Half Yearly Report

1 August 2013

Aggreko plc

INTERIM RESULTS

PERFORMANCE IN LINE WITH EXPECTATIONS; FULL YEAR GUIDANCE MAINTAINED

Aggreko plc, the world leader in the supply of temporary power and temperature control, announces its interim results for the six months to 30 June 2013.

·; First half in line with expectations; underlying revenue up 5% and trading profit similar to prior year.

·; Strong performance by Local business; underlying revenue up 9%, margins up 1pp

o Strong first half in Americas and Asia Pacific

o Temperature control revenues up 12%

o Good growth in mini-projects.

·; Power Projects trading subdued; underlying revenue similar to prior year, margins down 3pp

o Order intake of 397MW in first half

o Heavy Fuel Oil product well received by customers; 4 contracts signed since launch.

·; Further good progress on gas-fuelled generation: around 1,000MW of gas-fuelled capacity on rent; gas revenues over 40% up on prior year.

·; Interim dividend to increase by 10% in line with our strategy of reducing full year dividend cover from over 4 times to nearer 3 times.

·; Cash inflow of £69 million in first half, and expected to be around £100 million in second half.

Rupert Soames, Chief Executive, commented:

"First half performance was in line with expectations. Our Local business, representing some 60% of revenues, delivered strong underlying revenue growth and margins strengthened; trading in our Power Projects business was, however, subdued relative to its historic performance, with revenues flat on the prior year and margins weaker. In aggregate, Group revenue increased by 5% on an underlying basis and 4% on a reported basis, while trading profit was at similar levels to the prior year."

"Our expectations for the full year remain unchanged.

We expect revenues in Power Projects to be higher in the second half than in the first, as increased revenues from our gas projects offset reduced revenues from Military and Japan. We also expect to make further progress with our new HFO product, for which we have signed another contract since our June Trading update. We now have a total of four customers for this product in the Americas, Africa and in Asia, underlining the broad appeal that this product will have. However, although the prospect pipeline remains healthy, we do not expect a pick-up in the rate of order intake for the Power Projects business in the immediate future.

On an underlying basis we expect that the Local business will continue to perform well in the second half with margins anticipated to improve year on year, in part reflecting the growth in mini power projects.

We now expect to spend around £240 million on fleet capital expenditure for the full year. As a result of our disciplined approach to capital expenditure, we also expect to deliver strong cash generation in the second half."

Regional performance metrics:

- ENDS -

Enquiries to:

Interim management report

Group Trading Performance

First half performance was in line with expectations. Our Local business, representing some 60% of revenue, delivered strong underlying1 revenue growth and margins strengthened; trading in our Power Projects business was, however, subdued relative to its historic performance, with revenue flat on the prior year and margins weaker. In aggregate, Group revenue increased by 5% on an underlying basis and 4% on a reported basis, while trading profit2 was at similar levels to the prior year.

Group revenue, as reported, increased by 4% to £760 million (2012: £734 million), while trading profit of £155 million (2012: £157 million) was down 1% on the prior year; reported trading margin was 20% (2012: 21%). Underlying revenue increased by 5% and trading profit was at similar levels to the prior year; underlying trading margin was 21% (2012: 23%).

Group profit before tax decreased by 2% to £144 million (2012: £146 million) and profit after tax decreased by 3% to £105 million (2012: £108 million), reflecting an increase in the tax rate from 26% to 27% which was driven by profit mix. Group return on capital employed (ROCE3), measured on a rolling 12-month basis, was 22% (2012: 26%). The ratio of revenue (excluding pass-through fuel4) to average gross rental assets decreased from 71% to 67%. The reduction in trading margins, ROCE and the ratio of revenue to average gross rental assets was driven by the Power Projects business, mainly due to a lower level of diesel fleet utilisation and higher than normal mobilisation costs from the 222MW of gas plants we have recently commissioned in Mozambique and Cote d'Ivoire.

The movement in exchange rates in the period had the effect of increasing revenue by £5 million, with a minimal impact on trading profit. Pass-through fuel accounted for £15 million (2012: £20 million) of reported revenue of £760 million.

