TIDMAGK

RNS Number : 7448G

Aggreko PLC

06 March 2018

AGGREKO PLC

RESULTS FOR THE TWELVE MONTHS

ED 31 DECEMBER 2017

6 MARCH 2018

 
 Results in-line with expectations; investing for 
  growth 
 
 
 Chris Weston, Chief Executive Officer, commented: 
 

"I am pleased that we are seeing revenue growth return, with strong performances in both Rental Solutions and Power Solutions Industrial. As expected, the challenges in Power Solutions Utility held back the Group overall.

"Over the last three years we have stabilised the business, enhanced our service offering and positioned ourselves to prosper in rapidly changing energy markets. We have delivered over GBP100 million in cost savings, invested in new systems and processes and developed new technology, all of which enables us to provide high quality solutions for customers. We expect 2018 Group profit before tax to be in line with last year, on a constant currency basis."

 
 Financial highlights 
 

-- Group revenue of GBP1,730 million, up 4% excluding the impact of currency and pass-through fuel;

-- Operating profit (pre-exceptional items) down 10% excluding the impact of currency and pass-through fuel;

-- On the same basis and excluding the impact of legacy contracts in Argentina, revenue was up 9%(1) and operating profit was up 13%(1) ;

-- Profit before tax and exceptional items of GBP195 million in line with expectations (2016: GBP221 million);

   --      Full year dividend maintained at 27.12 pence; 

-- Improved operating cash inflow of GBP450 million (2016: GBP388 million), as the working capital initiative begins to deliver results;

-- Financial position of the Group remains strong, with net debt to EBITDA of 1.2 times (2016: 1.2 times).

 
 Business Unit commentary 
 

-- Rental Solutions returns to growth; underlying(4) revenue up 9%, with GBP23 million benefit from hurricanes in North America;

   --      Power Solutions Industrial underlying(4) revenue increased 20%, driven by Eurasia; 
   --      Power Solutions Utility underlying(1,4) revenue flat excluding Argentina; 
   --      Group average megawatts on hire across the year of 6,613 MW (2016: 6,571 MW). 
 
 Operational initiatives 
 

-- Delivered over GBP100 million in cost savings and invested GBP20 million in new systems over the past three years, positioning the business for future growth;

-- Focusing on growth opportunities through our new business unit Global Solutions, with over GBP52 million, including the acquisition of Younicos, invested in 2017;

-- We are well positioned to provide modular, flexible, data driven energy, using our existing fleet, combined with Younicos' integration and data capabilities.

 
 Group performance[1] 
 
 
 GBPM 
                              2017 PRE-EXCEPTIONAL       2016 PRE-EXCEPTIONAL                  CHANGE EXCL. 
                              ITEMS([2])                 ITEMS(2)                              PASS-THROUGH FUEL([3]) 
                                                                                     CHANGE    & CURRENCY([4]) 
 Group revenue               1,730                      1,515                      14%        4% 
 Operating profit            229                        248                        (8)%       (10)% 
 Operating profit margin     13%                        16% 
 Profit before tax           195                        221                        (12)% 
 Diluted earnings per 
  share (p)                  53.94                      61.95                      (13)% 
 Dividend per share (p)      27.12                      27.12                      -% 
 Return on capital 
  employed([5])              11%                        13% 
 GBPM 
                              2017 POST-EXCEPTIONAL      2016 POST-EXCEPTIONAL                 CHANGE EXCL. PASS- 
                              ITEMS(2)                   ITEMS(2)                              THROUGH FUEL(3) & 
                                                                                     CHANGE    CURRENCY(4) 
 Group revenue               1,730                      1,515                      14%        4% 
 Operating profit            188                        199                        (6)%       (7)% 
 Operating profit margin     11%                        13% 
 Profit before tax           154                        172                        (11)% 
 Diluted earnings per 
  share (p)                  41.51                      48.86                      (15)% 
 Dividend per share (p)      27.12                      27.12                      -% 
 Return on capital 
  employed                   9%                         10% 
--------------------------  -------------------------  -------------------------  ---------  ------------------------- 
 
 
 Business Unit performance 
 
 
 PRE-EXCEPTIONAL      REVENUE                                   OPERATING PROFIT 
  ITEMS GBPM 
                                                 CHANGE                                     CHANGE 
                                                 EXCL.                                      EXCL. 
                                                 PASS-THROUGH                               PASS-THROUGH 
                                                 FUEL                                       FUEL 
                      2017      2016    CHANGE   AND CURRENCY   2017        2016   CHANGE   AND CURRENCY 
 
 Rental Solutions     720       629     15%      9%             81          52     57%      49% 
 Power Solutions 
    Industrial        340       262     30%      20%            55          32     71%      53% 
    Utility 
     excl. 
     pass-through 
     fuel             531       564     (6)%     (9)%           96          164    (42)%    (42)% 
    Pass-through 
     fuel             139       60      129%     103%           (3)         -      (100)%   (100)% 
 Total Power 
  Solutions           1,010     886     14%      -%             148         196    (25)%    (26)% 
                     --------  ------  -------  -------------  ----------  -----  -------  ------------- 
 Group                1,730     1,515   14%      4%             229         248    (8)%     (10)% 
-------------------  --------  ------  -------  -------------  ----------  -----  -------  ------------- 
  POST-EXCEPTIONAL 
   ITEMS GBPM         REVENUE                                   OPERATING PROFIT 
                                                 CHANGE                                     CHANGE 
                                                 EXCL.                                       EXCL. 
                                                 PASS-THROUGH                                PASS-THROUGH 
                                                 FUEL                                        FUEL 
                      2017      2016    CHANGE   AND CURRENCY   2017        2016   CHANGE    AND CURRENCY 
 
  Rental Solutions    720       629     15%      9%             68          12     509%     450% 
  Power Solutions 
     Industrial       340       262     30%      20%            44          29     52%      34% 
     Utility 
      excl. 
      pass-through 
      fuel            531       564     (6)%     (9)%           79          158    (51)%    (51)% 
     Pass-through 
      fuel            139       60      129%     103%           (3)         -      (100)%   (100)% 
  Total Power 
   Solutions          1,010     886     14%      -%             120         187    (37)%    (37)% 
                     --------  ------  -------  -------------  ----------  -----  -------  --------------- 
  Group               1,730     1,515   14%      4%             188         199    (6)%     (7)% 
 ------------------  --------  ------  -------  -------------  ----------  -----  -------  --------------- 
 
 
 
 Future reporting 
 
   19 April 2018           Ex-dividend date 
   20 April 2018           Record date to be eligible for the final dividend 
   26 April 2018           Annual General Meeting 
   22 May 2018       Final dividend payment 
   1 August 2018           Half year results for the six months to 30 June 2018 

To reflect the evolution of our business, the markets we serve and to enhance understanding, we are making some changes to the way we report.

The utility sector was traditionally the mainstay of the Power Solutions business. Opportunities are increasingly spread across a number of sectors, such as Oil & Gas and Mining and we will, in future, provide more sectoral detail and commentary within Power Solutions. In particular, we will reassign non-Utility sector work, which has historically been reported in Power Solutions Utility, into Power Solutions Industrial so that the actual performance of Utility sector project work can be clearly understood. This will apply from 2018 and restated numbers will be provided ahead of the half year results.

We have previously announced Power Solutions Utility contract wins of over 100 MW and over 6 months in duration. As the mix of the business is changing and the relative contribution from this type of contract is reducing across our portfolio, we will no longer be routinely announcing these contracts. We will continue to provide details of the Group's key contract wins as part of our results announcements.

Our first quarter trading update has historically been announced in late April, alongside our AGM. Given the proximity to the full year results, and following feedback from investors, we believe that the additional content in these statements is of limited value and, consequently, will no longer provide first quarter trading updates.

As we approach the three year anniversary of outlining our strategic priorities and associated performance targets, we will provide an update on our progress with our interim results in August.

 
 Management changes 
 

During 2017 there were two changes in the Executive management team. Stephen Beynon joined Aggreko in May as the Managing Director of Power Solutions, replacing Nicolas Fournier, who left the organisation. In December Carole Cran stepped down from her role as CFO, following her resignation in June 2017. Carole has been succeeded by Heath Drewett, who joined Aggreko on 3 January 2018.

 
 Enquiries 
 
 
 Investors & Analysts 
                               +44 7813 210 
                                809 
 Louise Bryant, Aggreko plc     +44 7342 056 
  Tom Hull, Aggreko plc         727 
 
 Media 
                               +44 7919 615 
 John Sunnucks                  222 
                               +44 7990 003 
 Liz Morley                     314 
 
 Analyst presentation 
 

A presentation will be held for analysts and investors today at 9am (GMT) at the London Stock Exchange, 10 Paternoster Square, EC4M 7LS. A live web-cast and a copy of the slides will be available on our website at www.plc.aggreko.com/investors.

Watch Chris Weston and Dan Ibbetson discuss the business performance and changes in the energy market, and watch our year in review video, on our website: www.plc.aggreko.com/investors/investor-centre.

OPERATING & FINANCIAL REVIEW

Group trading performance

As previously disclosed, this year's performance has been materially impacted by the repricing and off-hire of our utility contracts in Argentina, which masks the underlying improvement in performance across the rest of the business. These contracts were signed in 2008 when market conditions were significantly more favourable and the country was a much higher risk environment. We will make clear the impact of these contracts on the Group's performance where appropriate.

Underlying[6] Group revenue was up 4% on the prior year. Rental Solutions underlying6 revenue was up 9%, with solid growth in Europe and a small increase in Australia Pacific. North America saw an uplift from hurricane related work, with revenue up 10% on the prior year (4% excluding hurricanes). Although revenue from Oil & Gas in North America was lower year on year, it has stabilised and delivered growth in the second half. Outside of this sector, revenue in North America grew 14%. Power Solutions Industrial underlying6 revenue increased 20% with strong growth from Eurasia and Africa, while Power Solutions Utility underlying6 revenue was down 9% due to repricing and off-hires in Argentina. Excluding the impact of Argentina, underlying Power Solutions Utility revenue was in line with the prior year(1) .

The Group operating margin[7] was 13% (2016: 16%), with the year on year decline driven by Power Solutions Utility. In Rental Solutions the margin7 was up three percentage points on last year, at 11%, driven by the increase in revenue together with the benefits from the implementation of our Business Priorities investment programme in North America. The Power Solutions Industrial margin7 was up four percentage points at 16%, due to the growth in Eurasia and restructuring of our businesses in Latin America. The Power Solutions Utility margin7 was down eleven percentage points at 18%, driven by the volume and price reduction in Argentina, an increase in our overall overdue debt provision for the business, and also the impact of one-off benefits in the prior year. The lower Group margin impacted the Group's return on capital employed (ROCE) 7, which was 11% (2016: 13%).

The Group delivered profit before tax7 of GBP195 million (2016: GBP221 million). Diluted earnings per share7 (DEPS) was 53.94 pence (2016: 61.95 pence).

Reported financial measures

Reported revenue and operating profit include the translational impact of currency as our revenue and profit are earned in a number of different currencies, most notably the US Dollar, which are then translated and reported in Sterling. The movement in exchange rates in the period had the translational impact of increasing revenue by GBP84 million and operating profit by GBP9 million.

