Source - LSE Regulatory
RNS Number : 5962Q
Aggreko PLC
01 March 2021
 

 

 

RESULTS FOR THE TWELVE MONTHS

ENDED 31 DECEMBER 2020

1 MARCH 2021

Strong cash performance, markets recovering

Chris Weston, Chief Executive Officer, commented:

"Aggreko has demonstrated resilience, professionalism and the critical nature of its services through the pandemic and I am very proud of our performance this year. We quickly established near-term priorities: we looked after our people, maintaining high levels of engagement; supported our customers, achieving our highest Net Promoter Score to date; and maintained our financial strength, delivering a strong cash performance in 2020.  We enter 2021 well positioned for the recovery which we are seeing in our markets and this momentum supports our confidence in the business going forward. 

We have also set out our strategy for the energy transition, providing industry-leading commitments to be net zero by 2050, while achieving profitable growth and mid-teens ROCE in the medium-term. We are pleased with our progress in the transition to date, recently winning a solar-hybrid contract for a mine in Chile, and starting work on upgrading our Dumbarton facility into a hub for our net-zero initiatives. Reflecting the Board's confidence in the outlook for the business and our financial strength, we are proposing a final dividend for the year of 10 pence per share."

Results summary

 

£m

2020 pre-exceptional items¹

2020 exceptional items

2020 post-exceptional items

2019

Change pre- exceptional items

Underlying change²

pre-exceptional items

Group revenue

1,365

-

1,365

1,613

(15)%

(14)%

Operating profit/(loss)

136

(175)

(39)

241

(44)%

(40)%

Operating margin (%)

9.9

(12.8)

(2.9)

14.9

(5.0)pp

(4.4)pp

Profit/(loss) before tax

102

(175)

(73)

199

(49)%

(45)%

Diluted EPS (p)

21.8

(65.2)

(43.4)

50.7

(57)%

(54)%

Dividend per share (p)

15.00

-

15.00

9.38³

 

 

Operating cash inflow

521

-

521

628

 

 

Net debt

(380)

-

(380)

(584)

35%

 

ROCE (%)

7.5

(9.7)

(2.2)

11.2

(3.7)pp

(3.3)pp

¹Unless otherwise stated all figures are pre-exceptional costs of £175 million (£167 million post tax). These exceptional costs result from a detailed impairment review carried out during the year, as explained further on page 5 and in Note 3 to the Accounts.

²Underlying excludes exceptional items, pass-through fuel and currency.  A reconciliation between reported and underlying performance is detailed on page 10.

³2019 Interim dividend only

 

Group financial performance

·   Group revenue for the year was £1,365 million (2019: £1,613 million)

·   Underlying² revenue down 14% driven by the impact of COVID-19 and the lower oil price

·   Underlying² operating profit down 40% and an underlying decrease in operating margin of 4.4pp

·   Underlying² profit before tax of £102 million, slightly ahead of our initial guidance of £80-100 million

·     Strong operating cash inflow of £521 million, with a working capital inflow of £170 million reflecting good cash collections

·   Our continued capital expenditure discipline resulted in fleet capex of £186 million (2019: £189 million)

·   Group ROCE of 7.5% reflects the decrease in operating profit, partially offset by a reduction in net operating assets driven by working capital gains, investment discipline and the exceptional impairment

·   Strong liquidity and cash position, with a reduction in the net debt over the year of £204 million, and closing net debt to EBITDA of 0.9 times (2019: 1.0 times)

·   Proposed final dividend of 10.00 pence per share, reflecting the Board's confidence in the outlook for the business and our financial strength

 

Divisional headlines

Rental Solutions underlying² revenue was £693 million, down 16%, with underlying² operating profit of £102 million, down 22%, driven by the impact of COVID-19 and the lower oil price on key sectors such as oil and gas, petrochemical and refining and events. 

Power Solutions Industrial underlying² revenue was £362 million, down 13%, driven by most regions, and the majority of sectors. Underlying² operating profit of £18 million was down 70% reflecting the challenging trading environment in Eurasia and the Middle East. 

Power Solutions Utility underlying² revenue was £265 million, down 11%, with underlying² operating profit of £13 million, down 60%, driven by off-hires, the planned repricing on the Ivory Coast contract, and delays in mobilising secured contracts due to COVID-19.

Strategic highlights

In November 2020, we set out how we will evolve our business through the energy transition to remain a leader in the temporary energy market we serve, while improving returns to shareholders:

Our net zero commitments

·    By 2030, Aggreko will reduce the diesel fuel used in customer solutions by at least 50%; reduce local air quality emissions of our solutions by the same amount; and achieve net zero across our business operations

·    By 2050 or sooner, Aggreko and the services we provide will be net zero

We are focused on profitable growth

·    Revenue growth in our key sectors expected to be 5-10% p.a. over the medium term

·    Targeting high-teens operating margin in the medium term

Maintaining our target of mid-teens ROCE

·    £250-350m p.a. of disciplined capital investment to support the energy transition

·    Continuous improvement in working capital performance

We are making good progress

·   £79 million invested in lower emission assets during 2020

·   Deployed ~120 MW of hybrid applications across our sectors by the end of 2020

·   Secured hybrid contract pipeline of more than 150 MW, including a 10-year deal to deliver a 26 MW solar and thermal solution to the Salares Norte mine in Chile

·   Announced a £4.5 million upgrade to our Lomondgate production facility in Dumbarton, creating a future-energy hub that will play a key role in our transition to a low-carbon operation

·   Main initiatives underway across the business focused on accelerating our move to lower carbon technologies and cleaner fuels to deliver on our commitments

Recovery in our markets

We are encouraged by the recovery we are seeing in our markets, despite wider macro uncertainty. The positive momentum we have experienced in early trading, together with the work to date on our strategic initiatives, underpins our confidence in making progress in 2021, notwithstanding the recent strengthening of sterling. In Rental Solutions, we are seeing good recovery in a number of our key sectors, in Power Solutions the major contracts delayed by the pandemic are now mobilising, and our global events team is busy and progressing well with its preparations for the Tokyo Olympics. Reflecting this positive outlook, together with the Group's financial strength, the Board has proposed a final dividend for 2020 of 10 pence per share.

Business information

 

2020

2019

CHANGE

Average megawatts on hire (MW)

    6,008

   6,381

(6)%

Rental Solutions average megawatts on hire

1,328

1,444

(8)%

Power Solutions Industrial average megawatts on hire

    2,490

  2,532

(2)%

Power Solutions Utility average megawatts on hire

2,190

  2,405

(9)%

Total Power Solutions order intake (MW)

763

1,003

(24)%

Power Solutions Industrial (ex. Eurasia)

        193

  224

(14)%

Power Solutions Industrial (Eurasia only)

       274

282

(3)%

Power Solutions Utility

296

497

(40)%

Utilisation1

 

 

 

Rental Solutions

58%

58%

-

Power Solutions Industrial

67%

68%

(1.0)pp

Power Solutions Utility

71%

65%

6.0pp

Financial

 

 

 

Effective tax rate

45%2

35%

10pp

Fleet capex (£m)

186

189

(2)%

Fleet depreciation (£m)

227

265

(14)%

Average net operating assets (£m)

    1,795

2,150

(16)%

Net debt (£m)

(380)

    (584)

35%

1 Utilisation reflects the impairment of c.500 MW of fleet in 2020

2 Pre-exceptional items

 

Enquiries

Jill Sherratt, Aggreko plc +44 7814 077 690

Andy Rivett-Carnac, Headland +44 7968 997 365

Richard Foster, Aggreko plc +44 7989 718 478

Rosh Field, Headland +44 7515 187 426

 

Analyst and investor presentation

A results presentation webcast with Q&A will begin today at 08:30am for investors and analysts. This can be accessed on our website at www.plc.aggreko.com/investors.

         

 

 

OPERATING REVIEW

 

Our response to COVID-19

When the effects of the COVID-19 pandemic began to impact the worldwide economy, Aggreko's performance was on track to meet market expectations and our mid-teens ROCE target. The material effects of the pandemic on our business during 2020 included:

·      A sharp reduction in the oil price and the potential for this to be sustained for a prolonged period, impacting two of our key market sectors (oil & gas and petrochemical & refining);

·      Cancellation or postponement of events including, most significantly, the postponement of the Tokyo Olympic & Paralympic Games until the summer of 2021;

·      Reduced economic activity more generally as a result of a combination of the above;

·      Reduced liquidity and/or access to foreign currency for some of our customers;

·      Travel restrictions imposed to contain the virus, impacting the mobilisation and demobilisation of projects;

·      Increased freight and logistics costs as a result of the reduced supply available in the market;

·      An acceleration in the energy transition towards lower carbon solutions and technologies.

 

 

Despite the material impact on the business during 2020, we are now seeing signs of recovery across a number of our markets.  We expect 2021 to be a year of transition and to return to pre-COVID levels of activity in 2022.

 

The steps taken in response to the pandemic were immediate and effective, demonstrating the resilient and strongly cash generative nature of our business model, as well as the adaptability of our people.  We set out four near-term priorities to navigate the uncertainty, namely: looking after our people; maintaining our financial strength; supporting our customers; and emerging stronger. This approach enabled us to remain focused on our current business while continuing to strengthen our fundamentals, and we believe that we have exited the crisis stronger and better prepared for the future. This was evidenced in our November 2020 strategic update that set out our commitments to become a net-zero business while delivering long-term sustainable value for our shareholders. 

 

Group trading performance

Underlying2 Group revenue fell 14%, driven by the impact of COVID-19 and the lower oil price.  The oil and gas, petrochemical and refining, and events sectors were most heavily impacted, with our Rental Solutions business showing the most significant year on year revenue reduction of 16%. 

 

The underlying2 operating margin was 9.9% (2019: 14.9%), with decreases in all business units, most notably in Power Solutions Industrial and Power Solutions Utility. In Power Solutions Industrial the margin decreased 9.1 percentage points driven by difficult trading conditions in Eurasia and the year-on-year impact of the 2019 Rugby World Cup and the Tokyo Olympics in both 2019 and 2020. In Power Solutions Utility the margin decreased 6.0 percentage points, driven by project off-hires, the planned repricing on our Ivory Coast contract, and delays in mobilising secured contracts due to COVID-19. Underlying2 profit before tax was down 45% at £102 million, while diluted earnings per share (DEPS) was 21.8 pence (2019: 50.7 pence), down 54% on an underlying2 basis, due to a combination of the profit reduction and an increase in the Group's effective tax rate.

 

The Group's return on capital employed (ROCE) decreased to 7.5% (2019: 11.2%), reflecting the decrease in operating profit, partially offset by a reduction in net operating assets driven by working capital improvements, continued capital investment discipline and the impact of the exceptional impairment charge (which had an impact of c. 0.4 percentage points on ROCE). Fleet capital expenditure was £186 million (2019: £189 million), including £16 million relating to the Tokyo Olympics. Investment in lower emissions assets was £79 million, including £11 million for the renewal of our oil free air products with Tier 4 Final assets, £31 million supporting our next generation gas contract pipeline, and £13 million invested in battery storage assets for hybrid projects.

 

 

Reported financial performance

 

Throughout this release we use a number of 'adjusted measures' to provide a clearer picture of the underlying performance of the business. This is in line with how management monitors and manages the business on a day-to-day basis. These adjustments include the exclusion of:

·     Exceptional items - these are summarised below with detail in Note 3 to the accounts.