In response to the subdued trading conditions in our Power Projects business we reacted promptly to reduce the rate of capital expenditure in our rental fleet; we spent £111 million on new fleet in the period (2012: £220 million), equivalent to 87% of the depreciation charge (June 2012: 213% of the depreciation charge). As a consequence, net debt fell to £552 million at 30 June 2013, £126 million lower than the same period last year.

Regional Trading Performance

In September 2012 we announced a new organisation structure comprising three regions: Americas; Europe, the Middle East & Africa (EMEA) and Asia, Pacific & Australia (APAC). This new structure took effect from 1 January 2013. The performance of these regions is detailed below, along with an analysis of the global performance of both our business lines - Power Projects and the Local business.

Regional Trading Performance as reported in £ million

The table below further splits the regional revenue into the Local and Power Projects elements:

Americas

Our Americas business delivered a very strong performance in the first half. Underlying revenue (which for Americas was adjusted for the impact of the Poit acquisition in April 2012 as well as for currency), increased by 11% and trading profit by 26%. Underlying trading margin improved from 20% to 21%.

The Americas Local business operates from 98 service centres in Canada, the United States, Brazil, Chile, Argentina, Peru, Colombia, Mexico and Panama. Revenue, on an underlying basis, increased by 17%. Rental revenue increased by 14% and services revenue increased by 23%. Within rental revenue all products (power, temperature control and oil-free compressed air) increased by 14%, albeit our temperature control business had a slow start to the summer season as ambient temperatures in North America were unusually cool in May and June. On a sector basis, demand has been strong in the oil & gas and petrochemical & refining sectors in both North and Latin America; contracting & construction, although a small part of our revenues, also grew strongly.

The integration of the Poit Energia business has been completed and the combined business in Latin America has performed very well, growing its revenues at around 20% on a half year pro forma basis.

Power Projects revenue was slightly up on last year, within which revenue from the Military contracts was slightly down on the prior year. We expect to see a further decline in Military revenue in the second half as troops continue to exit from Afghanistan and a number of these contracts finish.

Europe, Middle East & Africa (EMEA)

Our EMEA business grew underlying revenue (adjusted for the London Olympics in 2012 and currency) by 7%.

Revenue in our Power Projects business, excluding fuel, was up 19% on last year as we benefited from the first phase of our power plant in Mozambique, which is now delivering power to three countries (Namibia, South Africa and Mozambique) partially offset by off-hires in Angola. However, in the first quarter we signed contracts for an expansion of the Mozambique plant and the mobilisation costs of this additional 122MW, as well as those related to a 100MW expansion of our plant in Cote d'Ivoire, meant that trading margin in our EMEA business fell by three percentage points. Having taken the mobilisation costs in the first half, these plants will both contribute to profits in the second half.

Revenue in our EMEA Local business, on an underlying basis, was at similar levels to last year. Rental revenue increased by 5% and services revenue was down 8%. The decrease in services revenue is driven by some large cooling contracts in our Middle East business in the prior year which didn't repeat this year. Within rental revenue, power increased by 5% and temperature control increased by 3%.

On a sector basis there was good growth in oil & gas and construction, but a decline in utilities. In geographic terms we saw rental revenue growth in the UK and the Middle East but we experienced weak demand in a number of countries in Continental Europe. We also had the benefit in 2012 of an emergency contract in Cyprus, which finished in the second half of 2012.

Australia Pacific & Asia (APAC)

Our APAC business has had a challenging first half with underlying (after adjusting for currency) revenue declining by 6% and trading profit declining by 8%. The underlying trading margin moved from 35% to 34%.

The Local business, consisting of Australia Pacific, Singapore, China and India, saw revenue increasing on an underlying basis by 11%. Rental revenue increased by 11% and services revenue was up 9%. Within rental revenue power increased by 9% and temperature control increased by 23% driven by emergency cooling jobs in Australia. Strong revenues from Liquid Natural Gas (LNG) construction projects in Queensland offset reduced revenues from mining projects in West Australia.

In geographic terms, we saw good growth in Australia Pacific which contributed over 80% of the revenue in the Local business. India delivered good growth allowing for a mini power project in the comparatives. China continues to be our most challenging market in Local APAC and we are in the process of reviewing how best to target the Chinese market going forward.

