Introduction to Aggreko

Introduction to Aggreko
March 2015
Overview
Investment Case
Strategy
Our History
Financial Information
Where We Operate
Shareholder Information
Our Equipment
Further Information
Local Business
Power Projects
2
Investment
Case
Twangiza Mine, DRC
3
The global leader in flexible power and
temperature control
Customers in c.100 countries use us when the need is urgent or for a limited period
Services are asset-intensive, often involve significant engineering input and are frequently in
response to emergencies
Two business models:
• Local Business rents power and temperature control equipment to a broad range of users
• Power Projects sells electricity, supplying and operating utility power plants, mainly in
emerging markets to utility government users
2014 Highlights
Revenue
£1,577m
PBT
£289m
EPS
82.5p
DPS
27.1p
ROCE
Power Fleet
Employees
19%
9,695 MW
7,700
4
Reasons to invest in Aggreko
Market
•
•
•
•
Structural growth in emerging markets drives demand in Power Projects
Local business market is growing at 2x GDP
Global operations
Diversified product portfolio
Competitive
advantage
•
•
•
•
Global scale and reach enables us to respond to rapidly shifting demand
Complimentary business models which diversify short term variability
Focused product range ensures unrivalled expertise
In-house design and assembly delivers optimised fleet at a lower capital cost
Strategy
• Clearly defined business strategy
• Supported by a strong management team
• Delivering on strategic targets in a challenging environment
Shareholder
returns
• Priority is to invest for long term growth
• Cash generation set to increase over the next few years
• Excess liquidity will be returned to shareholders
Gentle warning
• This business has high variability and low visibility; progress is not smooth
• Returns in Power Projects are “risk-unadjusted”
5
Our
History
London 2012, Olympics
6
History of the Group
Entered the
temperature
control rental
business
through the
acquisition of
Mobile Air and
Pierce
Industrial in
the US
Became a
wholly owned
subsidiary of
Salvesen
Group
Founded in
the
Netherlands
1973
1962
1986
1984
UK business
established in
Scotland
Demerged
from Salvesen
Group and
listed on the
LSE
1989
1987
Entered the
US market
through the
acquisition of
Electric
Rental
Systems
Acquired GE
Energy
Rentals
2000
1997
Entry into Asia
Pacific region
with
acquisition of
Yeow Kong
Electrical
Company in
Singapore
Acquisition of
Cummins
India
2008
2006
Established
Aggreko
International
Projects
(Power
Projects) in
Jebel Ali
Acquisition of
N.Z.
Generator
Hire Ltd, New
Zealand
2010
2009
Acquisition of
Power Plus
Rentals Ltd,
Canada
2012
2011
Acquisition of
Northland
Power
Services and
entry into US
shale market
Acquisition of
Poit Energia
in Brazil
7
Where We
Operate
Manufacturing, USA
8
A global business
Serving customers in c.100 countries
Americas
EMEA
APAC
Revenue
£684m
Revenue (ex fuel)
£599m
Revenue
Trading Profit
£141m
Trading Profit (ex fuel)
£119m
Trading Profit
Service Centres & Offices
Local Business Fleet (MW)
Temperature control fleet (MW)
Key local business sectors
100
1,860
663
Oil & gas;
petrochem
& refining
Service Centres & Offices
Local Business Fleet (MW)
Temperature control fleet (MW)
Key local business sectors
73
2,232
483
Oil
& gas
& events
£246m
£49m
Service Centres & Offices
38
Local Business Fleet (MW)
722
Temperature control fleet (MW)
148
Key Local business Sectors
Mining;
oil
& gas
Note: FY14 numbers
9
Customer base well diversified
Revenue by geography
North America
22%
21%
22%
Europe
Middle East
Revenue
£1,529m
FY14 Revenue excl.
pass-through fuel
16%
15%
Africa
Asia & Australasia
17%
9%
Latin America
10
Our
Equipment
Manufacturing, USA
11
Narrow product range
Product Type
Power
Temperature
Control
Oil-free Air
Gas, diesel and
HFO generators
5KW-2MW;
ancillaries.
Chillers; heaters;
air conditioners;
air handlers;
de-humidifiers;
cooling towers.
Electric and diesel
oil-free air
compressors.