In addition, the Group separately reports fuel revenue from contracts in our Power Solutions Utility business in Brazil and Mozambique, where we manage fuel on a pass-through basis on behalf of our customers. The reason for the separate reporting is that fuel revenue on these contracts is entirely dependent on fuel prices and the volume of fuel consumed, and these can be volatile and may distort the view of the performance of the underlying business. In 2017, fuel revenue from these contracts was GBP139 million (2016: GBP60 million).

Reported Group revenue was up 14% on the prior year, with Rental Solutions up 15% and Power Solutions Industrial and Utility up 30% and 7% respectively.

During the period the Group incurred exceptional costs relating to the implementation of our Business Priorities programme of GBP41 million (2016: GBP49 million). This spend was split across Rental Solutions GBP13 million (2016: GBP40 million), Power Solutions Utility GBP17 million (2016: GBP6 million) and Power Solutions Industrial GBP11 million (2016: GBP3 million), and is explained further on page 15.

Group operating margin post-exceptional items was 11% (2016: 13%). The Rental Solutions margin was up eight percentage points on a post-exceptional basis at 10%. The increase in the margin on a post-exceptional basis is higher than on a pre-exceptional basis because of the higher exceptional charge in 2016, due to the prior year impairment of small gas generators used in the North American Oil & Gas sector. The Power Solutions Industrial margin was up two percentage points on a post-exceptional items basis. The Power Solutions Utility margin, excluding pass-through fuel and on a post-exceptional items basis, was down 13 percentage points.

Group ROCE post-exceptional items was 9% (2016: 10%). Profit before tax and post-exceptional items was GBP154 million (2016: GBP172 million) and diluted earnings per share post-exceptional items was 41.51p (2016: 48.86p).

Dividends

The Group is proposing to maintain the final dividend at 17.74 pence per share. Subject to Shareholder approval, this will result in a full year dividend of 27.12 pence (2016: 27.12 pence) per ordinary share; this equates to dividend cover pre-exceptional items of 2.0 times (2016: 2.3 times). Dividend cover post-exceptional items is 1.5 times (2016: 1.8 times). Dividend cover is calculated as basic earnings per share for the period divided by the full year dividend per share.

Balance sheet and Cash flow

During the year, we generated an operating cash inflow of GBP450 million (2016: GBP388 million). The increase in operating cash flow is mainly driven by lower working capital outflows year on year, with an outflow of GBP51 million in 2017 compared to GBP119 million in 2016. This year's outflow reflects a GBP163 million increase in trade and other receivables, offset by a GBP113 million inflow from trade and other payables. The receivables and payables balances include fuel balances from our contracts in Brazil.

At the start of 2017 we embarked on a global working capital improvement initiative to drive a sustainable improvement across the three main areas of working capital: receivables, payables and inventory. Following an initial diagnostic and scoping phase, the implementation began in Q2, focusing initially on the Aggreko locations where we believed the largest improvements could be made. The implementation was then extended to the rest of the Group during Q3 and our heightened focus on working capital has continued into this year.

The increase in trade and other receivables is analysed by business unit as a GBP86 million increase in the Power Solutions Utility business, a GBP30 million increase in Power Solutions Industrial and a GBP47 million increase in Rental Solutions. The increases in Power Solutions Industrial and Rental Solutions are driven primarily by the growth and improved activity levels in these businesses. In Power Solutions Utility, GBP54 million of the increase in the debtor book relates to new contracts in Brazil which were commissioned in the first half of 2017 and include fuel, therefore the revenue per megawatt generated is much greater. The remaining increase is driven by a few customers in Africa and Venezuela who are taking longer to pay. No customers dispute the debt and we continue to believe that the primary reason for delay in payments is liquidity and access to US Dollars. We recognise the increase in the debtor book and as a result we have increased the Power Solutions Utility debtor provision to $86 million, $23 million higher than December 2016 and $13 million higher than June 2017.

The increase in trade and other payables balances is a reversal after a number of years of outflow, following the establishment of the Group's procurement function. We have improved supplier terms, through the adoption of best practice, to fully leverage our scale and spend. Despite increased levels of activity in 2017, inventory has remained broadly flat year on year. Inventory held for the production of NGG and HFO sets at the end of 2016 has been consumed this year, offset by purchases during the second half supporting major events and growth in Eurasia.

Fleet capital expenditure was GBP246 million (2016: GBP241 million) which was 0.9 times fleet depreciation (2016: 0.9 times), reflecting our drive to increase asset utilisation. Of this, GBP78 million was invested to continue to develop our medium speed HFO fleet and GBP46 million in continuing to refurbish our diesel fleet to the more fuel efficient, higher output G3+ engine; this engine now makes up around 31% of the Power Solutions Utility diesel fleet.

Net debt of GBP652 million at 31 December 2017 was similar to the prior year (2016: GBP649 million), with net debt to EBITDA on a rolling 12-month basis of 1.2 times (2016: 1.2 times).

Going concern

The Directors are confident that it is appropriate for the going concern basis to be adopted in preparing the financial statements. The Group balance sheet shows consolidated net assets of GBP1,317 million (2016: GBP1,368 million) of which GBP1,104 million (2016: GBP1,203 million) relates to fleet assets. The defined benefit pension deficit is GBP25 million (2016: GBP30 million), representing only 2% of the Group's net assets. The retained earnings of the Company as at 31 December 2017 are GBP428 million and the majority of these earnings are distributable, enabling the Company to continue making dividend payments. As noted above, net debt is similar to the prior year, resulting in significant headroom under our committed facilities.

Outlook

We have seen good growth and improved profitability and returns in our Rental Solutions and Power Solutions Industrial businesses this year which we expect to continue into 2018 as we benefit from our Business Priorities programme and further growth.

In Power Solutions Utility we have previously highlighted two notable off-hires impacting 2018. In Argentina we have 174 MW of fixed site contracts which at the time of our last market update we expected to off-hire this year. We now expect that these sites will renew, although at a further price discount to the extensions secured in 2016. In Japan, we updated in Q3 that 74 MW of 148 MW had off-hired early, and we continue to expect the remaining volume to off-hire in March. Order intake in the year to date for 2018 is 137 MW (2017: 81 MW).

The global provision and consumption of power is experiencing a significant transition as markets seek to decarbonise, decentralise and digitalise. As a result, we are investing for future growth, particularly in distributed energy solutions, where our modular, mobile fleet combined with storage and renewables integration capability position us well in this changing landscape. These initiatives will be captured within our new Global Solutions business, under the leadership of Dan Ibbetson. We see clear opportunities, and to capitalise on these benefits for the future we must invest today; in 2018 we expect this investment to be around GBP9 million (2017: GBP7 million).

Overall, we anticipate that the Group's underlying profit before tax in 2018, before the impact of currency, will be in line with 2017. As in 2017, these results will be weighted to the second half.

BUSINESS UNIT PERFORMANCE REVIEW

RENTAL SOLUTIONS

 
                     REVENUE                             OPERATING PROFIT 
                                            CHANGE                              CHANGE 
                                             EXCLUDING                           EXCLUDING 
                     2017   2016   CHANGE    CURRENCY    2017   2016   CHANGE    CURRENCY 
 
 Pre-exceptional 
  items GBPm         720    629    15%      9%           81     52     57%      49% 
 Operating 
  Margin                                                 11%    8% 
 
 Post-exceptional 
  items GBPm         720    629    15%      9%           68     12     509%     450% 
 Operating 
  Margin                                                 10%    2% 
------------------  -----  -----  -------  -----------  -----  -----  -------  ----------- 
 
 

Headlines

-- Revenue and operating profit up 9% and 49% respectively excluding currency and exceptional items

   --      41 MW of contracts won for our new Next Generation Gas product 

-- Temperature control revenue up 9% excluding currency, with a strong performance in the base business

Commentary

Our Rental Solutions business had a good year with revenue excluding the impact of currency up 9% on the prior year and operating profit (pre-exceptional items) up 49%. This performance was supported by incremental work following the hurricanes that impacted the southern United States and Caribbean, which was in part off-set by loss of work in our base business in these regions. Excluding this net incremental activity revenue increased 5%.

The increase in operating margin for the year was driven by the increase in revenue, together with the operational benefits from the Business Priorities programme in North America.

North American revenue excluding currency was up 10% on the prior year; 4% excluding the impact of the hurricanes. The decline in the Oil & Gas sector that we saw throughout 2016 has stabilised, although against stronger prior year comparators revenue was down 10%; quarter on quarter Oil & Gas revenue has been improving. Elsewhere in North America most of the other sectors grew well, with revenue excluding Oil & Gas increasing 14%. There was also a strong performance in temperature control, up 10%. Overall operating profit (pre-exceptional items) was up 90%.

In our Australia Pacific business revenue excluding currency increased 2%, a good performance given the 108 MW Tasmania utility contract in the prior year. We saw good growth in the Mining and Construction sectors, although this was partially offset by a decline in Oil & Gas and Utilities.

In Continental Europe, revenue excluding currency increased 3%, supported by growth in the German Manufacturing and Telecom sectors and fuel revenue in Eastern Europe. This partially offset a weaker Shipping sector in the Netherlands and tougher comparators in France, which had revenue from the European Football Championships in 2016. The Northern European business delivered good growth with revenue excluding currency increasing 12%, driven by the Utility and Construction sectors.

POWER SOLUTIONS

 
 PRE-EXCEPTIONAL    REVENUE                                 OPERATING PROFIT 
  ITEMS GBPM 
                                            CHANGE                                 CHANGE 
                                             EXCL.                                  EXCL. 
                                             PASS-THROUGH                           PASS-THROUGH 
                                             FUEL                                   FUEL 
                                             AND                                    AND 
                    2017    2016   CHANGE    CURRENCY       2017   2016   CHANGE    CURRENCY 
 
 Industrial         340     262    30%      20%             55     32     71%      53% 
 Utility excl. 
  pass-through 
  fuel              531     564    (6)%     (9)%            96     164    (42)%    (42)% 
 Pass-through 
  fuel              139     60     129%     103%            (3)    -      (100)%   (100)% 
                   ------  -----  -------  --------------  -----  -----  -------  -------------- 
 Total Power 
  Solutions         1,010   886    14%      -%              148    196    (25)%    (26)% 
                   ------  -----  -------  --------------  -----  -----  -------  -------------- 
 
 Operating 
  Margin 
 Industrial                                                 16%    12% 
 Utility excl. pass-through 
  fuel                                                      18%    29% 
 Total Power Solutions 
  excl. pass-through fuel                                   17%    24% 
-----------------------------------------  --------------  -----  -----  -------  -------------- 
 
 
 POST-EXCEPTIONAL    REVENUE                                 OPERATING PROFIT 
  ITEMS GBPM 
                                             CHANGE                                 CHANGE 
                                              EXCL.                                  EXCL. 
                                              PASS-THROUGH                           PASS-THROUGH 
                                              FUEL                                   FUEL 
                                              AND                                    AND 
                     2017    2016   CHANGE    CURRENCY       2017   2016   CHANGE    CURRENCY 
 
 Industrial          340     262    30%      20%             44     29     52%      34% 
 Utility excl. 
  pass-through 
  fuel               531     564    (6)%     (9)%            79     158    (51)%    (51)% 
 Pass-through 
  fuel               139     60     129%     103%            (3)    -      (100)%   (100)% 
                    ------  -----  -------  --------------  -----  -----  -------  -------------- 
 Total Power 
  Solutions          1,010   886    14%      -%              120    187    (37)%    (37)% 
                    ------  -----  -------  --------------  -----  -----  -------  -------------- 
 
 Operating 
  Margin 
 Industrial                                                  13%    11% 
 Utility excl. pass-through 
  fuel                                                       15%    28% 
 Total Power Solutions 
  excl. pass-through fuel                                    14%    23% 
------------------------------------------  --------------  -----  -----  -------  -------------- 
 

Headlines

-- Strong performance in Power Solutions Industrial with revenue and operating profit excluding currency and exceptional items up 20% and 53% respectively

-- Power Solutions Utility performance reflects the impact of repricing and a lower volume of legacy contracts in Argentina

   --      Power Solutions Utility order intake of 799 MW (2016: 1,057 MW) 
   --      Secured 66 MW of Next Generation Gas contracts and initial HFO and solar-diesel contracts 

-- Power Solutions Utility debtor provision increased by $23 million due to slower payments in Africa and Venezuela

Commentary

Overall, our Power Solutions business saw revenue excluding currency and pass-through fuel in line with last year and operating profit (pre-exceptional items) decrease 26%.