In the first half of 2013, Power Projects revenue was 15% lower than last year largely driven by lower volumes in both Japan and Indonesia. In Japan, some 100MW of gas-fired generation which had been supporting TEPCO following the Fukushima disaster off-hired at the end of the first quarter; we continue to provide around 140 MW of diesel capacity to HEPCO. In Indonesia, a number of sites off-hired in the second half of 2012 and early in 2013; most of these off-hires were due to permanent power plants coming on-line, but the competitive environment in this market is also tough.

Power Projects Business Line

Our Power Projects business experienced subdued trading in the period with revenue, in constant currency and excluding pass-through fuel, at similar levels to last year and trading profits decreasing by 8%. Trading margin decreased to 31% (2012: 34%). A number of factors contributed to the margin movement: high levels of mobilisation costs from the 222MW of gas plants which we commissioned in Mozambique and Cote d'Ivoire; the completion of contracts in Japan and Military; lower diesel fleet utilisation; and some pricing pressure on diesel fleet. These factors were in part offset by a lower charge to the income statement for the provision of bad debts in the six month to 30 June 2013 as compared to the prior year.

Order intake for the first half was 397MW (H1 2012: 669MW) which includes a summer peak-shaving contract in Tunisia of over 100MW as well as the 122MW cross-border power project supplying power to Namibia and Mozambique. At the end of the period, our order book was over 30,000MW months, the equivalent of 11 months' revenue at the current run-rate. Our investment in technologies using fuel other than diesel is paying dividends: we go into the second half with nearly 900MW of gas-fuelled generation on rent, and revenues from gas were over 40% up on the prior year in the first half. Encouragingly, there has been strong interest from customers in our new Heavy Fuel Oil (HFO) product, and between Power Projects and the Local business we now have four contracts for this product. We are currently converting our existing diesel fleet into HFO-capable sets at a rate of about 7 sets a week, and expect to have around 300MW of HFO capacity by the end of the year.

Local Business Line

Our Local business delivered a strong first half with underlying revenue increasing by 9% and trading profit increasing by 18%. On the same basis trading margin increased from 13% to 14%. Within this, our recent investments in building our presence in emerging markets1 continues to drive good levels of growth. Rates across the Local business are slightly up on the prior year.

As we set out in our strategy review in March, a key part of our strategy is to use our Local business network to execute smaller power projects, which, absent a Local business, would have been executed by our Power Projects business; it is pleasing to note that this segment of "mini-projects"2 has shown very strong growth over the period and over the last 12 months we have executed some 500MW worth of contracts of this type.

Outlook

Our expectations for the full year remain unchanged.

We expect revenues in Power Projects to be higher in the second half than in the first, as increased revenues from our gas projects offset reduced revenues from Military and Japan. We also expect to make further progress with our new HFO product, for which we have signed another contract since our June Trading update. We now have a total of four customers for this product in the Americas, Africa and in Asia, underlining the broad appeal that this product will have. However, although the prospect pipeline remains healthy, we do not expect a pick-up in the rate of order intake for the Power Projects business in the immediate future.

On an underlying basis we expect that the Local business will continue to perform well in the second half with margins anticipated to improve year on year, in part reflecting the growth in mini power projects.

We now expect to spend around £240 million on fleet capital expenditure for the full year. As a result of our disciplined approach to capital expenditure, we also expect to deliver strong cash generation in the second half.

Financial Review

The movement in exchange rates during the period increased revenue by £5 million and had a minimal impact on trading profit. Currency translation also gave rise to a £23 million increase in net assets from December 2012 to June 2013. Set out in the table below are the principal exchange rates affecting the Group's overseas profits and net assets:

Reconciliation of underlying growth to reported growth 

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

Interest

The net interest charge for the first half of 2013 was £13 million, an increase of £1 million on 2012, reflecting arrangement fees for debt refinanced during the period. Interest cover, measured against rolling 12-month EBITDA, remains strong at 25 times (June 2012: 26 times) relative to the financial covenant attached to our borrowing facilities that EBITDA should be no less than 4 times interest.

Effective Tax Rate

The current forecast of the effective tax rate for the full year, which has been used in the interim accounts is 27.0% as compared with 26.0% in the same period last year. The increase is principally driven by the regional mix of profits.

