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TRANSCRIPT
1Results Presentation August 2018
Half year ended 30 June 2018
1H18 results and strategic progress update
1 AUGUST 2018
2Results Presentation August 2018
IntroductionChris WestonCEO
3Results Presentation August 2018
Agenda
Headlines
1H18 results review
Strategic priorities
Financial performance drivers
Closing remarks
4Results Presentation August 2018
Headlines
Financial results
Encouraging H1 results
Full year guidance unchanged
Strategic progress
Our 2015 strategy has evolved to reflect changing markets
Execution of our strategy has strengthened the Group’s foundations and is beginning to drive growth
Detailed plans, focused on operating margin and capital efficiency and supported by cost savings of £50m, to deliver improved financial returns
We expect to deliver ROCE in the mid teens in 2020, with potential for further improvement thereafter
5Results Presentation August 2018
1H18 results reviewHeath DrewettCFO
6Results Presentation August 2018
Group summary
Good underlying growth in revenue and operating profit
No exceptional items in 2018 (2017: £10m)
Effective tax rate of 31%
Dividend in line with 2017
Encouraging H1 results
Movement
£m pre-2017 exceptional items 1H18 1H17 CHANGE
CHANGE excluding
pass-through fuel and currency
Revenue 857 779 10% 14%
Operating profit 76 79 (4)% 8%
Net interest expense (17) (16) (8)%
Profit before tax 59 63 (7)%
Taxation (18) (18) -
Profit after tax 41 45 (10)%
Diluted earnings per share 15.85 17.88 (11)%
Dividend per share 9.38 9.38 -
Operating margin 9% 10% (1)pp
ROCE 11% 12% (1)pp
7Results Presentation August 2018
Movement
pre- 2017 exceptional items 1H18 1H17 CHANGE
CHANGE excluding
currency
Revenue (£m) 386 307 26% 32%
Operating profit (£m) 40 14 169% 192%
Operating margin 11% 5%
ROCE (rolling 12 month) 16% 8%
Fleet capital expenditure (£m) 26 24
Business performance
% REVENUE BY SECTOR 1H18Business services & construction
Petrochemical & refining
Oil & Gas
Utilities
Events
Manufacturing
Mining
Other
19%
17%
12%
11%
9%
7%
5%
20%
UTILISATIONat 30 June (MW)
50%
REVENUE(% OF GROUP excl. pass-through fuel)
Rental SolutionsStrong growth and improved margins
1H18
1H17
61%
52%
8Results Presentation August 2018
39%
16%
11%
10%
8%
7%
2%
7%
Business performance
Movement
pre- 2017 exceptional items 1H18 1H17 CHANGE
CHANGE excluding
currency
Revenue (£m) 219 212 3% 15%
Operating profit (£m) 23 31 (24)% (15)%
Operating margin 11% 14%
ROCE (rolling 12 months) 10% 10%
Fleet capital expenditure (£m) 27 14
% REVENUE BY SECTOR 1H18Oil & Gas
Events
Mining
Business services & construction
Utilities
Manufacturing
Petrochemical & refining
Other
29%
REVENUE(% OF GROUP excl. pass-through fuel)
Power Solutions IndustrialProfit impacted by Middle East headwinds
UTILISATIONat 30 June (MW)
1H18
1H17
70%
69%
9Results Presentation August 2018
Business performance
Movement
pre- 2017 exceptional items & excluding pass-through fuel 1H18 1H17 CHANGE
CHANGE excluding pass-
through fuel and currency
Revenue (£m) 163 218 (25)% (15)%
Operating profit (£m) 14 36 (62)% (55)%
Operating margin 8% 17%
ROCE 7% 16%
Fleet capital expenditure (£m) 34 77
21%
REVENUE(% OF GROUP excl. pass-through fuel)
Power Solutions UtilityPerformance reflects known contract off-hires
This segment now includes only Utility customer projectsUTILISATIONat 30 June (MW)
1H18
1H17
65%
75%
10Results Presentation August 2018
Cash flow
Working capital outflow of £68m
Capital expenditure reduced by £33m as we increase our focus on utilisation
Net debt/EBITDA of 1.4x
£m 1H18 1H17
EBITDA 224 230
Working capital (68) (51)
Cash flows relating to prior period exceptionals (4) (10)
Other 8 15
Operating cash flow 160 184
Tax (33) (33)
Net interest (18) (17)
Acquisitions (33) (28)
Purchase of fixed assets (95) (128)
Other fixed asset movements - 4
Free cash flow (19) (18)
Dividends (45) (45)
Changes in equity (7) -
Net cash flow (71) (63)
Exchange (18) 29
Movement in net debt (89) (34)
Net debt (741) (683)
11Results Presentation August 2018
Working capital performance
In recent periods receivables have been the key driver, with some improvement in payables
WORKING CAPITAL BREAKDOWN (£m)
-600
-400
-200
0
200
400
600
800
1,000
H118 FY17H117FY16
Inventory Receivables Payables
£247m
£656m
£(299)m£(361)m
£238m
£736m
£(410)m£(346)m
£232m
£770m
£244m
£740m
12Results Presentation August 2018
Actions in place to tackle receivables
Monthly cash collection targets by region (and customer on major projects)
Augmented and structured stakeholder engagement
Sales agent effectiveness measured and changes made
New regional senior positions created (above project managers) to increase focus and provide escalation path
