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RNS Number : 8447Q
Aggreko PLC
03 March 2016
 



 

3 March 2016

 

Results for the twelve months ended 31 December 2015

Solid performance in face of challenging market conditions; good progress with business priorities

 

Group Performance

£m unless otherwise stated

2015 post-exceptional items

2015[1] pre-exceptional items

 

 

2014

Reported pre- exceptional items

Underlying[2]

pre- exceptional items







Group revenue

1,561

1,561

1,577

(1)%

(3)%

Group revenue excl. pass through fuel

1,501

1,501

1,529

(2)%

(3)%

Trading profit[3]

244

270

306

(12)%

(14)%

Trading margin

16%

17%

19%



Profit before tax

226

252

289

(13)%


Diluted earnings per share (p)

63.45

71.68

82.49

(13)%


Dividend per share (p)

27.12

27.12

27.12

-%


Return on capital employed[4]

15%

16%

19%



 

Group summary

·    Full year profit before tax of £252m in line with expectations set out at the half year

impacted by low oil price, Bangladesh contract extension and slower payments in two of our markets

·    Group revenue of £1.6bn, slightly down on the prior year

sector and geographic diversity largely offsets impact of low commodity prices and lower emerging market growth

·    Strong balance sheet from continued high cashflow generation and capital discipline whilst continuing to invest in fleet / technology

net debt to EBITDA[5] maintained at 0.9 times

·    Full year dividend maintained reflecting our continued confidence in the strength and prospects for the Group

·    Good progress on our three business priorities of the customer, technology and efficiency

initiatives underway covering account management, sales expertise and market & sector specific strategies

more fuel efficient gas product will be in the fleet in H2 2016

on target to deliver £80m cash savings by 2017 from reorganisation and procurement

·    New, focused organisational structure and management team in place and working well

 

Business unit performance

 

£m

 Revenue

Underlying

 

Trading Profit

 

Underlying


2015

2014


2015[1]

2014









Rental Solutions

618

616

-%

100

107

(9)%

Power Solutions







    Industrial

299

288

10%

45

32

44%

    Utility excl fuel

584

625

(11)%

126

170

(28)%

    Total excl fuel

883

913

(5)%

171

202

(17)%

 

Business unit highlights

 

Rental Solutions

·    Sector diversity offsets 25% decline in oil & gas revenues

2015 revenue in line with 2014

Eight out of twelve sectors grew, with particular strength in petrochemical & refining and events

·    Strong growth in temperature control; successful acquisition of ICS, a specialist heating business

·    Continue to generate good margins and returns, despite a challenging year

 

Power Solutions

 

Industrial

·    Good growth in key markets and improving margins and returns

·    Strong performances in the Middle East, Russia and Africa and successful delivery of the European Games

·    Brazilian market remains challenging but we have taken further action to reduce our cost base

 

Utility

·    Revenue decrease driven by Bangladesh and off-hiring of Panama contract

·    Order intake of 640MW (2014: 757MW, including 170MW peak shaving) reflecting lower growth in emerging markets

·    Year end order book over 40,000MW months, c.14 months' revenue at current run rate (2014: 8 months)

·    Good progress with key extensions in Argentina, Ivory Coast, Japan and Bangladesh

·    Payment challenges; in particular Yemen and Venezuela leading to $11m debtor provision increase

 

2016 Outlook

Our Power Solutions Utility business has started the year with a strong order book; a healthy prospect pipeline; 140MW of new orders; and the signing of a two year extension of our 148MW of diesel contracts in Japan.  We expect the level of contracts off-hiring in the year to go back up to a more normal level, of around 30%.  Due to the timing of contract start and end dates there will be a reduction in first half profits at a Group level. We continue to monitor the geopolitical situation in Yemen, Libya and Venezuela.

 

In our Power Solutions Industrial business we are seeing softer trading conditions in Singapore and some of our markets that are more exposed to the mining sectors. However year to date power volumes are up on the prior year, driven by continued good performances in the Middle East, Russia and Africa. 

 

The Rental Solutions business unit, in particular our North American business, has had a slow start to 2016 following a lower run rate exiting 2015 than we had expected and we are cautious on our outlook for this part of our business.

 

At a Group level we anticipate investing around £250 million on fleet capex, focussing on investment in our more fuel efficient gas and diesel engines; as ever we will maintain our capital discipline and flex this spend according to market conditions.  Overall, we expect profit before tax and exceptional items to be slightly lower than the prior year on a constant currency basis[6], in line with current consensus.

 

Chris Weston, Chief Executive Officer, commented:

"We have ended 2015 with a strong balance sheet, with net debt slightly down; as we continue to generate good levels of operating cashflow; and maintain discipline in our investment in new fleet. We have also maintained the full year dividend in line with last year, reflecting our continued confidence in the strength and prospects of the business which provides a much needed service to our customers. As we enter 2016 I am encouraged by the prospect pipeline we are seeing and pleased by the progress we are making with our business priorities."

 

 

Future Reporting

21 April 2016

Ex dividend date

22 April 2016

Record date to be eligible for the final dividend

28 April 2016

Annual General  Meeting  and Q1 Trading Update

24 May 2016

Final dividend payment

8 June 2016

Capital Markets day - technology

3 August 2016

Half year results for the year to 31 December 2016

 

Enquiries

 

Investors & Analysts

Tom Hull, Aggreko plc

+44 7876 478 272

Media

John Sunnucks / Liz Morley / Sam Cartwright, Bell Pottinger

+44 20 3772 2500

 

Analyst Presentation

 

A presentation will be held for analysts and investors today at 9am (GMT) at the London Stock Exchange. A live web-cast and a copy of the slides will be available on our website and investor relations app at www.aggreko.com/investors.

 

For a video of Chris Weston and Carole Cran discussing the 2015 results, please visit www.aggreko.com/investors.

 

 

OPERATING & FINANCIAL REVIEW

The trading results for the 12 months to 31 December 2015 are set out below. All numbers in this section are pre-exceptional items.

 

Group Trading Performance

 

Underlying Group revenue was down 3% on the prior year. Rental Solutions revenue was in line with last year with growth in the majority of our key sectors, particularly petrochemical & refining and events, offsetting the impact lower commodity prices had on our oil & gas and mining revenues. Power Solutions revenue was down 5%. Within this, our Industrial business grew strongly with revenues 10% higher driven by growth in our Middle East, Russian and African businesses. In contrast, trading conditions in Brazil remain difficult given the macro environment and we have taken steps to further reduce the cost base as a result. Power Solutions Utility revenue was down 11% driven by the renegotiation of our 325MW gas contract in Bangladesh and the off-hiring of our 104MW contract in Panama.      

 

Overall, the Group trading margin was 17% (2014: 19%). Rental Solutions margin was down slightly on last year driven by North American pricing and volumes in the oil & gas sector. Power Solutions margin was down three percentage points overall. Within this, Industrial was up four percentage points, reflecting the incremental benefit we get from major events. Utility margin was down five percentage points due to the contract renegotiation in Bangladesh and a higher debtor provision driven by slower payments, particularly in Venezuela and Yemen. The lower margin, as well as a slight increase in net operating assets, impacted the Group return on capital employed, which was 16% (2014: 19%).

