movement in deferred tax on pension liability |
|
0.6 |
1.1 |
|
Cashflow hedges (net of deferred tax) |
|
20.4 |
(21.7) |
|
Net exchange (losses)/gains offset in reserves (net of tax) |
|
(30.2) |
99.6 |
|
Other comprehensive (loss)/income for the period (net of tax) |
|
(11.3) |
75.0 |
|
|
|
|
|
|
Total comprehensive income for the year |
|
157.1 |
197.7 |
Group Balance Sheet (Company Number: SC177553)
as at 31 December 2009
|
|
|
|
Notes |
2009 |
2008 |
|
|
|
|
|
£ million |
£ million |
|
Non-current assets |
|
|
|
|
|
|
Goodwill |
|
|
5 |
51.3 |
53.0 |
|
Other intangible assets |
|
|
6 |
15.5 |
16.6 |
|
Property, plant and equipment |
|
|
7 |
713.0 |
752.0 |
|
Deferred tax asset |
|
|
12 |
6.6 |
4.8 |
|
|
|
|
|
786.4 |
826.4 |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Inventories |
|
|
8 |
86.3 |
98.6 |
|
Trade and other receivables |
|
|
9 |
223.3 |
272.7 |
|
Cash and cash equivalents |
|
|
|
22.2 |
15.3 |
|
Current tax assets |
|
|
|
3.9 |
1.7 |
|
|
|
|
|
335.7 |
388.3 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
1,122.1 |
1,214.7 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Borrowings |
|
|
10 |
(17.7) |
(167.7) |
|
Derivative financial instruments |
|
|
|
- |
(15.9) |
|
Trade and other payables |
|
|
11 |
(219.9) |
(252.9) |
|
Current tax liabilities |
|
|
|
(52.6) |
(49.9) |
|
|
|
|
|
(290.2) |
(486.4) |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
Borrowings |
|
|
10 |
(180.0) |
(211.6) |
|
Derivative financial instruments |
|
|
|
(6.7) |
(19.1) |
|
Deferred tax liabilities |
|
|
12 |
(36.1) |
(24.6) |
|
Retirement benefit obligation |
|
|
|
(5.8) |
(8.0) |
|
Provisions |
|
|
|
(0.2) |
__(0.2) |
|
|
|
|
|
(228.8) |
(263.5) |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
(519.0) |
(749.9) |
|
|
|
|
|
|
|
|
Net assets |
|
|
|
603.1 |
464.8 |
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
Share capital |
|
|
13 |
54.7 |
54.4 |
|
Share premium |
|
|
|
13.3 |
10.2 |
|
Treasury shares |
|
|
14 |
(25.8) |
(20.5) |
|
Capital redemption reserve |
|
|
|
0.1 |
0.1 |
|
Hedging reserve (net of deferred tax) |
|
|
|
(4.7) |
(25.1) |
|
Foreign exchange reserve |
|
|
|
49.7 |
79.9 |
|
Retained earnings |
|
|
|
515.8 |
365.8 |
|
Total shareholders' equity |
|
|
|
603.1 |
464.8 |
The financial statements were approved and authorised for issue by the Board of Directors on 4 March 2010 and were signed on its behalf by:
|
P G Rogerson |
A G Cockburn |
|
Chairman |
Finance Director |
Group Cash Flow Statement
for the year ended 31 December 2009
|
|
Notes |
2009 |
2008 |
|
|
|
£ million |
£ million |
|
Cash flows from operating activities |
|
|
|
|
Cash generated from operations |
(i) |
430.8 |
276.1 |
|
Tax paid |
|
(60.1) |
(39.6) |
|
Net cash generated from operating activities |
|
370.7 |
236.5 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Acquisitions (net of cash acquired) |
|
(4.2) |
(15.9) |
|
Purchases of property, plant and equipment (PPE) |
|
(160.9) |
(265.2) |
|
Proceeds from sale of PPE |
|
15.4 |
9.0 |
|
Net cash used in investing activities |
|
(149.7) |
(272.1) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Net proceeds from issue of ordinary shares |
|
3.4 |
1.3 |
|
Increase in long-term loans |
|
89.1 |
185.7 |
|
Repayment of long-term loans |
|
(256.2) |
(107.1) |
|
Net movement in short-term loans |
|
3.9 |
4.9 |
|
Interest received |
|
0.4 |
0.5 |
|
Interest paid |
|
(19.1) |
(14.6) |
|
Dividends paid to shareholders |
|
(28.6) |
(23.7) |
|
Purchase of treasury shares |
|
(8.4) |
(13.2) |
|
Sale of own shares by Employee Benefit Trust |
|
- |
__0.9 |
|
Net cash (used in)/from financing activities |
|
(215.5) |
_34.7 |
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
5.5 |
(0.9) |
|
Cash and cash equivalents at beginning of the year |
|
10.3 |
9.6 |
|
Exchange (loss)/gain on cash and cash equivalents |