In our Power Solutions Industrial business revenue excluding currency increased 20%. In Eurasia revenue grew 64% driven by continued strength in the Oil & Gas sector. In the Middle East revenue grew 7% with good growth in Dubai and Kuwait partially offset by a decrease in Saudi Arabia. Revenue in Africa increased 15%, albeit off a low base, with particular strength in Nigeria and Angola. In Asia, revenue was flat, while in Latin America the restructuring work and cost base reduction has progressed well and, despite revenue being down 15%, operating profit (pre-exceptional items) was up by GBP7 million. We also benefited from the first tranche of revenue from the South Korea Winter Olympics (GBP17 million).

Our Power Solutions Utility business saw revenue excluding currency and pass-through fuel decrease 9% due to repricing and off-hires in Argentina, which represented a reduction of GBP59 million on 2016. Excluding the impact of Argentina, revenue was in line with the prior year8. The operating margin decreased to 18% (2016: 29%); this was driven by a number of factors, including the flow through from Argentina, an increase in the debtor provision, and one-off benefits in the prior year comparatives, most notably in indirect tax and service material costs. Excluding the impact of Argentina, the operating margin decreased by four percentage points[8]. In Argentina we expect our existing fixed site contract, providing 174 MW, to be extended until the end of 2018 at a discount to the current rates. The standby contract of 30 MW is in the process of fully demobilising.

We continued to see delays in customer payments in Power Solutions Utility, in particular on a handful of projects in Africa and as a result of the ongoing economic situation in Venezuela. Our overdue debt provision increased through the year by $23 million to $86 million to reflect these issues.

Overall order intake for the year in our Power Solutions Utility business was 799 MW (2016: 1,057 MW). New business included 295 MW in Bangladesh, 78 MW in Malawi, 60 MW in Yemen and 60 MW in Sri Lanka. We are pleased to have won 66 MW of Next Generation Gas contracts (in addition to the 41 MW won in Rental Solutions) as well as initial contracts for HFO (28 MW, Madagascar) and solar-diesel (7 MW, Eritrea). Our sales pipeline for HFO and NGG contains a number of opportunities which are well progressed.

At the end of the period, our order book was over 78,000 MW months, the equivalent of 30 months' revenue at the current run-rate (2016: 22 months), albeit off a lower revenue base. The off-hire rate was 32% (2016: 30%).

BUSINESS PRIORITIES

In 2015 we set out three key priorities for the business, namely: customer, technology and efficiency, which were designed to improve our customer proposition, make us more competitive and drive growth. The various business initiatives underpinning each of these priorities have progressed well, creating a solid foundation from which to drive future efficiencies and growth. Nearly three years on, the initiatives are now embedded into 'business as usual' and, as a result, after this update we will no longer report on them separately.

Customer

In Rental Solutions, our most important area of focus has been to better understand our customers. We are now focused on targeting customers via a sector approach, where we can provide integrated solutions allowing a competitive advantage, and we have structured our organisation around this. We have also focused on improving the customer journey by investing in new systems. We have launched a new website, designed for usability, which has increased activity and dwell times. Later this year we will introduce an e-commerce offering. Our new Customer Relationship Management (CRM) and Configure, Price, Quote (CPQ) systems are now live across the majority of the Rental Solutions footprint, and we have also launched Field Service Management, an operations system allowing real time visibility of both physical assets and our workforce of technicians. The full suite of applications is driving improvements in customer service, utilisation and productivity.

In Power Solutions we have enhanced our understanding of key markets and their individual demand drivers with the Market Intelligence Platform, and used this to focus better our product range and sales capability. We have invested in increased sales capacity, mapped to key demand areas, and supported by tailored online and on-the-ground training. We have also deployed the CRM tool across the Utility business, with deployment across the Industrial business planned for 2018. This is giving us much greater visibility, and improving the accuracy, of our sales pipeline.

Technology

Since 2015 we have introduced a number of new products as we aim to reduce the total cost of energy and emissions for our customers. Our product offering now includes medium speed HFO, more fuel-efficient diesel and gas engines, and solar/diesel hybrids. Additionally, through the acquisition of Younicos, we are able now to integrate storage into our product offering. We have a multi-generational product road map, with the design of new products incorporating an option to refurbish in order to maintain our competitive advantage and reduce the risk of obsolescence.

We have a good pipeline of interest in both our HFO and Next Generation Gas products. Uptake of HFO has been slower than anticipated, with utilisation at the end of 2017 at 17%, and we have slowed production to match this. The Next Generation Gas product, which was introduced into the fleet at the end of 2016, has proved a success in both Rental Solutions and Power Solutions; utilisation of the 252 MW fleet at the end of 2017 was 33% and continues to grow.

Technology is also helping us improve the service we offer our customers and making us more efficient. Our remote monitoring system, which monitors the performance of our equipment, means we can provide a better service to our customer while also gathering data that will enable us to reduce spend on planned and unplanned maintenance.

Efficiency

Finally, in response to the more competitive market place we focused on rightsizing our cost base. Since the initial review undertaken in 2015, we have identified further opportunities to deliver savings and in total, across the efficiency programme, we have delivered annualised savings of over GBP100 million, with a one-off cost to achieve of GBP86 million.

We see further opportunities for savings across the business as part of a continuous improvement programme, particularly in relation to procurement, fleet utilisation and engineering and service costs.

Our evolving strategy

As we approach the three year anniversary of establishing our Business Priorities, we are reflecting on what has been achieved. We believe that the initiatives we have delivered, particularly around sector focus, systems and technology investment, were the right actions to reposition this business for the future and this has been demonstrated by the improved performance in our Rental Solutions and Power Solutions Industrial businesses. Power Solutions Utility remains difficult and the market has not recovered as we expected when we outlined our priorities in 2015 and, as a result, our returns are not where we want them to be. We continue to work on a number of initiatives to improve our returns, including utilisation and working capital. Finally, we are evolving our strategy to reflect the gathering pace of transition in the energy markets, and we will provide a further update on our strategic progress and its financial impact alongside our interim results in August.

GLOBAL SOLUTIONS

Aggreko has a proven track record in responding quickly to opportunities in the market and providing innovative solutions to drive growth. It is clear that energy markets globally are in transition as a result of decarbonisation, decentralisation and digitalisation. We believe that our modular, mobile fleet, combined with market leading integration capability for renewables and storage, acquired via Younicos, position us well for future opportunities.

In order to leverage our capability globally and incubate it in its early stages, we have established a new business unit, Global Solutions. This is being led by Dan Ibbetson and is focusing on generating incremental revenue across the Group, while developing and enhancing our capabilities.

Global Solutions will leverage our Group capabilities across the business. The contracts will still be mainly delivered through the Rental and Power Solutions businesses and, as the remainder of this new business unit is not material at a Group level, it will not result in any change in the structure of our external reporting.

Global Solutions also incorporates lines of business which span the Group, such as loadbanks, temperature control and global accounts. Managing these customer offerings on a global basis enables us to better deploy applications developed in one region across the world, thereby fully exploiting growth opportunities.

We believe that this investment and focus in our future will help position us to take advantage of growth opportunities as energy markets continue to transform. In 2017 we acquired Younicos for GBP45 million and invested GBP7 million in Global Solutions; we anticipate investing a further GBP9 million in 2018, mainly on people as we expand our microgrid offering and including the anticipated loss in Younicos; this has been factored into our guidance.

FINANCIAL REVIEW

A summarised Income Statement for 2017, as well as related ratios, is set out below. The first table excludes exceptional items and the second table includes exceptional items.

 
 PRE-EXCEPTIONAL 
  ITEMS 
  GBPM 
                                                    CHANGE EXCL. 
                                                     PASS-THROUGH 
                                                     FUEL AND 
                         2017    2016      CHANGE    CURRENCY 
 
 Revenues                1,730   1,515   14%        4% 
 Operating profit        229     248     (8)%       (10)% 
 Net interest expense    (34)    (27)    (28)% 
 Profit before tax       195     221     (12)% 
 Taxation                (57)    (63)    9% 
 Profit after tax        138     158     (13)% 
 Diluted earnings 
  per share (pence)      53.94   61.95   (13)% 
 
 Operating margin        13%     16%     (3)pp 
 ROCE                    11%     13%     (2)pp 
----------------------  ------  ------  ---------  -------------- 
 
 
 POST-EXCEPTIONAL 
  ITEMS 
  GBPM 
                                                    CHANGE EXCL. 
                                                     PASS-THROUGH 
                                                     FUEL AND 
                         2017    2016      CHANGE    CURRENCY 
 
 Revenues                1,730   1,515   14%        4% 
 Operating profit        188     199     (6)%       (7)% 
 Net interest expense    (34)    (27)    (28)% 
 Profit before tax       154     172     (11)% 
 Taxation                (48)    (47)    (1)% 
 Profit after tax        106     125     (15)% 
 Diluted earnings 
  per share (pence)      41.51   48.86   (15)% 
 
 Operating margin        11%     13%     (2)pp 
 ROCE                    9%      10%     (1)pp 
----------------------  ------  ------  ---------  -------------- 
 

Currency translation

The movement in exchange rates in the period had the translational impact of increasing revenue by GBP84 million and operating profit by GBP9 million. This was driven by the strength, against Sterling, of nearly all the principal currencies impacting the Group, but most notably the US Dollar. Currency translation also gave rise to a GBP98 million decrease in the value of net assets. Set out in the table below are the principal exchange rates which affected the Group's income statement and net assets.