 

The movement in exchange rates in the period had the translational impact of increasing revenue by £22 million and trading profit by £6 million. This was driven by the strength of the US dollar against Sterling partially offset by the weakness of the majority of our other major currencies against Sterling.

 

Earnings and Dividends

 

The Group delivered profit before tax of £252 million (2014: £289 million). Diluted earnings per share (DEPS) was 71.68 pence, 13% lower than the prior year.

 

Reflecting our continued confidence in the strength and prospects of the business, 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 (2014: 27.12 pence) per ordinary share; this equates to dividend cover of 2.6 times (2014: 3.0 times).

 

Cashflow and Balance Sheet

 

During the year, we generated an operating cash inflow of £461 million (2014: £498 million). We continued to manage our capital expenditure tightly and to adjust the amount we spend up or down in response to market conditions, whilst investing sustainably for the future. Fleet capital expenditure was £237 million (2014: £226 million), of which  £63 million was invested in our gas fleet and £29 million to refurbish our diesel fleet to the more fuel efficient, higher output G3+ engine, which now represents 13% of our Utility business diesel fleet.

 

Net debt was £489 million at 31 December 2015; £5 million lower than the prior year. This resulted in net debt to EBITDA of 0.9 times, maintaining it at the 2014 level.

 

Outlook

 

Our Power Solutions Utility business has started the year with a strong order book; a healthy prospect pipeline; 140MW of new orders; and the signing of a two year extension of our 148MW of diesel contracts in Japan.  We expect the level of contracts off-hiring in the year to go back up to a more normal level, of around 30%.  Due to the timing of contract start and end dates there will be a reduction in first half profits at a Group level. We continue to monitor the geopolitical situation in Yemen, Libya and Venezuela.

 

In our Power Solutions Industrial business we are seeing softer trading conditions in Singapore and some of our markets that are more exposed to the mining sectors. However year to date power volumes are up on the prior year, driven by continued good performances in the Middle East, Russia and Africa. 

 

The Rental Solutions business unit, in particular our North American business, has had a slow start to 2016 following a lower run rate exiting 2015 than we had expected and we are cautious on our outlook for this part of our business.

 

At a Group level we anticipate investing around £250 million on fleet capex, focussing on investment in our more fuel efficient gas and diesel engines; as ever we will maintain our capital discipline and flex this spend according to market conditions.  Overall, we expect profit before tax and exceptional items to be slightly lower than the prior year on a constant currency basis[7], in line with current consensus.

 

BUSINESS UNIT PERFORMANCE REVIEW

 

In June 2015 we announced a new organisation structure comprising the Rental Solutions and Power Solutions business units. This new structure took effect from 1 August 2015. The performance of these business units for the year ended 31 December 2015 is described below.

 


Revenue









Reported

Underlying


2015

2014

Change

Change[8]


£ million

£ million

%

%

Rental Solutions

618

616

-%

-%






Power Solutions





    Industrial

299

288

4%

10%

    Utility excl pass-through fuel

584

625

(7)%

(11)%


883

913

(3)%

(5)%

     Pass-through fuel

60

48

26%

17%


943

961

(2)%

(5)%

Group

1,561

1,577

(1)%

(3)%






Group excluding pass-through fuel

1,501

1,529

(2)%

(3)%






 


Trading profit









Reported

Underlying


2015

2014

Change

Change8


£ million

£ million

%

%

Rental Solutions

100

107

(7)%

(9)%






Power Solutions





    Industrial

45

32

41%

44%

    Utility excl pass-through fuel

126

170

(26)%

(28)%


171

202

(15)%

(17)%

     Pass-through fuel

(1)

(3)

53%

56%


170

199

(14)%

(17)%

Group

270

306

(12)%

(14)%






Group excluding pass-through fuel

271

309

(12)%

(14)%






 

Rental Solutions

 


 Reported

Reported

Reported

Underlying


2015

2014

Change

Change[9]


£ million

£ million

%

%

Revenue

618

616

-%

-%

Trading profit

100

107

(7)%

(9)%

Trading margin

16%

17%








 

Despite the considerable impact of a lower oil price our Rental Solutions business delivered a solid performance with underlying revenue in line with the prior year and trading profit declining by 9%.  Trading margin decreased by one percentage point to 16%.

 

Rental revenue decreased by 3% and services revenue increased by 6%. Within rental revenue power decreased by 7% and oil free air was down 8%. Offsetting this, we saw good growth in temperature control with revenues up 11%, reflecting our renewed focus on this adjacent product line.

 

Overall revenues in our North American business were in line with the prior year despite diesel and gas pricing and volume pressure in the oil & gas sector, where revenue was down 26% year on year.  Offsetting this was growth in many of the other key sectors we serve, particularly in events, and in petrochemical & refining, now our largest sector in North America, where revenue was up 25%, and the lower oil price acted as a stimulus.

 

Our Australia Pacific business continued to face difficult market conditions driven by persistently lower commodity prices and the impact this has had on our mining sector revenues. However, the rate of decline has slowed, with revenue down 5% in the year compared to a decrease of 18% in the previous year. Our business in New Zealand grew, driven by emergency response work from the cyclones which hit the country and the ICC World Cup.

 

Across Europe all countries have seen growth year on year. Our Continental European business saw revenues increasing 11% aided by good growth in Romania, Germany, Italy and the Netherlands. The Northern European business had a solid year with revenue increasing 4%. Our business in Northern Europe also felt the impact of a lower oil price, however the reduction in oil & gas revenue was offset by increases in the manufacturing, shipping and construction sectors.

 

Rental Solutions trading margin was 16% with the slight reduction being driven by the pricing pressure on our North American oil & gas business, to which we have responded by reducing costs and capital expenditure.  

 

Power Solutions

 


 Reported

Reported

Reported

Underlying


2015

2014

Change

Change[10]


£ million

£ million

%

%

Revenues





Industrial

299

288

4%

10%

Utility excl pass-through fuel

584

625

(7)%

(11)%

Pass-through fuel

60

48

26%

17%

Total

943

961

(2)%

(5)%






Trading profit





Industrial

45

32

41%

44%

Utility excl pass-through fuel

126

170

(26)%

(28)%

Pass-through fuel

(1)

(3)

53%

56%

Total

170

199

(14)%

(17)%






Trading margin





Total excl pass-through fuel

19%

22%



Industrial

15%

11%



Utility excl pass-through fuel

22%

27%








 

Overall our Power Solutions business saw revenues decline by 5% and trading profit decline by 17% on an underlying basis. Our Industrial business had a good year with underlying revenue up 10% and trading profit increasing 44%. Trading margin increased to 15% (2014: 11%). Our Utility business, however, had a challenging year with underlying revenue decreasing 11% and trading profit decreasing 28%. Trading margin was 5 percentage points lower at 22% (2014: 27%).