·     The translational impact of currency in comparing year on year performance - further information is on page 10.

Fuel revenue is separately reported for certain contracts in the Power Solutions Utility business in Brazil, where we manage fuel on a pass-through basis on behalf of our customers. The fuel revenue on these contracts is entirely dependent on fuel prices and the volume of fuel consumed, which can be volatile and may distort the view of the underlying performance of the business.

 

On a reported basis, Group revenue was down 15% on the prior year, with Rental Solutions down 16%, Power Solutions Industrial down 19% and Power Solutions Utility down 10%. The operating margin was a loss of 2.9% (2019: operating profit margin of 14.9%), within which the Rental Solutions margin was down 4.8 percentage points on a post-exceptional basis at 11.1%; the Power Solutions Industrial margin was down 21.0 percentage points on a post-exceptional items basis; and the Power Solutions Utility margin, excluding pass-through fuel and on a post-exceptional items basis, was down 49.9 percentage points.

 

Group ROCE post-exceptional items was (2.2)% (2019: 11.2%). Loss before tax and post-exceptional items was £73 million (2019: profit before tax of £199 million) and diluted earnings per share post-exceptional items was a loss of 43.4 pence (2019: 50.7 pence).

 

Exceptional items

As previously announced at our interim results, the Board considered the impact of the COVID-19 pandemic, the lower oil price and the consequent deterioration in the short to medium term economic outlook, as well as the acceleration in the transition to lower carbon technologies, and concluded that they presented impairment indicators for certain of the Group's assets. As a result, we completed a detailed review across all asset classes, which identified four specific areas for a non-cash exceptional impairment of £175 million, as summarised below:

 

·      Trade and other receivables (£67 million)

·      Property, plant & equipment (net of exceptional gain on sale of £3 million) (£55 million)

·      Inventory (£36 million)

·      Other intangible assets (£17 million)

 

The property, plant & equipment assets were impaired in the first half of 2020, however in the second half of the year we recovered some value for a small amount of the assets by way of sales proceeds, with a resultant exceptional gain on sale of £3 million.

 

Given the size and nature of these impairment charges, both individually and in aggregate, they have been treated as 'exceptional items' in the Financial Statements.  In addition, we have recorded an exceptional write‑down of £7 million in relation to the Group's deferred tax assets, which has been recorded as an exceptional item within the Group's overall exceptional tax credit of £8 million. There is no impact on cash flow from any of these exceptional impairment charges. The detail is in Note 3 to the accounts.

 

The exceptional impairment charge disclosed in our interim statement of £181 million has reduced to
£175 million due to exchange rate movements (£3 million) and a gain on sale of impaired property, plant & equipment (£3 million).

 

Cash flow and liquidity

During the year, cash generated from operations was £521 million (2019: £628 million). 

 

The decrease in operating cash flow is mainly driven by a £144 million decrease in EBITDA (pre-exceptional items) as a result of the operating profit decrease (explained on page 4).  There was a £170 million working capital inflow in the year (2019: £107 million inflow) comprising a £98 million inflow from trade and other receivables, a £83 million inflow from trade and other payables and a £11 million outflow from inventory. Further details on the working capital movements are provided on page 11.  Additionally, the Group incurred a £97 million outflow due to mobilisation (fulfilment assets) and demobilisation activities (2019: £72 million outflow), primarily related to the Japan Olympics as well as contracts in Brazil, Kurdistan and Russia. Capital expenditure in the year was £204 million (2019: £230 million), of which £186 million (2019: £189 million) was spent on fleet assets. 

 

Net debt (including £90 million of a lease creditor) at 31 December 2020 was £380 million, £204 million lower than the prior year. Net debt to EBITDA was 0.9 times (2019: 1.0 times), and undrawn committed facilities were £552 million.

 

The Group continues to maintain sufficient committed facilities to meet its normal funding requirements over the medium term. At 31 December 2020, these committed facilities totalled £881 million, in the form of committed bank facilities, arranged on a bilateral basis with a number of international banks, and US private placement notes. It has been the Group's custom and practice to refinance its committed facilities in advance of their maturity dates, providing that there is an ongoing need for those facilities. $175 million of US private placement notes that were due to mature in March 2021 were pre-paid on 31 December 2020.  £87 million of committed facilities mature in 2021.

 

For the purposes of the Group's going concern assessment, we have stress-tested our cash flow forecasts and, even in the severe but plausible worst-case scenario, the Group expects to comply with the financial covenants in its committed debt facilities and to meet its funding requirement over the twenty one months from the date of approval of this report and ending 31 December 2022, without refinancing. Consequently, the Directors are confident that it is appropriate for the going concern basis to be adopted in preparing the financial statements.

Dividend

In line with steps taken to preserve the Group's cash position through the COVID-19 pandemic, the Board withdrew its recommendation to pay the 2019 final dividend at its AGM in April 2020 and will not be revisiting this decision. The Board is proposing a final dividend for 2020 of 10.00 pence (2019: nil). This will result in a full year dividend of 15.00 pence (2019: interim dividend of 9.38 pence) per Ordinary Share, giving dividend cover (basic EPS pre-exceptional items divided by the full year proposed dividend) of 1.5 times. This dividend proposal reflects the Board's confidence in the outlook for the business, together with the Group's strong cash flow performance and financial position. Retained earnings of the Company as at 31 December 2020 were £387 million and the majority of these earnings are distributable.

 

RENTAL SOLUTIONS

 

Revenue £m

 

 

2020

2019

Change

Underlying change2

 

 

 

 

 

 

693

823

(16)%

(16)%

 

Operating profit £m

 

20201

pre-exceptional

items

 

 

Exceptional items

2020 post-exceptional items

 

 

2019

Change pre- exceptional items

Underlying change2

pre- exceptional items

Operating profit

102

(25)

77

132

(23)%

(22)%

 

 

 

 

 

 

 

Operating margin %

14.7%

(3.6)%

11.1%

15.9%

(1.2)pp

(1.2)pp

 

 

 

 

 

 

 

ROCE

14.3%

(3.5)%

10.8%

16.7%

(2.4)pp

(2.5)pp

 

·      Underlying2 revenue down 16% and operating profit down 22% as the oil and gas, petrochemical and refining and events sectors have been heavily impacted by COVID-19 and the low oil price environment

·      Operating margin of 14.7%, down 1.2 percentage points on an underlying2 basis

·      ROCE of 14.3%, an underlying2 decrease of 2.5 percentage points, reflecting the decrease in profitability, partially offset by lower net operating assets driven by the impairment and an improved working capital position

 

North American underlying2 revenue was down 17% on the prior year. The deterioration in market conditions, as a result of the COVID‑19 pandemic and the lower oil price, has been compounded by a strong comparator in the prior year. The most significant reductions were in the oil and gas and events sectors: oil and gas, which accounts for 15% of revenue, was down 50%; while events, albeit a much smaller sector, experienced a
51% drop in revenue. Encouragingly, we saw good growth in utilities, in addition to revenue earned from the storms in the second half. Excluding the oil and gas sector, power volumes across North America were up 21% year on year driven by storm response jobs.  

 

Our Continental European business underlying2 revenue decreased 17% reflecting, in part, work in response to power shortages in Belgium during the prior year. Excluding this, revenue was down 12%, with the reduction predominantly driven by the events sector, which was heavily impacted by COVID-19 and included the FIFA Women's World Cup in France in the prior year.  

 

Underlying2 revenue in Northern Europe was down 16%, primarily reflecting the impact of the COVID-19 pandemic across the region with most sectors down against the prior year, although partially offset by work to support the UK's medical response to the pandemic.

 

In our Australia Pacific business, underlying2 revenue decreased 1%.  COVID-19 has had a more limited impact in this region, due in part to the slightly longer average contract length across our mining projects. This includes the successful commissioning during 2020 of the Granny Smith mine project in Western Australia, one of the world's largest hybrid microgrids utilising solar, battery storage and gas technology. Our transactional business in Australia Pacific was more impacted by the pandemic, although this was offset in part by revenue during the bush fire season early in the year.

 

Overall across Rental Solutions, we held the decline in our operating margin on an underlying2 basis to
1.2 percentage points, as we benefited from the implementation of various cost saving initiatives, including reductions in temporary employment, service material, annual salary review and bonus and other discretionary costs.  In addition, we recorded a £9 million gain on sale of assets as part of our ongoing disposal and depot review programmes.

 

POWER SOLUTIONS

 

Revenue £m

 

 

2020

2019

 Change

Underlying change2

Industrial

362

444

(19)%

(13)%

Utility excl. pass-through fuel

265

319

(17)%

(11)%

Pass-through fuel

45

27

65%

117%

 

Operating profit £m

 

20201 pre-exceptional items

Exceptional items

 

 

2020 post-exceptional items

 

 

 

 

2019

 

Change pre- exceptional items

Underlying change2

pre- exceptional items

 

 

 

 

 

 

 

Industrial

18

(40)

(22)

65

(73)%

(70)%

Utility excl. pass-through fuel

13

(110)

(97)

43

(70)%

(60)%

Pass-through fuel

3

-

3

1

118%

186%

 

 

 

 

 

 

 

OPERATING MARGIN %

 

 

 

 

 

 

Industrial

4.9%

(11.2)%

(6.3)%

14.7%

(9.8)pp

(9.1)pp

Utility excl. pass-through fuel

4.9%

(41.5)%

(36.6)%

13.3%

(8.4)pp

(6.0)pp

 

 

 

 

 

 

 

ROCE

 

 

 

 

 

 

Industrial

3.3%

(7.9)%

(4.6)%

10.4%

(7.1)pp

(6.6)pp

Utility excl. pass-through fuel

2.4%

(19.8)%

(17.4)%

5.8%

(3.4)pp

(2.3)pp

 

Power Solutions Industrial

·    Underlying² revenue down 13% and operating profit down 70%. Excluding the 2019 Rugby World Cup and the Tokyo Olympics in both 2019 and 2020, underlying revenue was down 12% and operating profit declined 65%, driven by a more challenging trading environment in Eurasia and the Middle East

·   Operating margin at 4.9% was down 9.1 percentage points on an underlying² basis driven by a reduction in profitability in our Eurasia oil and gas business and reduced activity across the events sector in other regions

·      ROCE of 3.3% was down 6.6 percentage points on an underlying² basis

·     Power Solutions Industrial order intake remained resilient with 467 MW secured (2019: 506 MW), including 274 MW in Eurasia (2019: 282 MW)

 

Power Solutions Utility

·    Underlying² revenue was down 11% and operating profit down 60%, primarily due to known off-hires and the planned repricing of our Ivory Coast contract, together with delays in mobilising secured projects

·      ROCE of 2.4% was down 2.3 percentage points on an underlying² basis

·     Order intake of 296 MW was down on the prior year (2019: 497 MW) due to a reduced level of tendering activity and delays due to the pandemic, somewhat offset by a higher level of project extensions

 

 

·     

Power Solutions Industrial

Power Solutions Industrial underlying2 revenue decreased 13%.  Excluding the 2019 Rugby World Cup and the Tokyo Olympics in both 2019 and 2020, underlying revenue declined 12%.  Revenue was down in most regions, and across the majority of sectors, with the Middle East down 19%, Asia 22%, Eurasia 9% and Latin America 7%.  Africa grew 2%, driven by the manufacturing sector in Nigeria and Angola.  In Eurasia, the impact of the pandemic and low oil price compounded the already competitive environment across the region, putting further pressure on rates, particularly in gas.

