Chairman's Statement
Introduction
Aggreko delivered a strong performance in the first half of 2011. On an underlying basis (in constant currency and excluding the one-off impact of the Vancouver Winter Olympics, the FIFA World Cup and the Asian Games as well as pass-through fuel), revenue grew by 21% and trading profit by 17%. Reported revenue increased by 9% and reported trading profit decreased by 3%.
Our strong margins and cashflows have enabled us to substantially increase the rate of our investment in rental fleet to record levels and, at the same, time deliver a material amount of value to shareholders by way of a £151 million return of capital. Plans to do this were announced in March 2011, the proposals were approved by shareholders on 5 July 2011 and the return, equivalent to 55 pence per ordinary share, was completed in July. Following the return, and on a pro-forma basis, our net debt stands at 0.8 times EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) generated in the 12 months to 30 June 2011, which has moved us closer to our longer-term target of around 1 times net debt to EBITDA.
Dividend
The Board has decided to pay an interim dividend of 7.20 pence per share, which is an increase of 10% over the 2010 interim dividend. This interim dividend will be paid on 19 October 2011 to shareholders on the register at 23 September 2011, with an ex-dividend date of 21 September 2011.
Trading
Reported revenue in the first half at £637.2 million (2010: £583.6 million) was 9% higher than 2010 while underlying revenue, as defined above, increased by 21%. Profit before tax decreased by 5% to £119.0 million (2010: £125.7 million), which represents strong underlying growth, on the same basis as above. International Power Projects order book grew to record levels and, at the end of June, was 27% higher than the year before. Many of our Local businesses delivered strong year-on-year growth, and our businesses in North America and Australia in particular performed very well.
During the first six months we accelerated the pace of investment; fleet capital expenditure in the first half was £169.4 million, compared with £99.1 million in the same period last year. As highlighted in our June trading update, it is expected that fleet capital expenditure for the full year will be around £420 million compared with £254.4 million in 2010.
Net debt increased by £125.0 million to £257.2 million in the period. Aggreko's financial position is very strong with interest cover measured on an EBITDA basis of 36.2 times (30 June 2010: 28.5 times). Aggreko had bank facilities and private placement funding totalling £762.8 million at 30 June 2011.
Board
At the Company's Annual General Meeting in April, I announced that I intend to step down as Chairman and also from the Board of Aggreko at the AGM in April 2012, at which point I will have served ten years as Chairman and fifteen years on the Board. My successor as Chairman will be Ken Hanna, who joined the Board in October 2010; Ken is Chairman of Inchcape plc and a Non-executive Director of Tesco plc.
The Board notes the publication of the Davies Review on Women on Boards in February 2011 and the subsequent consultation being undertaken by the Financial Reporting Council in relation to potential changes to the UK Corporate Governance Code. The Board aims to have a broad range of skills, backgrounds and experience. While we will continue to follow a policy of ensuring that we appoint the best people for the relevant roles, we recognise the benefits of greater gender diversity and will continue to take account of this when considering any particular appointment.
Outlook
The Local business, on an underlying basis, performed well in the first half but, as is always the case, the outcome for the year as a whole will be heavily dependent on trading during the summer season. Further good progress has been made in the first weeks of the second half, with double-digit growth in megawatts of power on rent, and most Local businesses showing some improvement in rates; temperature control volumes are at similar levels to last year. With recent contract wins in Cyprus, Iraq and Russia, we expect our Europe and Middle East business to have a much better second half. In North America the underlying business continues to trade ahead of last year. Our Local businesses in Aggreko International have continued to grow strongly on an underlying basis.
Our International Power Projects business has good momentum, and now has over 25% more MW on rent than a year ago. Recent contract awards in Kenya, Brazil, Indonesia and Mali have helped to sustain the order book, and overall trading in the first weeks of the second half has been a little stronger than we expected. In the first half, margins in International Power Projects were impacted by £14 million of provisions taken against overdue payments for three specific customers, but we are hopeful that we will see some improvement in this position in the second half.
Although the prospects for the global economy in the months ahead are uncertain, we believe that we are well placed to deliver a strong second half, and that profit before tax and amortisation for the year as a whole will be higher than we indicated at the time of our Trading Update at the end of June; we now expect it to be around £315 million. This would equate to a rate of growth in underlying profits of around 24%.
Philip Rogerson
Chairman
25 August 2011