Fleet Size
Key
Regions
FY14
Revenue
c. 20,000 units
All
£1,062m
c. 4,900 units
All
£119m
c. 600 units
Americas
£29m
Note: Revenue excludes service and pass-through fuel
12
In-house product development
Design and manufacture most of our equipment in-house using
major sub assemblies
Developed the Aggreko G3+
• Refurbishment from our existing G3 engine
• Produces 14% more power than a standard G3
• Optimised for Utility duty  materially improved, market-leading
fuel consumption
• >20% lower cost / MW than a new Aggreko standard G3
The Aggreko G3+ HFO
• 1MW continuous 20ft containerised genset running on HFO
• Cost / MW less than half that of new product from leading
manufacturer
Conversion of G3 to G3+ and G3+ HFO carried out as part of
standard 25,000 hours rebuild
13
Local
Business
Houston Refinery, USA
14
Local business
Key facts
FY14 Revenue by customer type
Average contract value:
£21k
Average contract duration:
50 days
Average installation time:
Hours - days
Power fleet (MW):
4,814
Contracting
Temperature control fleet (MW):
1,294
Services
Service Centres:
211 across 53
Countries
Oil & Gas
Construction
Other
Petrochemical & Refining
Events
Application:
Power, temperature
control and oil-free
compressed air
8%
1%
9%
26%
3%
7%
6%
Manufacturing
Shipping
Utilities
Military
10%
6%
12%
5%
7%
Mining
Revenue
Keys to our competitive advantage
• Broad range of equipment
• Ability to deploy quickly
• Low-cost operating model
• Local reputation and brand
£904m (59% of Group excl. fuel)
15
Major events
Commonwealth Games 2014, Glasgow
16
Industrial
Oil Refinery, Tunisia
17
Commercial
Manufacturing, USA
18
Shipping
Belfast
19
Oil & Gas
Brazil
20
Local business market drivers
GDP
In faster growing
economies,
businesses are busy
and more likely to rent
equipment to maintain
production.
Propensity
to rent
This is driven by tax
treatment of assets,
availability of financing
and an awareness and
acceptance of
outsourcing.
Events
High value / low
frequency events
change the market
size temporarily, e.g.
Hurricane Sandy in
2012.
Local business market is growing at c.2x GDP
21
Local business competition
Aggreko is the only company with a global footprint
Customers have a choice to buy or rent; largest
competitors either general rental or equipment
manufacturers
Global
Aggreko
Competitive environment has been stable
• Fierce local competition but no global competition
• Few local competitors are able to compete for large
scale or technically demanding work
Using market potential analysis we believe that the global
local market is about £4bn and we have a 25% share
10-15 regional
Hertz, URI, Sunbelt,
Speedy Hire, CAT
Hundreds of national
Thousands of local small businesses
22
Local business customer proposition
Fast deployment through proximity to customers
• Reliable in emergency situations
Fungible range of customised products
• Covering variety of size and applications (from marquee, to a mine)
• Optimised for use in extremes of temperature and altitude
• Access to global pool of fleet when required
In–house technical expertise enables us to handle larger scale and more
complex projects
Flexibility over duration – anything from 1 day
Maintenance and servicing handled by Aggreko
23
Power
Projects
Utility, Mozambique
24
Power Projects business
Key facts
FY14 Revenue by customer type (excl. fuel)
Average contract value:
£5m per annum
Average contract duration:
1 year
Average contract size:
30MW
2%
Installation time:
Weeks - months
3% 3%
MW in power fleet:
4,881
Application:
Base-load and peakshaving power
Hubs:
Dubai, Rotterdam,
Singapore, Panama
3%
Oil & Gas
Utilities
Military
Mining
Other
89%
Keys to our competitive advantage
Revenue
• Ability to quickly deploy large fleet capacity globally
• Highly reliable, easily-transportable, standardised,
purpose-built equipment
• Expertise in engineering, commercial, tax, logistics and
risk management
£625m (41% of Group excl. fuel)
25
100MW
diesel
For hydro shortfall support, Kenya
26
232MW
gas
Gas-fired, cross border power, Mozambique
27
Power Projects market drivers
Demand
Demand in developing
countries is growing;
4% CAGR in electricity
consumption driven by
industrialisation and
urbanisation.
Financing
Capital markets are
unwilling to support longterm infrastructure projects
in many developing
countries.
UnderInvestment
Under-investment in new
and replacement
permanent power has led
to frequent breakdowns
and damaging
power cuts.
Developed
Markets
De-carbonisation and
ageing infrastructure in
developed countries
requires $trillions in
investment.