 

Overall Power Solutions Industrial operating margin was 4.9%, a decrease of 9.1 percentage points on the prior year.  The most significant reduction in profitability was in our Eurasia business, which experienced the revenue impact outlined above, alongside increased costs due to the devaluation of the Rouble and project mobilisation delays related to the pandemic.

 

Power Solutions Industrial order intake for the year was 467 MW (2019: 506 MW), including 274 MW in Eurasia (2019: 282 MW).

 

Power Solutions Utility

Power Solutions Utility saw underlying2 revenue decrease 11%, primarily due to off-hires in Brazil, Benin, Angola, and Madagascar, and also reflecting the planned rate reduction in the Ivory Coast and delays in mobilisation of secured projects and new project awards due to COVID-19. However, these impacts were partially offset by on‑hires in Brazil (PIE-A), Mexico and Gabon. The operating margin of 4.9% (2019: 13.3%) largely reflects flow-through from the off-hires and the Ivory Coast re-pricing, partially offset by cost savings, including our previously announced cost reduction programme and various other cost saving initiatives taken in response to the pandemic.

 

Average megawatts on hire in this business were 2,190 (2019: 2,405), reflecting an overall reduction in diesel projects across Africa.  The overall off-hire rate for Power Solutions Utility was 26% (2019: 33%). Order intake was 296 MW (2019: 497 MW), including 165 MW in Iraq.  Contract extensions have been strong with 875 MW of work secured, particularly within Africa and Latin America. Since the beginning of the pandemic, due to travel and border restrictions in a number of territories, we have faced challenges in the mobilisation of new work.  This has resulted in delays in our ability to generate revenue and also, in some cases, has increased the level of mobilisation assets held on our balance sheet in the short term.

 

Managing the trade receivables in our Power Solutions Utility business continues to be a major focus, with active engagement with our customers a key priority.  While we have continued to maintain good cash collections during the period in relation to our more recent and current contracts, the more challenging outlook post COVID-19 for a number of our older contracts resulted in an increase in the overall level of the Power Solutions Utility bad debt provision at 31 December 2020 to £115 million (December 2019: £61 million). This increase is primarily driven by the exceptional impairment of £56 million as detailed in Note 3 to the Accounts.

 

FINANCIAL REVIEW

 

Currency translation

The movement in exchange rates in the period had the translational impact of decreasing revenue by £56 million and operating profit by £18 million. Currency translation also gave rise to a £83 million decrease in the value of the Group's net assets.  Set out in the table below are the principal exchange rates which affected the Group's profit and net assets.

 

PRINCIPAL EXCHANGE RATES

2020

2019

(PER £ STERLING)

 

 

 

 

AVERAGE

YEAR

AVERAGE

YEAR

 

 

END

 

END

United States Dollar

1.28

1.37

1.28

1.31

Euro

1.13

1.11

1.14

1.17

UAE Dirhams

4.72

5.02

4.69

4.80

Australian Dollar

1.86

1.77

1.83

1.88

Brazilian Reals

6.60

7.09

5.03

5.30

Argentinian Peso

90.63

114.94

61.10

78.28

Russian Rouble

92.71

102.70

82.61

80.94

           

 

Reconciliation of reported to underlying results

The tables below reconcile the reported and underlying revenue and operating profit movements:

 

Revenue

£m

RENTAL SOLUTIONS

INDUSTRIAL

UTILITY

GROUP

 

2020

2019

CHANGE

2020

2019

CHANGE

2020

2019

CHANGE

2020

2019

CHANGE

As reported

693

823

(16)%

362

444

(19)%

310

346

(10)%

1,365

1,613

(15)%

Pass-through fuel

-

-

 

-

-

 

(45)

(27)

 

(45)

(27)

 

Currency impact

-

(3)

 

-

(26)

 

-

(20)

 

-

(49)

 

Underlying

693

820

(16)%

362

418

(13)%

265

299

(11)%

1,320

1,537

(14)%

 

Operating profit/(loss)

 

£m

RENTAL SOLUTIONS

INDUSTRIAL

UTILITY

GROUP

 

2020

2019

CHANGE

2020

2019

CHANGE

2020

2019

CHANGE

2020

2019

CHANGE

As reported

77

132

(41)%

(22)

65

(135)%

(94)

44

(314)%

(39)

       241

(117)%

Pass-through fuel

-

-

 

-

-

 

(3)

(1)

 

(3)

(1)

 

Currency impact

-

(1)

 

-

(7)

 

-

(10)

 

-

(18)

 

Exceptional items

25

-

 

40

-

 

110

-

 

175

-

 

Underlying

102

131

(22)%

18

58

(70)%

13

33

(60)%

133

222

(40)%

Notes:

1.     The currency impact is calculated by taking the 2019 results in local currency and retranslating them at the 2020 average rates.

2.     The currency impact line included in the tables above excludes the currency impact on pass-through fuel in Power Solutions Utility, which in 2020 was £7 million on revenue and £nil on operating profit.

 

Interest

The net interest charge of £34 million was £8 million lower than the prior year, primarily due to a reduction in average net debt during the period. Interest cover, measured against rolling 12-month EBITDA (earnings before interest, taxes, depreciation and amortisation), remained strong at 12 times (2019: 13 times).

 

Taxation

Tax charge

Per the Group income statement on page 16 the Group's effective pre-exceptional corporation tax rate for the year was 45% (2019: 35%) based on a tax charge of £46 million (2019: £70 million) on a pre-exceptional profit before tax of £102 million (2019: £199 million).  The increase in the Group's effective tax rate in 2020 is largely due to the geographic mix of taxable profit. Many of our projects are subject to withholding tax on gross revenue rather than corporate tax on PBT so the level of ETR associated with these projects remains high despite the fall in associated profits. The Group's effective post-exceptional corporation tax rate for the year was 52% (2019: 35%) based on a tax charge of £38 million (2019: £70 million) on a post-exceptional loss before tax of £73 million (2019: profit of £199 million). 

 

Total cash taxes

In 2020 the Group's worldwide operations resulted in direct and indirect taxes of £232 million
(2019: £272 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.  

 

Cash flow

During the year cash generated from operations was £521 million (2019: £628 million).  The decrease in operating cash flow is mainly driven by a £144 million decrease in EBITDA (pre-exceptional items) as a result of the operating profit decrease explained on page 4.  There was a £170 million working capital inflow in the year (2019: £107 million inflow) comprising a £98 million inflow from trade and other receivables, a £83 million inflow from trade and other payables and a £11 million outflow from inventory. There was a £97 million outflow relating to mobilisation (fulfilment assets) and demobilisation activities (2019: £72 million outflow), primarily due to the Japan Olympics, as well as contracts in Brazil, Kurdistan and Russia. 

 

The decrease in trade and other receivables of £98 million includes a £41 million decrease in Rental Solutions (2019: £5 million increase), a £24 million decrease in Power Solutions Utility (2019: £93 million decrease) and a £33 million decrease in Power Solutions Industrial (2019: £10 million increase). While obviously reflecting lower revenue, we have also made good progress in improving our invoicing and cash collection processes within Rental Solutions this year, resulting in improved working capital efficiency across this business.

 

The increase in inventory of £11 million is primarily driven by cable purchased for the Tokyo Olympics and the movement in trade and other payables reflects increased deferred revenue for the Tokyo Olympics (following further milestone payments received in the year).

 

Fleet capital expenditure was £186 million (2019: £189 million). Within this, £69 million was invested in Rental Solutions, primarily in relation to the ongoing renewal of our oil free air (OFA) and temperature control (TC) fleet, and £117 million in Power Solutions, which included £16 million related to the Tokyo Olympics and
£26 million on next generation gas (NGG) sets
.

 

Net operating assets

The net operating assets of the Group (following the impairment and including goodwill) at 31 December 2020 totalled £1,577 million, £420 million lower than 31 December 2019.  The decrease on the prior year is driven by the net impairment of £175 million (as explained on page 5) and a £72 million decrease due to the impact of exchange rates as well as working capital improvements and continued capital investment discipline. The main components of net operating assets are detailed below.

 

 

£m

 

2020

 

2019

 

MOVEMENT

 

MOVEMENT EXCLUDING

THE IMPACT OF CURRENCY

 

 

 

 

 

Goodwill/intangibles/investments

197

227

(13)%

(8)%

Rental fleet

793

939

(15)%

(11)%

Property & plant

203

227

(11)%

(8)%

Working capital (excl. interest creditors)

206

496

(58)%

(59)%

Fulfilment asset & demobilisation provision

121

72

68%

85%

Cash (incl. overdrafts)

57

36

57%

58%

Total net operating assets

1,577

1,997

(21)%

(18)%

 

A key measure of Aggreko's performance is the return (expressed as underlying operating profit) it generates from its average net operating assets (ROCE). We calculate ROCE by taking the underlying operating profit (pre-exceptional items) for the year and expressing it as a percentage of the average net operating assets at 31 December, 30 June and the previous 31 December.  ROCE decreased to 7.5%, compared with 11.2% in 2019. This decrease is explained in more detail on page 4.

 

Property, plant and equipment

Our rental fleet accounts for £793 million, which is around 80% of the net book value of the Group's property, plant and equipment. The majority of equipment in the rental fleet is depreciated on a straight-line basis to a residual value of zero over eight years, with some classes of rental fleet depreciated over 10 and 12 years. The annual fleet depreciation charge of £227 million (2019: £265 million) reflects the estimated service lives allocated to each class of fleet asset.  Asset lives are reviewed at the start of each year and changed, if necessary, to reflect their remaining lives in light of technological change, prospective economic utilisation and the physical condition of the assets.  As noted on page 5 the Group incurred a net impairment charge of £55 million on total property, plant & equipment. This is explained in Note 3 to the Accounts

 

Shareholders' equity

Shareholders' equity decreased by £212 million to £1,147 million, represented by the net assets of the Group of £1,527 million less net debt of £380 million.  The movements in shareholders' equity are analysed in the table below:

 

MOVEMENTS IN SHAREHOLDERS' EQUITY

 

 

 

 

£m

AS AT 1 JANUARY 2020

 

1,359

Loss for the period

 

(111)

Dividend

 

(13)

Employee share awards

 

(2)

Re-measurement of retirement benefits

 

(2)

Currency translation

 

(83)

Other

 

(1)

AS AT 31 DECEMBER 2020

 

1,147

 

Pensions

Pension arrangements for our employees vary depending on market practice and regulation in each country. The Group operated a defined benefit scheme for UK employees, which was closed to new employees joining the Group after 1 April 2002.  The Group closed the defined benefit scheme to future accrual from 31 December 2020. Most of the other schemes in operation around the world are defined contribution schemes.   

 

Under IAS 19: 'Employee Benefits', Aggreko has recognised a pre-tax pension surplus of £4 million at
31 December 2020 (2019: £4 million surplus) which is determined using actuarial assumptions. The pensions surplus is in line with the prior year, with the additional contributions paid by the Company during the year, together with the returns on assets, offset by the growth in liabilities which was driven by the fall in discount rates and an increase in inflation expectations.

 

The sensitivities regarding the main valuation assumptions are shown in the table below.