|
(2.3) |
1.6 |
|
Cash and cash equivalents at end of the year |
|
13.5 |
10.3 |
Reconciliation of net cash flow to movement in net debt
for the year ended 31 December 2009
|
|
Notes |
2009 |
2008 |
|
|
|
£ million |
£ million |
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents |
|
5.5 |
(0.9) |
|
Cash outflow/(inflow) from movement in debt |
|
163.2 |
(83.5) |
|
Changes in net debt arising from cash flows |
|
168.7 |
(84.4) |
|
|
|
|
|
|
Exchange gain/(loss) |
|
19.8 |
(77.0) |
|
|
|
|
|
|
Movement in net debt in period |
|
188.5 |
(161.4) |
|
Net debt at beginning of period |
|
(364.0) |
(202.6) |
|
|
|
______ |
______ |
|
Net debt at end of period |
10 |
(175.5) |
(364.0) |
Group statement of changes in equity
For the year ended 31 December 2009
|
As at 31 December 2009 |
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 2009 |
54.4 |
10.2 |
(20.5) |
0.1 |
(25.1) |
79.9 |
365.8 |
464.8 |
|
Profit for the year |
- |
- |
- |
- |
- |
- |
168.4 |
168.4 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
Fair value gains on foreign currency cash flow hedge |
- |
- |
- |
- |
6.0 |
- |
- |
6.0 |
|
Transfers from hedging reserve to property, plant and equipment |
- |
- |
- |
- |
8.5 |
- |
- |
8.5 |
|
Fair value gains on interest rate swaps |
- |
- |
- |
- |
10.6 |
- |
- |
10.6 |
|
Transfer from hedging reserve to net finance charge on early termination of interest rate swaps |
- |
- |
- |
- |
3.1 |
- |
- |
3.1 |
|
Transfer from hedging reserve to net finance charge |
- |
- |
- |
- |
0.1 |
- |
- |
0.1 |
|
Deferred tax on items taken to or transferred from equity |
- |
- |
- |
- |
(7.9) |
- |
- |
(7.9) |
|
Currency translation differences (i) |
- |
- |
- |
- |
- |
(30.9) |
- |
(30.9) |
|
Current tax on items taken to or transferred from equity |
- |
- |
- |
- |
- |
0.7 |
- |
0.7 |
|
Actuarial losses on retirement benefits (net of tax) |
- |
- |
- |
- |
- |
- |
(1.5) |
(1.5) |
|
Total comprehensive income for the year ended 31 December 2009 |
- |
- |
- |
- |
20.4 |
(30.2) |
166.9 |
157.1 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
Purchase of treasury shares |
- |
- |
(8.4) |
- |
- |
- |
- |
(8.4) |
|
Credit in respect of employee share awards |
- |
- |
- |
- |
- |
- |
9.2 |
9.2 |
|
Issue of ordinary shares to employees under share options schemes |
- |
- |
3.1 |
- |
- |
- |
(3.1) |
- |
|
Current tax on items taken to or transferred from equity |
- |
- |
- |
- |
- |
- |
1.3 |
1.3 |
|
Deferred tax on items taken to or transferred from equity |
- |
- |
- |
- |
- |
- |
4.3 |
4.3 |
|
New share capital subscribed |
0.3 |
3.1 |
- |
- |
- |
- |
- |
3.4 |
|
Dividends paid during 2009 |
- |
- |
- |
- |
- |
- |
(28.6) |
(28.6) |
|
|
0.3 |
3.1 |
(5.3) |
- |
- |
- |
(16.9) |
(18.8) |
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2009 |
54.7 |
13.3 |
(25.8) |
0.1 |
(4.7) |
49.7 |
515.8 |
603.1 |
|
(i) |
Included in currency translation differences of the Group are exchange gains of £24.2 million arising on borrowings denominated in foreign currencies designated as hedges of net investments overseas, offset by exchange losses of £55.1 million relating to the translation of overseas results and net assets. |
Group statement of changes in equity (continued)
For the year ended 31 December 2009
|
As at 31 December 2008 |
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 2008 |
54.2 |
8.8 |
(10.5) |
0.1 |
(3.4) |
(19.7) |
263.8 |
293.3 |
|
Profit for the year |
- |
- |
- |
- |
- |
- |
122.7 |
122.7 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
Fair value losses on foreign currency cash flow hedge |
- |
- |
- |
- |
(25.3) |
- |
- |
(25.3) |
|
Transfers from hedging reserve to property, plant and equipment |
- |
- |
- |
- |
12.9 |
- |
- |
12.9 |
|
Fair value losses on interest rate swaps |
- |
- |
- |
- |
(17.8) |
- |
- |
(17.8) |
|
