introduction to aggreko presentation
TRANSCRIPT
Introduction to Aggreko
March 2016
Overview
2
Investment Case
Our History
Where We Operate
Our Equipment
Rental Solutions
Power Solutions
Strategy
Financial Information
Shareholder Information
Further Information
3
Investment Case Twangiza Mine, DRC
The leading global provider of modular, mobile power
and related solutions
4
Customers in c.100 countries use us when the need is urgent or for a limited period
Services are asset-intensive, often involve significant engineering input and are frequently in response to emergencies
Two business units:
• Rental Solutions rents power and temperature control equipment to a broad range of users across developed markets
• Power Solutions sells electricity, supplying and operating utility power plants to government utilities and other key sectors in emerging markets
2015 Highlights (pre exceptional items)
Revenue £1,561m
PBT £252m
D-EPS 71.7p
DPS 27.1p
ROCE 16%
Power Fleet 9,818 MW
Employees 7,300
Reasons to invest in Aggreko
5
Market
• Structural power shortfall in emerging markets
• Increased sector penetration in developed markets
• Diversified product and sector portfolio
Competitive
advantage
• People & culture
• Expertise
• Scale
• Technology
Strategy • Clearly defined business priorities – Customer, Technology, Efficiency
• Path to return to growth
• Focused on margins and returns
Shareholder
returns
• Priority is to invest for long term growth
• Through self-help we will balance revenue growth with support to margins and returns
6
Our History London 2012, Olympics
History of the Group
7
Founded in
the
Netherlands
1962
Became a
wholly owned
subsidiary of
Salvesen
Group
1984
UK business
established in
Scotland
1973
Entered the
US market
through the
acquisition of
Electric
Rental
Systems
1986
Entry into Asia
Pacific region
with
acquisition of
Yeow Kong
Electrical
Company in
Singapore
1989
Entered the
temperature
control rental
business
through the
acquisition of
Mobile Air and
Pierce
Industrial in
the US
1987
Demerged
from Salvesen
Group and
listed on the
LSE
1997
Acquisition of
Power Plus
Rentals Ltd,
Canada
2008
Acquired GE
Energy
Rentals
2006
Acquisition of
N.Z.
Generator
Hire Ltd, New
Zealand
2011
Acquisition of
Poit Energia
in Brazil
2012
Established
Aggreko
International
Projects
(Power
Projects) in
Jebel Ali
2000
Acquisition of
Northland
Power
Services and
entry into US
shale market
2010
Acquisition of
Cummins
India
2009
Acquisition of
ICS Group in
Canada
2015
8
Where We Operate Manufacturing, UAE
A global business
9
Serving customers in c.100 countries at any time
Rental Solutions
Revenue £618m
Trading Profit £100m
Service Centres & Offices 128
Power Fleet (MW) 2,225
Temperature control fleet (MW) 1,017
Power Solutions
Revenue (ex fuel) £883m
Trading Profit (ex fuel) £171m
Service Centres & Offices 76
Power Fleet (MW) 7,593
Temperature control fleet (MW) 279
Industrial £299m
Utility (ex fuel) £584m
Balanced geographic spread
10
24%
14%
10% 19%
14%
19%
North America
Europe
Middle East
Africa
Asia & Australasia
Latin America
Revenue £1,501m FY15 Group Revenue (excl. pass-
through fuel)
22%
Revenue by geography
11
Our Equipment
Narrow product range
12
Product Type Fleet Size
Key
Regions
FY15
Revenue
Power Gas & diesel
generators 5KW-
2MW; ancillaries. c. 20,700 units All £1,036m
Temperature
Control
Chillers; heaters;
air conditioners;
air handlers;
de-humidifiers;
cooling towers.