 

Assumption

POTENTIAL CHANGE INC./(DEC)

DEFICIT IMPACT (INC.) /DEC

(£m)

PROFIT IMPACT

(INC.)/DEC

(£m)

Discount rate

(0.5)%

(17)

-

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

0.5%

(13)

-

Longevity

1 year

(5)

-

 

Treasury

Liquidity and funding

The Group maintains sufficient facilities to meet its funding requirements over the medium term. 
At 31 December 2020 these facilities totalled £881 million, in the form of committed bank facilities, arranged on a bilateral basis with several international banks, and US private placement notes. 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 2020, these ratios were 12 times and 0.9 times respectively. The Group does not expect to breach these covenants in the year from the date of approval of these financial statements. 

 

Net debt (including £90 million of a lease creditor) amounted to £380 million at 31 December 2020
(2019: £584 million) and, at that date, undrawn committed facilities were £552 million.

 

Risks

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's policy is to manage its exposure to interest rates by ensuring an appropriate balance of fixed and floating rate debt. At 31 December 2020, £329 million of the gross debt of £397 million (excluding the lease creditor of £90 million) was at fixed rates of interest, resulting in a fixed to floating rate debt ratio of 83:17 (2019: 84:16).
 
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, to hedge net currency flows.  The Group's foreign currency exposure on the translation into Sterling of its net investments in overseas subsidiaries is managed using debt in the same currency as those investments.

 

The Group manages its credit risk on cash deposits and other financial instruments by limiting the aggregate amounts and their duration depending on external credit ratings of the relevant counterparty.

 

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 various risks and uncertainties. We seek both to prevent these risks from materialising and to mitigate their impact if they do arise.  The Board has developed a risk management framework to facilitate this. The principal risks that we believe could potentially affect the Group are summarised below:

·      Global macroeconomic uncertainty;

·      Talent management;

·      Climate change;

·      Technology developments;

·      Health and safety;

·      Cyber security;

·      Major contract cancellation;

·      Escalating sanctions; and

·      Failure to collect payments or to recover assets

This year, one risk was promoted to the Group's register of principal risks and three were demoted.

The one risk promoted to the Group's register this year was as follows:

·     Major contract cancellation:  The Olympics in Japan has been postponed until summer 2021.  There remains a risk that the Games could ultimately be cancelled because of COVID-19.

The scores of the following risks have fallen below the threshold for inclusion in the Group's Register of Principal Risks. In each case, additional controls have been put in place to reduce the likelihood of a risk event occurring.

·     Change management:  We have successfully introduced new systems to manage customer requirements and to allow us to deliver our services more efficiently. We are continuing to refine these systems and the associated business processes within our Rental Solutions business.

·    Market dynamics:  We have continued to improve our sector focus, sales capability and technology offerings.  Our greater concern has been the uncertainty caused by the impact of COVID-19 on global GDP.

·    Service delivery - major contractual failure:  The Group continues to operate large, and often technically complex, contracts around the world.  The severity of this risk fluctuates with the number, scale and scope of major contracts that we are delivering at any time. Among other large contracts, supporting the Japan Olympics is a key priority for 2021, with the associated risks gaining additional scrutiny as a result. Given the work already undertaken to prepare for delivery of the Games in 2020 we have reduced the score for this risk.

These risks remain on the risk registers of the relevant business units and corporate functions and, given their nature, will continue to be areas of focus for the Board.

 

UK withdrawal from the European Union

In 2020 we finalised our preparations to mitigate any potential impact of the UK's exit from the EU on our business. 

The end of the transition period on 31 December 2020 has not resulted in material disruption to Aggreko's supply chain or export of finished products so far.  Although the introduction of new customs rules on movement of equipment and tax legislation (and the associated system changes) at short notice has made shipments between the UK and EU slower, we are developing the expertise to deal with them. 

Likewise, in the area of product compliance, we have seen the introduction of new rules on how we must certify some of our products in relation to regulatory, safety or technical standards. In addition, the introduction of the new UK Conformity Assessed (UKCA) mark, which replaces the CE (Conformité Européenne) mark in the UK, has led us to develop our processes to dual mark our new products for both the UK and EU27 markets. In all of these areas, our teams have developed the knowledge and expertise to deal with these changes. While it is early days, and the detail of the Brexit legislation is still being worked through, we do not expect these changes to have a material impact on the Group's future performance as a large majority of its operations take place outside the UK and the EU. 

The Group earns approximately 5% of its revenue from the UK and 10% from EU markets. Demand for our services in these markets is, in part, GDP dependent.  A significant change in the GDP growth in these markets is likely to have a knock-on impact on our level of activity there.  We will continue to monitor the situation closely and refine our contingency plans as the situation develops.

Coronavirus

As soon as the COVID-19 pandemic was declared we identified four priorities: Looking after our people; Maintaining our financial strength; Supporting our customers; and Emerging stronger. With immediate actions implemented, we have been able to remain focused on our current business while continuing to strengthen our fundamentals, and we believe that we have exited the crisis stronger and better prepared for the future.

As the pandemic continues to evolve, our primary concern remains the welfare of our people, their families and the local communities in which we work. We have followed the development of the further COVID-19 outbreaks and have implemented measures to protect our people, to prepare for further possible consequences of the virus and to continue to provide service to our customers. 

In 2020 we learnt a lot about the impact of the pandemic on our business and how to manage it.  Although it is still unclear how the current outbreaks will develop, we are more confident forecasting business performance in this environment than we were at the beginning of the pandemic. We will continue to follow developments closely and will take further action to protect our people and business as appropriate.

The uncertainty arising from the pandemic and governments' responses to it has been reflected in our Group Register of Principal Risks.

 

Shareholder information

Our website can be accessed at www.plc.aggreko.com.  This contains a large amount of information about our business.  The website also carries copies of recent investor presentations, as well as London Stock Exchange announcements.

 

 

Chris Weston

Chief Executive Officer

 

 

Heath Drewett

Chief Financial Officer

 

1 March 2021

 

 

 

 

GROUP INCOME STATEMENT

 

FOR THE YEAR ENDED 31 DECEMBER 2020

               

 

 

TOTAL BEFORE

EXCEPTIONAL ITEMS

EXCEPTIONAL ITEMS

(NOTE 3)

 

 

 

 

2020

2020

2020

2019

 

NOTES

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Revenue

2

1,365

-

1,365

1,613

Cost of sales

 

(587)

(94)

(681)

(644)

Gross profit

 

778

(94)

684

969

Distribution costs

 

(432)

(2)

(434)

(482)

Administrative expenses

 

(206)

(17)

(223)

(249)

Impairment loss on trade receivables

9

(17)

(65)

(82)

(7)

Other income

 

13

3

16

10

Operating profit/(loss)

2

136

(175)

(39)

241

Net finance costs

 

 

 

 

 

- Finance cost

 

(38)

-

(38)

(46)

- Finance income

 

4

-

4

4

Profit/(loss) before taxation

 

102

(175)

(73)

199

Taxation

6

(46)

8

(38)

(70)

Profit/(loss) for the year

56

(167)

(111)

129

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

 

 

 

 

 

 

 

 

 

 

Basic earnings per share (pence)

5

 

 

(43.40)

50.80

Diluted earnings per share (pence)

5

 

 

(43.40)

50.70

 

GROUP STATEMENT OF COMPREHENSIVE INCOME

 

FOR THE YEAR ENDED 31 DECEMBER 2020

 

 

 

 

2020

2019

 

£ MILLION

£ MILLION

 

 

 

(Loss)/profit for the year

(111)

129

Other comprehensive (loss)/income

 

 

Items that will not be reclassified to profit or loss

    Remeasurement of retirement benefits

(2)

(1)

    Taxation on remeasurement of retirement benefits

-

-

Items that may be reclassified subsequently to profit or loss

   Cash flow hedges

(1)

1

   Net exchange losses offset in reserves

(83)

(75)

 

 

 

Other comprehensive loss for the year (net of tax)

(86)

(75)

 

 

 

Total comprehensive (loss)/income for the year

(197)

54

 

GROUP BALANCE SHEET
(COMPANY NUMBER: SC177553)

 

AS AT 31 DECEMBER 2020

 

 

 

 

 

 

 

2020

2019

 

NOTES

£ MILLION

£ MILLION

Non-current assets

 

 

 

Goodwill

 

165

177

Other intangible assets

 

23

41

Investment

 

9

9

Property, plant and equipment

7

996

1,166

Deferred tax asset

 

47

44

Fulfilment assets

8

59

54

Retirement benefit surplus

 

4

4

 

 

1,303

1,495

 

 

 

 

Current assets

 

 

 

Inventories

 

182

216

Trade and other receivables

9

462

659

Fulfilment assets

8

77

32

Cash and cash equivalents

 

107

87

Derivative financial instruments

 

2

1

Current tax assets

 

21

21

 

 

851

1,016

Total assets

 

2,154

2,511

 

 

 

 

Current liabilities

 

 

 

Borrowings

10

(68)

(59)

Lease liability

11

(32)

(33)

Derivative financial instruments

 

(1)

(1)

Trade and other payables

12

(439)

(388)

Current tax liabilities

 

(34)

(42)

Demobilisation provisions

13

(6)

(5)

 

 

(580)

(528)

 

 

 

 

Non-current liabilities

 

 

 

Borrowings

10

(329)

(511)

Lease liability

11

(58)

(68)

Deferred tax liabilities

 

(31)

(36)

Demobilisation provisions

13

(9)

(9)

 

 

(427)

(624)

 

 

 

 

Total liabilities

 

(1,007)

(1,152)

 

 

 

 

Net assets

 

1,147

1,359

 

 

 

 

Shareholders' equity

 

 

 

Share capital

 

42

42

Share premium

 

20

20

Treasury shares

 

(6)

(13)

Capital redemption reserve

 

13

13

Hedging reserve (net of deferred tax)

 

1

2

Foreign exchange reserve

 

(209)

(126)

Retained earnings

 

1,286

1,421

Total shareholders' equity

 

1,147

1,359

 

 

 

 

 

The financial statements on pages 16 to 37 were approved by the Board of Directors on 1 March 2021 and were signed on its behalf by:

 

Ken Hanna

 

Heath Drewett

Chairman

Chief Financial Officer

 

GROUP CASH FLOW STATEMENT

 

FOR THE YEAR ENDED 31 DECEMBER 2020

 

 

 

 

 

 

2020

2019

 

NOTES

£ MILLION

£ MILLION

Operating activities

 

 

 

(Loss)/profit for the year

 

(111)

129

Adjustments for:

 

 

 

Tax

 

38

70

Depreciation

 

278

315

Amortisation of intangibles

 

6

8

Exceptional - property, plant and equipment (PPE) impairment charge

3

58

-

Exceptional - Intangible asset impairment charge

3

17

-

Fulfilment assets

8

31

21

Demobilisation provisions

13

12

9

Finance income

 

(4)

(4)

Finance cost

 

38

46

Profit on sale of PPE (i)

 

(16)

(10)

Share-based payments

 

(2)

11

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

 

 

 

Decrease in inventories (ii)

 

25

8

Decrease in trade and other receivables (ii)

 

165

78

Increase in trade and other payables

 

83

21

Cash flows relating to fulfilment assets

8

(87)

(66)

Cash flows relating to demobilisation provisions

13

(10)

(6)

Cash flows relating to 2017 exceptional items

 

-

(2)

Cash generated from operations

 

521

628

 

    

 

 

Tax paid

 

(57)

(76)

Interest received

 

4

4

Interest paid (iii)

 

(46)

(46)

Net cash generated from operating activities

 

422

510

 

 

 

 

Cash flows from investing activities

 

 

 

Purchases of PPE

 

(204)

(230)

Purchase of other intangible assets

 

(6)

 (8)

Proceeds from sale of PPE

 

19

21

Net cash used in investing activities

 

(191)

(217)

 

 

 

 

Cash flows from financing activities

 

 

 

Increase in long-term loans

 

188

393

Repayment of long-term loans

 

(219)

(493)

Increase in short-term loans

 

12

2

Repayment of short-term loans

 

(139)

(127)

Payment of lease liabilities

 

(33)

(31)

Dividends paid to shareholders

 

(13)

(69)

Purchase of treasury shares

 

-

(4)

Net cash used in financing activities

 

(204)

(329)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

27

(36)

Cash and cash equivalents at beginning of the year

 

36

76

Exchange loss on cash and cash equivalents

 

(6)

(4)

Cash and cash equivalents at end of the year

 

57

36

         

i)              Profit on sale of PPE includes an exceptional gain of £3 million. Refer to Note 3.

ii)             Movements include an exceptional impairment for inventories (£36 million) and trade and other receivables (£67 million).  Refer to Note 3.

iii)            Interest paid of £46 million (2019: £46 million) includes £5 million relating to leases (2019: £5 million).

