1h18 results and strategic progress update/media/files/a/aggreko/reports-and... · results...

1Results Presentation August 2018

Half year ended 30 June 2018

1H18 results and strategic progress update

1 AUGUST 2018


IntroductionChris WestonCEO


Agenda

Headlines

1H18 results review

Strategic priorities

Financial performance drivers

Closing remarks


Headlines

Financial results

Encouraging H1 results

Full year guidance unchanged

Strategic progress

Our 2015 strategy has evolved to reflect changing markets

Execution of our strategy has strengthened the Group’s foundations and is beginning to drive growth

Detailed plans, focused on operating margin and capital efficiency and supported by cost savings of £50m, to deliver improved financial returns

We expect to deliver ROCE in the mid teens in 2020, with potential for further improvement thereafter


1H18 results reviewHeath DrewettCFO


Group summary

Good underlying growth in revenue and operating profit

No exceptional items in 2018 (2017: £10m)

Effective tax rate of 31%

Dividend in line with 2017

Encouraging H1 results

Movement

£m pre-2017 exceptional items 1H18 1H17 CHANGE

CHANGE excluding

pass-through fuel and currency

Revenue 857 779 10% 14%

Operating profit 76 79 (4)% 8%

Net interest expense (17) (16) (8)%

Profit before tax 59 63 (7)%

Taxation (18) (18) -

Profit after tax 41 45 (10)%

Diluted earnings per share 15.85 17.88 (11)%

Dividend per share 9.38 9.38 -

Operating margin 9% 10% (1)pp

ROCE 11% 12% (1)pp


Movement

pre- 2017 exceptional items 1H18 1H17 CHANGE

CHANGE excluding

currency

Revenue (£m) 386 307 26% 32%

Operating profit (£m) 40 14 169% 192%

Operating margin 11% 5%

ROCE (rolling 12 month) 16% 8%

Fleet capital expenditure (£m) 26 24

Business performance

% REVENUE BY SECTOR 1H18Business services & construction

Petrochemical & refining

Oil & Gas

Utilities

Events

Manufacturing

Mining

Other

19%

17%

12%

11%

9%

7%

5%

20%

UTILISATIONat 30 June (MW)

50%

REVENUE(% OF GROUP excl. pass-through fuel)

Rental SolutionsStrong growth and improved margins

1H18

1H17

61%

52%


39%

16%

11%

10%

8%

7%

2%

7%


Movement

pre- 2017 exceptional items 1H18 1H17 CHANGE

CHANGE excluding

currency

Revenue (£m) 219 212 3% 15%

Operating profit (£m) 23 31 (24)% (15)%


ROCE (rolling 12 months) 10% 10%


% REVENUE BY SECTOR 1H18Oil & Gas

Events

Mining

Business services & construction

Utilities

Manufacturing

Petrochemical & refining

Other

29%


Power Solutions IndustrialProfit impacted by Middle East headwinds

UTILISATIONat 30 June (MW)

1H18

1H17

70%

69%



Movement

pre- 2017 exceptional items & excluding pass-through fuel 1H18 1H17 CHANGE

CHANGE excluding pass-

through fuel and currency

Revenue (£m) 163 218 (25)% (15)%

Operating profit (£m) 14 36 (62)% (55)%


ROCE 7% 16%


21%


Power Solutions UtilityPerformance reflects known contract off-hires

This segment now includes only Utility customer projectsUTILISATIONat 30 June (MW)

1H18

1H17

65%

75%


Cash flow

Working capital outflow of £68m

Capital expenditure reduced by £33m as we increase our focus on utilisation

Net debt/EBITDA of 1.4x

£m 1H18 1H17

EBITDA 224 230

Working capital (68) (51)

Cash flows relating to prior period exceptionals (4) (10)

Other 8 15

Operating cash flow 160 184

Tax (33) (33)

Net interest (18) (17)

Acquisitions (33) (28)

Purchase of fixed assets (95) (128)

Other fixed asset movements - 4

Free cash flow (19) (18)

Dividends (45) (45)

Changes in equity (7) -

Net cash flow (71) (63)

Exchange (18) 29

Movement in net debt (89) (34)

Net debt (741) (683)