Currency translation differences (i) |
- |
- |
- |
- |
- |
99.0 |
- |
99.0 |
|
Current tax on items taken to or transferred from equity |
- |
- |
- |
- |
- |
0.6 |
- |
0.6 |
|
Deferred tax on items taken to or transferred from equity |
- |
- |
- |
- |
8.5 |
- |
- |
8.5 |
|
Actuarial losses on retirement benefits (net of tax) |
- |
- |
- |
- |
- |
- |
(2.9) |
(2.9) |
|
Total comprehensive income for the year ended 31 December 2008 |
- |
- |
- |
- |
(21.7) |
99.6 |
119.8 |
197.7 |
|
Transactions with owners: |
|
|
|
|
|
|
|
|
|
Sale of own shares by Employee Benefit Trust |
- |
- |
0.4 |
- |
- |
- |
0.5 |
0.9 |
|
Purchase of treasury shares |
- |
- |
(13.2) |
- |
- |
- |
- |
(13.2) |
|
Credit in respect of employee share awards (net of tax) |
- |
- |
- |
- |
- |
- |
7.8 |
7.8 |
|
Current tax on items taken to or transferred from equity |
- |
- |
- |
- |
- |
- |
3.1 |
3.1 |
|
Deferred tax on items taken to or transferred from equity |
- |
- |
- |
- |
- |
- |
(2.7) |
(2.7) |
|
Issue of ordinary shares to employees under share option schemes |
- |
- |
2.8 |
- |
- |
- |
(2.8) |
- |
|
New share capital subscribed |
0.2 |
1.4 |
- |
- |
- |
- |
- |
1.6 |
|
Dividends paid during 2008 |
- |
- |
- |
- |
- |
- |
(23.7) |
(23.7) |
|
|
0.2 |
1.4 |
(10.0) |
- |
- |
- |
(17.8) |
(26.2) |
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 December 2008 |
54.4 |
10.2 |
(20.5) |
0.1 |
(25.1) |
79.9 |
365.8 |
464.8 |
|
(i) |
Included in currency translation differences of the Group are exchange losses of £79.0 million arising on borrowings denominated in foreign currencies designated as hedges of net investments overseas, offset by exchange gains of £178.0 million relating to the translation of overseas results and net assets. |
Notes to the Group Cash Flow Statement
for the year ended 31 December 2009
|
(i) Cashflow from operating activities |
2009 |
2008 |
|
|
£ million |
£ million |
|
|
|
|
|
Profit for the year |
168.4 |
122.7 |
|
Adjustments for: |
|
|
|
Tax |
75.6 |
67.3 |
|
Depreciation |
148.2 |
115.9 |
|
Amortisation of intangibles |
2.7 |
1.9 |
|
Interest income |
(0.4) |
(0.5) |
|
Interest expense |
18.5 |
15.3 |
|
Profit on sale of PPE (see below) |
(9.6) |
(4.2) |
|
Share based payments |
9.2 |
7.8 |
|
Changes in working capital (excluding the effects of exchange differences on consolidation): |
|
|
|
Decrease/(increase) in inventories |
7.5 |
(20.4) |
|
Decrease/(increase) in trade and other receivables |
35.2 |
(51.7) |
|
(Decrease)/increase in trade and other payables |
(24.5) |
23.8 |
|
Net movements in provisions for liabilities and charges |
- |
(1.8) |
|
|
|
|
|
Cash generated from operations |
430.8 |
276.1 |
In the cash flow statement, proceeds from sale of PPE comprise:
|
|
2009 |
2008 |
|
|
£ million |
£ million |
|
|
|
|
|
Net book amount |
5.8 |
4.8 |
|
Profit on sale of PPE |
9.6 |
4.2 |
|
|
|
|
|
Proceeds from sale of PPE |
15.4 |
9.0 |
Notes to the Accounts
for the year ended 31 December 2009
Note 1
Segmental reporting
(a) Revenue by segment
|
|
Total revenue |
|
Inter-segment |
|
External revenue |
|||
|
|
|
|
revenue |
|
|
|||
|
|
2009 |
2008 |
|
2009 |
2008 |
|
2009 |
2008 |
|
|
£ million |
£ million |
|
£ million |
£ million |
|
£ million |
£ million |
|
|
|
|
|
|
|
|
|
|
|
Middle East & South East Europe |
90.8 |
75.2 |
|
0.1 |
0.2 |
|
90.7 |
75.0 |
|
Europe |
158.9 |
181.6 |
|
- |
- |
|
158.9 |
181.6 |
|
North America |
197.7 |
207.7 |
|
0.1 |
0.2 |
|
197.6 |
207.5 |
|
International Local |
97.0 |
116.6 |
|
0.2 |
0.3 |
|
96.8 |
116.3 |
|
Local Business |
544.4 |
581.1 |
|
0.4 |
0.7 |
|
544.0 |
580.4 |
|
International Power Projects |
481.0 |
366.2 |
|
1.1 |
- |
|
479.9 |
366.2 |
|
Eliminations |
(1.5) |
(0.7) |
|
(1.5) |
(0.7) |
|
- |
- |
|
Group |
1,023.9 |
946.6 |
|
- |
- |
|
1,023.9 |
946.6 |
Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.