 

Cash flows for the purchase and sale of rental fleet assets are presented as arising from investing activities because the acquisition of new fleet assets represents a key investment decision for the Group, the assets are expected to be owned and operated by the Group to the end of their economic lives, the disposal process (when the assets are largely depreciated) is not a major part of the Group's business model and the assets in the rental fleet are not specifically held for subsequent resale.

 

 

 

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

 

AS AT 31 DECEMBER 2020

 

 

AT 1 JAN 2020

CASH FLOW

EXCHANGE

OTHER NON-CASH MOVEMENTS

At 31 DEC 2020

Analysis of changes in net debt

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Cash and cash equivalents

36

27

(6)

-

57

 

 

 

 

 

 

Current borrowings:

 

 

 

 

 

Bank borrowings

(8)

(9)

(1)

-

(18)

Private placement notes

-

136

-

(136)

-

Lease liability

(33)

33

2

(34)

(32)

 

(41)

160

1

(170)

(50)

 

 

 

 

 

 

Non-current borrowings:

 

 

 

 

 

Bank borrowings

(33)

31

2

-

-

Private placement notes

(478)

-

13

136

(329)

Lease liability

(68)

-

1

9

(58)

 

(579)

31

16

145

(387)

 

 

 

 

 

 

Net debt

(584)

218

11

(25)

(380)

 

 

 

 

 

 

Analysis of changes in liabilities from financing activities

 

 

 

 

 

Current borrowings

(41)

160

1

(170)

(50)

Non-current borrowings

(579)

31

16

145

(387)

Financing Derivatives

-

1

-

-

1

Total financing liabilities

(620)

192

17

(25)

(436)

Other non-cash movements include reclassifications between short-term and long-term borrowings, with £136 million being reclassified from non-current to current borrowings and £23 million from non-current to current lease liabilities.  The remaining balance is due to £20 million of new lease liabilities and £5 million of interest.   

 

AS AT 31 DECEMBER 2019

 

 

 

At 1 JAN 2019

IFRS 16 TRANSITION

CASH FLOW

EXCHANGE

OTHER NON-CASH MOVEMENTS

At 31 DEC 2019

Analysis of changes in net debt

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Cash and cash equivalents

76

-

(36)

(4)

-

36

 

 

 

 

 

 

 

Current borrowings:

 

 

 

 

 

 

Bank borrowings

(115)

-

105

2

-

(8)

Private placement notes

(20)

-

20

-

-

-

Lease liability

-

(31)

31

-

(33)

(33)

 

(135)

(31)

156

2

(33)

(41)

 

 

 

 

 

 

 

Non-current borrowings:

 

 

 

 

 

 

Bank borrowings

(134)

-

100

1

-

(33)

Private placement notes

(493)

-

-

15

-

(478)

Lease liability

-

(73)

-

2

3

(68)

 

(627)

(73)

100

18

3

(579)

 

 

 

 

 

 

 

Net debt

(686)

(104)

220

16

(30)

(584)

 

 

 

 

 

 

 

Analysis of changes in liabilities from financing activities

 

 

 

 

 

 

Current borrowings

(135)

(31)

156

2

(33)

(41)

Non-current borrowings

(627)

(73)

100

18

3

(579)

Total financing liabilities

(762)

(104)

256

20

(30)

(620)

Other non-cash movements include reclassifications between short-term and long-term borrowings, with £nil being reclassified from non-current to current borrowings and £24 million from non-current to current lease liabilities.  The remaining balance is due to £25 million of new lease liabilities and £5 million of interest.

 

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

 

FOR THE YEAR ENDED 31 DECEMBER 2020

 

AS AT 31 DECEMBER 2020

ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

 

 

 

ORDINARY

SHARE

CAPITAL

£  MILLLION

 

SHARE

PREMIUM

ACCOUNT

£ MILLLION

 

 

TREASURY

SHARES

£ MILLLION

 

CAPITAL

REDEMPTION

RESERVE

£ MILLLION

 

 

HEDGING

RESERVE

£ MILLLION

FOREIGN

EXCHANGE

RESERVE

(TRANSLATION)

£ MILLLION

 

 

RETAINED

EARNINGS

£ MILLLION

 

 

TOTAL

EQUITY

£ MILLLION

Balance at 1 January 2020

42

20

(13)

13

2

(126)

1,421

1,359

Loss for the year

-

-

-

-

-

-

(111)

(111)

Other comprehensive loss:

 

 

 

 

 

 

 

Fair value losses on foreign currency cash flow hedge

-

-

-

-

(1)

-

-

(1)

Currency translation differences (i)

-

-

-

-

-

(83)

-

(83)

Re-measurement of retirement benefits (net of tax)

-

-

-

-

-

-

(2)

(2)

Total comprehensive loss for the year ended 31 December 2020

-

-

-

-

(1)

(83)

(113)

(197)

Transactions with owners:

 

 

 

 

 

 

 

 

Employee share awards

-

-

-

-

-

-

(2)

(2)

Issue of ordinary shares to employees under share option schemes

-

-

7

-

-

-

(7)

-

Dividends paid during 2020

-

-

-

-

-

-

(13)

(13)

 

-

-

7

-

-

-

(22)

(15)

Balance at 31 December 2020

42

20

(6)

13

1

(209)

1,286

1,147

                   

 

 

(i)

Included in currency translation differences of the Group are exchange gains of £18 million arising on borrowings denominated in foreign currencies designated as hedges of net investments overseas, and exchange losses of £101 million relating to the translation of overseas results and net assets.

 

 

 

 

 

 

 

 

GROUP STATEMENT OF CHANGES IN EQUITY

 

FOR THE YEAR ENDED 31 DECEMBER 2020

 

AS AT 31 DECEMBER 2019

ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

 

 

 

ORDINARY

SHARE

CAPITAL

£ MILLLION

 

SHARE

PREMIUM

ACCOUNT

£ MILLLION

 

 

TREASURY

SHARES

£ MILLLION

 

CAPITAL

REDEMPTION

RESERVE

£ MILLLION

 

 

HEDGING

RESERVE

£ MILLLION

FOREIGN

EXCHANGE

RESERVE

(TRANSLATION)

£ MILLLION

 

 

RETAINED

EARNINGS

£ MILLLION

 

 

TOTAL

EQUITY

£ MILLLION

Balance at 1 January 2019

42

20

(17)

13

1

(51)

1,359

1,367

Profit for the year

-

-

-

-

-

-

129

129

Other comprehensive (loss)/income:

 

 

 

 

 

 

 

Transfers from hedging reserve to revenue

-

-

-

-

(1)

-

-

(1)

Fair value gains on interest rate swaps (net of tax)

-

-

-

-

2

-

-

2

Currency translation differences (i)

-

-

-

-

-

(75)

-

(75)

Re-measurement of retirement benefits (net of tax)

-

-

-

-

-

-

(1)

(1)

Total comprehensive income/(loss) for the year ended 31 December 2019

-

-

-

-

1

(75)

128

54

Transactions with owners:

 

 

 

 

 

 

 

 

Purchase of Treasury shares

-

-

(4)

-

-

-

-

(4)

Employee share awards

-

-

-

-

-

-

11

11

Issue of ordinary shares to employees under share option schemes

-

-

8

-

-

-

(8)

-

Dividends paid during 2019

-

-

-

-

-

-

(69)

(69)

 

-

-

4

-

-

-

(66)

(62)

Balance at 31 December 2019

42

20

(13)

13

2

(126)

1,421

1,359

                   

 

(i)

Included in currency translation differences of the Group are exchange gains of £16 million arising on borrowings denominated in foreign currencies designated as hedges of net investments overseas, and exchange losses of £91 million relating to the translation of overseas results and net assets.

 

(ii)

There was no impact on retained earnings at 1 January 2019 from the adoption of IFRS 16 'Leases'.

 

 

 

 

 

 

 

 

 

NOTES TO THE ACCOUNTS

For the year ended 31 December 2020

 

1.   CHANGES IN ACCOUNTING POLICY AND DISCLOSURES

 

(a) New and amended standards adopted by the Group

There are no standards, amendments and interpretations that are not yet effective that have a material impact on the Group.

 

2.   SEGMENTAL REPORTING

 

Effective 1 January 2020 the operational and management control of Mexico was transferred from Rental Solutions to Power Solutions Industrial.  Accordingly, the comparative prior year figures have been restated. The impact was to reduce the previously stated Rental Solutions balances and results, and to correspondingly increase the Power Solutions Industrial balances and results, by the amounts shown below.

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

£ MILLION

Revenue

 

 

 

 

10

Operating profit

 

 

 

 

1

Depreciation and amortisation

 

 

 

 

1

Net operating assets

 

 

 

 

12

Average number of employees

 

 

 

 

44

Non-current assets

 

 

 

 

4

 

 

 

 

 

 

 

(a) Revenue by segment

 

 

 

 

 

EXTERNAL REVENUE

 

 

 

 

2020

2019

RESTATED

 

 

 

 

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

 

  Industrial

 

 

 

362

444

  Utility

 

 

 

310

346

 

 

 

 

672

790

Rental Solutions

 

 

 

693

823

Group

 

 

 

1,365

1,613

(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.

 

 

 

 

 

 

 

2.   SEGMENTAL REPORTING CONTINUED

(a) Revenue by segment

 

Disaggregation of revenue

 

In the tables below revenue is disaggregated by geography and sector.

