Introduction to Aggreko

Introduction to Aggreko
September 2015
Overview
Investment Case
Strategy
Our History
Financial Information
Where We Operate
Shareholder Information
Our Equipment
Further Information
Rental Solutions
Power Solutions
2
Investment
Case
Twangiza Mine, DRC
3
The leading global provider of modular, mobile power
and related solutions
Customers in c.100 countries use us when the need is urgent or for a limited period
Services are asset-intensive, often involve significant engineering input and are frequently in
response to emergencies
Two business units:
• Rental Solutions rents power and temperature control equipment to a broad range of users
across developed markets
• Power Solutions sells electricity, supplying and operating utility power plants to government
utilities and other key sectors in emerging markets
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 power shortfall in emerging markets
• Increased sector penetration in developed markets
• Diversified product and sector portfolio
Competitive
advantage
•
•
•
•
Strategy
• Clearly defined business priorities – Customer, Technology, Efficiency
• Path to return to growth
• Focused on margins and returns
Shareholder
returns
• Priority is to invest for long term growth
• Through self-help we will balance revenue growth with support to margins and returns
People & culture
Expertise
Scale
Technology
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 at any time
Power Solutions
Rental Solutions
Revenue
£616m
Revenue (ex fuel)
£913m
Trading Profit (ex fuel)
£107m
Trading Profit (ex fuel)
£202m
Service Centres & Offices
139
Service Centres & Offices
Power Fleet (MW)
2,263
Power Fleet (MW)
Temperature control fleet (MW)
1,009
Temperature control fleet (MW)
Industrial
£288m
Utility (ex fuel)
£625m
72
7,432
285
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
Utilities, Mozambique
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
13
Rental
Solutions
Houston Refinery, USA
14
Rental Solutions
Key facts
FY14 Revenue by customer type
Average contract value:
£21k
Average contract duration:
50 days
Average installation time:
Hours - days
Employees:
2,500
Power fleet (MW):
2,263
Services
Temperature control fleet (MW):
1,009
Other
139 across 19
Countries
Petrochemical & Refining
Oil & Gas
Construction
Service Centres:
Application:
Power, temperature
control and oil-free
compressed air
6%
Contracting
Events
10%
23%
3%
7%
5%
9%
7%
Manufacturing
Shipping
Utilities
15%
7%
8%
Mining
Revenue
Keys to our competitive advantage
• Broad range of equipment
• Ability to deploy quickly
• Low-cost operating model
• Local reputation and brand
£616m (40% of Group excl. fuel)
15
Major events
Commonwealth Games 2014, Glasgow, UK
16
Commercial
Manufacturing, USA
17
Shipping
Belfast
18
Oil & Gas
North America
19
Rental Solutions operates in growth markets
We have a leading competitive
position in our four main markets
(North America, Australia, UK,
Germany)
• Delivered strong performance in
key sectors where we have focused
attention
Expected Market Growth 2014-2019
10%
5%
0%
North America
UK
Germany
Australia
-5%
GDP
Further opportunity for growth
Oil & Gas
Mining
Petrochem & Refining
Source: IMF, IHS Global Insight
Returns vs. Market Share
UK
North
America
Germany
ROCE
• Average GDP growth of c.2%* 20142019 and key sectors growing ahead
of the market
• Gain market share and increase
sector penetration
• M&A and adjacencies
Benelux
France
Australia
Spain
Relative Market Share
Italy
Source: Aggreko, Bain
* Source: IMF; Includes: Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland, UK, USA
20
Rental Solutions 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
10-15 regional
Hertz, URI, Sunbelt,
Speedy Hire, CAT
We believe that we have a c.25% market share
Hundreds of national
Thousands of local small businesses
21
Rental Solutions 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
22
Power
Solutions
Utility, Mozambique
23
Power Solutions
Key facts
Average contract value:
From £20k in Industrial to
£5m per annum in Utility
Average contract duration:
A few months in Industrial
to 1 year in Utility
Average installation time:
Days - months
Employees:
4,888
Power fleet (MW):
7,432
Temperature control fleet (MW):
285
Service centres:
72
Application:
Power and temperature
control in Industrial
Base-load and peakshaving power in Utility
FY14 Revenue by customer type (excl. fuel)
17%
Oil & Gas
Utilities
Military
12%
5%
2%
Mining
Other
64%
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
£913m (60% of Group excl. fuel)
24
100MW
diesel
For hydro shortfall support, Kenya
25
232MW
gas
Gas-fired, cross border power, Mozambique
26
Industrial
Oil Refinery, Tunisia
27
Oil & Gas
Brazil
28
Power Solutions market drivers
Demand
Demand in developing
countries is growing;
growth 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.