(b) Profit by segment
|
|
|
|
Amortisation of |
|
|
|||
|
|
Trading profit pre |
|
intangible assets |
|
|
|||
|
|
intangible asset |
|
arising from business |
|
|
|||
|
|
amortisation |
|
combinations |
|
Trading profit |
|||
|
|
2009 |
2008 |
|
2009 |
2008 |
|
2009 |
2008 |
|
|
£ million |
£ million |
|
£ million |
£ million |
|
£ million |
£ million |
|
|
|
|
|
|
|
|
|
|
|
Middle East & South East Europe |
22.5 |
19.5 |
|
(0.1) |
(0.1) |
|
22.4 |
19.4 |
|
Europe |
13.0 |
24.1 |
|
(0.1) |
(0.1) |
|
12.9 |
24.0 |
|
North America |
35.7 |
46.0 |
|
(1.6) |
(1.1) |
|
34.1 |
44.9 |
|
International Local |
24.1 |
32.8 |
|
(0.6) |
(0.2) |
|
23.5 |
32.6 |
|
Local Business |
95.3 |
122.4 |
|
(2.4) |
(1.5) |
|
92.9 |
120.9 |
|
International Power Projects |
159.7 |
79.8 |
|
(0.1) |
(0.1) |
|
159.6 |
79.7 |
|
Group |
255.0 |
202.2 |
|
(2.5) |
(1.6) |
|
252.5 |
200.6 |
|
|
|
|
|
Gain/(loss) on sale of PPE |
|
Operating Profit |
||
|
|
|
|
|
2009 |
2008 |
|
2009 |
2008 |
|
|
|
|
|
£ million |
£ million |
|
£ million |
£ million |
|
|
|
|
|
|
|
|
|
|
|
Middle East & South East Europe |
|
|
|
(0.1) |
(0.2) |
|
22.3 |
19.2 |
|
Europe* |
|
|
|
7.0 |
2.6 |
|
19.9 |
26.6 |
|
North America |
|
|
|
2.7 |
1.1 |
|
36.8 |
46.0 |
|
International Local |
|
|
|
0.1 |
- |
|
23.6 |
32.6 |
|
Local Business |
|
|
|
9.7 |
3.5 |
|
102.6 |
124.4 |
|
International Power Projects |
|
|
|
(0.1) |
0.7 |
|
159.5 |
80.4 |
|
Group |
|
|
|
9.6 |
4.2 |
|
262.1 |
204.8 |
|
Finance costs - net |
|
|
|
|
|
|
(18.1) |
(14.8) |
|
Profit before taxation |
|
|
|
|
|
244.0 |
190.0 |
|
|
Taxation |
|
|
|
|
|
|
(75.6) |
(67.3) |
|
Profit for the year |
|
|
|
|
|
|
168.4 |
122.7 |
|
* |
The sale of our European oil-free air business was completed in March 2009 and a gain on sale of £5.8 million was recognised within the European business segment for the year ending 31 December 2009. |
(c) Depreciation and amortisation by segment
|
|
|
2009 |
2008 |
|
|
|
£ million |
£ million |
|
|
|
|
|
|
Middle East & South East Europe |
|
16.3 |
10.5 |
|
Europe |
|
24.9 |
24.7 |
|
North America |
|
28.4 |
26.8 |
|
International Local |
|
16.1 |
12.6 |
|
Local Business |
|
85.7 |
74.6 |
|
International Power Projects |
|
65.2 |
43.2 |
|
Group |
|
150.9 |
117.8 |
Note 1
Segmental reporting (continued)
(d) Capital expenditure on property, plant and equipment and intangible assets by segment
|
|
2009 |
2008 |
|
|
£ million |
£ million |
|
|
|
|
|
Middle East & South East Europe |
11.9 |
17.0 |
|
Europe |
7.9 |
33.1 |
|
North America |
24.4 |
40.8 |
|
International Local |
21.0 |
37.2 |
|
Local Business |
65.2 |
128.1 |
|
International Power Projects |
99.2 |
147.6 |
|
Group |
164.4 |
275.7 |
Capital expenditure comprises additions of property, plant and equipment (PPE) of £160.9 million (2008: £265.2 million), acquisitions of PPE of £1.4 million (2008: £5.1 million) and acquisitions of other intangible assets of £2.1 million (2008: £5.4 million).