 

Revenue by geography

 

 

 

 

 

2020

2019

RESTATED

 

 

 

 

£ MILLION

£ MILLION

North America

 

 

 

430

496

UK

 

 

 

65

76

Continental Europe

 

 

 

140

176

Eurasia

 

 

 

64

73

Middle East

 

 

 

126

169

Africa

 

 

 

172

206

Asia

 

 

 

115

146

Australia Pacific

 

 

 

79

80

Latin America

 

 

 

174

191

 

 

 

 

1,365

1,613

 

 

 

 

 

 

 

Revenue by sector

At 31 December 2020

 

 

 

 

 

PSI

PSU

RS

Group

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Utilities

22

310

91

423

Oil & gas

141

-

77

218

Petrochemical & refining

17

-

119

136

Building services & construction

36

-

146

182

Events

27

-

28

55

Manufacturing

28

-

49

77

Mining

56

-

49

105

Other

35

-

134

169

 

362

310

693

1,365

 

At 31 December 2019 (RESTATED)

 

 

 

 

PSI

PSU

RS

Group

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Utilities

19

346

82

447

Oil & gas

173

-

144

317

Petrochemical & refining

17

-

157

174

Building services & construction

44

-

150

194

Events

58

-

69

127

Manufacturing

31

-

56

87

Mining

64

-

48

112

Other

38

-

117

155

 

444

346

823

1,613

 

 

 

 

 

 

 

2.   SEGMENTAL REPORTING CONTINUED

Revenue by sector continued

 

As part of our continued focus on our key sectors, which includes establishing consistent definitions to be used globally, we have identified three jobs in our Power Solutions Industrial business that should be reported through the petrochemical & refinery sector instead of the oil and gas sector. Accordingly, the comparative prior year figures have been restated. The impact was to reduce the previously stated oil & gas revenue by £9 million and to correspondingly increase the petrochemical & refining revenue by £9 million.

 

(b) Profit/(loss) by segment

 

 

TOTAL BEFORE

EXCEPTIONAL ITEMS

EXCEPTIONAL ITEMS (NOTE 3)

 

2019

 

2020

2020

2020

RESTATED

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

  Industrial

18

(40)

(22)

65

  Utility

16

(110)

(94)

44

 

34

(150)

(116)

109

Rental Solutions

102

(25)

77

132

Operating profit/(loss)

136

(175)

(39)

241

Finance costs - net

(34)

-

(34)

(42)

Profit/(loss) before taxation

102

(175)

(73)

199

Taxation

(46)

8

(38)

(70)

Profit/(loss) for the year

56

(167)

(111)

129

 

 (c) Depreciation and amortisation by segment

 

 

 

2019

 

2020

RESTATED

 

£ MILLION

£ MILLION

Power Solutions

 

 

  Industrial

94

101

  Utility

78

100

 

172

201

Rental Solutions

112

122

Group

284

323

 

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

 

 

 

2020

2019

 

 

£ MILLION

£ MILLION

Power Solutions

 

 

 

  Industrial

 

68

80

  Utility

 

68

78

 

 

136

158

Rental Solutions

 

94

105

Group

 

230

263

Capital expenditure comprises additions of property, plant and equipment (PPE) of £224 million (including £20 million in relation to leased right-of-use assets) (2019: £255 million) and additions of intangible assets of £6 million (2019: £8 million).

 

 

 

 

 

2.   SEGMENTAL REPORTING CONTINUED

 (e) Assets/(liabilities) by segment

 

 

ASSETS

LIABILITIES

 

2020

2019

RESTATED

2020

2019

RESTATED

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

  Industrial

678

781

(237)

(176)

  Utility

653

828

(180)

(187)

 

1,331

1,609

(417)

(363)

Rental Solutions

749

832

(86)

(81)

Group

2,080

2,441

(503)

(444)

Tax and finance assets/(liabilities) (i)

68

65

(66)

(87)

Derivative financial instruments

2

1

(1)

(1)

Borrowings

-

-

(347)

(519)

Lease liability

-

-

(90)

(101)

Retirement benefit surplus

4

4

-

-

Total assets/(liabilities) per balance sheet

2,154

2,511

(1,007)

(1,152)

             

(i) This includes an interest payable of £1 million (2019: £9 million).

 

(f) Average number of employees by segment

 

 

 

2019

 

2020

RESTATED

 

NUMBER

NUMBER

Power Solutions

 

     Industrial

2,264

2,115

     Utility

1,245

1,227

 

3,509

3,342

Rental Solutions

2,899

2,862

Group

6,408

6,204

 

(g) Geographical information

 

 

NON-CURRENT ASSETS

 

 

2019

 

2020

RESTATED

 

£ MILLION

£ MILLION

North America

266

290

UK

122

177

Continental Europe

148

140

Eurasia

57

69

Middle East

118

181

Africa

176

179

Asia

144

142

Australia Pacific

77

79

Latin America

148

194

 

1,256

1,451

Non-current assets exclude deferred tax.

 

 

 

 

 

 

 

2.   SEGMENTAL REPORTING CONTINUED

 (h) Reconciliation of net operating assets to net assets

 

 

 

 

 

2020

2019

 

£ MILLION

£ MILLION

Net operating assets

1,577

1,997

Retirement benefit surplus

4

4

Net tax and finance receivable/(payable)

2

(22)

 

1,583

1,979

Borrowings and derivative financial instruments

(346)

(519)

Lease liability

(90)

(101)

Net assets

1,147

1,359

 

3.   EXCEPTIONAL ITEMS

 

The Directors believe that the impact of the COVID-19 pandemic, the lower oil price and the consequent deterioration in the short to medium term economic outlook, as well as the acceleration in the transition to lower carbon technologies presents a potential impairment indicator for certain of the Group's assets and, as a result, we have carried out a detailed impairment review across all asset classes. We have concluded that the specific trigger for the potential impairment and the resulting impacts mentioned above was the World Health Organisation's declaration of the coronavirus outbreak as a pandemic on 11 March 2020.

 

Following our review of all of the Group's asset classes, there are four specific areas where we considered an impairment to be necessary, totalling £175 million, as summarised below:

 

•           Trade and other receivables (£67 million)

•           Property, plant & equipment (net of exceptional gain on sale of £3 million) (£55 million)

•           Inventory (£36 million)

•           Other intangible assets (£17 million)

 

The accounting policy and definition of exceptional items is contained in Note 1 to the 2019 Annual Report and Accounts, namely that we believe exceptional items are items which individually or, if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to be properly understood. Given the size and nature of these impairment charges, both individually and in aggregate, they have been treated as 'exceptional items' in accordance with this policy. In addition, we have reported an exceptional tax credit in the year of £8 million. This comprises an exceptional tax credit of £15 million on expenses treated as exceptional items in the accounts, which are deductible for tax purposes in either the current or future periods, together with an exceptional write down of £7 million in relation to certain deferred tax assets. These deferred tax assets are no longer expected to be utilised in the foreseeable future due to the impact of COVID-19 and the lower oil price on certain of Aggreko's markets and customers, which have impacted our forecast taxable profit.

The exceptional impairment charge disclosed in our interim statement of £181 million has reduced to £175 million due to exchange rate movements (£3 million) and gain on sale of impaired property, plant & equipment (£3 million). There are no other changes to the impairment amounts.

 

There is no impact on cash flow from any of these exceptional impairment charges.

 

Exceptional items by income statement category

 

TRADE & OTHER RECEIVABLES

PROPERTY, PLANT & EQUIPMENT

INVENTORY

OTHER INTANGIBLE ASSETS

TOTAL EXCEPTIONAL ITEMS

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

 

 

 

 

 

 

Cost of Sales

-

58

36

-

94

Distribution costs

2

-

-

-

2

Administrative expenses

-

-

-

17

17

Impairment loss on trade receivables

65

-

-

-

65

Other income

-

(3)

-

-

(3)

 

67

55

36

17

175

 

3.   EXCEPTIONAL ITEMS CONTINUED

 

Exceptional items by segment

 

TRADE & OTHER RECEIVABLES

PROPERTY, PLANT & EQUIPMENT

INVENTORY

OTHER INTANGIBLE ASSETS

TOTAL EXCEPTIONAL ITEMS

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Power Solutions

 

 

 

 

 

  Industrial

8

13

14

5

40

  Utility

57

37

10

6

110

 

65

50

24

11

150

Rental Solutions

2

5

12

6

25

Group 

67

55

36

17

175

 

Trade and other receivables (67 million)

COVID-19 and its impact on the wider economy, as stated above, has created cash flow, liquidity and, in some cases, future viability challenges for some of our customers in the most hard-hit sectors (e.g. oil & gas, events). Equally, for some of our larger, and mostly legacy, customers in Power Solutions Utility (PSU), access to hard currency and funding has become increasingly challenged for those whose governments rely on oil sales to generate foreign currency reserves. As a consequence, despite some signs of progress in recent years (and increased provisions where this has not been the case), it is our judgment that the more challenging outlook post COVID-19 for several of our larger PSU debtors is such as to require full impairment of our residual balance sheet exposure. Specifically, this has resulted in an impairment, across our PSU debtor book, of £57 million (comprising £56 million against trade receivables and £1 million against other receivables), primarily relating to legacy debts in parts of Africa, Venezuela, Yemen and Brazil. In addition, we have reviewed the trade receivables of all business units to identify specific customers whose ability to pay has been materially impacted by COVID-19 as well as the consequent fall in oil price. As a result of this review we have identified an impairment of £10 million across certain other specific debtors within Rental Solutions and Power Solutions Industrial, the majority of which operate in the oil & gas and events sectors. While we continue to pursue these debtor balances, we no longer consider their recovery probable given the customers' financial position.

 

At 31 December 2020, 90% of the total provision (including the above impairment of £56 million) across our PSU debtor book related to the top 15 debtors (December 2019: 87%). Among these debtors the Group had a net exposure, after taking into account provisions or payment securities/guarantees, of $10-20 million to one customer (December 2019: three customers), a net exposure of $5-10 million to three customers (December 2019: five customers) and a net exposure of less than $5 million to each of the others. At 31 December 2020, there were no customers to whom the Group had a net exposure in excess of $20 million (December 2019: two customers).

 

Property, plant & equipment (55 million)

The combined effects of a sustained lower oil price environment and reduced economic activity as a result of COVID-19 have impacted the Group's growth expectations in the near term. While expert views continue to vary on the likely speed/shape of the economic recovery from the effects of COVID-19, there is increasing certainty over the short-term impact. This revised market outlook has dampened our internal growth expectations for the next few years. In the context of this reduced demand outlook, to establish the need for any impairment across the fleet we have first identified, at an individual fleet asset level, those items that have not been on hire over the past 12 months. With the prima facie assumption that there is unlikely to be stronger demand in the future, as compared with the recent past, for these particular assets, a review has been undertaken to determine whether there is any likelihood of these items going on hire, either from their current location or elsewhere in the Group, such that the item should be retained at full value with no impairment. Additionally, we have identified assets that are currently "stranded" in countries where, in the current social and economic climate, there is little/no likelihood of the fleet being put on hire. We have also reviewed the fleet for assets beyond economic repair in the current market, where demand for the fleet no longer supports the case for investment to return the fleet to a rental ready state.

 

In addition to a reduction in demand more generally, the COVID-19 crisis has caused an acceleration in the transition to lower carbon solutions and technologies. This acceleration, combined with the lower oil price which has narrowed the gap between the cost of diesel and HFO, has reduced the attractiveness of our HFO product specifically and we have therefore impaired the value of this fleet accordingly. In carrying out the impairment review on our HFO fleet, we have determined the recoverable amount by using 'value in use' calculations based on a discount rate of 8.9% which was the Group WACC at the time of the impairment.

 

3.  EXCEPTIONAL ITEMS CONTINUED

 

We have recorded an exceptional gain on sale of £3 million (shown in Other income in the table above) on disposal of impaired fleet in the second half of 2020 which has been netted against the exceptional charge.