 

Underlying revenue in our Industrial business unit increased 10% with rental revenue up 12% and services revenue up 1%. On a geographic basis we saw strong growth in Africa where mining remains strong, and particularly in South Africa where the business is growing rapidly on the back of the worsening power outages and regular load shedding.  In Russia, despite the lower oil price, we continue to see good growth, particularly with our gas product as we benefit from a structural shift towards outsourcing.  In the Middle East we saw good growth in Saudi Arabia, Qatar, Oman and Turkey. However, revenue decreased in Kuwait and the UAE, whilst Iraq is a continued challenge from a security perspective. In Brazil, the economic environment remains difficult and elsewhere in Latin America the mining sector slowdown has impacted our businesses in Chile and Peru, although we did have a strong year in Argentina. In our Asia business we had a good performance in South Korea, however we faced more challenging conditions in Singapore and India.

 

We were also pleased to have successfully supplied power for the first European Games in Baku. In total, we provided 35MW of temporary power across the Games' fifteen venues and the International Broadcast Centre. The prior year comparatives include revenue from the World Cup in Brazil; excluding this from last year and revenue from the European Games in 2015, the year on year increase in revenue, in our Industrial business unit, was 7%.

 

Our Utility business saw underlying revenue decrease by 11% and trading profit by 28%. Trading margin decreased to 22% (2014: 27%). The decrease in revenue was driven by the renegotiation of our 325MW of gas contracts in Bangladesh where permanent power was brought on line; the off-hiring of our contract in Panama; and lower volumes on hire in Indonesia, Military and Yemen. The main reasons for the margin decline were the Bangladesh extension and a higher debtor provision driven by slower payment by a handful of customers, particularly in Venezuela and Yemen, partially offset by improved payments in Argentina.

 

Order intake for the year was 640MW (2014: 757MW); last year's comparative includes 170MW of lower rate, summer peak shaving work in Saudi Arabia and Oman, which did not repeat in 2015.   New contracts in 2015 included 150MW in Argentina, 95MW in Myanmar and 40MW in each of the Bahamas and Guam. With regards to contract extensions, we are pleased to have extended our contracts in Argentina, Ivory Coast, Japan and Bangladesh. At the year end, our order book was over 40,000MW months, the equivalent of 14 months' revenue at the current run-rate (2014: 8 months) and the highest level in recent times. 

 

FINANCIAL REVIEW

 

A summarised Income Statement for 2015 as well as related ratios are set out below.  

 




Movement


2015

2014

As

Underlying[11]


£m

£m

Reported

Change






Revenues

1,561

1,577

(1)%

(3)%

Revenues excl pass-through fuel

1,501

1,529

(2)%

(3)%

Trading profit

270

306

(12)%

(14)%

Operating profit

275

310

(11)%


Net interest expense

(23)

(21)

(8)%


Profit before tax

252

289

(13)%


Taxation

(69)

(74)

7%


Profit after tax

183

215

(15)%


Diluted earnings per share (pence)

71.68

82.49

(13)%







Trading margin

17%

19%

(2)pp


Underlying Trading margin

18%

20%

(2)pp


ROCE

16%

19%

(3)pp


Revenue (excluding pass-through fuel) to average gross rental assets

56%

62%

(6)pp


 

Currency Translation

 

The movement in exchange rates in the period had the translational impact of increasing revenue by £22 million and trading profit by £6 million. This was driven by the strength of the US dollar against Sterling, partially offset by the weakness of the majority of our other major currencies against Sterling compared to average rates in 2014 as shown in the table below. Currency translation also gave rise to a £68 million decrease in the value of net assets as a result of year on year movements in the exchange rates. Set out in the table below are the principal exchange rates which affected the Group's profits and net assets.

 


2015

2014

(per £ sterling)




Average

Year End

Average

Year End

Principal Exchange Rates





United States Dollar

1.53

1.48

1.65

1.55

Euro

1.38

1.36

1.24

1.27

UAE Dirhams

5.61

5.44

6.06

5.71

Australian Dollar

2.03

2.03

1.83

1.92

Brazilian Reals

5.10

5.87

3.87

4.18

Argentinian Peso

14.17

19.18

13.37

13.29

(Source:  Bloomberg)





 

Reconciliation of Underlying Growth to Reported Growth 

 

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

 


Revenue

Trading profit


 £ million

£ million

2014 - As reported

1,577

306

Currency

22

6

2014 pass through fuel

(48)

3

2015 pass through fuel

60

(1)

Underlying growth

(50)

(44)

2015 - As reported

1,561

270

As reported growth

(1)%

(12)%

Underlying growth

(3)%

(14)%

 

Exceptional Items

 

The definition of exceptional items is contained within Note 1 of the 2015 Annual Report & Accounts. An exceptional charge of £26 million before tax was recorded in the year to 31 December 2015 in respect of the Group's reorganisation and business priorities review. These costs include professional fees, severance costs, relocation costs and travel & expenses directly related to the reorganisation. The cash cost in the year was £16 million.

 

Interest

 

The net interest charge of £23 million was £2 million higher than last year reflecting higher average net debt year on year, and arrangement fees included in the 2015 interest number for facilities refinanced during the year. Interest cover, measured against rolling 12-month EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation), remained strong at 24 times (2014: 27 times) relative to the financial covenant attached to our borrowing facilities that EBITDA should be no less than 4 times interest.

 

Taxation

 

Total Taxes

In 2015, Aggreko's worldwide operations resulted in direct and indirect taxes of £194 million (2014: £178 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.  

 

Tax Charge

 

The Group's pre-exceptional effective corporation tax rate for the year was 27% (2014: 26%) based on a tax charge of £69 million (2014: £74 million) on a pre-exceptional profit before taxation of £252 million (2014: £289 million). 

 

Further information, including a detailed tax reconciliation of the current year tax charge, is shown at Note 10 in the Annual Report and Accounts.

 

 

Capital Structure & Dividends

 

The objective of Aggreko's strategy is to deliver long-term value to its shareholders whilst maintaining a balance sheet structure that safeguards the Group's financial position through economic cycles.  From an ordinary dividend perspective our objective is to provide a progressive, through cycle dividend, recognising the inherent lack of visibility and potential volatility of our business.

 

Subject to shareholder approval the proposed final dividend of 17.74 pence will result in a full year dividend of 27.12 pence (2014: 27.12 pence) per ordinary share, giving dividend cover (Basic EPS divided by full year declared dividend) of 2.6 times (2014: 3.0 times). 

 

Cashflow

 

The net cash inflow from operations during the year totalled £461 million (2014: £498 million). This funded capital expenditure of £254 million; in line with the prior year.  Of the £254 million, £237 million was spent on fleet of which £63 million was invested in our gas fleet and £29 million to refurbish our diesel fleet to the more fuel efficient, higher output G3+ engine.

 

Net debt of £489 million at 31 December 2015 was £5 million lower than the prior year. Net debt to EBITDA was maintained at 0.9 times, in line with our strategy of keeping financial leverage around one times. 

 

There was a £80 million working capital outflow in the year (2014: £73 million outflow) mainly driven by an increase in accounts receivable balances, particularly in our Power Solutions Utility business, where debtor days increased to 123 days (2014: 110 days) and an increase in inventory at our Manufacturing facility due to the timing of next generation gas engine purchases.  The Group monitors the risk profile and debtor position of all contracts regularly, particularly those in the Power Solutions Utility business, and deploys a variety of techniques to mitigate the risk of delayed or non-payment; these include securing advance payments, bonds and guarantees. The increase in debtor days reflects slower payments by our customers in Yemen and Venezuela. We have operated in both countries for a number of years and although neither customer contests that the debt is due the current security situation in the Yemen and the impact of a lower oil price in Venezuela has meant that payments have been slower.  In response to this the Power Solutions Utility debtor provision at 31 December 2015 of £48 million was £10 million higher than at 31 December 2014.  Our teams in both markets are working closely with the customers to resolve the issue.