29
Power Solutions operates in three
market segments
Market by Type of Customer Demand
Industrial
More
proactive
demand
• 10-20% industrials demand
- On grid industrials requiring backup for grid failure
- Off grid industrial projects, particularly mining and O&G
projects often in remote locations
• 37%* of Power Solutions revenue in 2014
Utility - Power Shortfall Linked
• 40-60% power shortfall linked utility demand
• Power shortfall conversion
between
• 40-60%varies
powerwidely
shortfall
linked countries
utility
demand
(bridging,
peaking)
• 41%* of Power Solutions
revenue
in 2014
• Power shortfall conversion varies widely
between countries
Reactive Demand
• 20-30% reactive demand (wars/disasters, utility emergencies,
and droughts reducing hydro output)
• 22%* of Power Solutions revenue in 2014
• 20-30% reactive demand (wars/disasters,
utility emergencies, and droughts reducing
hydro output)
More
reactive
demand
* Excluding pass through fuel
30
Power Solutions Industrial market is growing
Presence in largest developing
countries
GDP of Developing Countries with Aggreko Presence
• Scale presence in countries with
high GDP growth
3,500
Linked to power shortfall where
customers cannot rely on the grid
5%
2014 GDP (USD bn)
CAGR 14 - 19
3,000
4%
2,500
3%
• Average GDP growth of c.5%*
2014-2019 and key sector growth
• Gain market share and
create markets
• Increased sector penetration
• New country entry
USD bn
Opportunity for growth
2,000
2%
1,500
1%
1,000
0%
500
-
-1%
MENA
Brazil
Russia Average other Average
with presence with no
(ex India & presence
China)
* Source: IMF; Includes: Argentina, Brazil, Chile, China, Colombia, India, Middle East, Nigeria, Peru, Poland, Romania, Russia, Singapore, South Africa and Turkey
31
Power Solutions Utility market grows as the
power shortfall continues to increase
Demand is projected to grow faster
than supply
Forecast Growth in Shortfall vs. GDP
• Growth in shortfall has slowed in line
with slower GDP growth
• New generation has not prevented the
shortfall increasing
CAGR
(14-19)
6%
5%
2014
Expect c.6% Power Shortfall CAGR
2015
2016
Power Shortfall
2018
2019
GDP (non OECD ex China)
Source: EIA; Platt's; Country Research; Economist; IMF; World Bank
Good market growth opportunity
New Power Generation vs. Shortfall
80
60
GW
• Sensitivity to GDP growth
• Market share gain
2017
40
20
0
2008
2009
2010
2011
New Generation Capacity
2012
2013
2014
Shortfall
Source: EIA; Platt's; Country Research; Economist; IMF; World Bank
32
Power Solutions 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 Solutions 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
Opportunity for growth in all our markets
POWER SOLUTIONS
RENTAL
SOLUTIONS
Industrial
Utility
Market Drivers
• GDP growth
• Propensity to rent
• Commodity cycle
• GDP growth
• Propensity to rent
• Commodity cycle
• Power shortfall
• GDP growth: 5% threshold
for conversion
Aggreko
Growth Drivers
• Market share gain
• Sector penetration
• M&A and adjacencies
•
•
•
•
• Market share gain
• Increase conversion rates as
cost of generation falls
Competitive
Environment
• Stable
• Increased competition
• Increased competition
Market Growth
Rate
• 2%
• 5%
• 6%
Market share gain
Market creation
Sector penetration
New market entry
38
Business priorities to deliver sustainable growth
We are enhancing our existing competitive advantages
Customer
•
•
•
•
Technology
• Working with our strategic partners to develop market leading products
• Strengthen and expand strategic partnerships
• Reducing the overall cost of power for our customers
Efficiency
• Streamlining our cost base
• Optimising deployment of resources
• Improving processes and systems
Tailoring sales and service channels to customers
Focusing on key sectors
Pursuing adjacencies
Evaluating bolt-on M&A opportunities
39
Improving customer service
Rental Solutions
Customer
Global and national a/c management
Key sector focus
Global Account
Management
•
•
•
•
Global & large customers
Single point of contact
Consistency of service
Sector specific expertise
National Account
Management
•
•
•
•
Large customers
Single point of contact
Consistency of service
Sector specific expertise
Sector Focus
• Tailored solutions
• Sector specific expertise
Digital
• Online offering for transactional
customers
• Sales and service
• Oil & gas, mining, petrochemical & refining
and events
Developing a digital offering for highly
transactional part of business
Adjacencies
• Temperature control
– Regional temperature control heads in place
– 80% power pull through
• Loadbanks offer a further opportunity
40
Enhancing processes and systems
Rental Solutions
Efficiency
Deploy new systems and automation in the field
• Fleet optimisation and planning
• Remote monitoring of equipment (ARM, Louisiana;
deployment across Rental Solutions)
Enhance CRM database
• Customer requirements, history and service provision
Streamlining back office processes to increase efficiency
41
Bolt-on acquisitions a viable growth opportunity
Rental Solutions
Customer
Geographic, sector and adjacent product opportunities
Synergies from using our distribution network
Cross selling where adjacent products are added
Good track record of integrating businesses
we have bought
Strong balance sheet which affords us the flexibility
to move quickly
42
Optimising deployment of resources
Power Solutions
Efficiency
Reducing the cost base
• Removing duplication
• Rightsizing functional support
Criteria for Evaluation of
In-Country Presence
Optimising the depot footprint
Aggreko-related
GDP