 
 PRINCIPAL EXCHANGE      2017              2016 
  RATES 
 (PER GBP STERLING) 
                         AVERAGE   YEAR    AVERAGE   YEAR 
 
 United States Dollar    1.29      1.35    1.36      1.23 
 Euro                    1.14      1.13    1.22      1.17 
 UAE Dirhams             4.74      4.96    4.98      4.53 
 Australian Dollar       1.68      1.73    1.83      1.71 
 Brazilian Reals         4.12      4.48    4.74      4.01 
 Argentinian Peso        21.36     25.92   20.00     19.61 
 Russian Rouble          75.19     78.15   91.04     75.23 
 (Source: Bloomberg) 
----------------------  --------  ------  --------  ------ 
 

Reconciliation of underlying movement to reported movement

The tables below reconcile the reported and underlying revenue and operating profit movements:

Revenue

 
               RS                  PSI                 PSU                  GROUP 
               2017  2016  CHANGE  2017  2016  CHANGE  2017   2016  CHANGE  2017   2016   CHANGE 
               GBPM  GBPM  %       GBPM  GBPM  %       GBPM   GBPM  %       GBPM   GBPM   % 
As reported    720   629   15%     340   262   30%     670    624   7%      1,730  1,515  14% 
Pass-through 
 fuel          -     -             -     -             (139)  (60)          (139)  (60) 
Currency 
 impact        -     34            -     22            -      28            -      84 
Underlying     720   663   9%      340   284   20%     531    592   (9)%    1,591  1,539  4% 
-------------  ----  ----  ------  ----  ----  ------  -----  ----  ------  -----  -----  ------ 
 

Operating profit

 
               RS                  PSI                 PSU                 GROUP 
               2017  2016  CHANGE  2017  2016  CHANGE  2017  2016  CHANGE  2017  2016  CHANGE 
               GBPM  GBPM  %       GBPM  GBPM  %       GBPM  GBPM  %       GBPM  GBPM  % 
As reported    68    12    509%    44    29    52%     76    158   (52)%   188   199   (6)% 
Pass-through 
 fuel          -     -             -     -             3     -             3     - 
Currency 
 impact        -     3             -     4             -     2             -     9 
Exceptional 
 items         13    40            11    3             17    6             41    49 
Underlying     81    55    49%     55    36    53%     96    166   (42)%   232   257   (10)% 
-------------  ----  ----  ------  ----  ----  ------  ----  ----  ------  ----  ----  ------ 
 

Note (i): RS - Rental Solutions; PSI - Power Solutions Industrial; PSU - Power Solutions Utility

Note (ii): the currency impact is calculated by taking 2016 numbers in local currency and retranslating them at 2017 average rates.

Group and PSU reconciliation excluding Argentina

 
                                      PSU                     GROUP 
                                      2017   2016    CHANGE   2017    2016    CHANGE 
                                      GBPM   GBPM    %        GBPM    GBPM    % 
 Revenue excl. pass-through 
  fuel and currency impact            531    592     (9)%     1,591   1,539   4% 
 Less Argentina                       (53)   (112)            (53)    (112) 
                                      478    480     -%       1,538   1,427   9% 
                                     -----  ------  -------  ------  ------  ------- 
 
 Operating profit 
  (pre-exceptional 
  items) excl. pass-through 
  fuel and currency 
  impact                              96     166     (42)%    232     257     (10)% 
 Less Argentina                       (23)   (73)             (23)    (73) 
                                      73     93      (23)%    209     184     13% 
                                     -----  ------  -------  ------  ------  ------- 
 
 Operating Margin ex pass-through 
  fuel                                18%    29%              14%     17% 
 Operating Margin ex pass-through 
  fuel & Argentina                    15%    19%              14%     13% 
-----------------------------------  -----  ------  -------  ------  ------  ------- 
 

Exceptional items

An exceptional charge of GBP41 million before tax was recorded in the year to 31 December 2017 in respect of the implementation of the Group's Business Priorities programme. These costs include employment costs, professional fees, severance costs and facility closure costs directly related to the programme.

Interest

The net interest charge of GBP34 million was GBP7 million higher than last year, reflecting higher average net debt year on year and an increase in the effective interest rate. Interest cover, measured against rolling 12-month EBITDA (Earnings before Interest, Taxes, Depreciation and Amortisation) remained strong at 16 times (2016: 20 times) relative to the financial covenant attached to our borrowing facilities that EBITDA should be no less than four times interest.

Taxation

Tax charge

The Group's pre-exceptional effective corporation tax rate for the year was 29% (2016: 28%) based on a tax charge of GBP57 million (2016: GBP63 million) on a pre-exceptional profit before taxation of GBP195 million (2016: GBP221 million). The increase in the effective rate was driven by a change in profit mix in the year offset by a one-off tax benefit, which reduced the effective tax rate by 5 percentage points, arising as a result of US tax reform which resulted in the revaluation of deferred tax liabilities.

Total cash taxes

In 2017, the Group's worldwide operations resulted in direct and indirect taxes of GBP228 million (2016: GBP215 million) being paid to tax authorities. This amount represents all corporate taxes paid on operations, payroll taxes paid and collected, import duties, sales taxes and other local taxes.

Capital structure & dividends

The objective of our strategy is to deliver long-term value to Shareholders while maintaining a balance sheet structure that safeguards the Group's financial position through economic cycles. Given the risk profile of the Group we believe gearing of around one times net debt to EBITDA is appropriate, recognising that from time to time it may be higher for a period of time as investment opportunities present themselves. From a capital allocation perspective our priority is to invest in organic growth. As well as investing organically, there are opportunities for growth through acquisition, both for scale and capability, including into product adjacencies such as temperature control and loadbanks. Acquisitions are subject to our disciplined capital allocation process and will have to meet appropriate hurdle rates of return. While our first priority is investment to generate growth, we recognise the importance of the dividend in providing value to our Shareholders. Finally, as and when the opportunity arises, we will look at returning surplus capital to Shareholders. The retained earnings of the Company as at 31 December 2017 were GBP428 million and the majority of these earnings are distributable.

Subject to Shareholder approval the proposed final dividend of 17.74 pence will result in a full year dividend of 27.12 pence (2016: 27.12 pence) per Ordinary Share, giving dividend cover (basic EPS pre-exceptional items divided by full year declared dividend) of 2.0 times (2016: 2.3 times). Dividend cover post-exceptional items is 1.5 times (2016: 1.8 times).

Cash flow

The net cash inflow from operations during the year totalled GBP450 million (2016: GBP388 million). The increase in cash inflow from operations was mainly driven by a reduction in the working capital outflow of GBP68 million. This operating cash flow funded capital expenditure of GBP272 million (2016: GBP263 million), of which GBP246 million (2016: GBP241 million) was spent on fleet. The working capital movements are explained on page 6.

Net operating assets

The net operating assets of the Group (including goodwill) at 31 December 2017 totalled GBP2,078 million, GBP46 million lower than 2016. Excluding the impact of currency net operating assets were GBP101 million higher. The main components of net operating assets are detailed in the table below.

 
 
 GBP MILLION     2017    2016    MOVEMENT   MOVEMENT EXCLUDING 
                                            THE IMPACT OF CURRENCY 
 
 Rental fleet    1,104   1,203   (8)%       (1)% 
 Property 
  & Plant        110     106     4%         9% 
 Inventory       232     247     (6)%       -% 
 Net trade 
  debtors        490     454     8%         16% 
--------------  ------  ------  ---------  ------------------------ 
 
 

A key measure of Aggreko's performance is the return (expressed as adjusted operating profit) generated from average net operating assets (ROCE). We calculate ROCE by taking the operating profit for the year and expressing it as a percentage of the average net operating assets at 31 December, 30 June and the previous 31 December. In 2017 the pre-exceptional ROCE decreased to 11% compared with 13% in 2016, primarily driven by the decrease in the Group's operating margin.

Property, plant and equipment

Rental fleet accounts for GBP1,104 million, which is around 91% 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 eight years, with some classes of rental fleet depreciated over 10 and 12 years. The annual fleet depreciation charge of GBP275 million (2016: GBP261 million) relates to the estimated service lives allocated to each class of fleet asset. Asset lives are reviewed at the start of each year and changed if necessary to reflect their remaining lives in light of technological change, prospective economic utilisation and the physical condition of the assets.

Acquisitions

During the year we made three acquisitions, Younicos, a pioneer and global market leader in the development and deployment of integrated energy systems; KBT, an Indonesian utility business; and TuCo a US based temporary heat and air conditioning business. Further details on these acquisitions can be found in Note 10 to the accounts.

IFRS 15

IFRS 15, 'Revenue from contracts with customers', is effective for annual periods beginning on or after 1 January 2018. Under the standard, revenue is recognised when an entity transfers control of goods or services to a customer. The costs to fulfil the service to a customer (mobilisation and demobilisation costs) will be amortised over the period of the initial contract, in line with when we are earning revenue. We have assessed the impact on 2017, which would have been an immaterial impact on profit before tax; revenue would have been GBP2 million higher, and costs GBP5 million higher, resulting in a GBP3 million reduction in profit before tax. When we report our 2018 interim and full year results, we will restate the 2017 comparative numbers to take account of IFRS 15. Note 1 to the 2017 Annual Report explains these changes in detail.

Shareholders' equity

Shareholders' equity decreased by GBP51 million to GBP1,317 million, represented by the net assets of the Group of GBP1,969 million offset by net debt of GBP652 million. The movements in shareholders' equity are analysed in the table below:

 
 MOVEMENTS IN SHAREHOLDERS' 
  EQUITY 
                                   GBP MILLION   GBP MILLION 
 AS AT 1 JANUARY 2017                            1,368 
 Profit for the period post 
  exceptional items                106 
 Dividend[9]                       (69) 
                                  ------------ 
 Retained earnings                               37 
  Employee share awards                           8 
 Re-measurement of retirement 
  benefits                                       5 
 Currency translation                            (98) 
 PDVSA private placement notes: 
  net change in fair value                       (4) 
 Movement in hedging reserve                     3 
                                                  (2) 
                                                ------------ 
 Other 
                                                ------------ 
 AS AT 31 DECEMBER 2017                          1,317 
--------------------------------  ------------  ------------ 
 

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 defined contribution schemes.

Under IAS 19: 'Employee Benefits', Aggreko has recognised a pre-tax pension deficit of GBP25 million at 31 December 2017 (2016: GBP30 million) which is determined using actuarial assumptions. The decrease in the pension deficit is primarily driven by higher than expected returns achieved on the scheme's assets over the year and additional contributions by the Company, partially offset by the impact of a lower discount rate being applied to the scheme's liabilities.

The sensitivities regarding the main valuation assumptions are shown in the table below.

 
                                                             INCOME 
                                                              STATEMENT 
                                            DEFICIT (GBPM)    COST (GBPM) 
 Assumption                   INC./(DEC.)   (INC.)/DEC.      (INC.)/DEC. 
 Rate of increase in 
  salaries                    0.5%          (2)              - 
 Discount rate                (0.5)%        (21)             (1) 
 Inflation (0.5% increases 
  on pensions increases, 
  deferred revaluation 
  and salary increases)       0.5%          (20)             (1) 
 Longevity                    1 year        (5)              - 
---------------------------  ------------  ---------------  ------------- 
 

Treasury

The Group's operations expose it to a variety of financial risks that include liquidity, the effects of changes in foreign currency exchange rates, interest rates, and credit risk. The Group has a centralised treasury operation whose primary role is to ensure that adequate liquidity is available to meet the Group's funding requirements as they arise, and that financial risk arising from the Group's underlying operations is effectively identified and managed.