Tighter enforcement of contract provisions, including application of late payment penalties
Power Solutions
Monthly billing and collection targets by region
Regular execution review of top debtors and unbilled accounts to agree remedial actions
Temporary resources added to clear unbilled backlog and support collections
Rental Solutions
13Results Presentation August 2018
Improving performance as our actions begin to take effect
Utility – Invoicing/receipts performance
POWER SOLUTIONS UTILITY ($m)
0
10
20
30
40
50
60
70
80
90
Jan Feb Mar Apr May Jun
Invoicing
Receipts
2018
14Results Presentation August 2018
Steady improvement since the close of 2017
Rental Solutions – Trade receivables performance
Month by month improvement across Rental Solutions, with improved collections making inroads into the overall trade receivables position
TRADE RECEIVABLES – INCLUDING UNBILLED ($m)
0%
5%
10%
15%
20%
25%
30%
0
50
100
150
200
250
300
H117 FY17 Jan Feb Mar Apr May Jun2018
Trade receivables/revenue %
15Results Presentation August 2018
Inventory
The next area of focus
Clear target to reduce inventory levels in 2018
Central team established to review and approve all new orders (to confirm the ‘need’)
Safety stock levels set by the central team
Identification and movement of excess inventory across the regions to meet business needs
Centrally managed global buyback procedure with key suppliers
Regular stock counts and write-off reviews
Power Solutions
Recently begun inventory system regional roll-out
System automation of stock categorisation (9 box definitions: fast moving, slow moving, non moving etc.) to enable greater visibility and support inventory sharing
Creation of virtual inventory sharing warehouse for depots/regions to identify stock availability prior to placing new orders
Consignment stock arrangement established with key supplier
Scrappage/third party sale process for surplus items, where no supplier buyback option exists
Rental Solutions
16Results Presentation August 2018
On track to deliver our 2018 guidance
Growth in Rental Solutions and Industrial expected to offset Utility headwinds in the full year
Expected effective tax rate of 31%
Full year fleet capex down c.10% on prior year
Working capital improves to small inflow in H2
Net debt/EBITDA to reduce to 1.2 – 1.3x
2018 PBT expected to be in line with 2017, excluding currency effects
17Results Presentation August 2018
Strategic priorities
Chris WestonCEO
18Results Presentation August 2018
2015 strategic priorities: A reminder
CUSTOMER
TECHNOLOGY
EFFICIENCY
• Tailor sales and service channels• Focus on key sectors• Pursue adjacencies• Evaluate bolt-on M&A opportunities
Priority
• Work with our strategic partners to develop market leading products
• Strengthen and expand strategic partnerships• Reduce the overall cost of power for our customers
Priority
• Streamlining our cost base• Optimising deployment of resources• Improving processes and systems
Priority
19Results Presentation August 2018
Group performance held back
We have faced significant challenges as we have executed our strategy
0
50
100
150
200
250
300
350
2014 2017
NEGATIVE DRIVERS
Repricing and off-hires of legacy Utility contracts
Customer liquidity increasing outstanding receivables
Impact of oil price fall on North American oil & gas sector
Rental Industrial Utility
OPERATING PROFIT (£m)
20Results Presentation August 2018
Reviewing our strategy
Progress in the strategic priorities has built a firm foundation and is beginning to drive growth
Re-examined our strategy, the markets we operate in and the impact of renewables and storage
Markets have evolved and our strategy has evolved with them
Implementing detailed plans for the continued execution of the strategy
Determined revised financial expectations
Comprehensive, business led exercise, supported by external consultants
21Results Presentation August 2018
Our approach to the markets
We have three inter-related, but distinct businesses
Rental Solutions
Power Solutions Industrial
Power Solutions Utility
Focus on high value key sectors− Deliver sector customer
needs
Build sector specific capability− Technical expertise− Sales approach
Improve cost position
Focus on natural resource & industrial sectors
Low cost operating model− Optimise fleet
allocation and operating model
− Efficient hub & spoke depot network
Focus on utilities in emerging markets− Flexible, innovative
solutions to infrastructure issues
Lowest cost of energy− Efficient technology
and operations
22Results Presentation August 2018
Our evolved strategy
We have four clear strategic priorities
Being particular about the sectors we target
Offering specialist solutions
Being simple to do business with