28
Demand for power growing
in developing countries
1. Demand
• Population growth, industrialisation and
urbanisation drive demand
From Hut to House (Illustrative)
Power Demand (KW)
• Electrification rates in low income
countries are around 30%
7
• Reliability of existing infrastructure is
often poor
6
• Demand for power anticipated to grow
at 3.7% pa between 2015 and 2020
• We estimate that the resulting shortfall
in power supply will be over 140GW in
our core markets by 2020
Item load
Base load
5
4
3
2
1
0
Lighting &
Fan
TV
Fridge
AC
Water
Heater
Sound
System
House Computer
Lighting
CAGR: 25 years = 18%, 50 years = 9%
29
A number of countries cannot finance new
infrastructure
2. Under investment
New MW of Permanent Power Installed 1979-2009
000s
250
World
China
World Ex China
200
150
100
50
-
1979
1984
1989
1994
1999
2004
2009
Source: Platts
30
A number of countries cannot
finance new infrastructure
3. Financing
Projected IRR’s vs. Country Risk
25%
20%
15%
10%
5%
0%
EU/USA
Brazil
India
Unbankable
31
Installed base is ageing fast
4. Competition
• 1,000 GW of world generating
capacity > 40 years old by 2015
• In next 10 years North America and
Europe will have to invest $tn’s in
power infrastructure to replace
ageing capacity and respond to
renewables
• This will draw investment away from
countries with poor risk profiles at a
time when their infrastructure is
ageing rapidly
Operating capacity (GW) reaching >40 years old in period
2005-2010
2010-2015
Movement
Africa
6
9
47%
Anz-Oceania
5
7
29%
Asia
26
51
97%
China
3
6
98%
CIS
42
49
16%
Europe
59
91
54%
Latin America
9
17
102%
Middle East
1
7
430%
North America
89
171
91%
TOTAL
240
407
70%
Source: Platts
32
Power Projects competition
• Only one other company that
competes globally
Estimated market share
• There are c.10-15 CAT dealers that
operate standalone and compete for
power projects either locally or
regionally
• Difficult to operate efficiently without a
large homogenous fleet and
infrastructure to market, sell and
operate consistently across the world
• In some countries, e.g. Indonesia and
Brazil where there are long standing
power shortages, there are a number
of local competitors
Aggreko
APR
Others
35%
40%
25%
33
Power Projects customer proposition
Speed
• Immediate solution to today’s problems
• Instant result, immediately felt by industry and consumers
Pay-as-you-go
•
No need to raise capital for purchase
Modularity
• Distributed generation means that power can go where it is most needed
Flexibility
• No long-term commitment – send it away when you don’t need it
Low risk, proven solution, used by many countries
Technically extremely helpful to network operators
•
Helps stabilise grid and supports other assets
34
Relative cost of permanent and temporary power
Illustrative
Permanent Power ($c/kWhr)
Hydro
2-3
Nuclear
3-10
Gas
7-15
HFO
13-20
Temporary Power ($c/kWhr)
Diesel
7-15
HFO
Gas
C.3
3-10
2-3
C.5-6
C.4-5
10-15
25-30
15-20
Fuel cost
Rental
Note: Based on oil at c.$100/bbl
35
Investment in gas has been a big success
• Proprietary Aggreko product,
launched in 2006
Power Projects Gas Revenue $m
• Higher margin, similar ROCE to
diesel
• Cheaper fuel, lower emissions
400
• Expanded market by reducing cost /
KWh
350
• Enabled us to operate as an
Independent Power Producer
300
• Operates in both Local & Power
Projects
250
200
150
100
50
0
2007 2008 2009 2010 2011 2012 2013 2014
36
Strategy
Mining, Australia
37
Aggreko’s strategy
Leading global provider of
temporary power and temperature control
Standard operating processes and systems
Moveable fungible fleet
Global reach
Lowest capital cost
Local Business
Service
Efficiency
Power Projects
Optimise
Network
Scale
Product
Innovation
Orange Blood Culture: Passion, Pace, Performance
38
We will continue to grow faster than the market in
our Local business
Service
• Outstanding customer service
• High-quality rental fleet
• Result: Maintain clear differentiation from competitors
Efficiency
• Use benefits of global scale to optimise utilisation
• Use Orange Excellence to drive efficiency
• Result: Make attractive returns
Optimise
network
•
•
•
•
•