The treasury operations are conducted in accordance with policies and procedures approved by the Board and are reviewed annually. Financial instruments are only executed for hedging purposes, and transactions that are speculative in nature are expressly forbidden. Monthly reports are provided to senior management and treasury operations are subject to periodic internal and external review.

Liquidity and funding

The Group maintains sufficient facilities to meet its funding requirements over the medium term. At 31 December 2017, these facilities totalled GBP1,283 million in the form of committed bank facilities arranged on a bilateral basis with a number of international banks and private placement lenders. The financial covenants attached to these facilities are that EBITDA should be no less than 4 times interest and net debt should be no more than 3 times EBITDA; at 31 December 2017, these stood at 16 times and 1.2 times respectively. The Group does not expect to breach these covenants in the year from the date of approval of these financial statements.

The Group expects to be able to arrange sufficient finance to meet its future funding requirements. It has been the Group's custom and practice to refinance its facilities in advance of their maturity dates, providing that there is an ongoing need for those facilities.

Net debt amounted to GBP652 million at 31 December 2017 (2016: GBP649 million) and, at that date, un-drawn committed facilities were GBP624 million.

Interest rate risk

The Group's policy is to manage its exposure to interest rates by ensuring an appropriate balance of fixed and floating rate debt. At 31 December 2017, GBP610 million of the net debt of GBP652 million was at fixed rates of interest resulting in a fixed to floating rate net debt ratio of 94:6 (2016: 59:41). The proportion of our debt with fixed interest rates is higher than usual at the year end ahead of some fixed rate debt maturities in the first half of 2018.

Foreign exchange risk

The Group is subject to currency exposure on the translation into Sterling of its net investments in overseas subsidiaries. In order to reduce the currency risk arising, the Group uses direct borrowings in the same currency as those investments. Group borrowings are predominantly drawn down in the currencies used by the Group, namely US Dollar, Indonesian Rupiah, Mexican Peso, Indian Rupee, Brazilian Reals and Russian Rouble.

The Group manages its currency flows to minimise foreign exchange risk arising on transactions denominated in foreign currencies and uses forward contracts and forward currency options, 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 which the business faces, where it is possible to purchase such cover on reasonable terms. Where this is not possible, or where the risks would not have a material impact on the Group as a whole, we self-insure.

Principal risks and uncertainties

In the day to day operations of the Group, we face various risks and uncertainties. We seek to both prevent these risks materialising and also mitigate their impact if they do arise. To facilitate this, the Board has developed a risk management framework. The principal risks which we believe could potentially impact the Group are summarised below:

   --      Market dynamics - Rental Solutions; 
   --      Market dynamics - Power Solutions; 
   --      Disruptive technology; 
   --      Talent management; 
   --      New technology market introduction; 
   --      Cyber security; 
   --      Equipment obsolescence; 
   --      Health and safety; 
   --      Security; 
   --      Failure to conduct business dealings with integrity and honesty; 
   --      Failure to collect payments or to recover assets; and 
   --      Working capital management. 

This year we have seen three risks elevated to the Group register of principal risks and three risks have been removed.

Risks elevated to the Group's register this year:

-- Disruptive technology: Alternative and more distributed energy sources are becoming increasingly available and affordable. This could affect our competitiveness as power providers. In recognition of this, we acquired Younicos in 2017, introducing a new technology and micro-grid capability, and have evolved our business strategy to incorporate this new offering.

-- Equipment obsolescence: We are introducing new fleet and technologies into the business as some of our existing fleet is approaching the end of its useful life. The older fleet is still available for rent and is required for specific applications within our business. We are focusing on ensuring the continued utilisation of this fleet.

-- Working capital management: Our working capital has increased in recent years mainly driven by an increase in trade and other receivables. We have implemented a working capital improvement initiative to drive a sustainable improvement and are already seeing the results in trade and other payables.

Risks removed from last year's Group register:

-- Change management relating to our new business priorities: We have made good progress towards delivery of the Business Priorities programme and many of the initiatives have now been incorporated into our business as usual activities.

-- An environmental incident occurs due to a project delivery failure: While we do not believe this risk has been eliminated, we believe we have improved our management of this area and will continue to monitor this risk within our Business Unit risk registers.

-- Unanticipated tax liabilities in developing countries: Robust tax risk management processes have allowed us to reduce this risk's expected impact and likelihood in the future. Determining whether appropriate direct and indirect tax provisions are in place in respect of contentious historic or current liabilities remains a primary area of judgment for the Audit Committee.

The main impact of Brexit to date has been the depreciation of the Pound. A weaker Pound has increased the Sterling value of our revenue, the majority of which is denominated in US Dollars. The Sterling value of our debt and borrowing facilities has increased by similar amounts. We believe it is too early to determine the impact of the UK leaving the European Union on the Group's activities, although we do not expect it to be material because a large majority of the Group's business is outside the UK and EU. We will continue to follow developments closely.

Shareholder information

Our website can be accessed at www.plc.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.

 
 
 
   Chris Weston              Heath Drewett 
 Chief Executive Officer   Chief Financial Officer 
 
 6 March 2018 
 

GROUP INCOME STATEMENT

FOR THE YEARED 31 DECEMBER 2017

 
                                TOTAL                                  TOTAL 
                                 BEFORE       EXCEPTIONAL               BEFORE       EXCEPTIONAL 
                                EXCEPTIONAL   ITEMS                    EXCEPTIONAL   ITEMS 
                                              (NOTE                                  (NOTE 
                                ITEMS          2)                      ITEMS          2) 
                                2017          2017          2017       2016          2016          2016 
                                                            GBP                      GBP           GBP 
                        NOTES   GBP MILLION   GBP MILLION   MILLION    GBP MILLION    MILLION      MILLION 
 Revenue                1       1,730         -             1,730      1,515         -             1,515 
 Cost of sales                  (805)         (5)           (810)      (664)         (30)          (694) 
                               ------------  ------------  ---------  ------------  ------------  --------- 
 Gross profit                   925           (5)           920        851           (30)          821 
 Distribution 
  costs                         (481)         (12)          (493)      (430)         -             (430) 
 Administrative 
  expenses                      (219)         (23)          (242)      (182)         (19)          (201) 
 Other income                   4             (1)           3          9             -             9 
                               ------------  ------------  ---------  ------------  ------------  --------- 
 Operating 
  profit                1       229           (41)          188        248           (49)          199 
 Net finance 
  costs 
 - Finance 
  cost                          (36)          -             (36)       (29)          -             (29) 
 - Finance 
  income                        2             -             2          2             -             2 
                               ------------  ------------  ---------  ------------  ------------  --------- 
 Profit before 
  taxation                      195           (41)          154        221           (49)          172 
 Taxation               5       (57)          9             (48)       (63)          16            (47) 
                               ------------  ------------  ---------  ------------  ------------  --------- 
 Profit for the 
  year                          138           (32)          106        158           (33)          125 
                               ------------  ------------  ---------  ------------  ------------  --------- 
 All profit for 
  the year is attributable 
  to the owners 
  of the Company. 
 
 Basic earnings 
  per share 
  (pence)               4                                   41.54                                  48.88 
                               ------------  ------------  ---------  ------------  ------------  --------- 
 Diluted earnings 
  per share 
  (pence)               4                                   41.51                                  48.86 
---------------------  ------  ------------  ------------  ---------  ------------  ------------  --------- 
 
 

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARED 31 DECEMBER 2017

 
 
                                           2017          2016 
                                           GBP MILLION   GBP MILLION 
 
 Profit for the year                       106           125 
                                          ------------  ------------ 
 Other comprehensive income/(loss) 
 Items that will not be reclassified 
  to profit or loss 
  Remeasurement of retirement benefits     5             (29) 
    Taxation on remeasurement of 
     retirement benefits                   (1)           5 
 Items that may be reclassified 
  subsequently to profit or loss 
  Cash flow hedges                         3             1 
   Taxation on cash flow hedges            (1)           - 
   PDVSA private placement notes: 
    net change in fair value               (4)           - 
   Net exchange (losses)/gains offset 
    in reserves                            (98)          220 
                                          ------------  ------------ 
 
 Other comprehensive (loss)/gain 
  for the year (net of tax)                (96)          197 
                                          ------------  ------------ 
 
 Total comprehensive income for 
  the year                                 10            322 
----------------------------------------  ------------  ------------ 
 

GROUP BALANCE SHEET

(COMPANY NUMBER: SC177553)

AS AT 31 DECEMBER 2017

 
                                             2017          2016 
                                     NOTES   GBP MILLION   GBP MILLION 
 Non-current assets 
 Goodwill                                    184           159 
 Other intangible assets                     31            24 
 Property, plant and equipment       6       1,214         1,309 
 Deferred tax asset                          42            51 
                                            ------------  ------------ 
                                             1,471         1,543 
                                            ------------  ------------ 
 
 Current assets 
 Inventories                                 232           247 
 Trade and other receivables         7       770           656 
 Cash and cash equivalents                   71            44 
 Derivative financial instruments            -             1 
 Current tax assets                          23            20 
                                            ------------  ------------ 
                                             1,096         968 
                                            ------------  ------------ 
 Total assets                                2,567         2,511 
                                            ------------  ------------ 
 
 Current liabilities 
 Borrowings                          8       (139)         (60) 
 Derivative financial instruments            (1)           (2) 
 Trade and other payables            9       (408)         (299) 
 Current tax liabilities                     (61)          (58) 
 Provisions                                  (8)           (1) 
                                            ------------  ------------ 
                                             (617)         (420) 
                                            ------------  ------------ 
 
 Non-current liabilities 
 Borrowings                          8       (584)         (633) 
 Derivative financial instruments            (2)           (5) 
 Deferred tax liabilities                    (22)          (55) 
 Retirement benefit obligation               (25)          (30) 
                                             (633)         (723) 
                                            ------------  ------------ 
 
 Total liabilities                           (1,250)       (1,143) 
                                            ------------  ------------ 
 
 Net assets                                  1,317         1,368 
                                            ============  ============ 
 
 Shareholders' equity 
 Share capital                               42            42 
 Share premium                               20            20 
 Treasury shares                             (7)           (14) 
 Capital redemption reserve                  13            13 
 Hedging reserve (net of 
  deferred tax)                              (1)           (3) 
 Foreign exchange reserve                    (27)          71 
 Retained earnings                           1,277         1,239 
                                            ------------  ------------ 
 Total shareholders' equity                  1,317         1,368 
                                            ============  ============ 
 
 

The financial statements on pages 21 to 37 were approved by the Board of Directors on 6 March 2018 and were signed on its behalf by:

 
 Ken Hanna   Heath Drewett 
 Chairman    Chief Financial Officer 
 

GROUP CASH FLOW STATEMENT

FOR THE YEARED 31 DECEMBER 2017

 
                                             2017          2016 
                                     NOTES   GBP MILLION   GBP MILLION 
 Operating activities 
 Profit for the year                         106           125 
 Adjustments for: 
 Exceptional items                   2       41            19 
 Exceptional - impairment 
  charge                                     -             30 
 Tax                                         48            47 
 Depreciation                                296           281 
 Amortisation of intangibles                 4             4 
 Finance income                              (2)           (2) 
 Finance cost                                36            29 
 Profit on sale of property, 
  plant and equipment (PPE) 
  (i)                                        (4)           (9) 
 Share based payments (ii)                   8             6 
 Negative goodwill on acquisition    10      (2)           - 
 Changes in working capital 
  (excluding the effects 
  of exchange differences 
  on consolidation): 
 Increase in inventories                     (1)           (21) 
 Increase in trade and other 
  receivables                                (163)         (81) 
 Increase/(decrease) in 
  trade and other payables                   113           (17) 
 Cash flows relating to 
  exceptional items                          (30)          (23) 
                                            ------------  ------------ 
 Cash generated from operations              450           388 
 
 Tax paid                                    (69)          (64) 
 Interest received                           2             2 
 Interest paid                               (36)          (28) 
                                            ------------  ------------ 
 Net cash generated from 
  operating activities                       347           298 
                                            ------------  ------------ 
 
 Cash flows from investing 
  activities 
 Acquisitions (net of cash 
  acquired)                          10      (55)          (22) 
  Acquisitions: repayment 
   of loans and financing             10      (18)          - 
 Purchases of PPE                            (272)         (263) 
  Purchase of other intangible 
   assets                                     (5)           (5) 
 Proceeds from sale of PPE                   14            23 
                                            ------------  ------------ 
 Net cash used in investing 
  activities                                 (336)         (267) 
                                            ------------  ------------ 
 
 Cash flows from financing 
  activities 
 Increase in long-term loans                 905           393 
 Repayment of long-term 
  loans                                      (826)         (373) 
 Increase in short-term 
  loans                                      21            18 
 Repayment of short-term 
  loans                                      (6)           - 
 Dividends paid to shareholders              (69)          (69) 
 Purchase of treasury shares                 -             (8) 
                                            ------------  ------------ 
 Net cash from/(used in) 
  financing activities                       25            (39) 
                                            ------------  ------------ 
 
 Net increase/(decrease) in cash 
  and cash equivalents                       36            (8) 
 Cash and cash equivalents 
  at beginning of the year                   25            32 
 Exchange (loss)/gain on 
  cash and cash equivalents                  (2)           1 
                                            ------------  ------------ 
 
 Cash and cash equivalents 
  at end of the year                         59            25 
----------------------------------  ------  ------------  ------------ 
 
 
   (i)    Loss on disposal of GBP1 million is included in exceptional items. 

(ii) This relates to employee share awards within the statement of changes in equity. In 2016 there was also GBP2 million included as exceptional items.

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

FOR THE YEARED 31 DECEMBER 2017

 
                                             2017          2016 
                                     NOTES   GBP MILLION   GBP MILLION 
 
 Increase/(decrease) in 
  cash and cash equivalents                  36            (8) 
 Change arising from acquisitions            (73)          (22) 
 Other changes                               (21)          (16) 
                                            ------------  ------------ 
 
 Changes in net debt arising 
  from cash flows                            (58)          (46) 
 
 Exchange gain/(loss)                        55            (114) 
                                            ------------  ------------ 
 
 Movement in net debt in 
  year                                       (3)           (160) 
 Net debt at beginning 
  of year                                    (649)         (489) 
                                            ------------  ------------ 
 
 Net debt at end of year             8       (652)         (649) 
----------------------------------  ------  ------------  ------------ 
 

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEARED 31 DECEMBER 2017

 
 AS AT 
  31 DECEMBER 
  2017                                       ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 
 
 
                   ORDINARY   SHARE                   CAPITAL                  FOREIGN 
                   SHARE       PREMIUM    TREASURY    REDEMPTION   HEDGING     EXCHANGE        RETAINED    TOTAL 
                   CAPITAL     ACCOUNT     SHARES     RESERVE       RESERVE    RESERVE          EARNINGS    EQUITY 
                   GBP         GBP         GBP        GBP           GBP        (TRANSLATION)    GBP         GBP 
                   MILLLION    MILLLION    MILLLION   MILLLION      MILLLION   GBP MILLLION     MILLLION    MILLLION 
 Balance 
  at 1 January 
  2017             42         20          (14)        13           (3)         71              1,239       1,368 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 Profit 
  for the 
  period           -          -           -           -            -           -               106         106 
 Other comprehensive 
  (loss)/income: 
 Fair value 
  gains 
  on interest 
  rate swaps 
  (net of 
  tax)             -          -           -           -            2           -               -           2 
 PDVSA 
  private 
  placement 
  notes: 
  net change 
  in fair 
  value            -          -           -           -            -           -               (4)         (4) 
 Currency 
  translation 
  differences 
  (Note 
  (i))             -          -           -           -            -           (98)            -           (98) 
 Re-measurement 
  of retirement 
  benefits 
  (net of 
  tax)             -          -           -           -            -           -               4           4 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 Total 
  comprehensive 
  income 
  for the 
  year ended 
  31 December 
  2017             -          -           -           -            2           (98)            106         10 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 Transactions 
  with owners: 
 Employee 
  share 
  awards           -          -           -           -            -           -               8           8 
 Issue 
  of ordinary 
  shares 
  to employees 
  under 
  share 
  option 
  schemes          -          -           7           -            -           -               (7)         - 
 Dividends 
  paid during 
  2017             -          -           -           -            -           -               (69)        (69) 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
                   -          -           7           -            -           -               (68)        (61) 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 Balance 
  at 31 
  December 
  2017             42         20          (7)         13           (1)         (27)            1,277       1,317 
----------------  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 
 
 
 (i)   Included in currency translation differences of 
        the Group are exchange gains of GBP55 million arising 
        on borrowings denominated in foreign currencies 
        designated as hedges of net investments overseas, 
        and exchange losses of GBP153 million relating 
        to the translation of overseas results and net 
        assets. 
 

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEARED 31 DECEMBER 2017

 
 AS AT 
  31 DECEMBER 
  2016                                       ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY 
 
 
                   ORDINARY   SHARE                   CAPITAL                  FOREIGN 
                   SHARE       PREMIUM    TREASURY    REDEMPTION   HEDGING     EXCHANGE        RETAINED    TOTAL 
                   CAPITAL     ACCOUNT     SHARES     RESERVE       RESERVE    RESERVE          EARNINGS    EQUITY 
                   GBP         GBP         GBP        GBP           GBP        (TRANSLATION)    GBP         GBP 
                   MILLLION    MILLLION    MILLLION   MILLLION      MILLLION   GBP MILLLION     MILLLION    MILLLION 
 Balance 
  at 1 January 
  2016             42         20          (9)         13           (4)         (149)           1,202       1,115 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 Profit 
  for the 
  year             -          -           -           -            -           -               125         125 
 Other comprehensive 
  (loss)/income: 
 Transfers 
  from 
  hedging 
  reserve 
  to fixed 
  assets           -          -           -           -            (3)         -               -           (3) 
 Fair value 
  gains 
  on foreign 
  currency 
  cash flow 
  hedge              -          -           -           -          3             -               -         3 
 Fair value 
  gains 
  on interest 
  rate swaps       -          -           -           -            1           -               -           1 
 Currency 
  translation 
  differences 
  (Note 
  (i))               -          -           -           -          -             220           -           220 
 Re-measurement 
  of retirement 
  benefits 
  (net of 
  tax)             -          -           -           -            -           -               (24)        (24) 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 Total 
  comprehensive 
  income 
  for the 
  year ended 
  31 December 
  2016               -          -           -           -          1           220             101         322 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 Transactions 
  with owners: 
 Purchase 
  of treasury 
  shares             -        -           (8)         -            -           -               -           (8) 
 Employee 
  share 
  awards           -          -           -           -            -           -               8           8 
 Issue 
  of ordinary 
  shares 
  to employees 
  under 
  share 
  option 
  schemes          -          -           3           -            -           -               (3)         - 
 Dividends 
  paid during 
  2016             -          -           -           -            -           -               (69)        (69) 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
                   -          -           (5)         -            -           -               (64)        (69) 
                  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 Balance 
  at 31 
  December 
  2016             42         20          (14)        13           (3)         71              1,239       1,368 
----------------  ---------  ----------  ----------  -----------  ----------  --------------  ----------  ---------- 
 
 
 
 (i)   Included in currency translation differences of 
        the Group are exchange losses of GBP117 million 
        arising on borrowings denominated in foreign currencies 
        designated as hedges of net investments overseas, 
        and exchange gains of GBP337 million relating to 
        the translation of overseas results and net assets. 
 

NOTES TO THE ACCOUNTS

For the year ended 31 December 2017

1. SEGMENTAL REPORTING

(a) Revenue by segment

 
                                                EXTERNAL REVENUE 
                                       2017                    2016 
                                       GBP MILLION             GBP MILLION 
 Power Solutions 
  Industrial                           340                     262 
  Utility                              670                     624 
                                      ----------------------  ------------ 
                                       1,010                   886 
 Rental Solutions                      720                     629 
                                      ----------------------  ------------ 
 Group                                 1,730                   1,515 
------------------------------------  ----------------------  ------------ 
 
 (i) Inter-segment transfers or transactions are 
  entered into under the normal commercial terms and 
  conditions that would also be available to unrelated 
  third parties. All inter-segment revenue was less 
  than GBP1 million. 
 

(b) Profit by segment

 
                                          OPERATING PROFIT 
                                      2017          2016 
                                      GBP MILLION   GBP MILLION 
 Power Solutions 
  Industrial                          55            32 
  Utility                             93            164 
                                     ------------  ------------ 
                                      148           196 
 Rental Solutions                     81            52 
                                     ------------  ------------ 
 Operating profit pre-exceptional 
  items                               229           248 
 Exceptional items (Note 2)           (41)          (49) 
                                     ------------  ------------ 
 Operating profit post-exceptional 
  items                               188           199 
 Finance costs - net                  (34)          (27) 
                                     ------------  ------------ 
 Profit before taxation               154           172 
 Taxation                             (48)          (47) 
                                     ------------  ------------ 
 Profit for the year                  106           125 
-----------------------------------  ------------  ------------ 
 

(c) Depreciation and amortisation by segment

 
                                    BEFORE 
                                    EXCEPTIONAL   IMPAIRMENT 
                                    CHARGES       CHARGES       TOTAL 
                      2017          2016          2016          2016 
                      GBP MILLION   GBP MILLION   GBP MILLION   GBP MILLION 
 Power Solutions 
  Industrial          72            63            -             63 
  Utility             132           127           -             127 
                     ------------  ------------  ------------  ------------ 
                      204           190           -             190 
 Rental Solutions     96            95            30            125 
                     ------------  ------------  ------------  ------------ 
 Group                300           285           30            315 
-------------------  ------------  ------------  ------------  ------------ 
 

(d) Capital expenditure on property, plant & equipment and intangible assets by segment

 
                      2017          2016 
                      GBP MILLION   GBP MILLION 
 Power Solutions 
  Industrial          55            43 
  Utility             183           144 
                     ------------  ------------ 
                      238           187 
 Rental Solutions     75            94 
                     ------------  ------------ 
 Group                313           281 
-------------------  ------------  ------------ 
 

(i) Capital expenditure comprises additions of property, plant and equipment (PPE) of GBP272 million (2016: GBP263 million), additions of intangible assets of GBP5 million (2016: GBP5 million), acquisitions of PPE of GBP28 million (2016: GBP10 million), and acquisitions of intangible assets of GBP8 million (2016: GBP3 million).

