AGGREKO chief executive Chris Weston has unveiled an £80 million cost cutting drive involving around 600 job cuts as well as an appetite for bolt-on acquisitions.
The former British Gas director has been conducting a wide ranging business review since joining Aggreko in January this year.
The results of that were published as the temporary power supplier reported a 21 per cent fall in profits from £130m to £102m for the first six months of this year.
It had previously warned of falling profits as a result of weaker oil and gas markets in North America, a lower than expected renewal price on a contract in Bangladesh and ongoing security problems in Yemen affecting utilisation of kit installed there.
Revenue excluding fuel edged up one per cent from £745m to £752m although on an underlying basis it was down two per cent.
Underlying revenue from Europe, Middle East and Africa grew by 10 per cent to £344m with strong growth in Africa and a £13m contract for the first ever European Games athletics competition which was held in Baku, Azerbaijan. Profits in the region were flat at £53m.
Revenue in the Americas dipped seven per cent to £329m and trading profit fell by 29 per cent to £48m as a result of the impact of the oil price decline and last year’s figures including the football World Cup in Brazil. In Asia Pacific underlying revenue dropped 17 per cent to £108m as mining markets continue to be weak. Trading profit in that area fell 49 per cent to £13m.
The company maintained its interim dividend at 9.38p.
Mr Weston has already shaken up the structure of Aggreko shifting it to two business units, the emerging market focused Power Solutions and Rental Solutions, which will work mainly across mature markets covering North America, Europe and Australia and the Pacific.
Now he has outlined plans to improve skills across the company to deliver more complex projects as well as looking to improve its technology to reduce costs for customers.
That includes enhancing its generator fleet to use more efficient gas engines as well as other types of fuel.
Mr Weston said: “We are already beginning to introduce the next generation of gas engines into our fleet and these are considerably more efficient than the gas engines we have at the moment.
“There may be other fuels we look at as well that our customers are interested in that will reduce the cost of power for them.”
As well as that Mr Weston is keen to look for deals in specific areas “adjacent” to where it already operates and smaller companies already doing power rental in countries where Aggreko has a limited presence.
He said: “They will either be bringing in new capability and be an adjacency, an example of which would be temperature control which we already have. Where you sell this product but it also pulls through power at the same time so it is important to our core business.
“Also [looking at] smaller acquisition of businesses that do power rental in a specific geography. We will do that where we can assimilate them very quickly so we can bring in their customer base, remove cost and take advantage of our scale.”
On streamlining its costs base to meet the £80m savings target by 2017 Mr Weston confirmed the global workforce will reduce from the current 8,300 but any impact in the UK, where its largest hub is the Dumbarton manufacturing site where it employs more than 200 people, is likely to be small.
Mr Weston is also planning to streamline processes and systems and to avoid duplication in the business.
He said: “Half of that [£80m] we expect to come from procurement. We spend about £600m a year so that is an area we can have a look at.
“The other half we would expect from removing duplication, inefficiencies and right sizing some of the functions in the business around the globe.
“We have 8,300 people in the business spread all over the world. We would expect around 600 odd heads to leave the business. We will look at temps, contractors, vacancies, etcetera [but we are] very mindful of the impact on individuals. I think the impact in the UK will be minimal.”
Mr Weston is confident the actions he is proposing will help Aggreko to grow ahead of its market over the next five years.
Andrew Gibb at Investec has a sell rating on Aggreko and said: “We do not disagree with the CEO’s view that Aggreko remains a strong business in a market which still offers attractive growth prospects. “However, there are clear near-term trading headwinds and there are also risks attached to the new strategy.”
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