• Assessing local presence
• Moving to a regional hub and spoke model to reduce overhead costs
Size of
Power Shortfall
Reducing the cost of equipment in some markets
• Equipment is over specified in a few markets
• Reviewing the use of locally assembled equipment
Improving efficiency of project delivery
• Different levels of site specification
• Reducing site mobilisation and operational costs
• Increased proportion of local workforce on site
GDP growth
rate
Propensity
to Rent
Rental
Rates
Competitor
landscape
Local Regs
& Laws
43
Using technology to reduce the total cost of power
Power Solutions
Technology
Overall cost of power generation
is important
Small units provide flexibility,
mobility and modularity
Relative Cost of Power
($/MWh)
200
175
Simple portfolio minimises
complexity
Mobile
Permanent
150
125
Strategic relationships support
product development
100
75
• Engine efficiency
50
25
0
Combined
Cycle Gas
Turbine
Open Cycle
Gas Turbine
Advanced
Coal
Next Gen Gas
G3+
Based on 100MW, 30 year project, running 6250 hours a year; assumes oil at $75/bbl
Source: Platts, EIA, Bain
44
Assessing other market opportunities
Power Solutions
Technology
Increasing gas availability is an opportunity
• Monetise stranded gas
• CNG/LNG is 60% premium to permanent power
(85% for diesel)
• CNG/LNG could expand the market
Emerging opportunities in renewables
• Solar/Diesel hybrid opportunities in remote areas
• Investigating how we can adapt energy storage for our
business model
45
Improving sales expertise and customer service
Power Solutions
Customer
Continue to build sales expertise for
complex projects
Sales expertise
• Increase technical capability
• Improve skills for complex
projects
• Best practice sharing
Global Account
Management
•
•
•
•
Partnerships
• OEMs and other technology
providers
• Global bodies
• Market approach
• Training and best practice sharing
• CRM investment
Global account management and key sector focus
• Utilities, oil & gas, mining, petrochemical & refining
Develop strategic partnerships
• Bridging to permanent power
• Service and repowering
Global & large customers
Single point of contact
Consistency of service
Key sector focus
46
Streamlining our cost base
Group
Reorganisation will remove duplication
Efficiency
• Regional structure led to duplication
• Streamlining our processes, improving customer service
Improving procurement practices
• New procurement organisation
• Defining global vs local purchasing
Improving project site efficiency
Identified £80m in savings
• One off cash costs of around £30m
• Expect to fully deliver in 2017
• Balance reinvestment for growth with margins and returns
47
Aggreko is a growth business
With a strong focus on margins and returns
Revenue
• Markets are forecast to grow between 2% and 6%
• We expect to grow faster than our markets over the medium term
Margins and Returns
•
•
•
•
•
•
Self help measures identified to help mitigate macro headwinds
Savings identified of £80m to be delivered in 2017
One-off cash cost to achieve of c.£30m
Balance reinvestment for growth with margins and returns
Group margins and returns of around 20% in the medium term
2016 year of change in the business; margins and returns lower in
the short term
Capital Discipline will be maintained
• We will continue to be disciplined and flexible in our use of capital
48
Financial
Information
Wind Farm, Ireland
49
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.
50
2014: Revenues of £1,577m from
three product families
Why Power & Temperature Control?
 Mission critical: availability, service and reliability more
important than price => strong margins
 Fleet fungible between sector and geography => can
differentiated offering
 Long life of equipment => 10-year old equipment can get
same rate as new
operate as a global business
Rental revenue £1,210m
(c.80% of total revenues)
 Rental product is different to purchase product =>
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%
51
Diverse geographic spread and complimentary
business models
Trading Profit (ex. fuel) by Business (£m)
Revenue (ex. fuel) by Business (£m)
1,550
400
1,450
350
1,350
300
1,250
Rental Solutions
1,150
Power Solutions
1,050
Total Group
250
200
950
150
850
750
100
Rental Solutions
650
50
550
Power Solutions
Total Group
450
0
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
52
Very attractive returns on capital despite loss of
attractive contracts
• Returns are very attractive, and
reflect relative risk profiles
• Power Solutions peak returns 20092011 driven by Japan & Military and
World Cup in 2010
Return on Capital Employed %
40%
Rental Solutions
• Rental Solutions ROCE peaks in
2012 due to London Olympics
35%
• 2014 ROCE diluted by challenging
Power Solutions environment and
the mining slowdown in Australia in
Rental Solutions
30%
Power Solutions
Group
25%
20%
15%
2010
2011
2012
2013
2014
53
Shareholder
Information
Aggreko Service Centre, Jebel Ali
54
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.£2.5bn
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%
500
6%
Europe (ex UK)
Rest of World
0
Jan-10
AGK
Jan-11
Jan-12
FTSE100
Jan-13
Jan-14
Jan-15
FTSE350 Bus. Serv.
2009
2010
2011
2012
2013
2014
* Past performance is no indication of future performance; data correct at 24 September 2015
55
Further
Information
Refining, USA
56
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, 24
September 2015 unless otherwise stated
Louise Bryant, Head of Investor Relations
ir@aggreko.com
57
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.
58