 

Net Operating Assets

 

The net operating assets of the Group (including goodwill) at 31 December 2015 totalled £1,707 million, £17 million higher than 2014.  The main components of net operating assets are:-

 




Movement


£ million

2015

2014

Headline

Const Curr.[12]






Rental Fleet

1,049

1,086

(3)%

(3)%

Property & Plant

90

91

(1)%

1%

Inventory

189

163

16%

15%

Net Trade Debtors

320

326

(2)%

2%

 

A key measure of Aggreko's performance is the return (expressed as operating profit) generated from average net operating assets (ROCE).  The average net operating assets in 2015 were £1,682 million, up 3% on 2014.  In 2015, the ROCE decreased to 16% compared with 19% in 2014. This decrease was mainly driven by the reduction in trading margin in our Power Solutions Utility business.

 

Property, Plant and Equipment

 

Rental fleet accounts for £1,049 million, or around 92%, 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 8 years, with some classes of non-power fleet depreciated over 10 years. The annual fleet depreciation charge of £259 million (2014: £243 million) relates to the estimated service lives allocated to each class of fleet asset. Asset lives are reviewed regularly and changed if necessary to reflect current thinking on their remaining lives in light of technological change, prospective economic utilisation and the physical condition of the assets.

 

Acquisition of ICS Group, Inc. (ICS)

 

On 2 September 2015, the Group acquired substantially all of the trade and assets associated with, and used in connection with, the equipment rental business of ICS Group, Inc. (ICS), a specialist heating business headquartered out of Western Canada. The total consideration was £18 million and in the twelve months to July 2015, ICS had revenues of £9 million.

 

Shareholders' Equity

 

Shareholders' equity increased by £37 million to £1,115 million, represented by the net assets of the Group of £1,604 million before net debt of £489 million.  The movements in shareholders' equity are analysed in the table below:

 

Movements in Shareholders' Equity

£ million

£ million

As at 1 January 2015


1,078

Profit for the financial year post exceptional items

162


Dividend[13]

(69)


Retained earnings

Employee share awards


93

8

Issue of shares to employees under share option schemes


2

Return of value to Shareholders


(1)

Re-measurement of retirement benefits


4

Currency translation


(68)

Movement in hedging reserve


        - 

Other


       (1) 

As at 31 December 2015


1,115



 

The £183 million of post-tax profit (pre-exceptional items) in the year represents a return of 16% on Shareholders' equity (2014: 20%) which compares to an estimated Group weighted average cost of capital of 8%.

 

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 varieties of defined contribution schemes.   

 

Under IAS 19: 'Employee Benefits', Aggreko has recognised a pre-tax pension deficit of £2 million at 31 December 2015 (2014: £7 million) which is determined using actuarial assumptions.  The decrease in the pension deficit is primarily driven by an increase in corporate bond yields resulting in a higher discount rate which has decreased the value placed on the liabilities of the scheme.

 

The main assumptions used in the IAS 19 valuation for the previous two years are shown in Note 30 of the Annual Report & Accounts. The sensitivities regarding these assumptions are shown in the table below.

 

 



Deficit (£m)

Income statement cost (£m)





Assumption

Increase/(decrease)

Change

Change

Rate of increase in salaries

0.5%

(1)

-

Rate of increase in pensions

0.5%

(7)

(1)

Discount rate

(0.5)%

(14)

(1)

Inflation (0.5% increases on pensions increases, deferred revaluation and salary increases)

0.5%

(13)

(1)

Longevity

1 year

(3)

-

 

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 2015, these facilities totalled £891 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 2015, these stood at 24 times and 0.9 times respectively. The Group does not consider that these covenants are restrictive to its operations.  The maturity profile of the borrowings is detailed in Note 18 in the Annual Report & Accounts.

 

Net debt amounted to £489 million at 31 December 2015 (2014: £494 million) and, at that date, un-drawn committed facilities were £385 million.

 

Interest rate risk

The Group's policy is to manage the exposure to interest rates by ensuring an appropriate balance of fixed and floating rates. At 31 December 2015, £321 million of the net debt of £489 million was at fixed rates of interest resulting in a fixed to floating rate net debt ratio of 66:34 (2014: 62:38). 

 

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, Canadian Dollar, Mexican Peso, Brazilian Reals and Russian Ruble.

 

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 risks and uncertainties. Our job is to mitigate and manage these risks and the Board has developed a risk management framework which is described in the Annual Report and Accounts, alongside the principal risks and uncertainties which we believe could potentially impact the Group. These are summarised below:

 

·      Macroeconomic activity;

·      Market conditions;

·      Change management relating to our new business priorities;

·      Talent management and succession planning;

·      Competition;

·      Technology;

·      Cyber security;

·      Service delivery;

·      Security;

·      Health and safety;

·      Failure to conduct business dealings with integrity and honesty;

·      Exchange controls;

·      Exchange rate fluctuations;

·      Taxation;

·      Failure to collect payments or to recover assets.

 

During 2015, we saw an increase in risk in relation to a number of these factors.

 

·     

Macroeconomic activity: We continued to experience slower growth across emerging markets and have seen the impact of lower commodity prices, particularly oil, on our Rental Solutions business.

·     

Change management relating to our new business priorities: Given the comprehensive strategic review and reorganisation we have undertaken during 2015 this is a new risk as it is critical that the business successfully executes its business priorities.

·     

Talent management and succession planning: During the year the Group underwent a period of significant senior management and organisational change and as a consequence we consider that the risk of losing people has increased.

·     

Technology: During the year the decision was taken to halt further development of the high speed HFO product. Whilst this was disappointing, we still see a market opportunity for HFO and will continue to look for alternative options. Furthermore, as the product was dual fuel, running on diesel and HFO, there is no associated product obsolescence. We also began working on the next generation gas product which we expect to release into the fleet in 2016.

·     

Cyber security:  The incidence of cyber security breaches has increased globally over the last year. We are seeking external advice where appropriate and have sought to strengthen the governance we have in place with the appointment of an IT security lead and the formation of a cyber-security forum.

·     

Exchange controls: Lower commodity prices and the depreciation of emerging market currencies have resulted in some emerging market countries introducing or tightening exchange controls.

·     

Exchange rate fluctuations: In 2015, the impact of foreign exchange movements or transactions that are not in the functional currency of a subsidiary was driven by an appreciation in the US dollar and depreciation of emerging market currencies.

·     

Failure to collect payments or to recover assets: During the year, debtor days increased in our Power Solutions Utility business driven by slow payments by customers in Venezuela and Yemen; the provision also increased.

 

1 Unless otherwise stated all figures are pre-exceptional costs of £26 million. These exceptional costs relate to the Group reorganisation, details of which are explained in the Financial Review.

