Power equipment rental firm Aggreko (AGK) issued a trading update warning of ‘significant uncertainty around future demand’ for its services and cut both its earnings guidance for the current financial year and its final dividend for last year.
While the company acknowledged that it had ‘a global, diversified business, with a robust balance sheet’, and it was taking ‘immediate measures’ to contain costs, given the uncertainty caused by the pandemic, it withdrew the financial guidance it issued at the start of the month along with its 2019 results.
It also said that despite its strong financial position, ‘alongside the other measures we are taking to preserve the Group's cash position the Board has decided to withdraw its recommendation to pay a final dividend at the forthcoming AGM.’
By 9.30am the shares were down 3% to 354p, recovering heavy early losses, which suggested that investors had been braced for the dividend cut.
LACK OF VISIBILITY
Like a great number of businesses, Aggreko faces an unknown impact to its business from government measures around the world to limit the spread of coronavirus.
The firm said that since its earlier update the impact on its revenue from the virus had been limited and had been primarily in the events sector.
However, as governments and businesses take further action to contain and delay the spread of the virus, there is now major uncertainty over the level of future demand ‘across several sectors and geographies.’ It added that the recent sharp fall in the oil price had compounded the uncertainty.
ALL EYES ON TOKYO
One of Aggreko’s ‘key priorities’ this year is the supply of temporary power generation equipment to the Tokyo 2020 Olympic and Paralympic games, which are due to start on 24 July.
The firm didn’t book any revenues for the early design and project management of the contract in its full year 2019 results, but it did flag that like all projects it undertook there was a risk of ‘major contractual failure.’
It also didn’t give details of any increase in plant and equipment or personnel needed for the Olympics, although spending on power solutions in its industrial business rose from £55m to £80m last year and the number of employees increased slightly.
The International Olympic Committee (IOC) has given itself four weeks to decide on whether to ‘modify existing operational plans’ for July’s games or whether to postpone them.
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