Expand network in faster growing markets of ME, Africa, Latam & Asia
Focus on adding new service centres /upgrading existing centres in Europe & NA
Drive performance of recently opened depots
Exploit specific global verticals: major events, wind, oil & gas
Result: Increase market share and extend global reach
Through pursuing these actions we believe that over the five years from 2013-2017 we can achieve:
• Underlying revenue growth between 8-12%
• Trading margins between 17-20%
• ROCE between 18-21%
39
Power Projects business will grow in line with the
market
Scale
•
•
•
•
•
•
Address demand globally resulting in higher utilisation because demand moves
Focus on non-OECD ex. China with ability to react to “black swans”
Maintain a diverse customer portfolio, reducing the risk to the Group
Optimise economies of scale to retain 20-40% capital cost / MW advantage
Leverage links with the local business
Result: Largest, most responsive operator with lower volatility of demand, better lifetime
utilisation of equipment and lower capital costs
Product
innovation
•
•
•
•
Continue to invest in product development of gas and HFO (cheaper fuels)
Work towards bringing the cost of temporary power in line with permanent power
Continue to develop capability to act as an Independent Power Producer
Result: Market leading products and the ability to offer customers the best value
Through pursuing these actions we believe that over the five years from 2013-2017 we can achieve:
• Underlying revenue growth between 10-15% (subject to year on year variation)
• Trading margins between 27-32%
• ROCE between 25-30%
40
Group strategy for the next 5 years
Implement business-line strategies for Local & Power Projects
Build strength and depth in management team
Keep looking for bolt-on acquisitions
Build synergies between Local and Power Projects
Drive operational efficiency & economies of scale
Innovate in product development
Aggreko has a proven strategy and the management
to deliver it
41
Strategic targets & KPIs
Strategy
Local
•
•
•
Power
projects
•
•
•
Group
•
Targets2
Superior service
Utilise global scale for
efficiency
Increase market share and
extend presence in
emerging markets
Revenue growth: 8-12%
Margin: 17-20%
ROCE: 18-21%
Grow to secure operating
efficiencies and competitive
advantage
Be the largest global
operator
Develop technology to make
temporary power competitive
with permanent power
Revenue growth: 10-15%
Margin: 27-32%
ROCE: 25-30%
To be the leading global
provider of temporary
power and temperature
control
Revenue growth: >10%
Margin: > 20%
ROCE: > 20%
FY14 Progress
Revenue growth: 8%
Margin: 16%
ROCE: 15%
•
•
•
Revenue growth: 18%
Margin: 27%
ROCE: 25%
•
•
Revenue growth: 12%
Margin: 19%
ROCE: 19%
•
•
Opened 9 new
service centres (net of
closures)
NPS score of 58% in
top quartile globally
Commenced roll out
of telemetry
Contracts in Panama
and Mozambique
competing with
permanent power
Additional 757 MW
won in the year
Refurbished 290
generators
25% of Power
Projects fleet are now
refurbished
generators
(1) Net of closures
(2) These are averages over a five year period and there will be years when we may be outside one of these ranges. Revenue growth is underlying, i.e. excluding London Olympics, Poit
acquisition, pass-through fuel and currency translation and adjusted to exclude Military and Japan. Margin and ROCE targets are on a reported basis post amortisation.
42
Financial
Information
Wind Farm, Ireland
43
Solid financial performance
Underlying revenue up 9%
FY14
FY13
Reported
Change
Underlying
Change
Revenue
1,577
1,573
-%
9%
Underlying margin at 20%
Revenue excl.
pass-through fuel
1,529
1,531
-%
9%
EPS down 10% driven by currency
Trading profit
306
352
(13)%
(2)%
Dividend increase of 3%
Operating profit
310
358
(13)%
Net interest expense
(21)
(25)
15%
Profit before tax
289
333
(13)%
Tax
(74)
(87)
15%
Profit after tax
215
246
(13)%
Diluted earnings
per share
82.5p
92.0p
(10)%
Dividends per
share (declared)
27.1p
26.3p
3%
£m
Underlying trading profit down 2%
Underlying excludes pass-through fuel and currency translation.
44
2014: Revenues of £1,577m from
three product families
Why Power & Temperature Control?