(e) Assets/(Liabilities) by segment

 
                                        ASSETS                    LIABILITIES 
                               2017          2016          2017          2016 
                               GBP MILLION   GBP MILLION   GBP MILLION   GBP MILLION 
 Power Solutions 
  Industrial                   628           491           (61)          (44) 
  Utility                      1,109         1,169         (263)         (177) 
                              ------------  ------------  ------------  ------------ 
                               1,737         1,660         (324)         (221) 
 Rental Solutions              765           779           (100)         (94) 
                              ------------  ------------  ------------  ------------ 
 Group                         2,502         2,439         (424)         (315) 
 Tax and finance 
  payable                      65            71            (87)          (117) 
 Derivative financial 
  instruments                  -             1             (3)           (7) 
 Borrowings                    -             -             (711)         (674) 
 Retirement benefit 
  obligation                   -             -             (25)          (30) 
                              ------------  ------------  ------------  ------------ 
 Total assets/(liabilities) 
  per balance sheet            2,567         2,511         (1,250)       (1,143) 
----------------------------  ------------  ------------  ------------  ------------ 
 
 

(f) Average number of employees by segment

 
                                    2017           2016 
                                    NUMBER       NUMBER 
 Power Solutions 
     Industrial                     1,380         1,326 
     Utility                        2,083         2,269 
                                   -----------  ------- 
                                    3,463         3,595 
 Rental Solutions                   2,515         2,495 
                                   -----------  ------- 
 Group                              5,978         6,090 
---------------------------------  -----------  ------- 
 
 
 

(g) Geographical information

 
                      REVENUE                          NON-CURRENT ASSETS 
                        2017          2016          2017          2016 
                        GBP MILLION   GBP MILLION   GBP MILLION   GBP MILLION 
 North America          391           337           253           286 
 UK                     95            82            110           101 
 Continental Europe     141           123           119           110 
 Eurasia                86            41            70            61 
 Middle East            169           144           343           264 
 Africa                 247           243           158           231 
 Asia                   168           164           149           130 
 Auspac                 90            80            67            69 
 Latin America          343           301           160           240 
                       ------------  ------------  ------------  ------------ 
                        1,730         1,515         1,429         1,492 
---------------------  ------------  ------------  ------------  ------------ 
 
 

Non-current assets exclude deferred tax.

 
 (h) Reconciliation of net operating 
  assets to net assets 
------------------------------------------------  -------------------------- 
                                                   2017          2016 
                                                   GBP MILLION   GBP MILLION 
 Net operating assets                              2,078         2,124 
 Retirement benefit 
  obligation                                       (25)          (30) 
 Net tax and finance 
  payable                                          (22)          (46) 
                                                  ------------  ------------ 
                                                   2,031         2,048 
 Borrowings and derivative 
  financial instruments                            (714)         (680) 
                                                  ------------  ------------ 
 Net assets                                        1,317         1,368 
----------------------------------------  ------  ------------  ------------ 
 
 

2. EXCEPTIONAL ITEMS

An exceptional charge of GBP41 million before taxation was recorded in the year to 31 December 2017 (2016: GBP19 million) in respect of the Group's Business Priorities programme. The costs comprise GBP22 million of employee costs (2016: GBP11 million), GBP8 million of professional fees (2016: GBP7 million) and GBP11 million of property related costs (2016: GBP1 million). The employee costs relate to severance costs as well as the costs of employees who are working full time on the business priorities implementation. This exceptional charge can be split into Rental Solutions GBP13 million (2016: GBP10 million), Power Solutions Industrial GBP11 million (2016: GBP3 million) and Power Solutions Utility GBP17 million (2016: GBP6 million). In 2016 there was also an exceptional charge of GBP30 million relating to the impairment of small gas generators used solely in the North American Oil & Gas sector.

3. DIVIDS

 
                 2017          2017        2016          2016 
                 GBP MILLION   PER SHARE   GBP MILLION   PER SHARE 
                                (P)                       (P) 
 
 Final paid      45            17.74       45            17.74 
 Interim paid    24            9.38        24            9.38 
                ------------  ----------  ------------  ---------- 
                 69            27.12       69            27.12 
--------------  ------------  ----------  ------------  ---------- 
 

In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2017 of 17.74 pence per share which will utilise an estimated GBP45 million of Shareholders' funds. It will be paid on 22 May 2018 to shareholders who are on the register of members on 20 April 2018.

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 period, excluding shares held by the Employee Share Ownership Trusts which are treated as cancelled.

 
                                        2017    2016 
 
 Profit for the year (GBP million)      106     125 
                                       ------  ------ 
 
 Weighted average number of ordinary 
  shares in issue (million)             255     255 
                                       ------  ------ 
 
 Basic earnings per share (pence)       41.54   48.88 
-------------------------------------  ------  ------ 
 

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 period. 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.

 
                                           2017    2016 
 
 Profit for the year (GBP million)         106     125 
                                          ------  ------ 
 
 Weighted average number of ordinary 
  shares in issue (million)                255     255 
 Adjustment for share options              -       - 
                                          ------  ------ 
 Diluted weighted average number 
  of ordinary shares in issue (million)    255     255 
                                          ------  ------ 
 
 Diluted earnings per share (pence)        41.51   48.86 
----------------------------------------  ------  ------ 
 

Aggreko plc assesses the performance of the Group by adjusting earnings per share, calculated in accordance with IAS 33, to exclude items it considers to be material and non-recurring and believes that the exclusion of such items provides a better comparison of business performance. The calculation of earnings per ordinary share on a basis which excludes exceptional items is based on the following adjusted earnings:

 
                                               2017          2016 
                                               GBP MILLION   GBP MILLION 
 Profit for the year                           106           125 
 Exclude exceptional items                     32            33 
                                              ------------  ------------ 
 Profit for the year pre-exceptional 
  items                                        138           158 
                                              ------------  ------------ 
 
 An adjusted earnings per share figure 
  is presented below. 
 
 Basic earnings per share pre-exceptional 
  items (pence)                                53.98         61.98 
 Diluted earnings per share pre-exceptional 
  items (pence)                                53.94         61.95 
--------------------------------------------  ------------  ------------ 
 

5. TAXATION

 
                                TOTAL          EXCEPTIONAL              TOTAL 
                                 BEFORE         ITEMS                    BEFORE 
                                 EXCEPTIONAL    (i)                      EXCEPTIONAL   EXCEPTIONAL 
                                               (Note 
                                ITEMS           2)                      ITEMS          ITEMS 
                                2017           2017          2017       2016           2016          2016 
                                                             GBP                                     GBP 
                                GBP MILLION    GBP MILLION    MILLION   GBP MILLION    GBP MILLION    MILLION 
 Analysis of charge 
  in year 
 Current tax expense: 
  - UK corporation 
   tax                          11             (2)           9          7              (1)           6 
  - Overseas taxation           78             (7)           71         73             (4)           69 
                               -------------  ------------  ---------  -------------  ------------  --------- 
                                89             (9)           80         80             (5)           75 
 Adjustments in 
  respect of prior 
  years: 
  - UK                          (2)            -             (2)        -              -             - 
  - Overseas                    (3)            -             (3)        (8)            -             (8) 
                               -------------  ------------  ---------  -------------  ------------  --------- 
                                84             (9)           75         72             (5)           67 
 Deferred taxation: 
  - temporary differences 
   arising in current 
   year                         (27)           -             (27)       (13)           (11)          (24) 
  - movements in 
   respect of prior 
   years                        -              -             -          4              -             4 
                               -------------  ------------  ---------  -------------  ------------  --------- 
                                57             (9)           48         63             (16)          47 
   --------------------------  -------------  ------------  ---------  -------------  ------------  --------- 
 
 
 (i)   Exceptional items are explained in Note 2 and 
        comprise costs of GBP41 million relating to our 
        Business Priorities programme (2016: GBP19 million) 
        and GBPnil relating to asset impairment (2016: 
        GBP30 million). Of these costs GBP41 million are 
        tax deductible (2016: GBP45 million) and result 
        in an exception credit of GBP9 million (2016: 
        GBP16 million). 
 

Variances between the current tax charge and the standard 19% UK corporate tax rate when applied to profit on ordinary activities for the year are as follows:

 
                                   TOTAL BEFORE   EXCEPTIONAL 
                                    EXCEPTIONAL    ITEMS 
                                    ITEMS          (Note 2) 
                                   2017           2017          2017 
                                                                GBP 
                                   GBP MILLION    GBP MILLION    MILLION 
 
 Profit before taxation            195            (41)          154 
 
 Tax calculated at 19% standard 
  UK corporate tax rate            38             (8)           30 
 Differences between UK and 
  overseas tax rates               30             (1)           29 
 Expenses not tax effected         8              -             8 
 Income not subject to tax         (3)            -             (3) 
 Impact of deferred tax rate 
  changes in relation to US 
  tax reform                       (10)           -             (10) 
 Impact of deferred tax rate 
  changes - non US                 (1)            -             (1) 
                                  -------------  ------------  --------- 
 Tax on current year profit        62             (9)           53 
 Prior year adjustments - 
  current tax                      (5)            -             (5) 
 Total tax on profit               57             (9)           48 
                                  -------------  ------------  --------- 
 
 Effective tax rate                29%            23%           31% 
--------------------------------  -------------  ------------  --------- 
 

6. PROPERTY, PLANT AND EQUIPMENT

 
 YEARED 31 DECEMBER 2017 
                                                                    VEHICLES, 
                                           SHORT                     PLANT 
                             FREEHOLD       LEASEHOLD    RENTAL      & 
                             PROPERTIES    PROPERTIES    FLEET      EQUIPMENT     TOTAL 
                                                         GBP                      GBP 
                             GBP MILLION   GBP MILLION    MILLION   GBP MILLION   MILLION 
 Cost 
 At 1 January 2017           91            22            3,475      136           3,724 
 Exchange adjustments        (3)           (1)           (256)      (7)           (267) 
 Additions                   1             1             246        24            272 
 Acquisitions (Note 
  10)                        -             -             23         5             28 
 Disposals                   (3)           (2)           (88)       (6)           (99) 
                            ------------  ------------  ---------  ------------  --------- 
 At 31 December 
  2017                       86            20            3,400      152           3,658 
                            ------------  ------------  ---------  ------------  --------- 
 
 Accumulated depreciation 
 At 1 January 2017           36            16            2,272      91            2,415 
 Exchange adjustments        (2)           -             (172)      (5)           (179) 
 Charge for the 
  period                     3             1             275        17            296 
 Disposals                   (2)           (2)           (79)       (5)           (88) 
                            ------------  ------------  ---------  ------------  --------- 
 At 31 December 
  2017                       35            15            2,296      98            2,444 
                            ------------  ------------  ---------  ------------  --------- 
 
 Net book values 
 At 31 December 
  2017                       51            5             1,104      54            1,214 
                            ------------  ------------  ---------  ------------  --------- 
 At 31 December 
  2016                       55            6             1,203      45            1,309 
--------------------------  ------------  ------------  ---------  ------------  --------- 
 
 

7. TRADE AND OTHER RECEIVABLES

 
                                   2017          2016 
                                   GBP MILLION   GBP MILLION 
 
 Trade receivables                 570           521 
 Less: provision for impairment 
  of receivables                   (80)          (67) 
                                  ------------  ------------ 
 Trade receivables - net           490           454 
 Prepayments                       57            38 
 Accrued income                    139           109 
 Other receivables (Note (i))      84            55 
                                  ------------  ------------ 
 Total receivables                 770           656 
                                  ------------  ------------ 
 
 

(i) In September 2016 the Group signed GBP14 million of private placement notes with one customer in Venezuela (PDVSA) to progress clearing the overdue debt. This resulted in a financial instrument which replaced the net trade receivable balance. The financial instrument was booked at fair value which reflects our estimation of the recoverability of the notes. This fair value is estimated to be GBP4 million (2016: GBP8 million). This financial instrument is included in other receivables.