(e) Assets/(liabilities) by segment
|
|
|
Assets
|
|
Liabilities
|
||
|
|
|
2009
|
2008
|
|
2009
|
2008
|
|
|
|
£ million
|
£ million
|
|
£ million
|
£ million
|
|
|
|
|
|
|
|
|
|
Middle East & South East Europe
|
|
106.1
|
102.0
|
|
(9.5)
|
(11.4)
|
|
Europe
|
|
148.1
|
200.6
|
|
(33.8)
|
(45.0)
|
|
North America
|
|
222.2
|
257.2
|
|
(27.0)
|
(28.4)
|
|
International Local
|
|
114.1
|
110.9
|
|
(19.9)
|
(22.3)
|
|
Local Business
|
|
590.5
|
670.7
|
|
(90.2)
|
(107.1)
|
|
International Power Projects
|
|
521.1
|
537.5
|
|
(137.6)
|
(149.3)
|
|
|
|
1,111.6
|
1,208.2
|
|
(227.8)
|
(256.4)
|
|
|
|
|
|
|
|
|
|
Tax and finance payable
|
|
10.5
|
6.5
|
|
(89.7)
|
(76.2)
|
|
Derivative financial instruments
|
|
-
|
-
|
|
(6.7)
|
(35.0)
|
|
Borrowings
|
|
-
|
-
|
|
(189.0)
|
(374.3)
|
|
Retirement benefit obligation
|
|
-
|
-
|
|
(5.8)
|
(8.0)
|
|
Total assets/(liabilities) per balance sheet
|
|
1,122.1
|
1,214.7
|
|
(519.0)
|
(749.9)
|
|
|
|
2009 |
2008 |
|
|
|
number |
number |
|
|
|
|
|
|
Middle East & South East Europe |
|
270 |
245 |
|
Europe |
|
808 |
832 |
|
North America |
|
850 |
883 |
|
International Local |
|
439 |
382 |
|
Local Business |
|
2,367 |
2,342 |
|
International Power Projects |
|
1,253 |
881 |
|
Group |
|
3,620 |
3,223 |
(g) Reconciliation of net operating assets to net assets
|
|
|
2009 |
2008 |
|
|
|
£ million |
£ million |
|
|
|
|
|
|
Net operating assets |
|
883.8 |
951.8 |
|
Retirement benefit obligation |
|
(5.8) |
(8.0) |
|
Net tax and finance payable |
|
(79.2) |
(69.7) |
|
|
|
798.8 |
874.1 |
|
Borrowings and derivative financial instruments |
|
(195.7) |
(409.3) |
|
Net assets |
|
603.1 |
464.8 |
Note 2
Taxation
|
|
2009 |
2008 |
|
|
£ million |
£ million |
|
Analysis of charge in year |
|
|
|
Current tax expense: |
|
|
|
UK Corporation tax |
44.3 |
21.9 |
|
Double taxation relief |
(12.4) |
(8.9) |
|
|
31.9 |
13.0 |
|
|
|
|
|
Overseas taxation |
40.6 |
41.8 |
|
|
72.5 |
54.8 |
|
|
|
|
|
Adjustments in respect of prior years: |
|
|
|
UK |
(3.2) |
0.3 |
|
Overseas |
(3.5) |
4.9 |
|
|
(6.7) |
5.2 |
|
|
|
|
|
|
65.8 |
60.0 |
|
Deferred taxation (Note 12): |
|
|
|
Temporary differences arising in current year |
4.1 |
10.9 |
|
Movements in respect of prior years |
5.7 |
(3.6) |
|
|
|
|
|
|
75.6 |
67.3 |
|
|
|
|
|
|
2009 |
2008 |
|
|
£ million |
£ million |
|
Tax on items charged to equity |
|
|
|
Current tax on exchange movements offset in reserves |
0.7 |
0.6 |
|
Current tax on share-based payments |
1.3 |
3.1 |
|
Deferred tax on IAS 39 movements |
(7.9) |
8.5 |
|
Deferred tax on pension scheme deficit |
0.6 |
1.1 |
|
Deferred tax on share-based payments |
4.3 |
(2.7) |
|
|
(1.0) |
10.6 |
Variances between the current tax charge and the standard 28.0% (2008: 28.5%) UK corporate tax rate when applied to profit on ordinary activities for the year are as follows:
|
|
2009 |
2008 |
|
|
£ million |
£ million |
|
|
|
|
|
Profit before taxation |
244.0 |
190.0 |
|
|
|
|
|
Tax calculated at 28.0% (2008: 28.5%) standard UK corporate rate |
68.3 |
54.2 |
|
Differences between UK and overseas tax rates |
5.4 |
5.5 |
|
Permanent differences |
0.4 |
2.8 |
|
Deferred tax effect of future rate changes |
0.3 |
2.1 |
|
Deferred tax assets not recognised |
2.3 |
1.1 |
|
Tax on current year profit |
76.7 |
65.7 |
|
Prior year adjustments - current tax |
(6.7) |
5.2 |
|
Prior year adjustments - deferred tax |
5.6 |
(3.6) |
|
Total tax on profit |
75.6 |
67.3 |
|
|
|
|
|
|
|
|
|
Effective tax rate |
31.0% |
35.4% |
Note 3
Dividends
|
|
2009 |
2009 |
2008 |
2008 |
|
|
£ million |
per share (p) |
£ million |
per share (p) |
|
|
|
|
|
|
|
Final paid |
16.9 |
6.28 |
13.5 |
5.02 |
|
Interim paid |
11.7 |
4.37 |
10.2 |
3.80 |
|
|
|
|
|
|
|
|
28.6 |
10.65 |
23.7 |
8.82 |
In addition, the directors are proposing a final dividend in respect of the financial year ended 31 December 2009 of 8.23 pence per share which will absorb an estimated £22.2 million of shareholders' funds. It will be paid on 21 May 2010 to shareholders who are on the register of members on 23 April 2010.