c. 5,100 units All £135m
Oil-free Air Electric and diesel
oil-free air
compressors. c. 500 units North
America £28m
Note: Revenue excludes service and pass-through fuel
In-house product development
13
Design and manufacture most of our equipment in-house using
major sub assemblies
Developed the Aggreko G3+
• Refurbishment from our existing G3 engine
• Produces 15% more power than a standard G3
• Optimised for Utility duty materially improved, market-leading
fuel consumption
• c. 75% of original cost
14
Rental Solutions Houston Refinery, USA
20%
18%
11% 10%
8%
7%
5%
5%
16%
Petrochemical and refining
Oil and gas
Events
Utilities
Services
Manufacturing
Contracting
Construction
Other
Rental Solutions
15
Keys to our competitive advantage
• Broad range of equipment
• Ability to deploy quickly
• Local reputation and brand Revenue £618m (41% of Group excl. fuel)
Key facts
Average contract value: £15k
Average contract duration: 45 days
Average installation time: Hours - days
Employees: 2,700
Power fleet (MW): 2,225
Temperature control fleet (MW): 1,017
Service Centres: 128 across 19
Countries
Application:
Power, temperature
control and oil-free
compressed air
FY15 Revenue by customer type
16
Major events Commonwealth Games 2014, Glasgow, UK
17
Commercial Manufacturing, USA
18
Shipping Belfast
19
Oil & Gas North America
Rental Solutions operates in growth markets
20
We have a leading competitive
position in our four main markets
(North America, Australia, UK,
Germany)
• Delivered strong performance in
key sectors where we have focused
attention
Further opportunity for growth
• Average GDP growth of c.2%* 2014-
2019 and key sectors growing ahead
of the market
• Gain market share and increase
sector penetration
• M&A and adjacencies
Expected Market Growth 2014-2019
Returns vs. Market Share
-5%
0%
5%
10%
North America UK Germany Australia
GDP Oil & Gas Mining Petrochem & Refining
France
UK
Australia
North America
Italy Spain
Benelux
Germany
RO
CE
Relative Market Share
* Source: IMF; Includes: Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland, UK, USA
Source: Aggreko, Bain
Source: IMF, IHS Global Insight
Rental Solutions competition
21
Aggreko is the only company with a global footprint
Customers have a choice to buy or rent; largest
competitors either general rental or equipment
manufacturers
Competitive environment has been stable
• Fierce local competition but no global competition
• Few local competitors are able to compete for large
scale or technically demanding work
We believe that we have a c.25% market share
Global
Aggreko
10-15 regional
Hertz, URI, Sunbelt, Speedy Hire, CAT
Hundreds of national
Thousands of local small businesses
Rental Solutions customer proposition
22
Fast deployment through proximity to customers
• Reliable in emergency situations
Fungible range of customised products
• Covering variety of size and applications (from marquee, to a mine)
• Optimised for use in extremes of temperature and altitude
• Access to global pool of fleet when required
In–house technical expertise enables us to handle larger scale and more
complex projects
Flexibility over duration – anything from 1 day
Maintenance and servicing handled by Aggreko
23
Power Solutions Utility, Mozambique
12%
59%
6%
5%
18% Oil & Gas
Utilities
Mining
Events
Other
Power Solutions
24
Keys to our competitive advantage
• Ability to quickly deploy large fleet capacity globally • Highly reliable, easily-transportable, standardised,
purpose-built equipment • Expertise in engineering, commercial, tax, logistics and
risk management
Revenue £883m (59% of Group excl. fuel)
Key facts
Average contract value: From £20k in Industrial to
£5m per annum in Utility
Average contract duration: A few months in Industrial
to 1 year in Utility
Average installation time: Days - months
Employees: 4,600
Power fleet (MW): 7,593
Temperature control fleet (MW): 279
Service centres: 76
Application: Power and temperature
control in Industrial
Base-load and peak-
shaving power in Utility
FY15 Revenue by customer type (excl. fuel)
25
95MW gas Myanmar
26
40MW diesel Guam
27
Industrial Oil Refinery, Tunisia
28
Oil & Gas Brazil
Demand Demand in developing
countries is growing;
growth in electricity
consumption driven by
industrialisation and
urbanisation.
Under-
Investment Under-investment in new
and replacement
permanent power has led
to frequent breakdowns
and damaging
power cuts.
Financing Capital markets are
unwilling to support long-
term infrastructure projects
in many developing
countries.
Developed
Markets De-carbonisation and
ageing infrastructure in
developed countries
requires $trillions in
investment.