Working capital performance

In recent periods receivables have been the key driver, with some improvement in payables

WORKING CAPITAL BREAKDOWN (£m)

-600

-400

-200

0

200

400

600

800

1,000

H118 FY17H117FY16

Inventory Receivables Payables

£247m

£656m

£(299)m£(361)m

£238m

£736m

£(410)m£(346)m

£232m

£770m

£244m

£740m


Actions in place to tackle receivables

Monthly cash collection targets by region (and customer on major projects)

Augmented and structured stakeholder engagement

Sales agent effectiveness measured and changes made

New regional senior positions created (above project managers) to increase focus and provide escalation path

Tighter enforcement of contract provisions, including application of late payment penalties

Power Solutions

Monthly billing and collection targets by region

Regular execution review of top debtors and unbilled accounts to agree remedial actions

Temporary resources added to clear unbilled backlog and support collections

Rental Solutions


Improving performance as our actions begin to take effect

Utility – Invoicing/receipts performance

POWER SOLUTIONS UTILITY ($m)

0

10

20

30

40

50

60

70

80

90

Jan Feb Mar Apr May Jun

Invoicing

Receipts

2018


Steady improvement since the close of 2017

Rental Solutions – Trade receivables performance

Month by month improvement across Rental Solutions, with improved collections making inroads into the overall trade receivables position

TRADE RECEIVABLES – INCLUDING UNBILLED ($m)

0%

5%

10%

15%

20%

25%

30%

0

50

100

150

200

250

300

H117 FY17 Jan Feb Mar Apr May Jun2018

Trade receivables/revenue %


Inventory

The next area of focus

Clear target to reduce inventory levels in 2018

Central team established to review and approve all new orders (to confirm the ‘need’)

Safety stock levels set by the central team

Identification and movement of excess inventory across the regions to meet business needs

Centrally managed global buyback procedure with key suppliers

Regular stock counts and write-off reviews

Power Solutions

Recently begun inventory system regional roll-out

System automation of stock categorisation (9 box definitions: fast moving, slow moving, non moving etc.) to enable greater visibility and support inventory sharing

Creation of virtual inventory sharing warehouse for depots/regions to identify stock availability prior to placing new orders

Consignment stock arrangement established with key supplier

Scrappage/third party sale process for surplus items, where no supplier buyback option exists

Rental Solutions


On track to deliver our 2018 guidance

Growth in Rental Solutions and Industrial expected to offset Utility headwinds in the full year

Expected effective tax rate of 31%

Full year fleet capex down c.10% on prior year

Working capital improves to small inflow in H2

Net debt/EBITDA to reduce to 1.2 – 1.3x

2018 PBT expected to be in line with 2017, excluding currency effects


Strategic priorities

Chris WestonCEO


2015 strategic priorities: A reminder

CUSTOMER

TECHNOLOGY

EFFICIENCY

• Tailor sales and service channels• Focus on key sectors• Pursue adjacencies• Evaluate bolt-on M&A opportunities

Priority

• Work with our strategic partners to develop market leading products

• Strengthen and expand strategic partnerships• Reduce the overall cost of power for our customers

Priority

• Streamlining our cost base• Optimising deployment of resources• Improving processes and systems

Priority


Group performance held back

We have faced significant challenges as we have executed our strategy

0

50

100

150

200

250

300

350

2014 2017

NEGATIVE DRIVERS

Repricing and off-hires of legacy Utility contracts

Customer liquidity increasing outstanding receivables

Impact of oil price fall on North American oil & gas sector

Rental Industrial Utility

OPERATING PROFIT (£m)


Reviewing our strategy

Progress in the strategic priorities has built a firm foundation and is beginning to drive growth

Re-examined our strategy, the markets we operate in and the impact of renewables and storage