 Mission critical: availability, service and reliability more
 Rental product is different to purchase product =>
differentiated offering
important than price => strong margins
 Fleet fungible between sector and geography => can
 Long life of equipment => 10-year old equipment can get
same rate as new
operate as a global business
Rental revenue £1,210m
(80% of total revenues)
Power
Temperature Control
Oil-free Air
£1,062m / 88%
£119m / 10%
£29m / 2%
£136m / 5%
£72m / 3%
Gross Rental Assets £2,599m £2,174m / 84%
Fleet also includes ancillaries with a gross value of £217m / 8%
45
Underlying growth across both businesses
Solid performance in Local;
underlying revenue up 8%
Good performance in Power
Projects; underlying revenue up
10%
Broadly in line with strategic
targets
Revenue
Local Business
Power Projects
(ex fuel)
Total
(ex fuel)
Trading profit
FY14
£m
FY13
£m
Underlying
%
FY14
£m
FY13
£m
Underlying
%
904
838
8%
139
144
(4)%
Trading Margin:
16%
17%
ROCE:
15%
17%
10%
170
170
Trading Margin:
27%
30%
ROCE:
25%
27%
9%
309
314
Trading Margin:
20%
22%
ROCE:
19%
21%
625
1,529
567
1,405
-%
(2)%
Underlying excludes pass-through fuel and currency translation.
46
Diverse geographic spread and complimentary
business models
Trading Profit (ex. fuel) by Business (£m)
Revenue (ex. fuel) by Market (£m)
900
400
883
350
800
309
300
700
645
600
250
200
170
500
150
139
400
300
100
Local
Emerging markets
Developed markets
200
Power Projects
50
Total Group
0
2007 2008 2009 2010 2011 2012 2013 2014
2007 2008 2009 2010 2011 2012 2013 2014
Emerging markets = Local: Russia, Middle East, Asia, Africa, LATAM; Power Projects = everywhere excluding Japan
47
Very attractive returns on capital
• Returns are very attractive, and
reflect relative risk profiles
• Power Projects peak returns 2009-2011
driven by Japan & Military
• Local ROCE peaks in 2008 and 2010
due to Olympics and World Cup; diluted
slightly 2011 to expansion in Emerging
Markets; slight improvement in 2012
due to London Olympics
• 2014 ROCE diluted by challenging
Power Projects environment and the
mining slowdown in the Local business
Return on Capital Employed %
45
Local
40
Power Projects
Group
35
30
25
20
15
2008
2009
2010
2011
2012
2013
2014
48
Shareholder
Information
Aggreko Service Centre, Jebel Ali
49
Shareholder information
Share Types
Ordinary: Listed on the LSE
Treasury: Shares purchased by the
Company out of distributable
reserves. They hold no voting or preemption rights and receive no
dividends
Share price history
Capital structure
Market information
Priority is to invest in the business.
Excess capital will be returned to
shareholders.
Listing:
London
Ticker:
AGK:LN
Dividend policy
Market Cap:
c.£4bn
Reduce dividend cover to c.3x
earnings between 2013 and 2015
ISC:
256m
Our Shareholders
Shareholder returns (£m)
2500
27%
2000
UK
1500
N America
7%
1000
60%
AGK
500
6%
Europe (ex UK)
Rest of World
FTSE100
FTSE350 Bus. Serv.
0
Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15
2009
2010
2011
2012
2013
2014
* Past performance is no indication of future performance; data correct at 30 January 2015
50
Further
Information
Refining, USA
51
Further information
Business Information
References
Investor Relations Contact
For further information about Aggreko,
please refer to the following:
Website: ir.aggreko.com/investors
Annual report:
ir.aggreko.com/investors/financial-reports
Investor Relations & Media app available for
iOS and Android devices
All data correct as of 31 December 2014
unless otherwise stated
Stock market data from Reuters, 30 January
2015 unless otherwise stated
Louise Bryant, Head of Investor Relations
ir@aggreko.com
52
Disclaimer
The information contained in this presentation has largely been extracted from
the Results Announcement for the year ended 31st December 2014.
This presentation may contain certain “forward-looking” statements. By their
nature, forward-looking statements involve risk and uncertainty because they
relate to future events and circumstances. Actual outcomes and results may
differ materially from any outcomes or results expressed or implied by such
forward-looking statements. Any forward-looking statements made by or on
behalf of Aggreko speak only as of the date they are made and no
representation or warranty is given in relation to them, including as to their
completeness or accuracy or the basis on which they were prepared.
This presentation is published solely for information purposes.
The distribution of this presentation in jurisdictions other than the UK may be
restricted by law and therefore any persons who are subject to the laws of any
jurisdiction other than the UK should inform themselves about, and observe,
any applicable requirements.
All opinions expressed in this presentation are subject to change without notice
and may differ from opinions expressed elsewhere.
53