Power Solutions market drivers
29
Power Solutions Industrial market is growing
30
Presence in largest developing
countries
• Scale presence in countries with
high GDP growth
Linked to power shortfall where
customers cannot rely on the grid
Opportunity for growth
• Average GDP growth of c.5%*
2014-2019 and key sector growth
• Gain market share and
create markets
• Increased sector penetration
• New country entry
-1%
0%
1%
2%
3%
4%
5%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
MENA Brazil Russia Average otherwith presence
(ex India &China)
Averagewith no
presence
US
D b
n
2014 GDP (USD bn)
CAGR 14 - 19
* Source: IMF; Includes: Argentina, Brazil, Chile, China, Colombia, India, Middle East, Nigeria, Peru, Poland, Romania, Russia, Singapore, South Africa and Turkey
GDP of Developing Countries with Aggreko Presence
Power Solutions Utility market grows as the power shortfall continues to increase
31
Demand is projected to grow faster
than supply
• Growth in shortfall has slowed in line
with slower GDP growth
• New generation has not prevented the
shortfall increasing
Expect c.6% Power Shortfall CAGR
Good market growth opportunity
• Sensitivity to GDP growth
• Market share gain
0
20
40
60
80
2008 2009 2010 2011 2012 2013 2014
GW
New Generation Capacity Shortfall
New Power Generation vs. Shortfall
Source: EIA; Platt's; Country Research; Economist; IMF; World Bank
2014 2015 2016 2017 2018 2019
Power Shortfall GDP (non OECD ex China)
Forecast Growth in Shortfall vs. GDP
CAGR
(14-19)
6%
5%
Source: EIA; Platt's; Country Research; Economist; IMF; World Bank
Power Solutions competition
32
• Only one other company that
competes globally
• There are c.10-15 CAT dealers that
operate standalone and compete for
power projects either locally or
regionally
• Difficult to operate efficiently without a
large homogenous fleet and
infrastructure to market, sell and
operate consistently across the world
• In some countries, e.g. Indonesia and
Brazil where there are long standing
power shortages, there are a number
of local competitors
Estimated market share
40%
25%
35% Aggreko
APR
Others
Power Solutions customer proposition
33
Speed
• Immediate solution to today’s problems
• Instant result, immediately felt by industry and consumers
Pay-as-you-go
• No need to raise capital for purchase
Modularity
• Distributed generation means that power can go where it is most needed
Flexibility
• No long-term commitment – send it away when you don’t need it
Low risk, proven solution, used by many countries
Technically extremely helpful to network operators
• Helps stabilise grid and supports other assets
Investment in gas has been a big success
34
• Proprietary Aggreko product, launched in 2006
• Higher margin, similar ROCE to diesel
• Cheaper fuel, lower emissions
• Expanded market by reducing cost / KWh
• Enabled us to operate as an Independent Power Producer
• Operates in both Local & Power Projects
0
50
100
150
200
250
300
350
400
2007 2008 2009 2010 2011 2012 2013 2014 2015
Power Solutions Utility Gas Revenue $m
35
Strategy Events, UK
Opportunity for growth in all our markets
36
RENTAL
SOLUTIONS
POWER SOLUTIONS
Industrial Utility
Market Drivers • GDP growth
• Propensity to rent
• Commodity cycle
• GDP growth
• Propensity to rent
• Commodity cycle
• Power shortfall
• GDP growth: 5% threshold
for conversion
Aggreko
Growth Drivers
• Market share gain
• Sector penetration
• M&A and adjacencies
• Market share gain
• Market creation
• Sector penetration
• New market entry
• Market share gain
• Increase conversion rates as
cost of generation falls
Competitive
Environment
• Stable • Increased competition • Increased competition
Market Growth
Rate
• 2% • 5% • 6%
Business priorities on track to deliver sustainable growth
37
We are enhancing our existing competitive advantages
Customer • Tailor sales and service channels to
customers
• Focus on key sectors
• Pursue adjacencies
• Evaluate bolt-on M&A opportunities
Technology • Work with our strategic partners to
develop market leading products
• Strengthen and expand strategic
partnerships
• Reduce the overall cost of power for
our customers
Efficiency
• Streamlining our cost base
• Optimising deployment of resources
• Improving processes and systems
• Initiatives underway covering account
management, market / sector specific strategies
and sales expertise
• Plan to enhance our CRM and provide a digital
platform for our customer
• ICS acquisition completed; building pipeline of
M&A opportunities
• Developing strategic relationships to support
product development
• More fuel efficient gas engine in field trial
• Plan to further improve efficiency of the G3+ diesel
engine
• Continue to evaluate HFO product offering
• On track to deliver £80m of cash savings by 2017
• Deploying new systems to optimise fleet utilisation,
fleet planning and allow remote monitoring
• Streamlining back office processes
• Improving efficiency of sites and project delivery
Priority
Status
Improving customer service
38
Rental Solutions
Global and national a/c management
Key sector focus
• Oil & gas, mining, petrochemical & refining
and events
Developing a digital offering for highly