Customer focusDeveloping competitive configurable products
Smarter use of connected systems & data analytics
Integrating renewable & storage technology
Technology investmentBeing mobile & modular
Getting the very maximum out of our assets
Striving for the most competitive cost base
Capital efficiencyLiving Always Orange
Nurturing our full potential
Staying safe and professional at all times
Expert people
23Results Presentation August 2018
Customer focus
Being particular about the sectors we target
Offering specialist solutions
Being simple to do business with
Customer focus
Continued focus on key sectors− Focus and technical capability: increase in higher value,
complex solutions− Hybrid solutions (off grid, mining)
Sales & marketing discipline and process enhancements− Segmentation and channel development (telesales and
ecommerce)− Real time pricing governance
System investment to improve customer experience− End to end systems being deployed
Remote monitoring and data analytics− Improved customer service and product development
TRANSLATING PRIORITIES INTO DETAILED PLANS
24Results Presentation August 2018 24Results Presentation March 2018
25Results Presentation August 2018
TRANSLATING PRIORITIES INTO DETAILED PLANS
Technology investment
Continued focus on reducing the total cost of energy− Fuel efficiency, hybrid solutions and emissions
Complex sector specific applications
Remote monitoring platform and data analytic capability
Hybrid solutions and storage integration− Integrating renewables, storage and thermal− Deploy to existing fleet/sites to improve efficiency and
reliabilityDeveloping competitive configurable products
Smarter use of connected systems & data analytics
Integrating renewable & storage technology
Technology investment
26Results Presentation August 2018
TRANSLATING PRIORITIES INTO DETAILED PLANS
Capital efficiency
Centralised fleet management to drive utilisation
Remote monitoring and data analytics− Reduce maintenance costs− Improve utilisation
Deploy Rental Solutions systems into Industrial− Back office and process efficiencies
Cost reduction program to deliver £50m of savings
Reduction in working capitalBeing mobile & modular
Getting the very maximum out of our assets
Striving for the most competitive cost base
Capital efficiency
Cost focus is key in Power Solutions Utility
Addressing receivables and costs to ensure competitiveness
27Results Presentation August 2018
Improving outlook into 2019 and beyond
Comprehensive business led review now completed
We are already well advanced to respond to changing demand− Customer focus and systems− Technology
Focus on operational excellence as well as growth
Detailed plans to improve capital efficiency − Fleet asset investment− Working capital
Culture change driving an improved commercial understanding of what delivers value
Expect to deliver ROCEin the
mid-teens in 2020
28Results Presentation August 2018
Financial performance driversHeath DrewettCFO
29Results Presentation August 2018
Plans toimprove allelements
Improving ROCE
ROCE is our key measure of performance
OPERATING PROFIT
Volume growth
Pricing
Operational efficiency
CAPITAL EMPLOYED
Working capital
Capital investment
Utilisation
30Results Presentation August 2018
Growing returns: Rental SolutionsContinued improvement
KEY DRIVERS:
Sector focus and specialisation
Higher value, complex solutions
Remote monitoring & new systems
Inventory systems
Utilisation
Introduce e-commerce
Operatingprofit
Workingcapital
Fixedassets
16%
20201H18
1
2
3
4
5
6
463
21 5
31Results Presentation August 2018
Growing returns: Industrial
KEY DRIVERS:
Sector focus and specialisation
Higher value, complex solutions
Remote monitoring & new systems
Inventory management
Utilisation
Operatingprofit
Workingcapital
Fixedassets
10%
20201H18
4
3
21
Continued improvement
5
1
2
3
4
5
32Results Presentation August 2018
Plans toimprove all
metrics
Rental & Industrial actions
GROWTH AND PRICING
Embedding our dedicated sector sales resources
Focus on specialty products and more complex solutions to support improved pricing
New systems to enable real-time pricing and improved governance
Introduction of e-commerce platform and telesales to service more transactional market
Hybrid solutions provide new growth opportunities
OPERATIONAL EFFICIENCY
New systems to support the customer journey and improve efficiency
Remote asset monitoring to drive down unplanned maintenance costs
Introduction of data analytics to reduce costs of regular servicing
Global fleet management
Volume growth, improved pricing and operational efficiency
33Results Presentation August 2018
Growing returns: Utility
KEY DRIVERS:
Sales discipline to drive operating profit with focus on margin, not growth
Cost reduction program
Billing & collections under spotlight and part of sales process
Inventory management and systems investment
Optimising utilization, capital expenditure discipline
Set to improve returns through self-help measures
Operatingprofit
Workingcapital
Fixedassets
7%
20201H18
3
1
5
2
4
1
2
3
4
5
34Results Presentation August 2018
Plans toimprove all
metrics
Utility actions
REDUCE WORKING CAPITAL ROFIT Continue actions already in place (referenced earlier)
DRIVE UTILISATION All capital expenditure requires CEO/CFO approval
New product build programme limited to G16 upgrades in the short term
Global fleet management and deployment
Group Operations Council established to oversee and govern fleet operations
Asset monitoring to improve site efficiency and remove fleet redundancy
Surplus fleet transfers to Rental and Industrial Solutions to support volume growth
REDUCE COSTS Planned maintenance cost reduction through introduction of condition-based maintenance regimes
Procurement savings through extension of spare parts supplier base
Optimisation of fleet logistics and project manning
Review regional office and support function locations
Improve sales productivity through training and development
Capital efficiency and cost reductions
35Results Presentation August 2018
Improving Group returnsGenerating mid-teens returns in 2020
Operatingprofit
Workingcapital
Fixedassets
20201H18
Mid-teens %
11%
RENTAL & INDUSTRIAL
Operating profit improvement the key driver
Some uplift in working capital and fixed asset ratios
UTILITY
Broader base of improvement:− Cost reductions− Working capital− Fixed asset utilisation
Self-help measures are key
36Results Presentation August 2018
Closing remarksChris WestonCEO
37Results Presentation August 2018
Summary
The first half results are encouraging: we are on track to achieve our full year guidance
Our 2015 strategy has evolved to reflect changing markets
Execution of our strategy has strengthened the Group’s foundations and is beginning to drive growth
Detailed plans, focused on operating margin and capital efficiency and supported by cost savings of £50m, to deliver improved financial returns
We expect to deliver ROCE in the mid teens in 2020, with potential for further improvement thereafter
We have built a strong platform to improve returns
38Results Presentation August 2018
Aggreko is a customer focused specialist provider of power, temperature control and energy services on a global basis. These services are based on modular and mobile equipment operated on a digital platform with a market leading integration capability.
38Results Presentation March 2018
39Results Presentation August 2018
Appendix
40Results Presentation August 2018
Foreign exchange impact
Note: UAE Dirhams included within US Dollar as it is pegged to the US dollar; Argentinian Peso includes Power Solutions Utility contracts which are pegged to the US Dollar but paid and reported in Argentinian Pesos.
FX RATES REVENUE (£m)
FY17average
July 2018 FYF average
FY17 actual
FY17 Restated at
July 2018 FYF average
rates Variance % Variance
US Dollar 1.29 1.35 814 780 (34) (4)%
Euro 1.14 1.13 209 211 2 1%
Australian Dollar 1.68 1.78 77 73 (4) (6)%
Argentinian Peso 21.36 33.01 64 42 (22) (35)%
Brazilian Real 4.12 4.82 216 185 (31) (15)%
Canadian Dollar 1.67 1.74 23 22 (1) (4)%
Russian Rouble 75.19 82.31 76 69 (7) (9)%
Other 219 207 (12) (5)%
Total revenue 1,698 1,589 (109) (6)%
Total operating profit 224 202 (22) (10)%
41Results Presentation August 2018
Disclaimer
The information contained in this presentation has largely been extracted from the Results Announcement for thesix months ended 30 June 2018.
This presentation may contain certain “forward-looking” statements. By their nature, forward-looking statementsinvolve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and resultsmay differ materially from any outcomes or results expressed or implied by such forward-looking statements. Anyforward-looking statements made by or on behalf of Aggreko speak only as of the date they are made and norepresentation or warranty is given in relation to them, including as to their completeness or accuracy or the basison which they were prepared.
This presentation is published solely for information purposes.
The distribution of this presentation in jurisdictions other than the UK may be restricted by law and therefore anypersons who are subject to the laws of any jurisdiction other than the UK should inform themselves about, andobserve, any applicable requirements.
All opinions expressed in this presentation are subject to change without notice and may differ from opinionsexpressed elsewhere.