2 "Underlying" is defined as: adjusted for currency movements and pass-through fuel revenue from Power Solutions, where we provide fuel to our contracts in Mozambique on a pass-through basis. Pass-through fuel revenue in 2015 was £60m (2014: £48m) and the trading loss was £1m (2014: loss of £3m).

3 Trading profit represents operating profit before gain on sale of property, plant and equipment.

4 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.

5 EBITDA is defined as Earnings Before Interest, Tax, Depreciation and Amortisation

6 The constant currency impact is a headwind of £16 million applying the end of January 2016 spot rates, including the step devaluation of the Argentinian peso.  In relation to 2016 the Power Solutions Utility contracts in Argentina have contractual protection that offsets the impact of the devaluation.

7 The constant currency impact is a headwind of £16 million applying the end of January 2016 spot rates, including the step devaluation of the Argentinian peso.  In relation to 2016 the Power Solutions Utility contracts in Argentina have contractual protection that offsets the impact of the devaluation.

8 "Underlying" is defined as: adjusted for currency movements and pass-through fuel revenue from Power Solutions, where we provide fuel to our contracts in Mozambique on a pass-through basis.

9 Underlying excludes currency

10 "Underlying" is defined as: adjusted for currency movements and pass-through fuel revenue, where we provide fuel to our contracts in Mozambique on a pass-through basis.

11 "Underlying" is defined as: adjusted for currency movements and pass-through fuel revenue from Power Solutions, where we provide fuel to our contracts in Mozambique on a pass-through basis.

12 Constant currency takes account of the impact of translational exchange movements in respect of our businesses which operate in currency other than sterling.

13 Reflects the final dividend for 2014 of 17.74 pence per share (2014: 17.19 pence) and the interim dividend for 2015 of 9.38 pence per share (2014: 9.38 pence) that were paid during the year.

 

GROUP INCOME STATEMENT

For the year ended 31 December 2015

 



Total before

 

Exceptional





exceptional

items





items

(Note 5)




 

Notes

2015

£ million

2015

£ million

2015

£ million

2014

£ million







Revenue

1

1,561

     -

1,561

1,577

Cost of sales


 (676)

    (1)

(677)

(674)

Gross profit


885

(1)

884

903

Distribution costs


(429)

(4)

(433)

(407)

Administrative expenses


(186)

(21)

(207)

(190)

Other income


       5

       -

      5

      4

Operating profit

1

275

(26)

249

310

Net finance costs






- Finance cost


(25)

-

(25)

(23)

- Finance income


      2

      -

      2

      2

Profit before taxation


252

(26)

226

289

Taxation

2

  (69)

      5

  (64)

  (74)

Profit for the year


  183

  (21)

  162

  215













All profit for the year is attributable to the owners of the Company.





Basic earnings per share (pence)

4

71.73

(8.24)

63.49

82.57







Diluted earnings per share (pence)

4

71.68

(8.23)

63.45

82.49

 

GROUP STATEMENT OF COMPREHENSIVE INCOME 

For the year ended 31 December 2015

 





2015

£ million

2014

£ million







Profit for the year




  162 

  215

Other comprehensive (loss)/income:






Items that will not be reclassified to profit or loss






Remeasurement of retirement benefits (net of tax)




3

(3)

Items that may be reclassified subsequently to profit or loss






Cash flow hedges (net of tax)




 -

(3)

Net exchange losses offset in reserves (net of tax)




  (68)

    (9)

Other comprehensive loss for the year (net of tax)




  (65)

  (15)

Total comprehensive income for the year




    97

  200

 

GROUP BALANCE SHEET 

(COMPANY NUMBER: SC177553)

As at 31 December 2015

 




Notes

2015

2014






£ million

£ million









Non-current assets







Goodwill




118

130


Other intangible assets




16

18


Property, plant and equipment



6

1,139

1,177


Deferred tax asset



12

     30

      22






1,303

 1,347









Current assets







Inventories



7

189

163


Trade and other receivables



8

476

474


Cash and cash equivalents




48

37


Derivative financial instruments




1

5


Current tax assets




     33

      21






   747

    700









Total assets




2,050

 2,047









Current liabilities

 

 

 

 

 

 

Borrowings



9

(31)

(76)


Derivative financial instruments




(1)

(1)


Trade and other payables



10

(259)

(303)


Current tax liabilities




    (64)

    (67)


Provisions



11

      (8)

___   -






  (363)

  (447)









Non-current liabilities







Borrowings



9

(506)

(455)


Derivative financial instruments




(6)

(7)


Deferred tax liabilities



12

(58)

(53)


Retirement benefit obligation




      (2)

       (7)






  (572)

   (522)









Total liabilities




  (935)

   (969)









Net assets




 1,115

  1,078


 







Shareholders' equity







Share capital



13

42

42


Share premium




20

20


Treasury shares




(9)

(14)


Capital redemption reserve




13

13


Hedging reserve (net of deferred tax)




(4)

(4)


Foreign exchange reserve




(149)

(81)


Retained earnings




 1,202

   1,102


Total shareholders' equity




 1,115

   1,078


 

The financial statements on pages 17 to 32 were approved by the Board of Directors on 3 March 2016 and were signed on its behalf by:

 

 

K Hanna

C Cran

Chairman

Chief Financial Officer

 

GROUP CASH FLOW STATEMENT

For the year ended 31 December 2015

 


Notes

2015

2014




£ million

£ million







Cash generated from operating activities





Cash generated from operations

(i)

461

498


Tax paid


(91)

(77)


Interest received


2

2


Interest paid


 (26)

 (22)


Net cash generated from operating activities


 346

 401







Cash flows from investing activities





Acquisitions (net of cash acquired)

14

(18)

(4)


Purchases of property, plant and equipment (PPE)


(254)

(251)


Proceeds from sale of PPE

(i)

    17

     12


Net cash used in investing activities


(255)

(243)







Cash flows from financing activities





Net proceeds from issue of ordinary shares


2

3


Proceeds from long-term loans


454

448


Repayment of long-term loans


(452)

(335)


Net movement in short-term loans


(11)

10


Dividends paid to shareholders


(69)

(70)


Return of capital to shareholders


   (1)

 (198)


Net cash used in financing activities


 (77)

 (142)







Net increase in cash and cash equivalents


14

16


Cash and cash equivalents at beginning of the year


26

12


Exchange loss on cash and cash equivalents


   (8)

    (2)


Cash and cash equivalents at end of the year


   32

    26


 

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

For the year ended 31 December 2015

 


Note

2015

2014




£ million

£ million







Increase in cash and cash equivalents


14

16


Cash outflow/(inflow) from movement in debt


      9

   (123)


Changes in net debt arising from cash flows


23

    (107)


Exchange loss


  (18)

     (24)


Movement in net debt in year


5

(131)


Net debt at beginning of year


 (494)

  (363)


Net debt at end of year

9

 (489)

  (494)


 

GROUP STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2015

 

As at 31 December 2015

 

Attributable to equity holders of the Company
















Foreign




Ordinary

Share


Capital


exchange




share

premium

Treasury

redemption

Hedging

reserve

Retained

Total


capital

account

shares

reserve

reserve

(translation)

earnings

equity


£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million










Balance at 1 January 2015

42

20

(14)

