Power rental group Aggreko (AGK) delivers results for the year to December in line with market estimates and confirms its 2020 mid-teens return on capital employed (ROCE) target.
However, comparing the full year figures with the nine month numbers there seems to have been a slowdown in the core rental business in the final quarter.
Moreover, the 2020 ROCE goal looks ambitious given the downward trend in two of its three businesses.
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For the full 12 months, group revenues were up 8% on an underlying basis to £1.76bn while at the nine-month stage they were up 11%.
The main difference is in Rental Solutions, which makes up 52% of turnover, and where underlying growth was 22% for the full year. That compares with 26% at the nine-month stage.
The biggest market for Rental Solutions is North America and while it is tempting to pin the slowdown on the impact of the hurricanes in September and October, Aggreko earned more than the previous year thanks to the clean-up effort.
The company doesn’t give an explanation for the slowdown but the likeliest candidate is the Northern European business which includes the UK and Ireland with an emphasis on the energy industry.
There was also a slowdown in underlying revenue growth at the Industrial Power Solutions division, which contributes 27% of group turnover, from 11% at the nine-month stage to 7% at the full-year stage.
This looks to have been caused by the continuing blockade of Qatar over its alleged support for terrorism which has stymied investment there and in the UAE.
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In terms of outlook, chief executive Chris Weston talks a confident game regarding ROCE in the mid-teens in 2020, but this looks like a bold call given that ROCE actually fell by 40 basis points (bps) last year from 10.7% to 10.3%. That was due to a sharp drop in margins at its Utility Power Solutions unit, the company says.
Returns at Utility Power Solutions collapsed by 300bps to 6.2% from 9.2% while returns at Industrial Power Solutions slid by 60bps to 10.7% from 11.3% in 2017.
In contrast, returns at the core Rental Solutions division improved last year to 14.7% from 12.2% thanks to better margins in North America.
Unsurprisingly, Aggreko shares are treading water at 732p this morning.