 

Inventory (36 million)

Consistent with the rationale and approach taken to the Group's fleet, we have reviewed the Group's inventory to determine the extent to which the projected fall in revenue creates a materially reduced need for the inventory, and a consequent need for impairment. We reviewed inventory for slow and non-moving items (with the time period reviewed for parts being the last 24 months and for cable, duct & hose being a 3-year average utilisation), with our prima facie assumption being that there is unlikely to be stronger demand in the future, as compared with the recent past, for these items. We considered whether there is any likelihood of these items being consumed, either at their current location or elsewhere in the Group, such that the items should be retained with no impairment. Additionally, we have identified items that are currently "stranded" alongside our "stranded" fleet, as identified above. Finally, we have reviewed our inventory for items beyond economic repair in the current market (where future demand no longer supports the case to repair them) and those relating to fleet that is now considered obsolete as a result of the acceleration in the energy transition.

 

Other intangible assets (17 million)

As we have moved through the COVID-19 crisis, there is strong evidence of an acceleration of the transition to lower carbon solutions and technologies, with increased support for governments and businesses to place sustainability at the heart of the global recovery. It is against this changing market backdrop that we have reviewed in detail our capitalised development expenditure, highlighting several projects where, as a consequence of the faster energy transition to lower carbon technologies and renewables, the future demand for the products or applications no longer supports the capitalised development spend.

 

Impairment charge sensitivities

In determining the impairment charge detailed above, in addition to considering various independent external and internal data sources regarding the future economic outlook for the Group, management has exercised a significant level of commercial judgment. As a result, there is a wide range of potential outcomes.

 

Specifically, in terms of the amount relating to the Group's trade and other receivables, the debts are largely undisputed by our customers and our assessment is based on their ability, rather than their willingness, to pay. Consequently, as we will continue to pursue payment going forward, we may receive some monies in the future. Consistent with the initial impairment, any material receipts would be credited through the income statement as 'exceptional' items. Further, it should be noted that for the legacy PSU debts, against which we have recorded an impairment of £57 million, the Group was already holding a provision of £50 million at 31 December 2019 against these customers, reflecting our assessment of the risk of non-payment at that point. In terms of the potential need for further future impairment, we believe that the combination of continued good cash collections on our more current debts and the impact of the impairment on our more legacy debtors has significantly reduced the risk of a material bad debt exposure across the Group.

 

Regarding the property, plant and equipment impairment of £55 million, there are certain specific categories of assets that we have judged as impaired at March 2020, namely:

 

·      Assets with a value of £9 million which have not been on hire in the past 12 months and are now considered unlikely to be put on rent anywhere across the Group due to reduced forecast demand were fully impaired. The fleet assets in PSU were reviewed on a line by line basis to determine whether there is any likelihood of these items going on hire, either from their current location or elsewhere in the Group, such that the item should be retained at full value with no impairment. To illustrate a range of potential sensitivities for the assets impaired in PSI/RS; if we had performed the review on assets which have not been on hire in the past 24 month the value impaired would have been £4 million less. We do not believe considering an off-hire period of shorter than 12 months is appropriate given the seasonal nature of the Group's activities.

 

·      Assets with a value of £2 million currently "stranded" in countries where, in the current social and economic climate, there is little or no likelihood of the fleet being put on hire were fully impaired. While we may, in time, be able to move these assets or put them on hire given the value impaired any recovery would be immaterial.

 

·      Assets with a value of £20 million which are deemed to be beyond economic repair in the current market, where demand for the fleet no longer supports the case for investment to return the fleet to a rental ready state. This

 

 

3.  EXCEPTIONAL ITEMS CONTINUED

 

review was conducted on an asset by asset basis and assessed the condition of the fleet, the estimated cost to repair and the economic conditions in the market in which that fleet would typically be rented.

 

·      We have recorded an exceptional gain on sale of £3 million on disposal of impaired fleet in the second half of 2020 which has been netted against the exceptional charge. We may be able to recover some value in the future, in the form of sale proceeds or through the potential future hire of the equipment. We do not believe, however, that any such amounts would be material.

 

·      Assets within our HFO fleet for which we now expect reduced demand due to the acceleration in the transition to lower carbon solutions and technologies, and for which the lower oil price reduces the customer benefit of the cost advantage of HFO over diesel. We reviewed the book value of fleet and fulfilment assets relating to ongoing HFO contracts for impairment using a 'value in use' calculation which we used to determine the recoverable amount. While the fulfilment assets were supported by cashflows from signed contracts we have recorded an impairment of £27 million against the book value of the fleet having considered the cash flows from existing signed contracts and our conversion expectations of the current pipeline of opportunities. Impairment of inventory and intangibles in relation to HFO is discussed in the relevant sections. There is clearly scope that these expectations prove to be either over, or under, optimistic, and therefore we will continue to keep the value of this fleet under review going forward. The residual net book value, after the impairment, of the Group's HFO fleet at 31 December 2020 is £49 million.

 

·      The main sensitivities in the HFO fleet impairment relate to:

 

·      The discount rate used in the discounted cash flow model where we have used the Group WACC of 8.9% which was the Group WACC at the time of the impairment. An increase in the discount rate of 1pp would increase the impairment charge by £2.5 million, while a reduction in the discount rate by 1pp would reduce the impairment charge by £2.6 million.

·      The number of new projects converted from our sales pipeline, where we have based the number of new project wins, their timing and quantum on our view of what is reasonably probable in the pipeline. Within the pipeline there are a number of likely opportunities which are the same size, application and duration as existing contracts which allows us to estimate the likely cash flows. If we won one more project of a similar size to those projected the impairment charge would reduce by £7.6 million, if we won one less project then the impairment charge would increase by £7.6 million.

·      The duration of our existing contracts and whether these extend. We have currently assumed that our existing HFO projects will off-hire at the end of the current contract term based on our discussions to date with the customers. If the contracts extended by 1 year this would reduce the impairment charge by £9.7 million.

 

Regarding the inventory impairment of £36 million there are certain specific categories of assets that we have judged as impaired at March 2020, namely;

·      Inventory with a value of £3 million which is "stranded" in countries where, in the current social and economic climate, there is little or no likelihood of the inventory being used was fully impaired. While we may, in time, be able to move these assets or utilise them given the value impaired any recovery would be immaterial.

·      Inventory with a value of £10 million which is obsolete or beyond economic repair. This review was conducted on an asset by asset basis and assessed what the inventory was to be used for, the condition of the inventory, the estimated cost to repair and the economic conditions in the market in which that inventory would typically be used. While we may be able to recover some value by selling this inventory for scrap we do not believe this will be material.

·      Parts, net of existing provisions, with a value of £4 million which have not been used in the last 24 months. These parts were reviewed on a line by line basis and in our assessment there is unlikely to be stronger demand in the future, as compared with the recent past, for these items. We considered whether there is any likelihood of these items being consumed, either at their current location or elsewhere in the Group, such that the items should be retained with no impairment. To illustrate a range of potential sensitivities; if we had performed the review on parts which have not been used in the past 12 months the value impaired would have been £10 million higher. We do not believe considering a non-usage period of shorter than 12 months is appropriate given the seasonal nature of the Group's activities, while using a period of 24 months was chosen as a reasonable timeframe in which we would expect most inventory items to have been utilised given the seasonal nature of our business and the level of repeat customers.

 

3.  EXCEPTIONAL ITEMS CONTINUED

 

·      Cable, duct & hose with an average 3-year utilisation of less than 10% was impaired by 65% which led to an impairment of £12 million and with an average 3-year utilisation of between 10% and 30% was impaired by 33% which led to an impairment of £7 million.

 

The key sensitivities here relate to the levels of utilisation and the impairment percentage applied. With regard to the impairment charge applied to the cable, duct & hose with utilisation of less than 10% which was impaired by 65%, if the impairment charge was +/- 10pp then the impact on the impairment charge would have been +/- £2 million. A similar change in the impairment percentage applied to the assets with utilisation of between 10% and 30% would have led to a change in the impairment charge of +/- £3 million.

 

With regard to the levels of utilisation, if we had applied the same 65% impairment charge to cable, duct & hose with an average 3-year utilisation of less than 20% rather than 10% the impairment charge would have increased by £4 million.

 

If we had applied the same 33% impairment charge to cable, duct & hose with an average 3-year utilisation of between 20% and 50% rather than between 10% and 30% the impairment charge would have increased by £12 million.

 

We believe that the utilisation levels and impairment percentages applied are appropriate given the seasonal nature of the business and the cyclical nature of some of the key sectors in which we operate such as events, where some larger events occur on a bi-annual or four yearly cycle.

 

The inventory impairment covers items with a relatively low individual unit value and, therefore, while it is possible that some of the parts may be used in the future, the risk that this results in a significant understatement of costs going forward is considered to be immaterial. Equally, we do not believe that there is any prospect of material value being generated through the subsequent sale of any of the impaired inventory.

 

Finally, concerning the intangible assets impairment, this amount represents the full capitalised value of the respective development programmes, with an immaterial likelihood of any subsequent revaluation.

 

The sensitivities stated above are plausible, but we consider the reasonable probable sensitivities to be:

-  HFO: An increase in the discount rate of 1pp: this would increase the impairment charge by £2.5 million

- Cable, duct & hose utilisation of less than 10% which was impaired by 65%: If the impairment charge was +/-10pp then the impairment charge would have been +/- £2 million

- Cable, duct & hose utilisation of between 10% and 30% If the impairment charge was +/-10pp then the impairment charge would have been +/- £3 million

 

Therefore we believe that a reasonably probable reduction in impairment could be £5 million and a reasonably probable increase in the impairment could be £7.5 million. 

 

The exceptional impairment charge disclosed in our interim statement of £181 million has reduced to £175 million due to exchange rate movements (£3 million) and gain on sale of impaired property, plant & equipment (£3 million). There are no other changes to the impairment amounts.

 

With the exception of the HFO fleet assets and the Group's inventory (which we reviewed at a total fleet and part number level respectively), the above impairment review considered the assets within each class on an individual basis. Given this level of detail, we believe that the overall risk of a further impairment within these asset classes, or indeed the Group's other asset classes where an impairment has been made, is not material.

 

 

 

4.   DIVIDENDS

 

 

2020

2020

2019

2019

 

£ MILLION

PER SHARE(P)

£ MILLION

PER SHARE(P)

 

 

 

 

 

Final paid

-

-

45

17.74

Interim paid

13

5.00

24

9.38

 

13

5.00

69

27.12

 

In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2020 of 10.00 pence per share which will utilise an estimated £26 million of Shareholders' funds.  It will be paid on 20 May 2021 to shareholders who are on the register of members on 23 April 2021.

 

5.   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.

 

 

2020

2019

 

 

 

(Loss)/profit for the year (£ million)

(110.6)

129.3

 

 

 

Weighted average number of ordinary shares in issue (million)

255.0

254.6

 

 

 

Basic earnings per share (pence)

(43.40)

50.80

 

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.

 

 

2020

2019

 

 

 

(Loss)/profit for the year (£ million)

(110.6)

129.3

 

 

 

Weighted average number of ordinary shares in issue (million)

255.0

254.6

Adjustment for share options

1.7

0.4

Diluted weighted average number of ordinary shares in issue (million)

256.7

255.0

 

 

 

Diluted earnings per share (pence)

(43.40)

50.70

 

Given basic earnings per share in 2020 is a loss then the diluted earnings per share is reported as the same as basic earnings per share.

 

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 material and non-recurring as it 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:

 

 

2020

2019

 

 

 

(Loss)/profit for the year (£ million)

(110.6)

129.3

Exclude exceptional items (net of tax) (£ million)

166.5

-

Adjusted earnings (£ million)

55.9

129.3

 

 

 

An adjusted earnings figure is presented below.