13

(4)

(81)

1,102

1,078

Profit for the year

-

-

-

-

-

-

162

162

Other comprehensive (loss)/income:









Transfers from hedging reserve to revenue

 

-

 

-

 

-

 

-

 

(3)

 

-

 

-

 

(3)

Fair value gains on foreign currency cash flow hedge

 

-

 

-

 

-

 

-

 

2

 

-

 

-

 

2

Fair value gains on interest rate swaps

 

-

 

-

 

-

 

-

 

1

 

-

 

-

 

1

Currency translation differences (i)

-

-

-

-

-

(68)

-

(68)

Remeasurement of retirement benefits (net of tax)

 

  -

 

   -

 

   -

 

   -

 

   -

 

   -

 

3

 

3

Total comprehensive (loss)/income for the year ended 31 December 2015

 

 

  -

 

 

   -

 

 

   -

 

 

   -

 

 

   -

 

 

(68)

 

 

165

 

 

97

Transactions with owners:









Employee share awards

-

-

-

-

-

-

8

8

Issue of ordinary shares to employees under share option schemes

 

 

-

 

 

-

 

 

5

 

 

-

 

 

-

 

 

-

 

 

(3)

 

 

2

Return of capital to shareholders

-

-

-

-

-

-

(1)

(1)

Dividends paid during 2015

   -

   -

   -

   -

    -

   -

(69)

(69)


   -

   -

   5

   -

    -

   -

(65)

(60)










Balance at 31 December 2015

42

20

(9)

13

(4)

(149)

1,202

1,115

 

(i)

Included in currency translation differences of the Group are exchange losses of £18 million arising on borrowings denominated in foreign currencies designated as hedges of net investments overseas, and exchange losses of £50 million relating to the translation of overseas results and net assets.

 

GROUP STATEMENT OF CHANGES IN EQUITY

 

As at 31 December 2014

 

Attributable to equity holders of the Company
















Foreign




Ordinary

Share


Capital


exchange




share

premium

Treasury

redemption

Hedging

reserve

Retained

Total


capital

account

shares

reserve

reserve

(translation)

earnings

equity


£ million

£ million

£ million

£ million

£ million

£ million

£ million

£ million










Balance at 1 January 2014

49

20

(24)

6

(1)

(72)

1,162

1,140

Profit for the year

-

-

-

-

-

-

215

215

Other comprehensive (loss)/income:









Transfers from hedging reserve to revenue

 

-

 

-

 

-

 

-

 

(6)

 

-

 

-

 

(6)

Fair value gains on foreign currency cash flow hedge

 

-

 

-

 

-

 

-

 

2

 

-

 

-

 

2

Fair value gains on interest rate swaps

 

-

 

-

 

-

 

-

 

1

 

-

 

-

 

1

Currency translation differences (i)

-

-

-

-

-

(9)

-

(9)

Remeasurement of retirement benefits (net of tax)

 

  -

 

   -

 

   -

 

   -

 

   -

 

   -

 

(3)

 

(3)

 

Total comprehensive (loss)/income for the year ended 31 December 2014

 

 

   -

 

 

   -

 

 

   -

 

 

   -

 

 

  (3)

 

 

 (9)

 

 

  212

 

 

  200

Transactions with owners:









Employee share awards

-

-

-

-

-

-

3

3

Issue of ordinary shares to employees under share option schemes

 

 

-

 

 

-

 

 

10

 

 

-

 

 

-

 

 

-

 

 

(7)

 

 

3

Return of capital to shareholders

-

-

-

-

-

-

(198)

(198)

Capital redemption reserve

(7)

-

-

7

-

-

-

-

Dividends paid during 2014

   -

   -

   -

   -

    -

   -

  (70)

  (70)


  (7)

   -

   10

   7

    -

   -

 (272)

 (262)










Balance at 31 December 2014

   42

  20

(14)

  13

(4)

 (81)

  1,102

  1,078

 

(i)

Included in currency translation differences of the Group are exchange losses of £29 million arising on borrowings denominated in foreign currencies designated as hedges of net investments overseas, offset by exchange gains of £20 million relating to the translation of overseas results and net assets.

 

NOTES TO THE GROUP CASH FLOW STATEMENT

For the year ended 31 December 2015

 

(i) Cash generated from operating activities

 


2015

2014


£ million

£ million




Profit for the year

162

215

Adjustments for:



Exceptional items (Note 5)

26

-

Tax

64

74

Depreciation

277

259

Amortisation of intangibles

4

3

Finance income

(2)

(2)

Finance cost

25

23

Profit on sale of PPE (see below)

(5)

(4)

Share-based payments (i)

6

3

Changes in working capital (excluding the effects of exchange differences on consolidation):



Increase in inventories

(25)

(11)

Increase in trade and other receivables

(29)

(57)

Decrease in trade and other payables

(26)

(5)

Cash flows relating to exceptional items

  (16)

        -

Cash generated from operations

  461

   498

 

(i)

This relates to the employee share awards within the Statement of Changes in Equity excluding £2 million included as exceptional items (note 5).

 

In the cash flow statement, proceeds from sale of PPE comprise:

 


2015

2014



£ million

£ million






Net book amount

12

8


Profit on sale of PPE

     5

      4






Proceeds from sale of PPE

   17

    12


 

Profit on sale of PPE is shown within other income in the Income Statement.

 

NOTES TO THE ACCOUNTS

For the year ended 31 December 2015

 

Note 1

Segmental reporting

 

(a) Revenue by segment











 









          

EXTERNAL REVENUE


 










2015

2014


 










£ million

£ million


 

Power Solutions











 

     Industrial








299

288


 

     Utility









   644

   673


 










943

961


 

Rental Solutions








   618

   616


 

Group









1,561

1,577


 













 

(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 £1 million.

 

(ii)   In June 2015 the Group announced a new organisational structure comprising: Power Solutions - Industrial, Power Solutions - Utility and Rental Solutions. This new structure took effect from 1 August 2015. All prior year numbers have been restated in accordance with the new structure.

 

(iii)  Trading profit in table 1(b) below is defined as operating profit pre-exceptional items of £275 million (2014: £310 million) excluding gain on sale of property, plant and equipment of £5 million (2014: £4 million).

 













 

(b) Profit by segment

 













TRADING PROFIT

GAIN ON SALE OF PPE

OPERATING PROFIT


 




2015

2014


2015

2014


2015

2014


 




£ million

£ million


£ million

£ million


£ million

£ million


 













 

Power Solutions











 

     Industrial


45

32


1

-


46

32


 

     Utility



125

167


2

   2


127

169


 




170

199


3

2


173

201


 

Rental Solutions


100

107


2

   2


102

109


 

 

Operating profit  pre-exceptional items

 

270

 

306


 

5

 

   4


 

275

 

310


 

Exceptional items (Note 5)







(26)

     -


 

Operating profit  post-exceptional items






249

310


 

Finance costs - net







(23)

(21)


 

Profit before taxation







226

289


 

Taxation









(64)

(74)


 

Profit for the year







162

215


 













 

(c) Depreciation and amortisation by segment

 








 










2015

2014


 










£ million

£ million


 

Power Solutions











 

     Industrial








67

63


 

     Utility









128

119


 










195

182


 

Rental Solutions








  86

  80


 

Group









281

262


 

 

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

 









2015

2014









£ million

£ million

Power Solutions









     Industrial







50

76

     Utility








124

  78









174

154

Rental Solutions







  90

102

Group








264

256











Capital expenditure comprises additions of property, plant and equipment (PPE) of £254 million (2014: £251 million), acquisitions of PPE of £6 million (2014: £2 million), and acquisitions of intangible assets of £4 million (2014: £3 million).

