Aggreko Plc, a London Stock Exchange (LSE)-listed supplier of temporary power generation equipment, says power utility solutions revenues fell 15% in H1 2018, owing to planned off-hires in Zimbabwe.
Aggreko is a British supplier of temporary power generation equipment with operations in Zimbabwe, among other international operations.
The company hires equipment from a third party for use on contract and the off-hire rate is now expected to rise by 35% to 40% for the full year due to prevailing economic conditions in Africa, including Zimbabwe.
“Power solutions utility underlying H1 revenue was down 15% primarily due to planned off-hires in Zimbabwe and Japan, and lower volumes and pricing in Argentina. As a result, the power solutions utility margin (excluding pass-through fuel) was down nine percentage points to 8%,” Aggreko CE Chris Weston said.
In Zimbabwe, Aggreko in 2006 partnered Sakunda Holdings in the controversial Dema project, which had initially been awarded to an American company.
The tender was initially won by APR Energy Holdings before it was taken away and awarded to Sakunda.
Weston said the power solutions utility saw underlying revenue decrease by 15% during the period due primarily to lower rates and volumes in Argentina and off-hires in Zimbabwe, Bangladesh and Japan.
However, comparative underlying group revenue rose by 14%, driven by a strong performance in rental solutions which offset the decline in power solutions utility.
The operating margin was down 9% compared to the same period in 2017, when it was 10%, as growth in rental solutions was offset by power solutions utility off-hires and lower operating profit in power solutions industrial business.
The lower margin resulted in a reduction in the group’s return on capital to 11% from 12% in 2017. Diluted earnings per share (DEPS) were 15,85 pence (20 US cents) compared to 17,88 pence (23 US cents) in 2017, excluding exceptional items).
Figures for 2017 have been restated to reflect both the above changes.
“As a result, the operating margin decreased to 8% (2017: 17%). Average megawatts on hire in this business was 2,680 (2017: 3,132), with the year-on-year reduction reflecting an increased off-hire rate in the first half of 27% (2017: 16%), due to notable off-hires in Japan, Zimbabwe and Bangladesh.
“We now expect the full-year off-hire rate to be 35 to 40%. Order intake year-to-date for utility sector projects is 162 MW (2017: 369MW), including 60MW in Senegal,” he said.
Weston added that receivables in the power solutions utility business continued to be a focus area, as a number of customers in Africa took longer to make payment.
“We continue to believe that the primary reason for delay in payments is liquidity and access to foreign currency, rather than customer disputes.
“Resolving these situations remains a key part of our strategy to improve returns in this business and we have seen a slight reduction in the level of power solutions, trade receivables during the period. Power solution utility’s bad debt provision has remained at US$87 million, in line with December 2017,” he said.