Note 4
Earnings per share
Basic earnings per share have been calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of shares in issue during the year, excluding shares held by the Employee Share Ownership Trusts which are treated as cancelled.
|
|
2009 |
2008 |
|
|
|
|
|
Profit for the year (£ million) |
168.4 |
122.7 |
|
|
|
|
|
Weighted average number of ordinary shares in issue (million) |
268.7 |
268.2 |
|
|
|
|
|
Basic earnings per share (pence) |
62.67 |
45.77 |
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.
|
|
2009 |
2008 |
|
|
|
|
|
Profit for the year (£ million) |
168.4 |
122.7 |
|
|
|
|
|
Weighted average number of ordinary shares in issue (million) |
268.7 |
268.2 |
|
Adjustment for share options (million) |
1.0 |
1.2 |
|
Diluted weighted average number of ordinary shares in issue (million) |
269.7 |
269.4 |
|
|
|
|
|
Diluted earnings per share (pence) |
62.42 |
45.56 |
Note 5
Goodwill
|
|
2009 |
|
2008 |
|
|
£ million |
|
£ million |
|
Cost |
|
|
|
|
At 1 January |
53.0 |
|
38.0 |
|
Acquisitions (Note 15) |
0.7 |
|
5.4 |
|
Exchange adjustments |
(2.4) |
|
9.6 |
|
At 31 December |
51.3 |
|
53.0 |
|
|
|
|
|
|
Accumulated impairment losses |
- |
|
- |
|
|
|
|
|
|
Net book value |
51.3 |
|
53.0 |
|
Goodwill impairment tests |
|
|
|
|
Goodwill has been allocated to cash generating units (CGUs) as follows: |
|
|
|
|
|
2009 |
|
2008 |
|
|
£ million |
|
£ million |
|
|
|
|
|
|
Middle East & South East Europe |
1.2 |
|
1.3 |
|
Europe |
11.7 |
|
12.3 |
|
North America |
31.1 |
|
32.9 |
|
International Local |
5.8 |
|
4.9 |
|
Local Business |
49.8 |
|
51.4 |
|
International Power Projects |
1.5 |
|
1.6 |
|
Group |
51.3 |
|
53.0 |
Goodwill is tested for impairment annually or whenever there is an indication that the asset may be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for value in use calculations are those relating to expected changes in revenue and the cost base, discount rates and long-term growth rates. The discount rate used for business valuations was 9.8% after tax, 13.6% before tax, based on the weighted average cost of capital (WACC) of the Group. On the basis that the business carried out by all CGUs is closely related and assets can be redeployed around the Group as required, a consistent Group discount rate has been used for all CGUs. Values in use were determined using current year cashflows, a prudent view of future market trends and excludes any growth capital expenditure. A terminal cash flow was calculated using a long-term growth rate of 2.0%.
As at 31 December 2009, based on internal valuations, Aggreko plc management concluded that the values in use of the CGUs significantly exceeded their net asset value.
The Directors consider that there is no reasonably possible change in the key assumptions made in their impairment calculations that would give rise to an impairment.
Note 6
Other intangible assets
|
|
|
2009 |
2008 |
|
|
|
£ million |
£ million |
|
Cost |
|
|
|
|
At 1 January |
|
22.7 |
13.7 |
|
Acquisitions (Note 15) |
|
2.1 |
5.4 |
|
Exchange adjustments |
|
(0.7) |
3.6 |
|
|
|
|
|
|
At 31 December |
|
24.1 |
22.7 |
|
|
|
|
|
|
Accumulated amortisation |
|
|
|
|
At 1 January |
|
6.1 |
3.7 |
|
Charge for the year |
|
2.7 |
1.9 |
|
Exchange Adjustments |
|
(0.2) |
0.5 |
|
|
|
|
|
|
At 31 December |
|
8.6 |
6.1 |
|
|
|
|
|
|
Net book values |
|
|
|
|
|
|
|
|
|
At 31 December |
|
15.5 |
16.6 |
Amortisation charges in the year comprise amortisation of assets arising from business combinations of £2.5 million (2008 : £1.6 million) and amortisation of other intangible assets of £0.2 million (2008 : £0.3 million). Amortisation charges in the year have been recorded in administrative expenses.