transactional part of business
Adjacencies
• Temperature control
– Regional temperature control heads in place
– 80% power pull through
• Loadbanks offer a further opportunity
Customer
Global Account
Management
• Global & large customers
• Single point of contact
• Consistency of service
• Sector specific expertise
National Account
Management
• Large customers
• Single point of contact
• Consistency of service
• Sector specific expertise
Sector Focus • Tailored solutions
• Sector specific expertise
Digital • Online offering for transactional
customers
• Sales and service
Enhancing processes and systems
39
Rental Solutions
Deploy new systems and automation in the field
• Fleet optimisation and planning
• Remote monitoring of equipment (ARM, Louisiana;
deployment across Rental Solutions)
Enhance CRM database
• Customer requirements, history and service provision
Streamlining back office processes to increase efficiency
Efficiency
Bolt-on acquisitions a viable growth opportunity
40
Rental Solutions
Geographic, sector and adjacent product opportunities
Synergies from using our distribution network
Cross selling where adjacent products are added
Good track record of integrating businesses
we have bought
Strong balance sheet which affords us the flexibility
to move quickly
Acquisition of ICS in line with bolt-on M&A strategy
Customer
Optimising deployment of resources
41
Power Solutions
Reducing the cost base
• Removing duplication
• Rightsizing functional support
Optimising the depot footprint
• Assessing local presence
• Moving to a regional hub and spoke model to reduce overhead costs
Reducing the cost of equipment in some markets
• Equipment is over specified in a few markets
• Reviewing the use of locally assembled equipment
Improving efficiency of project delivery
• Different levels of site specification
• Reducing site mobilisation and operational costs
• Increased proportion of local workforce on site
Aggreko-related
GDP
Size of
Power Shortfall
GDP growth
rate
Propensity
to Rent
Rental
Rates
Local Regs
& Laws
Competitor
landscape
Criteria for Evaluation of
In-Country Presence
Efficiency
Using technology to reduce the total cost of power
42
Overall cost of power generation
is important
Small units provide flexibility,
mobility and modularity
Simple portfolio minimises
complexity
Strategic relationships support
product development
• Engine efficiency
0
25
50
75
100
125
150
175
200
CombinedCycle Gas
Turbine
Open CycleGas Turbine
AdvancedCoal
Next Gen Gas G3+
Mobile Permanent
Based on 100MW, 30 year project, running 6250 hours a year; assumes oil at $75/bbl
Source: Platts, EIA, Bain
Technology
Relative Cost of Power
($/MWh)
Power Solutions
Assessing other market opportunities
43
Power Solutions
Increasing gas availability is an opportunity
• Monetise stranded gas
• CNG/LNG is 60% premium to permanent power
(85% for diesel)
• CNG/LNG could expand the market
Emerging opportunities in renewables
• Solar/Diesel hybrid opportunities in remote areas
• Investigating how we can adapt energy storage for our
business model
Technology
Improving sales expertise and customer service
44
Power Solutions
Continue to build sales expertise for
complex projects
• Market approach
• Training and best practice sharing
• CRM investment
Global account management and key sector focus
• Utilities, oil & gas, mining, petrochemical & refining
Develop strategic partnerships
• Bridging to permanent power
• Service and repowering
Customer
Sales expertise • Increase technical capability
• Improve skills for complex
projects
• Best practice sharing
Global Account
Management
• Global & large customers
• Single point of contact
• Consistency of service
• Key sector focus
Partnerships • OEMs and other technology
providers
• Global bodies
Streamlining our cost base
45
Group
Reorganisation will remove duplication
• Regional structure led to duplication
• Streamlining our processes, improving customer service
Improving procurement practices
• New procurement organisation
• Defining global vs local purchasing
Improving project site efficiency
Identified £80m in savings
• One off cash costs of around £35m
• On track to deliver £80m savings by 2017
• Balance reinvestment for growth with margins and returns
Efficiency
Aggreko is a growth business
46
With a strong focus on margins and returns
Revenue
• Markets are forecast to grow between 2% and 6%
• We expect to grow faster than our markets over the medium term
Margins and Returns
• Self help measures identified to help mitigate macro headwinds
• Savings identified of £80m to be delivered by 2017
• One-off cash cost to achieve of c.£35m
• Balance reinvestment for growth with margins and returns
• Group margins and returns of around 20% in the medium term
• 2016 year of change in the business; margins and returns lower in
the short term
Capital Discipline will be maintained
• We will continue to be disciplined and flexible in our use of capital
47
Financial Information Wind Farm, Ireland
Solid financial performance in face of challenging
market conditions
48 (1) Underlying excludes pass-through fuel and currency translation.