Dividends

The Board has decided to pay an interim dividend of 9.11 pence per ordinary share which represents an increase of 10% compared with the same period in 2012; dividend cover is 4.3 times (30 June 2012: 5.0 times) and is consistent with our strategy of reducing our full year dividend cover to nearer 3 times (31 December 2012: 4.2 times) in the next 2-3 years. This interim dividend will be paid on 4 October 2013 to shareholders on the register at 6 September 2013, with an ex-dividend date of 4 September 2013.

Cashflow

The net cash inflow from operations during the period totalled £270 million (2012: £134 million). This funded capital expenditure of £123 million which was down £110 million on the same period in 2012. Of the £123 million, £111 million was spent on fleet which was split evenly between the Power Projects and Local businesses. Within Power Projects, a substantial portion of the half and full year spend will be on converting over 250 of our diesel sets to our new HFO engine which we launched at the time of our March 2013 strategy review. Net debt of £552 million at 30 June 2013 was £126 million lower than the same period last year mainly driven by the lower capital expenditure. On a rolling 12-month basis, net debt to EBITDA was 0.8 times compared with 1.2 times for the same period in 2012.

There was a £21 million working capital outflow in the six months to 30 June 2013 (6 months to 30 June 2012: £143 million outflow) mainly driven by an increase in debtor balances in our Power Projects business. Debtor days in the Power Projects business increased by 21 days to 111 days (30 June 2012: 119 days). There continues to be two customers where payments are slow, albeit in one of the cases the cash received in the first six months of this year has exceeded the value invoiced. In both cases discussions are ongoing to progress the overdue balance.

Overall, the Power Projects bad debt provision at 30 June 2013 was £11 million higher than at 31 December 2012 (£19 million higher than 30 June 2012). For the full year our expectation remains that the bad debt provision will be at a similar level to the prior year.

Financial Resources

The Group maintains sufficient facilities to meet its normal funding requirements over the medium term. At 30 June 2013, these facilities totalled £922 million in the form of committed bank facilities arranged on a bilateral basis with a number of international banks and private placement notes. Since the start of 2013, we refinanced £350 million of facilities. The financial covenants attached to these facilities are that EBITDA should be no less than 4 times interest and net debt should be no more than 3 times EBITDA; at 30 June 2013, these stood at 25 times and 0.8 times respectively. The Group does not consider that these covenants are restrictive to its operations. The maturity profile of the borrowings is detailed in Note 13 in the Accounts.

Net debt amounted to £552 million at 30 June 2013 and, at that date, un-drawn committed facilities were £376 million.

Net Operating Assets

The net operating assets of the Group at 30 June 2013 totalled £1,773 million, up £106 million on the same period in 2012. The main components of net operating assets are:

A key measure of Aggreko's performance is Return on Capital Employed (ROCE) (expressed as operating profit as a percentage of average net operating assets). For each first half, we calculate ROCE by taking the operating profit on a rolling 12-month basis and expressing it as a percentage of the average net operating assets at 30 June, 31 December and the previous 30 June. For the full year, we state the year's operating profit as a percentage of the average net operating assets as at 31 December, the previous 30 June and 31 December. The average net operating assets for the 12 months to 30 June 2013 were £1,716 million, up 21% on the same period in 2012; operating profit for the same period was £384 million.

In the first half of 2013 the ROCE decreased to 22% compared with 26% for the same period in 2012. This decrease was mainly driven by lower trading margins in our Power Projects business which was driven by: high levels of mobilisation costs from the 222MW of gas plants which we commissioned in Mozambique and Cote d'Ivoire; the completion of contracts in Japan and Military; lower diesel fleet utilisation; and some pricing pressure on diesel fleet.

Shareholders' Equity

Shareholders' equity increased by £92 million to £1,137 million in the six months ended 30 June 2013, represented by the net assets of the Group of £1,689 million before net debt of £552 million. The movements in shareholders' equity are analysed in the table below:

Principal Risks and Uncertainties

In the day to day operations of the Group, we face risks and uncertainties. Our job is to mitigate and manage these risks and to aid this the Board has developed a formal risk management process which is described on page 61 of the 2012 Annual Report and Accounts. Also set out on pages 29 to 33 of that report are the principal risks and uncertainties which we believe could potentially impact the Group, and these are summarised below:

·; Economic conditions;

·; Political risk;

·; Failure to collect payments or to recover assets;

·; Events;

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

·; Safety;

·; Competition;

·; Product technology and emissions regulation; and

·; People.