Note 7
Property, plant and equipment
Year ended 31 December 2009
|
|
|
Short |
|
Vehicles, |
|
|
|
Freehold |
leasehold |
Rental |
plant & |
|
|
|
properties |
properties |
fleet |
equipment |
Total |
|
|
£ million |
£ million |
£ million |
£ million |
£ million |
|
Cost |
|
|
|
|
|
|
At 1 January 2009 |
37.9 |
11.9 |
1,382.8 |
64.4 |
1,497.0 |
|
Exchange adjustments |
(1.9) |
(0.6) |
(90.6) |
(1.4) |
(94.5) |
|
Additions |
4.2 |
2.5 |
149.7 |
4.5 |
160.9 |
|
Acquisitions (Note 15) |
- |
- |
1.4 |
- |
1.4 |
|
Disposals |
- |
- |
(64.3) |
(1.8) |
(66.1) |
|
|
|
|
|
|
|
|
At 31 December 2009 |
40.2 |
13.8 |
1,379.0 |
65.7 |
1,498.7 |
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
At 1 January 2009 |
11.7 |
5.6 |
684.3 |
43.4 |
745.0 |
|
Exchange adjustments |
(0.6) |
(0.3) |
(45.1) |
(1.2) |
(47.2) |
|
Charge for the year |
1.6 |
1.4 |
138.1 |
7.1 |
148.2 |
|
Disposals |
- |
- |
(58.6) |
(1.7) |
(60.3) |
|
|
|
|
|
|
|
|
At 31 December 2009 |
12.7 |
6.7 |
718.7 |
47.6 |
785.7 |
|
|
|
|
|
|
|
|
Net book values |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009 |
27.5 |
7.1 |
660.3 |
18.1 |
713.0 |
|
|
|
|
|
|
|
|
At 31 December 2008 |
26.2 |
6.3 |
698.5 |
21.0 |
752.0 |
Note 7
Property, plant and equipment continued
Year ended 31 December 2008
|
|
|
Short |
|
Vehicles, |
|
|
|
Freehold |
leasehold |
Rental |
plant & |
|
|
|
properties |
properties |
fleet |
equipment |
Total |
|
|
£ million |
£ million |
£ million |
£ million |
£ million |
|
Cost |
|
|
|
|
|
|
At 1 January 2008 |
27.9 |
8.5 |
883.5 |
51.7 |
971.6 |
|
Exchange adjustments |
9.2 |
1.7 |
289.9 |
8.3 |
309.1 |
|
Additions |
0.8 |
1.7 |
256.4 |
6.3 |
265.2 |
|
Acquisitions |
- |
- |
4.7 |
0.4 |
5.1 |
|
Disposals |
__- |
- |
(51.7) |
(2.3) |
(54.0) |
|
|
|
|
|
|
|
|
At 31 December 2008 |
37.9 |
11.9 |
1,382.8 |
64.4 |
1,497.0 |
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
At 1 January 2008 |
8.1 |
3.7 |
481.7 |
33.5 |
527.0 |
|
Exchange adjustments |
2.4 |
0.8 |
142.0 |
6.1 |
151.3 |
|
Charge for the year |
1.2 |
1.1 |
107.7 |
5.9 |
115.9 |
|
Disposals |
__ - |
___- |
(47.1) |
(2.1) |
(49.2) |
|
|
|
|
|
|
|
|
At 31 December 2008 |
11.7 |
5.6 |
684.3 |
43.4 |
745.0 |
|
|
|
|
|
|
|
|
Net book values |
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008 |
26.2 |
6.3 |
698.5 |
21.0 |
752.0 |
|
|
|
|
|
|
|
|
At 31 December 2007 |
19.8 |
4.8 |
401.8 |
18.2 |
444.6 |
Note 8
Inventories
|
|
|
|
|
|
2009 |
2008 |
|
|
£ million |
£ million |
|
|
|
|
|
Raw materials and consumables |
82.6 |
91.7 |
|
Work in progress |
3.7 |
6.9 |
|
|
|
|
|
|
86.3 |
98.6 |
Note 9
Trade and other receivables
|
|
|
|
|
|
|
|
|
|
2009 |
2008 |
|
|
|
|
£ million |
£ million |
|
|
|
|
|
|
|
Trade receivables |
|
|
162.5 |
214.6 |
|
Less: provision for impairment of receivables |
|
|
(26.2) |
(25.2) |
|
Trade receivables - net |
|
|
136.3 |
189.4 |
|
|
|
|
|
|
|
Prepayments and accrued income |
|
|
66.4 |
59.2 |
|
Other receivables |
|
|
20.6 |
24.1 |
|
|
|
|
|
|
|
Total receivables |
|
|
223.3 |
272.7 |
Note 10
Borrowings
|
|
|
|
2009 |
2008 |
|
|
|
|
£ million |
£ million |
|
|
|
|
|
|
|
Non-current |
|
|
|
|
|
Bank borrowings |
|
|
180.0 |
211.6 |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
Bank overdrafts |
|
|
8.7 |
5.0 |
|
Bank borrowings |
|
|
9.0 |
162.7 |
|
|
|
|
17.7 |
167.7 |
|
|
|
|
|
|
|
Total borrowings |
|
|
197.7 |
379.3 |
|
|
|
|
|
|
|
Short-term deposits |
|
|
(0.5) |
(0.5) |
|
Cash at bank and in hand |
|
|
(21.7) |
(14.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings |
|
|
175.5 |
364.0 |
The bank overdrafts and borrowings are all unsecured.