£m (pre-exceptional
items) FY15 FY14
Reported
Change
Underlying
Change (1)
Revenue 1,561 1,577 (1)% (3)%
Revenue 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)%
Tax (69) (74) 7%
Profit after tax 183 215 (15)%
Diluted earnings
per share 71.7p 82.5p (13)%
Dividends per
share (declared) 27.1p 27.1p -%
Net Debt at period end 489 494
Revenue drop contained in face of
challenging markets
Margin pressure from low oil price,
Bangladesh contract extension and
debtor provisions
Dividend maintained in line with 2014
Exceptional charge of £26m (£16m cash)
to deliver first phase of business
priorities
£m (post-exceptional
items) FY15
Trading profit 244
Profit before tax 226
Profit after tax 162
Diluted earnings
per share 63.5p
2015: Revenues of £1,501m (ex-fuel) from
three product families
49
Why Power & Temperature Control?
Mission critical: availability, service and reliability more
important than price => strong margins
Fleet fungible between sector and geography => can
operate as a global business
Rental product is different to purchase product =>
differentiated offering
Long life of equipment => 10-year old equipment can get
same rate as new
Power Temperature Control Oil-free Air
Rental revenue £1,199m
(c.80% of total ex-fuel revenue) £1,036m / 87% £135m / 11% £28m / 2%
Gross Rental Assets £2,778m £2,337m / 84% £276m / 10% £71m / 3%
Fleet also includes ancillaries with a gross value of £94m / 3%
Diverse geographic spread and complimentary
business models
50
450
550
650
750
850
950
1,050
1,150
1,250
1,350
1,450
1,550
2011 2012 2013 2014 2015
Rental Solutions
Power Solutions
Total Group
0
50
100
150
200
250
300
350
400
2011 2012 2013 2014 2015
Rental Solutions
Power Solutions
Total Group
Revenue (ex. fuel) by Business (£m) Trading Profit (ex. fuel) by Business (£m)
Attractive returns on capital despite challenging
markets
51
• Returns are attractive, and
reflect relative risk profiles
• 2015 ROCE diluted by challenging
Power Solutions environment and
the oil and gas slowdown in North
America
• Power Solution peak return in 2011
driven by Japan & Military
10%
15%
20%
25%
30%
35%
40%
2011 2012 2013 2014 2015
Rental Solutions
Power Solutions
Group
Return on Capital Employed %
52
Shareholder Information Aggreko Service Centre, Jebel Ali
Shareholder information
53
Share Types
Ordinary: Listed on the LSE
Treasury: Shares purchased by the Company out of distributable reserves. They hold no voting or pre-emption rights and receive no dividends
Capital structure
Priority is to invest in the business. Excess capital will be returned to shareholders.
Dividend policy
Maintain dividend cover of c.3x earnings.
Market information
Listing: London
Ticker: AGK:LN
Market Cap: c.£2.2bn
ISC: 256m
Share price history
54%
31%
9%
6%
Our Shareholders
UK
N America
Europe (ex UK)
Rest of World
40 52 58 66 70 69
148
2
198
2010 2011 2012 2013 2014 2015
Shareholder returns (£m)
* Past performance is no indication of future performance; data correct at January 2016
0
500
1000
1500
2000
2500
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
AGK FTSE100 FTSE350 Bus. Serv.
54
Further Information Refining, USA
Further information
55
Business Information For further information about Aggreko,
please refer to the following:
Website: ir.aggreko.com/investors
Annual report:
ir.aggreko.com/investors/financial-reports
Investor Relations & Media app available for
iOS and Android devices
References All data correct as of 31 December 2015
unless otherwise stated
Stock market data from Reuters, January 2016
unless otherwise stated
Investor Relations Contact Tom Hull, Head of Investor Relations
Disclaimer
56
The information contained in this presentation has largely been extracted from
the Results Announcement for the year ended 31st December 2015.
This presentation may contain certain “forward-looking” statements. By their
nature, forward-looking statements involve risk and uncertainty because they
relate to future events and circumstances. Actual outcomes and results may
differ materially from any outcomes or results expressed or implied by such
forward-looking statements. Any forward-looking statements made by or on
behalf of Aggreko speak only as of the date they are made and no
representation or warranty is given in relation to them, including as to their
completeness or accuracy or the basis on 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 any persons who are subject to the laws of any
jurisdiction other than the UK should inform themselves about, and observe,
any applicable requirements.
All opinions expressed in this presentation are subject to change without notice
and may differ from opinions expressed elsewhere.