 

(e) Assets/(liabilities) by segment

 












ASSETS


LIABILITIES






2015

2014


2015

2014






£ million

£ million


£ million

£ million











Power Solutions









     Industrial




435

487


(16)

(44)

     Utility





  891

  872


(182)

(170)






1,326

1,359


(198)

(214)

Rental Solutions




  660

  640


  (81)

  (95)

Group





1,986

1,999


(279)

(309)










Tax and finance payable



63

43


(126)

(125)

Derivative financial instruments


1

5


(7)

(8)

Borrowings




-

-


(521)

(520)

Retirement benefit obligation



        -

        -


    (2)

    (7)

Total assets/(liabilities) per balance sheet

2,050

2,047


(935)

(969)





















(f) Average number of employees by segment

 













2015

2014









Number

Number

Power Solutions









     Industrial







1,621

1,612

     Utility








2,297

2,000









3,918

3,612

Rental Solutions







2,515

2,500

Group








6,433

6,112





















(g) Reconciliation of net operating assets to net assets

 












2015

2014









£ million

£ million

Net operating assets






1,707

1,690

Retirement benefit obligation






(2)

(7)

Net tax and finance payable






   (63)

   (82)









1,642

1,601

Borrowings and derivative financial instruments




 (527)

 (523)

Net assets







 1,115

 1,078

 

Note 2

Taxation

 


2015

2014


Analysis of charge in year

£ million

£ million


Current tax expense:




- UK corporation tax

6

4


- Double taxation relief

      -

       -



6

4


- Overseas taxation

   78

     77



84

   81


Adjustments in respect of prior years:




- UK

(5)

-


- Overseas

    3

     (4)



    82

     77






Deferred taxation (Note 12):




- temporary differences arising in current year

(16)

(4)


- movements in respect of prior years 

     3

     1



69

74


Tax on exceptional items (i)

   (5)

      -



   64

   74


 

(i) Exceptional items are explained in note 5 and comprise costs of £26 million relating to the Group reorganisation and business priorities, £24 million of which are tax deductible and result in an exceptional credit of £5 million.

 

Variances between the current tax charge and the standard 20.3% (2014: 21.5%) UK corporate tax rate when applied to profit on ordinary activities for the year are as follows:

 


Total before







exceptional


Exceptional





items


items





2015


2015


2015

2014


£ million


£ million


£ million

£ million

Profit before taxation

252


(26)


226

289








 

Tax calculated at 20.3% (2014: 21.5%) standard UK corporate tax rate

 

 

51


 

 

(5)


 

 

46

 

 

62

Differences between UK and overseas tax rates

20


-


20

18

Permanent differences

(3)


-


(3)

(3)

Impact of deferred tax rate changes

-


-


-

(1)

Deferred tax assets not recognised

     -


      -


      -

    1

Tax on current year profit

68


(5)


63

77

Prior year adjustments - current tax

(2)


-


(2)

(4)

Prior year adjustments - deferred tax

    3


      -


     3

     1

Total tax on profit

  69


   (5)


   64

   74








Effective tax rate

27%


20%


28%

26%

 

Note 3

Dividends

 


2015

2015

2014

2014


£ million

per share (p)

£ million

per share (p)






Final paid

45

17.74

     46

    17.19

Interim paid

      24

    9.38

     24

     9.38


      69

  27.12

     70

   26.57

 

In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2015 of 17.74 pence per share which will absorb an estimated £46 million of Shareholders' funds.  It will be paid on 24 May 2016 to Shareholders who are on the register of members on 22 April 2016.

 

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

 


2015

2014




Profit for the year (£ million)

     162

    215




Weighted average number of Ordinary Shares in issue (million)

     256

    261




Basic earnings per share (pence)

  63.49

  82.57

 

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 year.  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.

 


2015

2014




Profit for the year (£ million)

    162

     215




Weighted average number of Ordinary Shares in issue (million)

256

     261

Adjustment for share options and B shares (million)

         -

          -

Diluted weighted average number of Ordinary Shares in issue (million)

    256

     261




Diluted earnings per share (pence)

 63.45

  82.49

 

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 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.

 




2015

2014




£ million

£ million

Profit for the year



162

215

Exclude exceptional items



     21

        -

Profit for the year pre-exceptional items



   183

   215






An adjusted earnings per share figure is presented below.








Basic earnings per share pre-exceptional items (pence)

71.73

82.57

Diluted earnings per share pre-exceptional items (pence)

71.68

82.49

 

Note 5

Exceptional items

 

The definition of exceptional items is contained within Note 1 of the 2015 Annual Report & Accounts. The exceptional charge in the year of £26 million before taxation relates to the Group reorganisation and business priorities review and comprises £15 million of employee related costs, £8 million of professional fees, £1 million of property related costs and £2 million of other costs. On a business unit basis this exceptional charge can be split into Rental Solutions £10 million, Power Solutions - Industrial £5 million and Power Solutions - Utility £11 million. Out of the £26 million the cash outflow in the year was £16 million with a provision of £8 million at 31 December 2015 and £2 million included within Employee Share awards within the Statement of Changes in Equity.

 

Note 6

Property, plant and equipment

 

Year ended 31 December 2015

 



Short


Vehicles,



Freehold

leasehold

Rental

plant &



properties

properties

fleet

equipment

Total


£ million

£ million

£ million

£ million

£ million

Cost






At 1 January 2015

77

20

2,599

89

2,785

Exchange adjustments

1

(1)

14

1

15

Additions

3

1

237

13

254

Acquisitions

 -

-

5

1

6

Disposals

   -

  (1)

  (77)

   (7)

  (85)




At 31 December 2015

 81

  19

2,778

    97

2,975







Accumulated depreciation






At 1 January 2015

23

13

1,513

59

1,608

Exchange adjustments

1

(1)

23

1

24

Charge for the year

3

2

259

13

277

Disposals

    -

  (1)

 (66)

  (6)

  (73)


  





At 31 December 2015

 27

  13

1,729

  67

1,836







Net book values :






At 31 December 2015

  54

   6

 1,049

30

1,139







At 31 December 2014

  54

   7

 1,086

30

1,177

 

Year ended 31 December 2014

 



Short


Vehicles,



Freehold

leasehold

Rental

plant &



properties

properties

fleet

equipment

Total


£ million

  £ million

£ million

£ million

£ million

Cost






At 1 January 2014

63

19

2,373

84

2,539

Exchange adjustments

2

-

68

-

70

Additions

12

2

226

11

251

Acquisitions

-

-

2

-

2

Disposals

      -

    (1)

   (70)

    (6)

   (77)




