By Scott Wright
Aggreko tumbled into the red after hefty charges linked to the fallout from coronavirus sent the temporary power generator to a first-half loss, amid a sharp downturn in demand from the oil and gas sector.
The Glasgow-based firm, which had been due to supply power to the Tokyo Olympic and Paralympic Games this summer before the pandemic struck, booked exceptional costs of £181 million on the back of the crisis, dragging it to £134m loss for the six months to June 30. Group revenue was 12 per cent down against the first half of last year at £667m.
However, Aggreko declared the “board’s confidence in the medium term” by announcing it will pay an interim dividend of 5p per share, with the company now guiding on full-year profits of £80m to £100m, before tax and exceptional items. It made a pre-tax profit of £199m last year.
In March, the company scrapped plans to pay a final dividend for 2019 to preserve cash as the virus loomed.
Aggreko cited the prolonged downturn in oil prices, postponement of the Tokyo Games, reduced economic activity, and liquidity challenges faced by its customers among the “material effects” of the pandemic. It made provisions of nearly £57m to reflect the risk of default among some if its larger customers owing to the “challenging economic outlook post Covid-19”, noting that this related mainly to legacy debts in parts of Africa, Venezuela, Yemen, and Brazil. A further £12m of impairments was booked against debtors in the oil and gas and events sectors. The firm’s dominant rental solutions business saw its operating profit fall by 7% to £44m, amid a 32% drop in revenue from the oil and gas sector. Aggreko’s main oil and gas exposure is in the shale fields of the US, Russia and the Middle East nations of Oman, UAE, Kuwait and Iraq, which between them account for 20% of group revenue.
Chief executive Chris Weston said he was confident oil and gas will “come back to growth” following the downturn, declaring that “we do not see it as terminal”. Asked if the crisis would accelerate the transition from fossil fuels to renewable energy, Mr Weston said it has “heightened awareness of the importance of it”, noting that the company was increasingly using solar and storage solutions, and gradually reducing its fleet of diesel-powered generators. But he said oil and gas would continue to be a vital part of the energy mix for power generation and industrial use for up to the next 40 years.
Although the Tokyo Games will not take place this year, Mr Weston said it was “very much business as usual” in terms of planning for the event to take place in 2021. The company still has 50 staff on site in Japan, where it has placed kit in warehouses ahead of the Games. Talks are continuing with the organisers over postponement costs.
Mr Weston said Aggreko remains “absolutely” committed to the events sector, which last year accounted for about 8% of revenue, and predicted there would be recovery over the next six to nine months. The company will provide power to this weekend’s Formula E event in Berlin.
He said: “The events are very keen to get under way again, but it all comes down to the virus, and the restrictions around the virus. Even if those events do not have spectators, or as many spectators, it is important for TV coverage and TV revenue that they go ahead … it will come back.”
Aggreko has one site in Lebanon, east of Beirut in the Beqaa Valley, and Mr Weston said it was willing to provide temporary power to the nation as it recovers from the tragic explosion which by last night had claimed 137 lives. Mr Weston said: “We have not had any contact [with the government], but it is still very early days.”
Mark Clare, current chairman of Grainger, will succeed Ken Hanna as chairman at Aggreko following its annual meeting next year.
Shares closed down 7p at 410p.
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