I am delighted to be able to introduce my first Chairman's Statement. My predecessor, Philip Rogerson, stepped down at the AGM in April 2012 after ten years as Chairman and fifteen years on the Board and, on behalf of all my colleagues on the Board, I would like to thank Philip for his enormous contribution to Aggreko.
During my two years on the Board and the last year as Chairman, I have had the opportunity to meet many of the leaders of the Aggreko business, travelled to most of the Group's major locations, attended the opening of our new manufacturing facility in Dumbarton and witnessed the Aggreko team deliver a flawless service at the London Olympics. I have to say I have been immensely impressed by the culture, passion and commitment of everyone I have met. There is a real drive for excellence and superior customer service that has undoubtedly contributed to the success of the Company over the last few years.
I am pleased to report that Aggreko delivered another year of good progress in 2012. Reported revenues and trading profit2 both increased by 13%, whilst on an underlying3 basis revenues increased 14% and trading profit increased 6%. Underlying results exclude revenues and trading profit from the Poit Energia acquisition, pass-through fuel4 and currency movements, as well as major events such as the Asian Games in 2011, and the London Olympics which contributed nearly £60 million to revenues in 2012.
Performance was strong in both our business segments. Power Projects grew underlying revenues by 15%, and the Local business by 13%. Trading margins in Power Projects were 33%, six points lower than 2011, principally due to increased bad debt provisions, mobilisation costs on our Mozambique contract and the reduction in revenues from our US Military contracts. Underlying trading margins in our Local business increased by one point to 17%, which enabled the business to deliver 20% growth in underlying trading profit.
At a Group level, profit before tax increased by11% to £360 million (2011: £324 million). Diluted earnings per share increased by 16% to 100.40 pence (2011: 86.76 pence).
As we announced in last year's annual report, we have been working on an update of the Group strategy for the period 2013 to 2017. We have traditionally followed a five year planning cycle and later in this report we have explained the strategy we will follow for the next five years.
I am very pleased to report that our strategy for the period 2008 to 2012 has successfully delivered on all its financial targets. In 2008, we announced that we believed the Aggreko business could deliver, on average, double digit revenue and earnings growth over the period. Performance has exceeded our expectations despite the five year period incorporating one of the most severe economic downturns in living memory with compound annual growth of 20% in revenues and 24% in trading profit. In addition to the financial targets, we have substantially enhanced the business and developed the capabilities and infrastructure to be able to continue growing for the next five years. Over the last five years we have:
- increased EPS by 234%;
- nearly doubled the number of our employees;
- entered sixteen new countries and opened seventy three new locations5;
- improved our NPS (customer satisfaction level) by 10 percentage points;
- invested over £1.5 billion in capital expenditure;
- opened a new manufacturing facility in Dumbarton, Scotland;
- acquired strategically important businesses in Brazil, North America, New Zealand and India;
- successfully delivered a number of major global events (e.g. FIFA World Cup, London Olympics);
- returned £149 million to shareholders in the form of a special dividend; and
- delivered Total Shareholder Return of 247%.
The Board is recommending a 15% increase in the dividend for the year as a whole; this will comprise a final dividend of 15.63 pence per ordinary share which, when added to the interim dividend of 8.28 pence, gives a total for the year of 23.91 pence. At this level, the dividend would be covered 4.2 times on a pre-exceptional basis. Subject to approval by shareholders, the final dividend will be paid on 23 May 2013 to ordinary shareholders on the register as at 26 April 2013, with an ex-dividend date of 24 April 2013.
Board and Governance
Governance is the framework that articulates a company's values and supports its behaviours. The Corporate Governance Report sets out clearly the changes made in the last year which include an update of the Terms of Reference for all Board Committees and significant changes to the Board composition. We now consider that the Group complies with all of the provisions of the UK Corporate Governance Code and that the Board is appropriately balanced in terms of diversity and specialist skills.
Diana Layfield (May 2012) and Rebecca McDonald (October 2012) joined the Board during the year as Non-executive Directors. I am delighted with these new appointments and, between them, Diana and Rebecca bring a deep knowledge of Emerging Markets and the Global Energy Sector.
In September 2012, we announced a new organisation structure and three Executive Directors stepped down from their roles: Bill Caplan (November 2012), Kash Pandya (December 2012) and George Walker (December 2012). All three Regional Executive Directors were key contributors to the success of the Group's five year strategy and I would like to thank them on behalf of the Board.
The new organisation, which will take effect from 1 January 2013, comprises three regions of approximately equal size that incorporate both the Local and Power Project businesses. We are delighted that we have been able to promote to the Board, two internal appointments: Asterios Satrazemis (January 2013) will run the Americas Region and Debajit Das (January 2013) will run the Asia Pacific Region. And on 22 February 2013 we announced the appointment of David Taylor-Smith who will join the Board on 11 March 2013 and become the Regional Executive Director for Europe, the Middle East and Africa.
It has always been my belief that the most important investment that a company can make is in its people, and there is no doubt in my mind that the outstanding success of your Company is due to its dedicated and talented management team, and to the quality and determination of its workforce worldwide. On behalf of all the owners of the business, I would like to thank them all for their contribution to the success of your Company.
Outlook for 2013
The Local business has had a very strong start to the year, with almost 20% more power on rent than a year ago, helped in part by our acquisition of Poit Energia in April 2012. Encouragingly, growth in the Local business has been broadly spread, with most areas other than Europe showing healthy year-on-year increases in MW on hire.
In Power Projects, we have signed new contracts totalling 140MW in the year to date, and importantly, we have secured our first large order for our new Heavy Fuel Oil engine, with a 56MW contract in the Caribbean. We have also secured a contract for 57MW of diesel-powered generation in Djibouti. Trading continues to be subdued and is likely to remain so in the first half; however, in recent weeks there has been some improvement in the prospect pipeline.
Our expectations for the year as a whole remain unchanged from previous guidance.
7 March 2013
A bridge between reported and underlying revenues and trading profits is provided in the Detailed Financial Review.
Pass-through fuel relates to three contracts in our Power Projects business where we provide fuel on a pass-through basis.