Aggreko warns of tough 2016 as profits drop
AGGREKO, the world’s biggest temporary power provider, has warned that the year ahead will be “difficult” as it posted a slide in first-half profits and said it would cut about 600 jobs amid the downturn in oil and gas markets.
The Glasgow-based group, which saw its shares plunge last month in the wake of a profit alert, said its business has been hit by civil war in Yemen and a slowdown in the North American energy sector.
Unveiling a 21 per cent drop in half-year profits, chief executive Chris Weston said the firm – which employs about 8,300 people around the world – would be cutting some 600 jobs and reducing capital expenditure on its fleet in a bid to save £80 million by 2017.
A shake-up of the business overseen by the former head of international downstream operations at Scottish Gas parent company Centrica, who took the helm at the start of the year, will include the “streamlining” of back-office processes and closing some depots.
However, Weston added that the impact on jobs in the UK would be “minimal”.
“2016 will be a year of change,” said Weston, who took the top job after former Aggreko boss Rupert Soames left to run outsourcing group Serco.
“The market environment that Aggreko faces has changed significantly in recent years and the company needs to adapt to the new landscape and maximise the opportunities available.”
His comments came as Aggreko reported pre-tax profits of £102m for the six months to the end of June, down from £130m a year earlier, despite revenues edging up 2 per cent to £781m.
Aggreko, which provides temporary power stations in developing economies and generators for large-scale events such as the Olympics, World Cup and recent European Games in Azerbaijan, said the tough market conditions mean that margins and returns will be lower in the short term.
In an unscheduled trading update last month, the group said it expected to deliver full-year pre-tax profits for 2015 of between £250m and £270m – down from the figure of £289m reported for 2014 and well below analysts’ previous forecasts of about £293m.
Following yesterday’s results, Investec analyst Andrew Gibb said: “What has become very clear over the past few years is that Aggreko’s end markets have changed. A focus on the customer, technology and efficiency is how the group intends to counter this change over the medium term.
“However, the benefits of this strategy will not be immediately felt and given the current trading headwinds, profit growth in 2016 is not a given and a further downward reset is likely.”
During the first six months of this year, Aggreko spent £138m on its fleet as it invested in gas-powered generators and refurbished its diesel units. It is forecasting fleet capital expenditure of £270m for the full year, down from an earlier figure of £300m.
Weston said: “The performance of the group in the first half was impacted by difficult trading conditions in a number of our markets, notably Bangladesh, and external factors, including the impact of a lower oil price and ongoing security concerns in Yemen.”
However, he insisted: “It is clear that although the market environment has changed, that our business model is sound and that we have good growth opportunities in each of our markets.
Shareholders will receive an interim dividend of 9.38p a share on 2 October, unchanged from last year.