8. BORROWINGS

 
                                  2017          2016 
                                  GBP MILLION   GBP MILLION 
 Non-current 
 Bank borrowings                  103           329 
 Private placement notes          481           304 
                                 ------------  ------------ 
                                  584           633 
                                 ------------  ------------ 
 Current 
 Bank overdrafts                  12            19 
 Bank borrowings                  72            41 
 Private placement notes          55            - 
                                 ------------  ------------ 
                                  139           60 
                                 ------------  ------------ 
 
 Total borrowings                 723           693 
                                 ------------  ------------ 
 
 Short-term deposits              -             (1) 
 Cash at bank and in hand         (71)          (43) 
                                 ------------  ------------ 
 
 Net borrowings                   652           649 
                                 ------------  ------------ 
 
 Overdrafts and borrowings are 
  unsecured. 
 
 

9. TRADE AND OTHER PAYABLES

 
                                       2017          2016 
                                       GBP MILLION   GBP MILLION 
 
 Trade payables                        160           88 
 Other taxation and social security 
  payable 
                                       16            13 
 Other payables                         78            68 
 Accruals                              127           113 
 Deferred income                       27            17 
                                       408           299 
------------------------------------  ------------  ------------ 
 

The value of trade and other payables quoted in the table above also represents the fair value of these items.

10. ACQUISITIONS

Younicos

On 3 July 2017 the Group acquired 100% of the share capital of Younicos, a global market leader in the development and deployment of integrated energy systems. This capability investment will help us provide a lower cost, cleaner energy and broadens the range of products available to our customers. The cost of the acquisition was GBP47 million.

The revenue and operating loss included in the consolidated income statement from 3 July 2017 to 31 December 2017 contributed by Younicos was GBP10 million and GBP6 million respectively. Had Younicos been consolidated from 1 January 2017, the consolidated income statement for the year ended 31 December 2017 would show revenue and operating profit of GBP1,735 million and GBP176 million respectively.

The acquisition method of accounting has been adopted and the goodwill arising on the purchase has been capitalised. Acquisition related costs of GBP0.8 million have been expensed in the period and are included within administrative expenses in the income statement.

Goodwill represents the value of synergies arising from the integration of the acquired business. Younicos' proprietary software and control systems, together with its knowledge of battery storage, enable the integration of multiple energy sources, both thermal and renewable, to deliver an optimised energy system. We can leverage Younicos' expertise and combine this with our generating technology, deployment capability and global scale to provide customers with a reliable, cheaper and cleaner source of energy.

KBT (Kerta Bumni Tekindo)

On 14 June 2017 the Group acquired 95% of the share capital of KBT, an Indonesia-based power rental company, for a maximum consideration of GBP25 million. Indonesia is a good market for Aggreko's solutions and this acquisition strengthens our business in this important power market.

Included within this maximum consideration is GBP7 million which was deposited into an escrow account as contingent consideration. The total potential undiscounted amount of all future payments that the seller could be entitled to under the acquisition agreement is between GBPnil and GBP7 million, payable after year 1 and year 3.

These amounts are dependent upon a number of conditions relating to the contracts in place at the acquisition date. Deductions would be made for the following:

   --      Any contracts that: 

- are off-hired

- are expired or have been terminated or

- have extended at terms lower than those currently in place

-- Any claims against the contract including overdue trade receivables, tax or misrepresentations.

These conditions were assessed post acquisition and resulted in Aggreko recognising a receivable in relation to the full contingent consideration value of GBP7 million.

The revenue and operating profit included in the consolidated income statement from 14 June 2017 to 31 December 2017 contributed by KBT was GBP7 million and GBPnil respectively. Had KBT been consolidated from 1 January 2017, the consolidated income statement for the year ended 31 December 2017 would show revenue and operating profit of GBP1,737 million and GBP188 million respectively.

The acquisition method of accounting has been adopted and the goodwill arising on the purchase has been capitalised. Acquisition related costs of GBP0.4 million have been expensed in the period and are included within administrative expenses in the income statement.

Negative goodwill has arisen as the seller required a quick sale and believed Aggreko was a good fit for the business.

TuCo Industrial Products Inc

On 27 January 2017 the Group completed the acquisition of the business and assets of TuCo Industrial Products Inc (TuCo). TuCo specialises in providing temporary heat and air conditioning equipment to the construction, industrial, commercial and special events industries and strengthens our business in these sectors. The purchase consideration paid in cash was GBP3 million.

The revenue and operating profit included in the consolidated income statement from 27 January 2017 to 31 December 2017 contributed by TuCo was GBP2 million and GBPnil respectively. Had TuCo been consolidated from 1 January 2017, the consolidated income statement for the period ended 31 December 2017 would show revenue and operating profit of GBP1,730 million and GBP188 million respectively.

The acquisition method of accounting has been adopted and the goodwill arising on the purchase has been capitalised. Acquisition related costs of GBP0.2 million have been expensed in the period and are included within administrative expenses in the income statement.

Goodwill represents the value of synergies arising from the integration of the acquired business. Synergies include direct cost savings and the reduction of overheads as well as the ability to leverage Aggreko systems and access to assets.

The details of the transactions and the fair value of assets acquired in the three acquisitions are shown in the table below:

 
                           YOUNICOS      KBT        TUCO          TOTAL 
                           GBP MILLION   GBP        GBP MILLION   GBP 
                                          MILLION                  MILLION 
 Property, plant 
  and equipment            5             22         1             28 
 Intangible assets         6             2          -             8 
 Inventory                 -             -          1             1 
 Trade and other 
  receivables              6             4          -             10 
 Trade and other 
  payables                 (4)           (8)        -             (12) 
 Deferred taxation         (2)           -          -             (2) 
 Loans and financing       -             (18)       -             (18) 
 Cash                      2             -          -             2 
                          ------------  ---------  ------------  --------- 
 Net assets acquired       13            2          2             17 
 Goodwill (i)              34            (2)        1             33 
                          ------------  ---------  ------------  --------- 
 Consideration (ii)        47            -          3             50 
 Loans and financing 
  settled                  -             18         -             18 
 Consideration in 
  escrow due to be 
  received                 -             7          -             7 
 Less cash and cash 
  equivalents acquired     (2)           -          -             (2) 
                          ------------  ---------  ------------  --------- 
 Net cash outflow          45            25         3             73 
                          ------------  ---------  ------------  --------- 
 
 
   (i)    Negative goodwill of GBP2 million in relation to KBT is reflected in the income statement. 

(ii) The effective purchase consideration for KBT was GBP7 million plus loans and financing settled of GBP18 million.

The fair values are provisional and will be finalised during the first half of 2018.

11. POST BALANCE SHEET EVENTS

On 15 February 2018 the Group announced the acquisition in North America of the business and assets of A Contact Electric Rentals. The acquisition furthers Aggreko's leadership position in the specialty rental market and long-term growth strategy to excel through specialised rental solutions. A Contact specialises in the rental of medium and high voltage electrical distribution equipment. The cost of the acquisition was GBP21 million ($30 million). For the year ended 31 December 2017 A Contact had revenue and operating profit of around GBP9 million and GBP4 million respectively. The fair values will be calculated during the first half of 2018.

NOTES:

 
 1.   The financial information set out above does 
       not constitute the company's statutory accounts 
       for the years ended 31 December 2017 or 2016 
       but is derived from those accounts. Statutory 
       accounts for 2016 has been delivered to the registrar 
       of companies, and those for 2017 will be delivered 
       in due course. The auditors have reported on 
       those accounts; their reports were (i) unqualified, 
       (ii) did not include a reference to any matters 
       to which the auditors drew attention by way of 
       emphasis without qualifying their report and 
       (iii) did not contain a statement under section 
       498 (2) or (3) of the Companies Act 2006 
 
 2.   The Annual Report will be posted to all shareholders 
       on 23 March 2018 and will be available on request 
       from the Secretary, Aggreko plc, 8(th) Floor, 
       120 Bothwell Street, Glasgow, G2 7JS. The Annual 
       General Meeting will be held in Glasgow on 26 
       April 2018. The Annual Report contains full details 
       of the principal accounting policies adopted 
       in the preparation of these financial statements. 
 
 3.   A final dividend of 17.74 pence per share will 
       be recommended to shareholders and, if approved, 
       will be paid on 22 May 2018 to shareholders on 
       the register at 20 April 2018. 
 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Annual Report for the year ended 31 December 2017, which will be published on 23 March 2018, complies with the Disclosure and Transparency Rules in respect of the requirement to produce an Annual Financial Report. The Directors confirm that to the best of their knowledge:

-- the consolidated financial statements contained in the Annual Report for the year ended 31 December 2017, 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 strategic report contained in the Annual Report for the year ended 31 December 2017 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.

By order of the Board

 
 Chris Weston              Heath Drewett 
 Chief Executive Officer   Chief Financial Officer 
 
 6 March 2018 
 

[1] Group and PSU reconciliation excluding Argentina is detailed on page 15.

[2] Exceptional items relate to costs in respect of the Group's Business Priorities programme. Further details are contained in the Financial Review on page 15 and Note 2 to the Accounts.

[3] Pass-through fuel relates to Power Solutions Utility contracts in Brazil and Mozambique where we provide fuel on a pass-through basis. Pass-through fuel revenue in 2017 was GBP139m (2016: GBP60m) and an operating loss of GBP3m (2016: GBPnil).

[4] Underlying change excludes currency, pass-through fuel and exceptional items. A reconciliation between reported change and underlying change is detailed on page 14.

5 ROCE is calculated by taking the operating profit for the year and expressing it as a percentage of the average net operating assets at 1 January, 30 June and 31 December.

6 Underlying change excludes currency, pass-through fuel and exceptional items. A reconciliation between reported and underlying change is detailed on page 14.

[7] Pre exceptional items

[8] PSU reconciliation excluding Argentina is detailed on page 15.

[9] Reflects the final dividend for 2016 of 17.74 pence per share (2015: 17.74 pence) that was paid during the period.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR LLFFRVIIEIIT

(END) Dow Jones Newswires

March 06, 2018 02:00 ET (07:00 GMT)

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