At 31 December 2014

   77

    20

2,599

    89

 2,785







Accumulated depreciation






At 1 January 2014

19

12

1,291

52

1,374

Exchange adjustments

2

-

42

-

44

Charge for the year

2

2

243

12

259

Disposals

      -

    (1)

   (63)

    (5)

   (69)







At 31 December 2014

   23

    13

1,513

    59

1,608







Net book values :






At 31 December 2014

   54

      7

1,086

    30

1,177







At 31 December 2013

   44

      7

1,082

    32

1,165

 

Note 7

Inventories

 


2015

2014


£ million

£ million




Raw materials and consumables

184

158

Work in progress

      5

        5


  189

    163

 

Note 8

Trade and other receivables

 




2015

2014




£ million

£ million






Trade receivables



384

381

Less: provision for impairment of receivables



  (64)

   (55)

Trade receivables - net



320

326

Prepayments



26

32

Accrued income



96

82

Other receivables



    34

     34






Total receivables



  476

   474

 

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

 

Note 9

Borrowings

 


2015

2014


£ million

£ million




Non-current



Bank borrowings

253

214

Private placement notes

  253

  241


  506

  455




Current



Bank overdrafts

16

11

Bank borrowings

    15

    65


    31

    76




Total borrowings

  537

   531




Short-term deposits

(19)

(7)

Cash at bank and in hand

  (29)

   (30)




Net borrowings

  489

   494

 

Overdrafts and borrowings are unsecured.

 

Note 10

Trade and other payables

 


2015

2014


£ million

£ million




Trade payables

77

82

Other taxation and social security payable

8

8

Other payables

63

78

Accruals

97

113

Deferred income

    14

      22


  259

    303

 

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

 

 

Note 11








 

 

Provisions

 







 








Reorganisation








£ million

At 1 January 2015






-

New provisions






8

Utilised







     -

At 31 December 2015





    8









Analysis of total provisions






Current







8

Non-current






     -

Total







    8

 

 

The provision for reorganisation comprises the estimated costs of the Group reorganisation and business priorities. The provisions are generally in respect of employee related costs, professional fees and property related costs. The provision is expected to be fully utilised by the end of 2016.

 

 

Note 12

Deferred tax

 

31 December 2015


 

 

At 1 January

2015

£ million

Credit/(debit) to income statement

2015

£ million

Debit to other comprehensive income

2015

£ million

 

Exchange differences

2015

£ million

 

At 31 December

2015

£ million



Fixed asset timing differences

(71)

11

-

(9)

(69)

Retirement benefit obligations

1

-

(1)

-

 -

Overseas tax on unremitted earnings

 -

(1)

-

-

(1)

Tax losses

18

1

-

-

19

Derivative financial instruments

1

-

-

-

1

Other temporary differences

    20

     2

      -

      -

    22


  (31)

   13

   (1)

   (9)

  (28)







31 December 2014







 

 

At 1 January

2014

£ million

Credit/(debit) to income statement

2014

£ million

 

Exchange differences

2014

£ million

 

Impact of rate reduction

2014

£ million

Deferred tax on acquisition

2014

£ million

 

At 31 December

2014

£ million



Fixed asset timing differences

(62)

(9)

 -

1

(1)

(71)

Retirement benefit obligations

1

 -

 -

 -

 -

1

Tax losses

13

5

 -

 -

 -

18

Derivative financial instruments

1

 -

 -

 -

 -

1

Other temporary differences

    19

     6

    (5)

     -

      -

    20


  (28)

     2

    (5)

     1

   (1)

  (31)

 

Note 13

Share capital

 

Following the return of capital using a B share structure in June 2014, the Group made a further purchase of B Shares on 5 May 2015 and completed a conversion of B Shares into Ordinary Shares and Deferred Shares on 28 May 2015.

 

The main terms of the further purchase and subsequent conversion of the B Shares were:

 

(i) On 18 March 2015 an offer was made to the holders of the 1,989,357 B Shares to purchase the B Shares for 75 pence each. This resulted in the purchase and subsequent cancellation of 1,778,422 B Shares on 5 May 2015 resulting in a cash payment from the Company of £1.3 million. As a result of this transaction £162k was transferred from B Shares to the capital redemption reserve being 1,778,422 shares at par value 9 84/775 pence. This left a total of 210,935 B Shares in issue.

 

(ii) On 28 May 2015 the Group converted all outstanding B Shares into 9,806 Ordinary Shares and 573,643,383,325 Deferred Shares of 1/306125 pence each. The ratio used for the conversion of B Shares to Ordinary Shares was 1 Ordinary Share for every 21.4 B Shares. This ratio was calculated on the basis of 1 Ordinary Share for every (M/75) B Share (Where M represents the average of the closing mid-market quotations in pence of the Ordinary Shares on the London Stock Exchange, as derived from the Official List for the five business days immediately preceding the Conversion Date). Fractional entitlements were disregarded and the balance of the aggregate nominal value of such shares were constituted by reclassifying B Shares as Deferred Shares of 1/306125 pence each, which have the same rights and restrictions as the Deferred Shares of 9 84/775 pence.

 

(iii) The B Share Continuing Dividend accrued in respect of the period between 28 May 2014 and 27 May 2015 was paid to holders of B Shares on 28 May 2015.

 

Note 14

Acquisitions

 

ICS Group Inc

 

On 2 September 2015 the Group completed the acquisition of the business and assets of the equipment rental business of ICS Group Inc. The purchase consideration, paid in cash was C$37 million (£18 million).

 

The revenue and operating profit included in the consolidated income statement from 2 September 2015 to 31 December 2015 contributed by ICS was £2 million and £nil respectively. Had ICS been consolidated from 1 January 2015, the consolidated income statement for the year ended 31 December 2015 would show revenue and operating profit of £10 million and £2 million respectively.

 

The acquisition method of accounting has been adopted and the goodwill arising on the purchase has been capitalised. Acquisition related costs of £1 million have been expensed in the period and are included within administrative expenses in the income statement.

 

The details of the transaction and fair value of assets acquired are shown below:

 








Fair value








£ million









Intangible assets






4

Property, plant & equipment





6

Inventories






  1

Net assets acquired





11

Goodwill







  7

Consideration per cash flow statement




18

 

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.

 

Notes:

 

1.

The above figures represent an abridged version of the Group's full Accounts for the year ended 31 December 2015, upon which the auditors have given an unqualified report.



2.

The Annual Report will be posted to all shareholders on 24 March 2016 and will be available on request from the Secretary, Aggreko plc, 8th Floor, 120 Bothwell Street, Glasgow, G2 7JS.  The Annual General Meeting will be held in Glasgow on 28 April 2016. 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 24 May 2016 to shareholders on the register at 22 April 2016.

 

Responsibility statement 

 

The Annual Report for the year ended 31 December 2015, which will be published on 24 March 2016, complies with the Disclosure and Transparency Rules in respect of the requirement to produce an Annual Financial Report. Ken Hanna, Chairman and Carole Cran, Chief Financial Officer, confirmed on behalf of the board that, to the best of their knowledge: 

 

·      the consolidated financial statements contained in the Annual Report for the year ended 31 December 2015, 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 2015 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.

 



 

 

 

 

 

 

 

 

 

 

 

 

 


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