 

 

 

 

 

Basic earnings per share pre-exceptional items (pence)

21.91

50.80

Diluted earnings per share pre-exceptional items (pence)

21.76

50.70

 

 

 

 

 

6.   TAXATION

 

 

 

 

 

TOTAL BEFORE

EXCEPTIONAL ITEMS

EXCEPTIONAL ITEMS

(NOTE 3)

 

 

 

 

 

 

2020

2020

2020

2019

 

 

 

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Analysis of charge in year

 

 

 

 

 

Current tax expense:

 

 

 

 

 

  - UK corporation tax

 

7

(1)

6

6

  - Double tax relief

 

-

-

-

(1)

 

 

7

(1)

6

5

  - Overseas taxation

 

54

(2)

52

70

 

 

 

 

61

(3)

58

75

Adjustments in respect of prior years:

 

 

 

 

  - UK

 

 

 

(9)

-

(9)

(2)

  - Overseas

 

 

4

-

4

5

 

 

 

 

56

(3)

53

78

Deferred taxation:

 

 

 

 

 

  - Temporary differences arising in current year

(14)

(5)

(19)

(2)

  - Movements in respect of prior years

4

-

4

(6)

 

 

 

 

46

(8)

38

70

 

Variances between the current tax charge and the standard 19% (2019: 19%) UK corporate tax rate when applied to profit on ordinary activities for the year are as follows:

 

 

TOTAL BEFORE

EXCEPTIONAL ITEMS

EXCEPTIONAL ITEMS

(NOTE 3)

 

 

 

2020

2020

2020

2019

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Profit/(loss) before taxation

102

(175)

(73)

199

 

 

 

 

 

Tax calculated at 19% standard UK corporate tax rate

19

(33)

(14)

38

Differences between UK and overseas tax rates

30

21

51

32

Expenses not tax effected

1

4

5

3

Income not subject to tax

(1)

-

(1)

(1)

Impact of deferred tax rate changes

(2)

-

(2)

1

Tax on current year profit/(loss)

47

(8)

39

73

Prior year adjustments - current tax

(5)

-

(5)

3

Prior year adjustments - deferred tax

4

-

4

(6)

Total tax on profit/(loss)

46

(8)

38

70

Effective tax rate

45%

(5%)

52%

35%

 

 

 

 

 

 

 

7.   PROPERTY, PLANT AND EQUIPMENT

 

YEAR ENDED 31 DECEMBER 2020

 

 

FREEHOLD

SHORT LEASEHOLD

RENTAL

VEHICLES, PLANT &

 

 

PROPERTIES

PROPERTIES

FLEET

EQUIPMENT

TOTAL

 

£ MILLION

£ MILLION

£ MILLION

£ MILLION

£ MILLION

Cost

 

 

 

 

 

At 1 January 2020

183

22

3,528

231

3,964

Exchange adjustments

(3)

-

(175)

(11)

(189)

Additions (ii)

6

-

186

32

224

Disposals (iii)

(3)

(1)

(167)

(26)

(197)

Transferred to fulfilment assets

-

-

(4)

-

(4)

IFRS 16 remeasurements (iv)

2

-

-

2

4

At 31 December 2020

185

21

3,368

228

3,802

 

 

 

 

 

 

Accumulated depreciation

 

 

 

 

 

At 1 January 2020

59

16

2,589

134

2,798

Exchange adjustments

-

-

(133)

(1)

(134)

Charge for the year

22

1

227

28

278

Impairment (vi)

-

-

58

-

58

Disposals

(3)

(1)

(166)

(24)

(194)

At 31 December 2020

78

16

2,575

137

2,806

 

 

 

 

 

 

Net book values:

 

 

 

 

 

At 31 December 2020

107

5

793

91

996

At 31 December 2019

124

6

939

97

1,166

             

(i) The net book value of assets capitalised in respect of leased right-of-use assets at 31 December 2020 is £85 million.

(ii) Additions of £224 million include £20 million in relation to leased right-of-use assets.

(iii) Disposals include £6 million of cost and £6 million of accumulated depreciation in relation to leased right of use assets.

(iv) Remeasurements represent amendments to the terms of existing leases which are prospectively applied.

(v) Assets in the course of construction total £18 million (2019: £39 million).

(vi) Further information about the impairment can be found in Note 3.

 

8.   FULFILMENT ASSETS

 

 

2020

2019

 

£ MILLION

£ MILLION

 

 

 

Balance at 1 January

86

44

Capitalised in the period

87

66

Transferred from fixed assets

4

-

Provision created for future demobilisation costs

5

3

Amortised to the income statement

(36)

(24)

Exchange

(10)

(3)

Balance at 31 December

136

86

 

 

 

Analysis of fulfilment assets

 

 

Current

77

32

Non-current

59

54

Total

136

86

 

9.   TRADE AND OTHER RECEIVABLES

 

 

2020

2019

 

£ MILLION

£ MILLION

Trade receivables

425

529

Less: provision for impairment of receivables

(151)

(85)

Trade receivables - net

274

444

Prepayments

35

45

Accrued income

113

124

Other receivables (Note (i))

40

46

Total receivables

462

659

 

 

 

(i)   Material amounts included in other receivables include taxes receivable (such as sales taxes) of £22 million (2019: £23 million) and deposits of £5 million (2019: £6 million). At 31 December 2019 other receivables also included the fair value of private placement notes

 

9.  TRADE AND OTHER RECEIVABLES CONTINUED

 

with one customer in Venezuela (PDVSA) of £1 million. At 31 December 2020 the fair value of these notes is zero. Information regarding exceptional impairment losses recognised during the period can be found in Note 3.

 

Movements on the Group's provision for impairment of trade receivables are as follows:

 

2020

2019

 

£ MILLION

£ MILLION

At 1 January

85

85

Net Provision for receivables impairment

17

7

Net Provision for receivables impairment- Exceptional

65

-

Utilised

(3)

(2)

Receivables written off during the year as uncollectable

(4)

(3)

Exchange

(9)

(2)

At 31 December

151

85

 

 

 

 

10. BORROWINGS

 

 

2020

2019

 

£ MILLION

£ MILLION

Non-current

 

 

Bank borrowings

-

33

Private placement notes

329

478

 

329

511

Current

 

 

Bank overdrafts

50

51

Bank borrowings

18

8

 

68

59

 

 

 

Total borrowings

397

570

 

 

 

Cash at bank and in hand

(107)

(87)

Lease liability

90

101

 

 

 

Net borrowings

380

584

 

 

 

Overdrafts and borrowings are unsecured.

 

 

 

11. LEASES

 (a) Amounts recognised in Balance Sheet

 

Property, plant and equipment comprise owned and leased assets.

 

 

2020

2019

 

£ MILLION

£ MILLION

Property, plant & equipment owned

911

1,068

Right-of-use assets

85

98

 

996

1,166

 

The Group leases many assets including land and buildings, vehicles and machinery. Information about leases for which the Group is a lessee is presented below.

 

 

 

 

 

 

 

 

 

 

11.  LEASES CONTINUED

 

Right-of-use assets

31 December 2020

 

FREEHOLD PROPERTIES

TOTAL

 

£ MILLION

£ MILLION

£ MILLION

Net book value at 1 January 2020

75

23

98

Additions for the year

6

14

20

Remeasurements

2

2

4

Depreciation charge for year

(22)

(13)

(35)

Exchange adjustments

(1)

(1)

(2)

Net book value at 31 December 2020

60

25

85

 

Lease liabilities

 

2020

2019

 

£ MILLION

£ MILLION

Maturity analysis - contractual undiscounted cash flows

 

 

Less than one year

34

35

One to five years

56

63

More than five years

20

23

Total undiscounted lease liabilities at 31 December

110

121

Impact of discounting

(20)

(20)

Lease liabilities included in the balance sheet

90

101

Current

32

33

Non-current

58

68

 

 (b) Amounts recognised in the Income Statement

 

2020

2019

 

£ MILLION

£ MILLION

Depreciation charge of right-of-use assets

 

 

Freehold property

22

18

Vehicles, plant & equipment

13

12

 

35

30

 

 

 

Interest of lease liabilities

5

5

Expenses relating to short-term leases

10

4

 

(c) Amounts recognised in the statement of cash flows

 

2020

2019

 

£ MILLION

£ MILLION

 

 

 

Total cash outflow for leases

38

36

 

This £38 million is included in the cash flow statement with £33 million included within cash flows from financing activities and £5 million included in interest paid within net cash generated from operating activities.

 

12. TRADE AND OTHER PAYABLES

 

 

2020

2019

 

£ MILLION

£ MILLION

 

 

 

Trade payables

90

106

Trade payables - supplier factoring facility 

2

3

Other taxation and social security payable

19

17

Other payables

70

106

Accruals

128

96

Deferred income

130

60

 

439

388

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

 

 

 

12.  TRADE AND OTHER PAYABLES CONTINUED

 

The Group participates in a supply chain finance programme under which its suppliers may elect to receive early payment of their invoice from a bank by factoring their receivable from the Group. Under the arrangement, a bank agrees to pay amounts to a participating supplier in respect of invoices owed by the Group and receives settlement from the Group at a

later date. The principal purpose of this programme is to facilitate efficient payment processing and enable the willing suppliers to sell their receivables due from the Group to a bank before their due date. From the Group's perspective, the arrangement does not significantly extend payment terms beyond the normal terms agreed with other suppliers that are not participating. The Group does not incur any additional interest towards the bank on the amounts due to the suppliers.

 

The Group has not derecognised the original liabilities to which the arrangement applies because neither a legal release was obtained, nor the original liability was substantially modified on entering into the arrangement. The Group discloses the amounts factored by suppliers within trade payables because the nature and function of the financial liability remain the same as those of other trade payables but discloses disaggregated amounts in the notes.

 

The payments to the bank are included within operating cash flows because they continue to be part of the normal operating cycle of the Group and their principal nature remains operating, i.e. payments for the purchase of goods and services. The payments to a supplier by the bank are considered non-cash transactions and amounted to £20 million (2019: £4 million).

 

We have undrawn bank facilities to cover a withdrawal of the supply chain finance programme.

 

13. DEMOBILISATION PROVISION

 

 

 

 

 

2020

2019

 

£ MILLION

£ MILLION

 

 

 

Balance at 1 January

14

11

New provisions

12

9

Utilised

(10)

(6)

Exchange

(1)

-

Balance at 31 December

15

14

 

 

 

Analysis of demobilisation provision

 

 

Current

6

5

Non-current

9

9

Total

15

14

 

 

 

NOTES:

 

1.

 

 

 

 

 

 

 

2.

 

The financial information in this announcement does not constitute the Group's statutory accounts as defined in section 434 of the Companies Act 2006 for the years ended 31 December 2020 or 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the registrar of companies, and those for 2020 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

The preliminary announcement has been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 ("Adopted IFRS") and are prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies to the European Union. Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full Group and parent company only financial statements that comply with IFRS and FRS101 respectively, on 18  March 2021 and this includes the Group's and parent company's accounting policies. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

 

3.

The Annual Report will be posted to all shareholders on 18 March 2021 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 London on 22 April 2021. The Annual Report contains full details of the principal accounting policies adopted in the preparation of these financial statements.

 

 

4.

A final dividend of 10.00 pence per share will be recommended to shareholders and, if approved, will be paid on 20 May 2021 to shareholders on the register at 23 April 2021.

 

 

 

 

 

 

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