Markets have evolved and our strategy has evolved with them

Implementing detailed plans for the continued execution of the strategy

Determined revised financial expectations

Comprehensive, business led exercise, supported by external consultants


Our approach to the markets

We have three inter-related, but distinct businesses

Rental Solutions

Power Solutions Industrial

Power Solutions Utility

Focus on high value key sectors− Deliver sector customer

needs

Build sector specific capability− Technical expertise− Sales approach

Improve cost position

Focus on natural resource & industrial sectors

Low cost operating model− Optimise fleet

allocation and operating model

− Efficient hub & spoke depot network

Focus on utilities in emerging markets− Flexible, innovative

solutions to infrastructure issues

Lowest cost of energy− Efficient technology

and operations


Our evolved strategy

We have four clear strategic priorities

Being particular about the sectors we target

Offering specialist solutions

Being simple to do business with

Customer focusDeveloping competitive configurable products

Smarter use of connected systems & data analytics

Integrating renewable & storage technology

Technology investmentBeing mobile & modular

Getting the very maximum out of our assets

Striving for the most competitive cost base

Capital efficiencyLiving Always Orange

Nurturing our full potential

Staying safe and professional at all times

Expert people


Customer focus

Being particular about the sectors we target

Offering specialist solutions

Being simple to do business with

Customer focus

Continued focus on key sectors− Focus and technical capability: increase in higher value,

complex solutions− Hybrid solutions (off grid, mining)

Sales & marketing discipline and process enhancements− Segmentation and channel development (telesales and

ecommerce)− Real time pricing governance

System investment to improve customer experience− End to end systems being deployed

Remote monitoring and data analytics− Improved customer service and product development

TRANSLATING PRIORITIES INTO DETAILED PLANS

24Results Presentation August 2018 24Results Presentation March 2018



Technology investment

Continued focus on reducing the total cost of energy− Fuel efficiency, hybrid solutions and emissions

Complex sector specific applications

Remote monitoring platform and data analytic capability

Hybrid solutions and storage integration− Integrating renewables, storage and thermal− Deploy to existing fleet/sites to improve efficiency and

reliabilityDeveloping competitive configurable products

Smarter use of connected systems & data analytics

Integrating renewable & storage technology

Technology investment



Capital efficiency

Centralised fleet management to drive utilisation

Remote monitoring and data analytics− Reduce maintenance costs− Improve utilisation

Deploy Rental Solutions systems into Industrial− Back office and process efficiencies

Cost reduction program to deliver £50m of savings

Reduction in working capitalBeing mobile & modular

Getting the very maximum out of our assets

Striving for the most competitive cost base

Capital efficiency

Cost focus is key in Power Solutions Utility

Addressing receivables and costs to ensure competitiveness


Improving outlook into 2019 and beyond

Comprehensive business led review now completed

We are already well advanced to respond to changing demand− Customer focus and systems− Technology

Focus on operational excellence as well as growth

Detailed plans to improve capital efficiency − Fleet asset investment− Working capital

Culture change driving an improved commercial understanding of what delivers value

Expect to deliver ROCEin the

mid-teens in 2020


Financial performance driversHeath DrewettCFO


Plans toimprove allelements

Improving ROCE

ROCE is our key measure of performance

OPERATING PROFIT

Volume growth

Pricing

Operational efficiency

CAPITAL EMPLOYED

Working capital

Capital investment

Utilisation


Growing returns: Rental SolutionsContinued improvement

KEY DRIVERS:

Sector focus and specialisation

Higher value, complex solutions

Remote monitoring & new systems

Inventory systems

Utilisation

Introduce e-commerce

Operatingprofit

Workingcapital

Fixedassets

16%

20201H18

1

2

3

4

5

6

463

21 5


Growing returns: Industrial

KEY DRIVERS:

Sector focus and specialisation

Higher value, complex solutions

Remote monitoring & new systems

Inventory management

Utilisation

Operatingprofit

Workingcapital

Fixedassets

10%

20201H18

4

3

21

Continued improvement

5

1

2

3

4

5


Plans toimprove all

metrics

Rental & Industrial actions

GROWTH AND PRICING

Embedding our dedicated sector sales resources

Focus on specialty products and more complex solutions to support improved pricing

New systems to enable real-time pricing and improved governance

Introduction of e-commerce platform and telesales to service more transactional market

Hybrid solutions provide new growth opportunities

OPERATIONAL EFFICIENCY

New systems to support the customer journey and improve efficiency

Remote asset monitoring to drive down unplanned maintenance costs

Introduction of data analytics to reduce costs of regular servicing

Global fleet management

Volume growth, improved pricing and operational efficiency


Growing returns: Utility

KEY DRIVERS:

Sales discipline to drive operating profit with focus on margin, not growth

Cost reduction program

Billing & collections under spotlight and part of sales process

Inventory management and systems investment

Optimising utilization, capital expenditure discipline

Set to improve returns through self-help measures

Operatingprofit

Workingcapital

Fixedassets

7%

20201H18

3

1

5

2

4

1

2

3

4

5


Plans toimprove all

metrics

Utility actions

REDUCE WORKING CAPITAL ROFIT Continue actions already in place (referenced earlier)

DRIVE UTILISATION All capital expenditure requires CEO/CFO approval

New product build programme limited to G16 upgrades in the short term

Global fleet management and deployment

Group Operations Council established to oversee and govern fleet operations

Asset monitoring to improve site efficiency and remove fleet redundancy

Surplus fleet transfers to Rental and Industrial Solutions to support volume growth

REDUCE COSTS Planned maintenance cost reduction through introduction of condition-based maintenance regimes

Procurement savings through extension of spare parts supplier base

Optimisation of fleet logistics and project manning

Review regional office and support function locations

Improve sales productivity through training and development

Capital efficiency and cost reductions


Improving Group returnsGenerating mid-teens returns in 2020

Operatingprofit

Workingcapital

Fixedassets

20201H18

Mid-teens %

11%

RENTAL & INDUSTRIAL

Operating profit improvement the key driver

Some uplift in working capital and fixed asset ratios

UTILITY

Broader base of improvement:− Cost reductions− Working capital− Fixed asset utilisation

Self-help measures are key


Closing remarksChris WestonCEO


Summary

The first half results are encouraging: we are on track to achieve our full year guidance

Our 2015 strategy has evolved to reflect changing markets

Execution of our strategy has strengthened the Group’s foundations and is beginning to drive growth

Detailed plans, focused on operating margin and capital efficiency and supported by cost savings of £50m, to deliver improved financial returns

We expect to deliver ROCE in the mid teens in 2020, with potential for further improvement thereafter

We have built a strong platform to improve returns


Aggreko is a customer focused specialist provider of power, temperature control and energy services on a global basis. These services are based on modular and mobile equipment operated on a digital platform with a market leading integration capability.

38Results Presentation March 2018


Appendix


Foreign exchange impact

Note: UAE Dirhams included within US Dollar as it is pegged to the US dollar; Argentinian Peso includes Power Solutions Utility contracts which are pegged to the US Dollar but paid and reported in Argentinian Pesos.

FX RATES REVENUE (£m)

FY17average

July 2018 FYF average

FY17 actual

FY17 Restated at

July 2018 FYF average

rates Variance % Variance

US Dollar 1.29 1.35 814 780 (34) (4)%

Euro 1.14 1.13 209 211 2 1%

Australian Dollar 1.68 1.78 77 73 (4) (6)%

Argentinian Peso 21.36 33.01 64 42 (22) (35)%

Brazilian Real 4.12 4.82 216 185 (31) (15)%

Canadian Dollar 1.67 1.74 23 22 (1) (4)%

Russian Rouble 75.19 82.31 76 69 (7) (9)%

Other 219 207 (12) (5)%

Total revenue 1,698 1,589 (109) (6)%

Total operating profit 224 202 (22) (10)%


Disclaimer

The information contained in this presentation has largely been extracted from the Results Announcement for thesix months ended 30 June 2018.

This presentation may contain certain “forward-looking” statements. By their nature, forward-looking statementsinvolve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and resultsmay differ materially from any outcomes or results expressed or implied by such forward-looking statements. Anyforward-looking statements made by or on behalf of Aggreko speak only as of the date they are made and norepresentation or warranty is given in relation to them, including as to their completeness or accuracy or the basison which they were prepared.

This presentation is published solely for information purposes.

The distribution of this presentation in jurisdictions other than the UK may be restricted by law and therefore anypersons who are subject to the laws of any jurisdiction other than the UK should inform themselves about, andobserve, any applicable requirements.

All opinions expressed in this presentation are subject to change without notice and may differ from opinionsexpressed elsewhere.

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