We do not believe that the principal risks and uncertainties facing the business have changed materially since the publication of the Annual Report and we believe these will continue to be the same in the second half of the year.

Shareholder information

Our website can be accessed at www.aggreko.com. This contains a large amount of information about our business, including a range of charts and data, which can be downloaded for easy analysis. The website also carries copies of recent investor presentations, as well as Stock Exchange announcements.

Group Income Statement

For the six months ended 30 June 2013 (unaudited)

Group Statement of Comprehensive Income

For the six months ended 30 June 2013 (unaudited)

Group Balance Sheet (Company Number: SC177553)

As at 30 June 2013 (unaudited)

Group Cash Flow Statement

For the six months ended 30 June 2013 (unaudited)

Reconciliation of net cash flow to movement in net debt

For the six months ended 30 June 2013 (unaudited)

Group Statement of Changes in Equity

For the six months ended 30 June 2013 (unaudited)

As at 30 June 2013

As at 30 June 2012

Notes to the Interim Accounts

For the six months ended 30 June 2013 (unaudited)

1 General information

The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The address of the registered office is 120 Bothwell Street, Glasgow, G2 7JS, UK.

This condensed interim financial information was approved for issue on 1 August 2013.

This condensed consolidated interim financial information does not comprise Statutory Accounts within the meaning of Section 434 of the Companies Act 2006. Statutory Accounts for the year ended 31 December 2012 were approved by the Board on 7 March 2013 and delivered to the Registrar of Companies. The report of the auditors on those Accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

The condensed consolidated interim financial information is unaudited but has been reviewed by the Group's auditors, whose report is on page 28.

2 Basis of preparation

This condensed consolidated interim financial information for the six months ended 30 June 2013 has been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority (previously the Financial Services Authority) and IAS 34 'Interim financial reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2012, which have been prepared in accordance with IFRSs as adopted by the European Union.

Going-concern basis 

The Group's banking facilities are primarily in the form of committed bank facilities arranged on a bilateral basis with a number of international banks and private placement notes; facilities totalled £922 million at 30 June 2013. The financial covenants attached to these facilities are that EBITDA should be no less than 4 times interest (30 June 2013: 25 times) and net debt should be no more than 3 times EBITDA (30 June 2013: 0.8 times). The Group does not consider that these covenants are restrictive to its operations. The maturity profile of the borrowings is detailed in Note 13 to the Accounts. The Group's forecasts and projections show that the facilities in place are currently anticipated to be ample for meeting the Group's operational requirements for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated interim financial statements.

3 Accounting policies

Except as described below, the accounting policies are consistent with those of the annual financial statements for the year ended 31 December 2012, as described in those annual financial statements.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the plc Board of Directors. 

In September 2012 the Group announced a new organisational structure comprising three regions: The Americas; Europe, the Middle East and Africa (EMEA) and Asia, Pacific and Australia (APAC). This new structure took effect from 1 January 2013.

This is reflected by the Group's divisional management and organisational structure and the Group's internal financial reporting systems.

Aggreko's segments comprise these three new regions comprising: The Americas, EMEA and APAC as well as the Total Local business and the Total Power Projects business.

The risks and rewards within the Power Projects business are significantly different from those within the Group's Local business. The Local business focuses on smaller, more frequently occurring events, whereas the Power Projects business concentrates on large contracts, which can arise anywhere in the world.

The segmental analysis is in Note 6 to the Accounts. All prior year numbers have been restated in accordance with this new structure.

New and amended standards adopted by the Group

The following new standards are mandatory for the first time for the financial year beginning 1 January 2013:

·; IAS 19, 'Employee benefits' was amended in June 2011. The impact on the Group was to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability. The impact of this is in the income statement is less than £0.1 million. Prior year numbers have not been restated as the amounts are not material.

·; IFRS 13, 'Fair value measurement'. IFRS 13 measurement and disclosure requirements are applicable for the December 2013 year end. The Group has included the disclosures required by IAS 34. See Note 13.

4 Cashflow from operating activities

5 Cash and cash equivalents

6 Segmental reporting

(a) Revenue by segment