Aggreko sticks to guidance amid market challenges

Aggreko expects profits to fall 'slightly' this year. Picture: John Devlin
Aggreko expects profits to fall 'slightly' this year. Picture: John Devlin
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Temporary power provider Aggreko has suffered a 14 per cent slide in underlying revenues for the first three months of the year in the face of “challenging” conditions in a number of its markets.

However, the Glasgow-based group said its performance had been in line with its expectations and it was sticking to its guidance for annual profits to be “slightly lower” than last year.

Last month, Aggreko predicted a further fall in earnings for 2016 after revealing that pre-tax profits before one-off items fell by 13 per cent from 2014 to reach £252 million.

Delivering a trading update covering the three months ending 31 March, chief executive Chris Weston said: “Performance in this first quarter has been in line with our expectations.

“Whilst some of the markets we operate in continue to be challenging I am encouraged by the order intake to date. Our guidance for the full year, of profit before tax slightly lower than 2015, remains unchanged.”

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Revenues at the group’s rental solutions arm were down 9 per cent, hit by “softness” in North America and suffering in comparison with strong sales in the upstream oil and gas arena during the same period last year. However, Weston said the business experienced growth in other parts of the world and the mobilisation of generating capacity in response to a hydro shortage in Tasmania “will begin to have a positive impact on our performance from the second quarter”.

At its power solutions arm, which is focused on large-scale power projects and developing markets, revenues fell as “difficult” trading in Brazil and Chile offset growth in Africa, the Middle East and Russia.

Overall, Aggreko expects to spend about £250m on its fleet this year, down from £237m in 2015, with its investment focusing on more efficient gas and diesel engines.

Charlie Huggins, equity analyst at Hargreaves Lansdown, said: “Conditions in many of Aggreko’s markets remain difficult, but at least things don’t seem to be getting any worse.

“By making its equipment more energy efficient, for example, Aggreko hopes to reduce electricity costs for its customers, making it less likely they will switch to a cheaper local operator. In the near term, this extra investment will depress profitability and returns to shareholders.”

But he added: “The long-term prospects for Aggreko still look appealing. The power shortfall in emerging markets is forecast to grow at around 6 per cent per annum, albeit more slowly in 2015 and 2016, according to the company. Aggreko remains confident of out-growing its markets, whilst delivering margins and returns of around 20 per cent, once conditions improve.”