Aggreko beats expectations but currency headwinds stifle profits

Aggreko's shares edged upwards on Wednesday after the company beat its own guidance following strong performances from its rental business and power solutions industrial unit.

For the past calendar year, the temporary power generation and temperature control specialist generated profit before tax of £182m, down 4% compared to the previous year after the company was hit by foreign exchange rate headwinds, though pre-tax profit did rise by 10% on an underlying basis.

Good growth in North America contributed to 22% expansion of Rental Solutions revenues, which represents 52% of the group's revenue, was key, helping group revenue increase 4% to £1.7bn. There was a 7% increase in underlying revenue from the power solutions industrial unit, as demand improved in Latin America.

However, revenue fell by 14% in the power generation utility business, dropping to £342m due to off-hires in Zimbabwe, Bangladesh and Japan, and lower volumes and pricing in Argentina.

At 31 December the FTSE 250 traded company had cash and cash equivalents of £85m, up from £71m at the same point the year before, while dividend per share was maintained at 27.1p.

As well as having dented profits, currency headwinds led to a decline in the return on capital employed to 10.3% from 10.7%, though underlying ROCE increased by 0.5%.

"Our outlook for the group in 2019 is in line with the market's expectations, despite currency headwinds and the impact of IFRS 16, although with a greater weighting to the second half than in 2018," said chief executive Chris Weston.

"In addition, the performance initiatives we announced in August, to drive operational and capital efficiency, are beginning to take effect and we expect to make progress this year towards our mid-teens ROCE target in 2020."

A note from analysts at Peel Hunt stated that the interims had presented "no major surprises" and maintained targets of profit before tax of £196.6m for 2019, though added that management's target of 15% ROCE in 2020 was "looking challenging".

Aggreko's shares were up 0.55% at 735.20p at 0932 GMT.