Note 11
Trade and other payables
|
|
|
|
2009 |
2008 |
|
|
|
|
£ million |
£ million |
|
|
|
|
|
|
|
Trade payables |
|
|
68.5 |
90.8 |
|
Other taxation and social security payable |
|
|
2.9 |
2.8 |
|
Other payables |
|
|
19.9 |
23.6 |
|
Accruals and deferred income |
|
|
128.6 |
135.7 |
|
|
|
|
219.9 |
252.9 |
Note 12
Deferred tax
|
|
|
|
2009 |
2008 |
|
|
|
|
£ million |
£ million |
|
|
|
|
|
|
|
At 1 January |
|
|
(19.8) |
(12.3) |
|
Charge to the income statement (Note 2) |
|
|
(9.8) |
(7.3) |
|
(Charge)/credit to equity |
|
|
(3.0) |
6.9 |
|
Exchange differences |
|
|
3.1 |
(7.1) |
|
At 31 December |
|
|
(29.5) |
(19.8) |
Note 13
Share capital
|
|
2009 |
2009 |
2008 |
2008 |
|
|
Number |
£000 |
Number |
£000 |
|
Authorised: |
|
|
|
|
|
Ordinary shares of 20p each |
459,750,003 |
92,000 |
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 |
272,116,594 |
54,424 |
270,923,649 |
54,185 |
|
|
|
|
|
|
|
Employee share option scheme |
1,356,774 |
271 |
1,192,945 |
239 |
|
|
|
|
|
|
|
At 31 December |
273,473,338 |
54,695 |
272,116,594 |
54,424 |
During the year 1,058,724 Ordinary shares of 20 pence each have been issued at prices ranging from £1.17 to £5.04 to satisfy the exercise of options under the Savings-Related Share Option Schemes ('Sharesave') and Executive Share Option Schemes by eligible employees. In addition 298,020 shares were allotted to US participants in the Long-term Incentive Plan by the allotment of new shares at 20 pence per share.
Note 14
Treasury Shares
|
|
|
|
2009 |
2008 |
|
|
|
|
£ million |
£ million |
|
|
|
|
|
|
|
Treasury Shares |
|
|
(25.8) |
(20.5) |
Interests in own shares represents the cost of 4,422,419 of the Company's ordinary shares (nominal value 20 pence) (31 December 2008: 3,825,034). In April 2009, 1,529,280 share were acquired by the Trust in the open market. During the year 931,895 shares were allotted to participants in the Long Term Incentive Plan.
These shares represent 1.6% of issued share capital as at 31 December 2009 (2008: 1.4%).
These shares were acquired by a trust in the open market using funds provided by Aggreko plc to meet obligations under the Long Term Incentive Arrangements. The costs of funding and administering the scheme are charged to the income statement of the company in the period to which they relate. The market value of the shares at 31 December 2009 was £41.1 million (31 December 2008: £17.1 million).
Note 15
Acquisition of the power rental business of Cummins India Ltd
On 1 January 2009 the Group completed the acquisition of the business and assets of the power rental business of Cummins India Ltd (CIL) for a total cash consideration of £4.2 million. The business acquired had revenue in 2008 of £2.9 million and operating profit of £0.8 million.
The acquisition method of accounting has been adopted and the goodwill arising on the purchase has been capitalised. The acquisition was completed on a slump sale basis. This means that no specific book values were assigned to assets and liabilities purchased. An independent valuation was carried out to assign fair values to the assets. The details of the transaction and fair value of assets acquired are shown below:
|
|
|
|
|
Fair |
|
|
|
|
|
value |
|
|
|
|
|
£ million |
|
|
|
|
|
|
|
Intangible fixed assets |
|
|
|
2.1 |
|
Property, plant & equipment |
|
|
|
1.4 |
|
Net assets acquired |
|
|
|
3.5 |
|
Goodwill |
|
|
|
0.7 |
|
|
|
|
|
|
|
Consideration |
|
|
|
4.2 |
Intangible fixed assets represent customer relationships and a non-compete agreement. Goodwill represents the value of synergies arising from the integration of the acquired business. Synergies include direct cost savings, improved utilisation of the acquired fleet assets and the reduction of overheads.
Notes:
|
1. |
The above figures represent an abridged version of the Group's full Accounts for the year ended 31 December 2009, upon which the auditors have given an unqualified report. |
|
|
|
|
2. |
The Annual Report will be posted to all shareholders on 18 March 2010 and will be available on request from the Secretary, Aggreko plc, 8th Floor, 120 Bothwell Street, Glasgow, G2 7JS. The Annual General Meeting will be held in Glasgow on 28 April 2010. The Annual Report contains full details of the principal accounting policies adopted in the preparation of these financial statements. |
|
|
|
|
3. |
A final dividend of 8.23 pence per share will be recommended to shareholders and, if approved, will be paid on 21 May 2010 to shareholders on the register at 23 April 2010. |
Responsibility statement
The Annual Report for the year ended 31 December 2009, which will be published on 18 March 2010, complies with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority in respect of the requirement to produce an Annual Financial Report. Rupert Soames, Chief Executive and Angus Cockburn , Finance Director, confirmed on behalf of the board that, to the best of their knowledge:
·; the consolidated financial statements contained in the Annual Report for the year ended 31 December 2009, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the group; and
·; the management report represented by the directors' report contained in the Annual Report for the year ended 31 December 2009 includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal risks and uncertainties that the group faces.
Related Shares:
AGK.L